00:00:00
All right. You guys were uh talking about the fun shenanigans you were having in San Francisco and at Mark Beni
00:00:07
off's Dreamforce. Did you see Brian Johnson was at Beni off's CEO dinner?
00:00:13
Oh, I didn't see him. Yeah. Matthew McConey was at our table at dinner. All right. All right. All right.
00:00:18
All right. All right. McConey is fabulous. He is funny. Did you see where I was sitting at that
00:00:24
dinner? Yeah. Table one. Right next to the king himself. The king
00:00:29
himself. Exactly. The king who? The king and I. Benny off is a king. Well, he's the king of San Francisco at his party.
00:00:35
He's the king of San Francisco. Yeah. I mean, obviously he has to bend the knee to the king of kings, which is Trump, but
00:00:43
I was sitting next to Bennett off there. It got weird. It got a little weird. No. Well, what happened was did you see that SF
00:00:50
standards? Yeah. I don't even know how they can write a headline like this. So, well, it's a San Francisco standard. Yeah. So Beni off interviewed me at
00:00:58
Dreamforce and somehow this was like headlinew worthy for SF Standard and
00:01:04
they said that Mark Beni off dodges political questions then fawns over David Sax on Dreamforce day one. That
00:01:09
was just referring to the interview we did. So we trolled them by taking that photo.
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That's um Yeah, it's a little weird. I thought the fireside chat you guys did was great.
00:01:20
It was great. Yeah, it was just an interview. It was really good actually. He's a very good interviewer. Mhm. Yeah, totally. But apparently to SF
00:01:26
Standard, it's like some sort of transgression that I was even interviewed.
00:01:32
They didn't get the memo that cancel culture is over. Yeah. They can't. I know. That's what it feels like, right? Where they're like trying to
00:01:37
They're trying to jin up some sort of brewhaha over the fact that I was speaking. Yeah. Oh, you can't talk to David Saxs.
00:01:44
He's in the Trump administration. Not allowed to talk to him. About 100 people a week who say that.
00:01:49
Literally the AI guy and the AI CEO shouldn't talk to him. It's like,
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you know, like what the AI company, I should not talk to the government's AI person, right? By the way, did you see that
00:02:00
there was one other uh very important conference in town at the same time as Dreamforce?
00:02:05
Okay. I discovered this on my ex feed. Feel like a cold open about time. What? The Young Socialists or was it the
00:02:10
Republicans? It was called SlutCon. Oh, Sluck Con? Really?
00:02:16
Oh my lord. Look at this website. Oh, this is the agenda. How to be good at sex with Aaliyah. Uh, let's see.
00:02:23
You cannot do this. Cut this out. Women venting. Oh, Sachs, that one's for you. I would have planned an or
00:02:30
Freeberg here. Freeberg's giving a talk. A fluffer's guide to jobs by David
00:02:35
Freeberg. Is that a panel or is it a fireside freeberg? Which one? Reinforcement learning. Ho feedback
00:02:42
small groups. Oh, you could reandwrite your positions. I see that. reunderwriting your sexual
00:02:48
positions by Jamal's uh the last one. The VIP room. Oh, VIP room. Yeah, that's Jamal. That's
00:02:54
for sure. Jamal Sax, how did you hear about this? Don't tell us that you ran out of bed. You went over to the East Bay.
00:03:00
Sax, were you are you on the mailing list? No, my invite you to speak. My ex feed just, you know, it's the new
00:03:05
AI algorithm is just trying to find things you might be interested in. Sax also keynoting this. My ex seed
00:03:11
showed me slutcon. So I clicked on it and now it's been nothing but slutcon for a couple of days.
00:03:17
[Music] Let your winners ride.
00:03:22
[Music] We open sourced it to the fans and
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they've just gone crazy with it. [Music]
00:03:35
Jimoth, what did you think about walking around San Francisco? So, we went on a walk around downtown San Francisco.
00:03:41
Well, we were trying to find a place to get a drink in between the Beni off dinner and Sax's talk. We ended up at
00:03:47
the W Hotel, but uh I was worried for Chimath because it was his first time on the streets of San Francisco walking
00:03:54
around with his own two legs. How was it, Chimat? Did you throw out those shoes? The lower piano shoes.
00:04:00
I burned them. The souls I'm sure were sullied beyond repair. I burned them. Those are one use for Chimat. Those are single use lower
00:04:06
pianos. Once I got in the car, I I gave Eugene my shoes and I said, "Burn these, Eugene. I never want to see these ever
00:04:12
again. They've touched the pavement of San Francisco." And all I said was, "Yuck." Why don't you just have your domestic
00:04:18
staff carry you on their shoulders? I don't understand. Why the crowd? It makes no sense.
00:04:24
So Ben off pulls off this awesome convention, this conference, and then Trump does this press conference
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yesterday saying he's going to send troops into San Francisco. Did you guys see this? Yeah. Well, yeah. But no, but the Benoff thing
00:04:36
happened first, right? So Ben off made news because he said, "Send in the National Guard to clean up San
00:04:41
Francisco." But I actually I talked to him about it and got a little bit of context, which of course misqued or
00:04:47
Well, no, he wasn't misqued, but it happened in a more innocuous way. He wasn't trying to weigh in on a political
00:04:53
issue. Basically, what happened is I think he was describing the security at Dreamforce and how they bring in a couple hundred extra offduty cops to
00:04:59
provide security. So then the reporter tried to stir the pot by saying, "Well, would you bring in the National Guard?" And Ben off said, "Sure, if they can be
00:05:06
cops." And that was kind of the end of it. And then and then it turns into this massive story that Ben off is supporting
00:05:14
the National Guard coming to San Francisco, which I think he should support it, but it's not exactly what he said. He was saying for Dreamforce he would hire
00:05:20
them. Yeah. I mean, who knows exactly what he was trying to say, but the point is that he could have just been talking. Yeah.
00:05:25
He wasn't seeking to make the news that ultimately he made, but it's not a bad idea. It's actually a
00:05:32
good idea. Do you think Trump teed off on that press cycle when he was doing that press conference and it was kind of off-the cuff sacks when he said, "Oh,
00:05:39
they should send the National Guard in to San Francisco next." Well, I don't know.
00:05:44
Yeah, I wasn't there for that. But San Francisco is a pretty obvious city to send in the National Guard because we
00:05:50
have this downtown area where, you know, it's like that zombie city area, the
00:05:56
Walking Dead part on on Market Street. And everybody understands that it's because they won't stop the drug
00:06:02
dealing. So you've got open air drug markets there on the main business
00:06:08
thoroughfare of town, which is Market Street. And by the way, let me just back up and say that we have the best mayor we've had in decades now.
00:06:14
Dan Lori. Dan Lur's great. And I think Brooke Jenkins was the DA that we supported to
00:06:19
replace Chase Beauty and after we were called him. So I think she's good, too. But they're still working within the confines of a legal system here which is
00:06:28
very left-wing. You've got all these leftist judges and I think they're somewhat constrained or hamstrung in
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terms of what they can do. Again, the evidence of that is that you've got hundreds of these drug dealers who are
00:06:42
just operating with impunity in downtown and you've got this sort of zombie city of people who are so sick with drug
00:06:49
addiction that they're pretty much living on the street. So, I think it would be a relatively easy thing to clean up if if they send in the National
00:06:56
Guard. I would argue that they're like, cuz I've been working in San Francisco and I
00:07:02
think it's gotten a lot better this year. So, I looked up after all this benny off bruhaha and the National Guard thing
00:07:10
that Trump said yesterday. And so, the city's publication shows crime down 30%
00:07:16
citywide and down 40% downtown. Homicides on a 70-year low this year.
00:07:23
There are record lows of the number of tents left on the street. They've cleaned up all the tents. And I've seen this cuz I drive to my place in the city
00:07:30
and they're all gone. And for the first time in seven years, they've actually got a net gain in total police officers
00:07:35
on the force. And now they've got convention bookings up 50%. With hotel bookings up 60% because of it. And so
00:07:43
here's what DA Jenkins put out. She said felony convictions in cases this year, narcotics, 88% of cases have resulted in
00:07:50
convictions. Robbery, 85% have resulted in convictions. Burglary, 72% in
00:07:55
convictions. And gun possession, 70% of cases result. And all the car break-ins are down to a 25-y year low. And so I've
00:08:02
noticed it acutely in my experience in the city. So it felt a little shocking to be like, oh, we need the National
00:08:08
Guard. This is like a city on the upswing in my opinion. And I think things are getting much better anecdotally. and the statistics
00:08:13
represent it too. So, you know, it feels it feels like there's a little bit of a runaway narrative with San Francisco
00:08:20
relative to what I think we those of us who are in the city are experiencing. Let me thread these two stories together and hand it to you, Sax. So, the the
00:08:27
interesting thing when Sax and I were um ousting Chess Bodin, one of the things
00:08:32
we learned was Chess Bodin had this famous quote where he was saying, "Oh, well, we can't get rid of the fentinol
00:08:38
dealers. I'm for drug regulation but not for fentinyl because it's a super drug that kills people very quickly. And it
00:08:44
turned out he said all these Honduran nationals were victims. Yeah. Which I guess theoretically could be
00:08:50
true, but it's kind of like in that what do they call it? U suicidal empathy category.
00:08:56
But it turns out this is something where ICE and the DEA have done some work. They actually started deporting these
00:09:02
people last year and because the people in San Francisco pre Dan Lori refused to
00:09:09
do it. So the the the federal government actually has been taking action on this specific issue. And we've also been
00:09:15
taking out the boats bringing the drugs here. Pretty you're not seeing a city government try to block federal action either, which is
00:09:22
different than what you see in other cities. By the way, this is a good forewarning of what Mani's New York is going to look like when Mondani's New
00:09:29
York kind of, you know, takes off. Imagine what's going to come into the city because there's now going to be permissive culture and, you know, kind
00:09:37
of permissive society to do this sort of stuff. Yeah. So, I mean, this is this is where we'll get strong alignment and agreement
00:09:43
like deporting Honduran fentinel dealers. Like, what's taking so long? I would ask the administration to take a
00:09:49
beat on the San Francisco thing because this city is like making major improvements and I feel very good about
00:09:55
the direction. It's not like other cities that are on the down swing and also I think AI companies are setting up
00:10:00
in San Francisco. Money's coming back. Yeah. I say the power move by Dan Lori would
00:10:07
be to say to the Trump administration, hey, can we get I don't know three months of National Guard just to be in
00:10:13
every BART station and then on these four corners in the tenderloin just as a deterrent. You know what people would do if they
00:10:18
did that? People would protest and riot because they're like we don't want federal policing of our city. Like it's
00:10:25
going to be for sure. I think you would get like 10 20% even in San Francisco rioting. I think the rest of the people would be
00:10:30
like okay it's a short duration. It's on these corners for this purpose. Okay, bring it. That's why I think the the
00:10:36
Democrats are making a stupid decision. But if the city's doing their job and the city's improving, why do you need
00:10:42
that? It's getting better. You know, like this is not the Yeah, that's if things are worse and you're in a spiral. It
00:10:47
is a back stop. Sure. Yeah. I mean that maybe the reason it's getting better is because that backs stop is there.
00:10:54
What? The National Guard back stop? They're they're hiring more police. They haven't done that in seven years in San Francisco. They're finally adding to the
00:11:00
police cop under and they're enforcing and they're getting convictions. It's kind of working.
00:11:05
Well, I'll partially agree with both of you. So, I agree with Freeberg that we have the best mayor we've had in decades with
00:11:12
Daniel Lurri and I think he is making progress and the city is bouncing back.
00:11:17
I think we probably had the lowest low during co and so a lot of that is just the finally the bounce back and then we
00:11:23
got the AI boom which is creating a lot of wealth and it's bringing a lot of people back to the city and it's
00:11:28
starting to absorb all the vacancy we have. So in any event all those are good things. Nonetheless, we still have this
00:11:35
problem of this blighted area of Main Street where of all people Gavin Newsome
00:11:40
proved that we could clean it up. Remember when President Xi came to town from China for that summit
00:11:46
and all of a sudden magically that whole area was cleaned up in 48 hours
00:11:51
and you know all the drug addicts and all the drug dealers basically disappeared. I don't know where they sent them to. So it shows that there is
00:11:57
a way to clean this up virtually overnight and I think that somehow the
00:12:03
mayor and the DA are constrained in what they can do. So you could have a targeted operation here by the federal
00:12:11
authorities to go in and clean that up. And I think that'd be a good thing. What do you think would happen in the city if they did that with respect to
00:12:17
the population? Are they going to welcome or not welcome federal policing of their streets?
00:12:23
Well, again, I don't think we should be held hostage by lawb breakakers who basically threaten violent protests and
00:12:30
chaos in response to law enforcement authorities doing their job. I don't think we should be blackmailed by that
00:12:36
or threatened by that or held hostage by that. But they're getting convictions. They're making arrests.
00:12:42
I think that's awesome. I'm I'm applauding their efforts and I'm not criticizing them. What I'm saying is we still have this intractable problem of
00:12:48
this area of downtown where like Jal said, there's a network of drug dealers. Just to build on your point, Jacob, about the Hondurans, there's actually an
00:12:55
article in the San Francisco Chronicle talking about this where the majority of the drug trade in San Francisco comes
00:13:02
from a single town in South America. And so, yeah, it's like why couldn't you
00:13:08
just round up this whole network in a very targeted operation and deport them and that would clean up a huge part of
00:13:15
San Francisco. I think there's an opportunity here. If you look at the cities where it's been very successful, so Muriel Bowser, who's the mayor of DC,
00:13:21
obviously she wasn't thrilled about the president sending in the National Guard and she said so publicly. That being
00:13:28
said, she also cooperated with it and it redounded to the benefit of all the citizens of Washington DC. So I think
00:13:35
there's an opportunity here for the mayor to cooperate with the Trump administration and do a targeted exercise and clean up the streets of San
00:13:41
Francisco. I think or he can do it himself up himself for Did you guys see this interview with
00:13:47
this woman in DC who was describing what it's been like in DC over the last 40 years and see the changes.
00:13:52
Yeah, she feels safe. Elon retweeted it. Nick, I sent you the link on Signal. Just listen to what she
00:13:58
says. It's really to your point, Sax, it's like it's just such a nobrainer thing to do. The question now is I think
00:14:05
is a political calculation. Who wants to take credit for it? Because everybody should be doing this. Oh, let's listen to this. I'm always got
00:14:11
to be the person to say it and I don't want to be the person to say it. But Donald Trump has been president for
00:14:18
nine months. Nine months. And I'm seeing videos from Chicago,
00:14:23
DC, where people like, "Yo, I feel safe. My kids feel safe. This is the best
00:14:28
thing he ever did for us." So, what was happening all these years that this like literally I'm I've known DC and Virginia
00:14:36
to have this type of [Â __Â ] going my whole life, and I'm I'm in my 40s. Okay.
00:14:41
Almost touching it. So what was really truly going on if a mother became
00:14:47
president 9 months ago and cleared that out with just a flick
00:14:53
of a pen. I'm just thinking like did y'all really ever care? Exactly. So I think that the point she's
00:14:59
making there is we don't have to live this way. This is a choice. Okay. Yeah. And we don't have to live in San
00:15:07
Francisco with our main drag, our main street, Market Street, basically being an open air drug market where you've got
00:15:13
hundreds of people who are addicted doing drugs in the street, you know, doing other things in the street. And
00:15:19
again, Gavin Newsome proved that it could all be cleaned up very, very quickly. So, look, I think it's great that Daniel Lur and Brook Jenkins and
00:15:26
the new administration are doing a better job, but they're still constrained and hamstrung by their own
00:15:33
by the city's hold on by the city's liberal mindset, extreme liberal mindset towards what's possible. And I think
00:15:40
like that person just said in the video, Trump just did it with a stroke of a pen. This is a choice. We don't have to live this way.
00:15:46
It's the biggest unforced era since opening the southern border. These are just the two stupidest decisions the
00:15:52
Democrats ever made. And obviously the easiest thing to do to split the the two
00:15:58
approaches here, Freedberg, is to have Dan Lorie say, "Thank you for offering Trump.
00:16:05
We would like to have it for this period of time in this location." Then you could communicate to the people of San Francisco, it's just a test. It's just
00:16:10
on these streets. When it comes top down and you don't have a choice and JB Pritsker does what he did, which is I'm
00:16:15
going to ban you from coming in and reducing crime. Like, do you hear yourself, Pritker? Like, I want to stop
00:16:21
you from lowering crime. There's something else we got to do as well, which is we got to stop funding
00:16:26
the drug addiction because the city provides something like $2 billion a year to these NOS's who are supposedly
00:16:32
there to quote take care of this homeless/addicted population and they manage them like
00:16:38
their flock because for every addicted person they add to the flock, they get paid more money. And so, obviously, this
00:16:44
is why we have this problem here. And in fact, the homeless we have in San Francisco are not predominantly from San
00:16:50
Francisco. They're from all over the country, all over the surrounding area. They come here for the benefits. So, we
00:16:55
create the magnet for all these people. So, part of it is law enforcement, then also part of it is just cut off the flow of
00:17:01
money that's funding their drug addictions. You are 100% correct on that. I
00:17:06
completely agree with you on that point. And I think that forced treatment center
00:17:12
transitions is needed. Obviously, you know, we have a program, I've mentioned this on the show before, but for those who haven't heard about it, to hear
00:17:18
about the absurdity of these programs in San Francisco. There's a program called the managed alcohol program. $5 million
00:17:28
per year out of the San Francisco city budget is spent on this program where uh
00:17:33
you can walk into a hotel, they have free beer. You ask for a beer, they give
00:17:38
you a beer. What? You drink the beer, you go out, you party, you come back, you get another beer. So they have all these studies
00:17:45
that rationalize this program which is oh this is a way to help alcoholics recover from alcoholism when they're
00:17:51
homeless and they need this treatment but here you can see this is from last
00:17:56
year being beer. Yeah. So the treatment is beer and that works for alcoholism I've heard.
00:18:01
But it's one of these absurd things where now it's kind of a joke because there's also this close part of downtown where you know it's a little bit of a
00:18:08
kind of do what you want where they kind of keep folks it's like hey you can use your needles here then folks will get a
00:18:14
drink they'll play music they'll go after the thing. It's really sad how these programs obviously well-intentioned initially become of the
00:18:22
most absurd. If you want more of something keep spending money on it. Uh, in fact, there
00:18:28
is a program for people who are addicted to gambling and they they give Chimoth free flags and cranberries at the win to
00:18:35
help him with his crafts advent. Yeah, it's amazing. If you uh if I keep
00:18:40
going, one's going to land. You send a private jet and extend a massive credit line. It's amazing how how many gambling addicts you you'll
00:18:47
attract to your casino. By the way, did you guys see that JB Pritsker disclosed his income from 2024?
00:18:54
And oh, let's guess over under. Give us an overunder. Out of the 10.3 million, 1.4 million of
00:19:00
it was gambling winnings from Vegas. What? Yum yum. Okay. All new respect.
00:19:07
1.4 million playing black. So, he's counting cards. Yeah, definitely. Definitely counting cards with sachs.
00:19:13
Yeah. Well, no. I I'll just tell you like look to win $1.4 million in black basically
00:19:19
you basically need to be betting 100k a hand. Even I don't do that. That's the only way you can win that much, which is a
00:19:25
lot of money per hand. Not judging. I'm just saying.
00:19:31
I mean, that's Dana White level. He's He's Dana White level that David Sachs at Caesars.
00:19:36
No, I'm not I'm not at that level. Come on. David plays at the $100 a hand table. He's got great. Uh, by the way,
00:19:42
just to put some numbers behind it. Speaking of Vegas, aren't we going next next month? Yes. Yes. Yum. Yum.
00:19:47
Yum. Yum. Just to put some numbers on it, homeless budget, San Francisco, unbelievably
00:19:53
high estimate like 800 million, lower estimate 700 million. And uh low
00:19:58
estimate for homeless people is like 8,000. High estimates like 20. If you cut in between these two, they're spending $52,000 a year per homeless
00:20:06
person. $52,000 a year. It is a solve problem. Well,
00:20:12
that is an incentive to solve the problem because again, a lot of the money goes to NOS's and they get paid
00:20:17
for every addict they can add to their flock. Thomas had a great line about this. He said that you get as much homelessness as you're willing to pay
00:20:23
for. Well, and your point before is other places don't give the services. So
00:20:29
therefore, the homeless uh slashjunkies converse about this and then they pick
00:20:35
the right. We don't have to live this way. I appreciate the mayor. I appreciate the DA, but we don't have to live this way
00:20:40
and there's more that can be done. That is exactly it. You do not have to live this way. Yes. Do not stand for it, folks. Okay,
00:20:47
here we go. Lots of topics. The USChina trade battle is continuing. Uh, and this
00:20:53
time we have a new wrinkle. Trump and she are set to meet in South Korea later
00:20:59
this month. They're going to work out a grand trade deal. And this would be their first in-person meeting since
00:21:04
2019, 6 years ago. But last Thursday, China announced new export controls on
00:21:09
12 of 17 critical rare earth minerals effective December 1st. Obviously, we
00:21:14
need these for EVs, batteries, your AirPods, everything. And on Friday, Trump threatened 100% tariff on all
00:21:21
Chinese imports on top of the existing tariffs as of November 1st and accused the CCP of trying to quote hold the
00:21:30
world captive. Stock market tanked, recovered on Monday when Trump told everybody, "Don't worry about it. It's
00:21:36
going to be all good." So far this week, things have mostly deescalated. Friend
00:21:41
of the pod, Treasury Secretary Scott Bessant said the Trump meeting is still
00:21:47
on track and quote, "We have substantially deescalated." Also, he
00:21:53
said the 100% tariff does not have to happen. However, on Wednesday, Vesscent
00:21:58
called the export controls unacceptable and that it's China versus the free world. Let's take a pause here.
00:22:06
Freeberg, thoughts on price controls generally, and if you want to expand
00:22:12
into the overall relationship with China as it relates to rare earth metals, go for it. Bessum's comments on the price
00:22:17
controls speak to what he calls a non-market economy, meaning that the Chinese government is intervening and
00:22:24
creating artificial surplus in the market, which drives prices down and effectively eliminates competition. And
00:22:31
so the Chinese push in the '90s, supported by the CCP, ultimately
00:22:37
eradicated competition and made it non-competitive for US companies. So
00:22:43
they exited the market and now the United States finds itself completely dependent on Chinese suppliers.
00:22:49
Particularly as it relates to rare earths, there was this company called Molly Corp that ended up going out of
00:22:54
business. The asset, the Mountain Pass mine that Molly Corp operated, became MP
00:22:59
Materials, which Chimoth knows well and did this big deal recently with the US
00:23:05
government as they've tried to revitalize production at this mine and increase output. Freeberg, can you
00:23:11
explain price floors for people just in case? So price floors are that the government is going to mandate that things have to
00:23:18
cost at least X. So they increase the price of inputs and basically make it
00:23:23
more difficult for China to undercut pricing which increases the rationale
00:23:30
for capital to invest in starting competitors because now they can have a guarantee of revenue or guarantee of
00:23:35
price. But the problem is that I would argue the government's role maybe shouldn't be in setting price floors
00:23:41
because that creates, you know, a very bad effect long term on the market. The
00:23:46
government should deregulate and create a more free market in the US. A large reason why mining and processing of the
00:23:54
ores moved offshore was because of the regulatory environment in the United States which made it difficult to
00:23:59
compete with China. We could argue about the environmental laws and how extensive and how relevant they may be today
00:24:05
relative to the '90s, but this created a real challenge for companies to compete because it was so much more expensive to
00:24:11
operate in the US. So I would argue we should be focusing not so much on setting price floors to create an
00:24:17
incentive for folks in the US to get involved in the industry, but rather to deregulate and to provide perhaps tax
00:24:23
incentives and other economic incentives. So you don't inflate the cost of things, but you create a much
00:24:29
more kind of liquid market and drive much more volume and interest in in building on this side.
00:24:35
All right, price flaws. When we were talking about Kla Harris running for president, she was asking for price
00:24:41
flaws and price fixing and making sure the government got involved in this. How
00:24:46
is this different, sex? Well, look, as a general matter, I agree that the federal government shouldn't be setting the
00:24:52
prices of goods and it shouldn't be picking winners and losers in the economy. But I think this is a different situation because over the past 30
00:25:00
years, we haven't really had a free market in rare earth. What's basically happened like Freeberg was saying, China
00:25:05
has been allowed to dominate this industry. And specifically what they did is starting 30 years ago, they
00:25:12
identified rare earths and rare earth magnets, the rare earth processing as a very strategic element in the supply
00:25:18
chain. And they set out to dominate it. And they did that by massly subsidizing their businesses and driving all of the
00:25:26
US competitors and the global competitors out of business. And they were partially allowed to do that by
00:25:32
stupid WTO rules that allowed quote unquote developing nations to subsidize
00:25:38
their own industries even though China is not developing. I mean their economy is comparable to ours. And yet these WTO
00:25:45
rules allowed them to effectively cheat by subsidizing their industries at the expense of our industries. And the
00:25:52
result of this is that they do now have course of leverage over the supply chain. And over the last few weeks, they
00:25:57
just used that imposing this vast new export control regime on rare earth. And
00:26:03
their idea is to tighten the screws when they feel like it and to use rare earth as a form of leverage in the
00:26:09
relationship with the United States. So, we're well past economics here and we're into international relations. We're into
00:26:15
the balance of power. We're international security. And I don't think that the price floors here are
00:26:21
designed to make the government the mediator of what prices should be in the free market. They're designed to create
00:26:28
enough certainty for US investors that they can reinvest in rare earths and
00:26:36
reshore the processing and the casting of rare earth magnets. And I just don't see another way to be able to create the
00:26:43
incentives for investors because they know that if they invest a lot of money in rare earth processing that all China
00:26:49
has to do is slash the prices and drive them out of business. And China continually uses that tactic. So I think
00:26:56
you have to address that if you want to alleviate the American dependency on this critical resource which China
00:27:02
currently has control over. This started in 2007 or eight with Huenta and what he
00:27:09
basically said is we're going to create six or seven national champions and he
00:27:14
wanted to create them in the critical areas that they needed to dominate over
00:27:19
the next 20 years and one of those was rare earths. Another one was batteries and EVs and yet another one was around
00:27:27
the active principal ingredients or APIs that are the core inputs for pharmaceuticals. So what do they do? And
00:27:34
when Ji came into power, Xi Jinping continued that huge gental strategy. What did they do? It's exactly what Sach
00:27:41
said, which is they have this very aggressive form of mercantalism. How do they affect that? They are willing
00:27:48
through provincial balance sheets, through federal balance sheets, through loan guarantees, through organizations
00:27:55
that are quasi public private partnerships. They step into markets and they can effectively change the spot
00:28:01
price on demand. Now, why is that problematic in America? I'll tell you
00:28:07
the example of one of our businesses. You do these deals that are called take or pay agreements. So, MP has a deal
00:28:13
with General Motors, one of my businesses that makes LFP cathode. Same deal with GM. You do what's called a
00:28:20
take or pay, which means that General Motors steps up and says, "Great, I will buy X amount of volume from you at Y
00:28:26
price. And so you go and you take that deal to Wall Street and you say, "I need
00:28:34
financing to build a factory or a capability." Contrast that to the Chinese company who just goes to the
00:28:40
government and the government says, "Here's a bunch of incentives and money and price breaks. Just go build it." So
00:28:46
already we're a little bit behind, but it's much more free market and it's more
00:28:52
transparent. So you take a deal, you go to Wall Street, they give you money, you start building it, you start to produce
00:28:58
it, and then you expect General Motors or Ford or Tesla to start buying this stuff. But as Sax said, if all of a
00:29:05
sudden China sees it, what they do is they enter the market and they will dump an enormous volume of that product into
00:29:11
the spot market. What happens? The price craters. Now all of these end buyers are
00:29:18
in a really tough position because their competitors can buy at a much bigger discount that they can. They have to
00:29:24
flow that price through their products. Their prices are more expensive. They have less demand. And that's the huge
00:29:30
negative cycle that China has complete control of. So why is the federal government stepping in to create what is
00:29:38
essentially a last resort buyer of record? It is so critical in these markets because the US balance sheet is
00:29:46
the only one that can create a strategic reserve around these inputs. Not
00:29:52
dissimilar to how we do with petroleum. We can nominate now things that are critical dispos
00:30:00
all of these things that can now absorb the price shocks that China may
00:30:06
otherwise be able to affect. So I think this structure where we now have these public private partnerships frankly is
00:30:12
the only practical antidote to dealing with this issue. Otherwise we're always
00:30:18
going to be prone to this very clever and accurate and smart mercantalism from
00:30:24
the Chinese. So I'm I'm a big fan of this general market structure. It's the only way that you cannot be theoretical
00:30:31
and actually respond to the conditions on the ground. Yeah, we've been doing a little research on this and here is neodyinium.
00:30:38
This is one of the one of the two inputs for for magnets for permanent magnets. And uh you can see here $50,000 for a
00:30:46
ton back in 2020 during CO it spiked almost up to a quarter million dollars and then it came back down. So look, you
00:30:52
can you can imagine like it's incredibly difficult when there's that much volatility
00:30:58
to try to buy capex, to try to plant opex, to try to extract from the ground,
00:31:03
go through all of the regulatory rigomearroll that western countries have to go through and then all of a sudden
00:31:09
have a sale price that you can't control. And if you look at the cost, we were just doing some research on it. You
00:31:14
know, if you get your AirPods, it's one or two% of the cost of that. medical devices, it's a lot more. But even in a
00:31:20
Tesla Model Y, it's it's le it's 10 dips. It's less than I think this is an inaccurate way of looking at it. You
00:31:25
have to look at the actual mass. And so the real problem is in in cars,
00:31:32
in engines, you're talking about tens of kilos ultimately, and that's where the real costs build up. And then
00:31:37
separately, the permanent magnets that go into cars, you can work your way around. The real in future markets that
00:31:46
really matter is in robotics because these permanent magnets are the key input to the actuation mechanism of the
00:31:53
robots. Meaning how do the robots move? How do the joints move? Through actuation that happens because of rare
00:31:58
earths and permanent magnets. And as Elon said at the summit, he's building all those himself.
00:32:04
Right now, only 7% of the known deposits of it have been found. There's plenty of
00:32:10
it out there. But to your point, I came to the same conclusion as you, Chimath, which is we should be building a
00:32:15
strategic reserve of these. And if you look, we could be, you know, buying them when these things are down and deploying
00:32:20
them when we need to do something different. I think instead of trying to like time the market, I think what the United
00:32:27
States can be much better at is having a broad forecast of demand, knowing how many million tons of this stuff we will
00:32:34
need and just thoughtfully and methodically being a purchaser of record
00:32:39
to create these strategic reserves. And then the worst case that can happen is you can do a swap
00:32:44
with these customers. So Tesla all of a sudden can't go into the spot market.
00:32:49
They should be able to come to the strategic reserve and be able to buy lithium. you know, General Motors needs
00:32:54
something, whomever, right? Figure robots need something. I think that mechanism is the only way we can compete
00:33:01
effectively on a day-to-day basis with the Chinese. I mean, I would argue I think we actually if we let the market work and
00:33:07
we create the necessary kind of structure to allow the market to operate, meaning the regulatory barriers
00:33:14
are diminished to develop mines and to conduct the processing of the ores. So
00:33:20
there's two sides of the equation when it comes to this kind of industry of rare earths. The one is mining the ore.
00:33:26
You know this mountain pass site which is kind of on the border of California and Nevada which is now MP materials.
00:33:33
They've got this rare earth ore called bastnite. That's the ore that you get out of the ground. And then you have to
00:33:40
process that ore to get the elements out of the ore that you want to use in manufacturing. The processing steps. I
00:33:47
kind of went a little bit deep on this over the last week because I got really interested in why we don't do this anymore in the United States. And there
00:33:54
is so much nasty output from this process. You're using
00:34:00
very strong acids to do leeching. You do processing, you do extraction, refinement. All of the material kind of
00:34:07
gets separated out from the rock and it's dirty. And as a result, there's
00:34:12
byproducts and waste and environmental exposure, but also human personnel
00:34:18
exposure. But the technology hasn't been deeply developed in 40 years. It's still
00:34:24
kind of 40-year-old chemical engineering technology. And we stopped developing it about 40 years ago in the United States.
00:34:31
It's not even technology. It's no Yeah, it's not. It's just it's just metallergy and chemistry. But but there
00:34:36
are techniques now that can be applied that can do this in a kind of scalable safer way without any of the
00:34:42
environmental hazards. But this is largely why this shifted over to China is they didn't have the sort of regulatory um burdens that we have in
00:34:50
the United States which made it much cheaper and the labor cost was much lower. But with automation and certain
00:34:55
systems we can actually process this ore. It's not super complicated. It's a
00:35:01
series of well understood steps of chemistry and mechanical separation. So
00:35:07
we could process ores. The other kind of important point is there could be well over a thousand times the proven
00:35:13
reserves of rare earths in the existing proven reserve catalog using new
00:35:19
discovery techniques. So USGS, the geological survey in the United States has this kind of earth MRI system where
00:35:25
they're trying to do new mapping. But there's also several private companies that can use radar and microwave imaging
00:35:31
and then you can use the system of interferometry where you actually put multiple beams down underground and you
00:35:37
can get a better read or a better understanding of where these ores might lie. And there are unproven reserves in
00:35:44
Texas, in Wyoming, in Colorado, in Missouri, all over the continental United States. So if we did decide, hey,
00:35:51
this is strategic to us, I do think one of the important points is that we could unlock both new kind of discoveries and
00:35:58
new refinement systems in the United States and actually be truly competitive with China if we put the will behind it.
00:36:04
So I think like this is a good moment for the United States to observe what's going on and not just kind of be, you
00:36:10
know, focused on China's production. I think we could outpace them and and um and accelerate through this if we chose to. So, Saxs, where does all of this fit
00:36:18
in to the broader agreement? And do you think that they're going to go to South Korea and come out with a deal? And do
00:36:23
do you have a sense of like what the contours have to be to make this a success? Well, the Treasury Secretary, Scott
00:36:29
Besson, who we know, just said that the Trump meeting is still on track and he
00:36:35
also said that we have substantially deescalated and that the 100% tariff does not need to happen. So, he says it's still on track. By the way, I think
00:36:41
he's doing a phenomenal job here. he really understands the intricacies of this trade relationship and I think he's
00:36:47
capable of both applying pressure but then also finesse. So I think he's doing a great job on this. But in any event, I
00:36:54
think the reason why you want to have the leaders meet, President Trump and President Xi, is that I think that this
00:37:01
relationship, this bilateral relationship between the US and China will work best when there's an agreement
00:37:07
at the top. And what I mean by that is that when you just let the various bureaucracies deal with each other,
00:37:14
you're more likely to have misunderstandings or or food fights. So let me give you an example. Over the
00:37:20
past few weeks, obviously you've had this Chinese Ministry of Commerce passed these export controls on the rare earth
00:37:28
which created the possibility of greatly limiting the access of not just American companies but companies all over the
00:37:34
world to Chinese rare earths. They've sort of backed away from that. Separately in the US, you had movements
00:37:39
by our government to greatly expand the export control list. And basically, there was a interim final rule that was
00:37:45
issued by the commerce department on September 29th that said that if a Chinese company is on the export control
00:37:51
list, that restriction should also apply to any of its affiliates or subsidiaries that are more than 50% owned by that
00:37:57
company, which is kind of obvious, right? You don't want a Chinese company like Huawei to circumvent the entity
00:38:03
list by simply setting up a shell organization. And so I think it was a perfectly reasonable rule to issue, but
00:38:09
then China reacted to that very strongly. And so there's just such a high chance of the two sides miscommunicating with each other and
00:38:16
over escalating when you just allow the bureaucracies to talk to each other. And I think what's most needed right now is
00:38:23
to have a grand bargain between President Trump and President Xi. And that will then calm down the
00:38:28
relationship. And obviously this is going to be a very competitive relationship for as far as the I can see
00:38:34
because there's both security and economic competition going on. But I do think that when you have an
00:38:40
understanding at the top, it creates conditions for more stability. All right. Traders on poly market think
00:38:47
or know depending on the situation that we are going to see cooler heads prevail. 15% chance of the 100% tariff
00:38:54
on China going into effect by November 1st. In other words, 85% chance it's not going to happen. 73% chance of USChina
00:39:02
trade agreement by November 10th. Who do you think has the greatest incentive to decouple?
00:39:09
The US or China? I think both sides understand that they can no longer be dependent on the other
00:39:16
for things that they consider to be critical. So, I mean, the US has realized, wait a second, we can't allow
00:39:22
China to have a monopoly on rare earths. And by the way, it's not just the the rare earth, the processing, it's also the casting of the rare earth into
00:39:28
magnets. So there's this long tale of I don't know 20,000 different kinds of
00:39:34
magnets that are made from rare earth that are used in the industrial supply chain. And if China were to cut those
00:39:41
off, then it would greatly impede manufacturing of pretty much every different kind of electric motors from
00:39:47
cars to other goods. So in any event, my point is just the US clearly cannot be dependent. I'm sure that China is
00:39:53
reaching a similar conclusion. That doesn't mean that trade can't happen between the two countries. I'm sure it
00:40:00
will continue. But I don't think either side wants to be in a position where the other side can use its leverage beyond
00:40:08
just economic terms into geopolitics. But with respect to the belt and roads initiative, like don't you think China's
00:40:15
been planning for the decoupling in kind of a very long viewed way relative to the United States and they're more I
00:40:21
would say prepared and active to execute the decoupling whereas the US still is waking up to the fact that there are
00:40:28
certain kind of critical supply chain dependencies that we have with China and maybe we shouldn't be decoupling as quickly as we stated our intention to.
00:40:36
Like it feels like they're in a pretty advantaged position. Sachs and both the buy side and the sell side.
00:40:43
They have 20% youth unemployment. They have a demographic time bomb that's gone off. They have a pretty morabund real
00:40:50
estate market. They have very little to none foreign direct investment. So I don't agree with you.
00:40:56
Okay. Well, I I would just say that I think what China has been doing meaning they're they're just as challenged as we are. They have different challenges.
00:41:01
Yeah. No, it's good it's a good point. Yeah. I would just say that I think that China is a rising great power. I think that
00:41:07
over the last decade their economy grew to the point where it's roughly the size of the US's economy. Certainly on a on a
00:41:14
PPP basis, it might even be bigger, right? But on an international currency basis,
00:41:20
it's still smaller. But anyway, the point being that as China has risen as a great power, it sought to create its own
00:41:26
international institutions. And so if you think about, you know, what the US has, the US has NATO obviously and the
00:41:32
G7 and the World Bank and the IMF and all that kind of stuff. And what China
00:41:38
has sought to do is create, you know, they created the Shanghai Cooperation Organization, which is a security focused organization. I wouldn't call it
00:41:45
quite the equivalent to NATO, but it's trending in that direction. They've been probably the main sponsor behind bricks
00:41:51
and Belt and Road, I think, is part of that. They're creating their own network of relationships. are creating their own
00:41:56
international order and it is a challenge to the US order. I mean during
00:42:01
the unipolar moment from say 1991 to I don't know 2017 the US was the only
00:42:07
great power in the system and we basically defined all the key international institutions and China as
00:42:13
it's risen has done what all great powers seek to do which is to create their own order and so yeah I think they
00:42:20
do want to be somewhat independent of the US they don't want to be dependent on us and I think we're realizing that
00:42:26
we have to act the same way and the shame of it is that when we were running
00:42:31
all the key institutions during the unipolar moment like the WTO. We engaged in so many foolish policies that allowed
00:42:38
China to dominate rare earths. I mean we should never have let that happen. Can I clarify one thing which is I think
00:42:43
that a lot of people don't know this historical artifact which I think is so fascinating which is I don't think China
00:42:50
is a rising power. I think China is a reasscending power. And the reason I say that is if you go back to 1500 to now,
00:42:58
over all of those years, China had the world's largest GDP 70% of those years.
00:43:06
70%. So if you think about it in that context, especially as a Confucian
00:43:12
society, I think the Chinese think about this as hold on, this is reasserting the
00:43:17
dominance that we've always had. And I think if you start to look at it through that lens, that's why they view the
00:43:23
blending of public private partnerships, the organizations that go and help backs
00:43:28
stop private companies in China. The other interesting thing which I learned
00:43:34
studying China is how they allocate capital. The capital allocation system is both rigid, but it's incredibly
00:43:42
flexible. What do I mean? The way that China allocates money is the following. You have Xi Jinping and his close circle
00:43:47
of people. They dictate the priorities, right? I think there was an article, Nick, you can find it. But Xi is
00:43:53
personally right now helping to draft the five-year business plan of China. But what happens is is it goes from that
00:43:59
central group of like 7 8 n people to the pala bureau. And when it gets
00:44:05
approved by the pala bureau, it gets sent to all the provinces and then it gets sent to the prefectures. So an
00:44:10
example was in 2006 and 7 when they decided to prioritize EVs. What you
00:44:16
effectively have is a cascading set of venture capitalists who are operating against a national priority and then
00:44:23
they are rewarded for it. And so you essentially have 300 VCs running around
00:44:29
organizing human capital in all of these different provinces against all of these different priorities. And at the end of
00:44:35
that you get a BYD or you get a Xiaomi or you get these great companies. And I
00:44:40
think that that is what's so daunting if you think about it. So that's another thing that we have to factor as well.
00:44:46
They have and they have they have one of those plans Jamoth for every industry not just so they have like an agriculture
00:44:51
five-year plan. They have an energy 5-year plan and in each one it details out their forecast of not just like how
00:44:58
to catch up but what's possible and that's why they're charting new new avenues of innovation in nuclear power.
00:45:05
Yeah. It's about them, I think, getting back to where they have been as opposed
00:45:10
to them realizing that they could potentially be the world's largest economy. It's more them
00:45:16
saying, "We were the largest for so long. We took our eye off the ball and now we need to get refocused." I think
00:45:23
that's more of a national pride kind of motivation here. But it's obviously different people, different country,
00:45:29
different governing structure, etc. Isn't that incredible though? 70% of the year since 1500 they had the largest GDP
00:45:35
in the world. It is incredible. It's stunning. Yeah. I mean, there were these innovations that drove some of these ships. The technology of ships and
00:45:42
fleets of ships drove the Dutch Empire to its prowess and then the British Empire to its prowess. And there were
00:45:48
these moments of technological innovation. But you're right, always on the heels was China. And this may be China's moment of resurgence across the
00:45:55
board. The person who really saw this ahead of the curve was Lee Kuan Yu from
00:46:00
Singapore. basically the founder of Singapore and Graham Allison wrote a book about Lee Kuan Yu where he talks about his
00:46:06
insights and there's a couple of quotes here that I think are are really good on this. What Lee Kuanu said is that it's
00:46:11
not possible to pretend that this China is just another big player. This is the biggest player in the history of the
00:46:17
world and he also said that the size of China's displacement of the world balance is such that the world must find
00:46:24
a new balance. So Jamath, like you're saying, China was the biggest power in the world for
00:46:31
hundreds of years and then it was kind of overtaken by the the western powers and now it's kind of reasserting itself.
00:46:37
But in any event, this is why I think that during the unipolar moment, the US should have been a lot more careful
00:46:42
about facilitating China's rise because we created a monster. And this is the point that professor Mirshimer has made many times
00:46:49
and he wrote about this going back to 2002 saying in his article about whether China could rise peacefully and he said
00:46:54
the answer is no because if we facilitate their rise we will create a geopolitical competitor and we'll go
00:47:00
from being a unipolar world order to a multipolar world order and that's basically what's happened. But at the
00:47:06
time, just remember like when when they were admitted to the WTO and the motivation was really about lowering the
00:47:12
cost of goods and services for the American consumer, which was like an
00:47:18
intrinsically reasonable motivation. It wasn't like there was some nefarious intention at the time, but it was
00:47:24
shortsighted in that it didn't do the calculus. Fast forward 20, 30, 40 years
00:47:29
to determine, well, if we then kneecap our ability to actually produce anything, where are we going to be if they do start to decouple? That's
00:47:35
it was hubris though. It was hubus because we thought that there was only one great power in the system and that's
00:47:41
the way it would always be. We thought great power politics was off the table and we thought that we were at the end
00:47:47
of history. It wasn't hubris, it was greed. the the CEOs at the time and the people who were
00:47:53
influential in making donations to politicians wanted to make more money. That's why they did it. They didn't do
00:47:59
it with anything other than a profit motivation, which is greed. Part of American like mindset at the
00:48:04
time was that we had a monopoly on knowledge work, right? And this was I think very key. This this speaks to the
00:48:10
hubris of the decision-m was that this knowledge work is where you create a separation of labor from intellect. and
00:48:16
that there was this idea that America would move into a services economy fully and not have to be in a labor economy
00:48:22
and the labor economy could be outsourced. Ultimately, that didn't yield true. The the internet kind of created a rival to
00:48:29
knowledge work or a diffusion of knowledge and diffusion of knowledge capacity to societies around the world,
00:48:36
which really did create a different structure than we anticipated at the time. I think that's looking in the rearview mirror, Freeberg. I think the the CEOs
00:48:43
at that time were like how do we increase the profit margin on an iPhone on a a PC on any product being created
00:48:49
and the way to do that is find the lowest I labor source possible and that was China they just did it out of just pure
00:48:55
so that was part of it but there was another factor here as well which I I do think the ideology was really powerful
00:49:00
and remember in the 1990s the leading philosopher or international relations
00:49:06
theorist the most celebrated book was the end of history by Francis Fukyama and what he basically said is that we're
00:49:12
at the end of history because liberal democracy has won and it's only a matter of time before the whole world becomes
00:49:17
liberal democracies. And the theory about China was that if they got rich, they had become more like us, that
00:49:24
people would rise up and demand a liberal democratic government as they became rich. And so we then justified,
00:49:30
and there probably was an element of greed to this as well, we then justified helping China rise on the grounds that
00:49:37
somehow this wealth would turn him into a democracy. And in fact, all that it
00:49:42
did was make them richer and more powerful. It didn't change their government. It just turned them into a
00:49:48
huge geopolitical competitor to the US. The author who actually predicted this and well there's Mir Shimemer who
00:49:54
predicted in the early 2000s also Samuel Huntington wrote a book called the Clash of Civilizations in the
00:49:59
mid '90s that was sort of the opposite of end of you know end of history was
00:50:05
celebrated. Clash of Civilizations was sort of reviled. But what Huntington said is that what these other
00:50:12
civilizations want around the world is not westernization. They want modernization.
00:50:18
And as they modernize and become richer, they're not going to basically westernize. They're going to become
00:50:23
competitors to the western order. And that's basically what happened. I thought for sure you were going to say Freriedman's the world is flat, which
00:50:29
was I think air cover for all this because you would get the peace dividend if everybody had McDonald's and
00:50:34
everybody was watching the same movies. Go ahead, Shimat. You have some thoughts. That Huntington book is actually
00:50:39
exceptional. The thing with Francis Fukuyama is he he writes in this beautiful way, but he literally bats
00:50:45
zero. It's like you could basically read a Francis Fukuyama book and understand
00:50:50
that whatever the opposite of what he wrote is likely going to happen. That anyway, that's neither here nor there. But I just wanted to pick on what Jason
00:50:57
said because I agree with him. The thing is you had a lot of this geopolitical tension sacks which I think you
00:51:04
articulated it well like the elites were coming together like we're going to convert China we're going to do all of this stuff and I think that was a trend
00:51:10
but then what hyperacelerated it in my opinion was something that was very tactical which Jay Cal mentioned which
00:51:17
is the compensation plans of most of the executives and CEOs of these public corporations started to get very tuned
00:51:25
to gameable metrics like EPS in and around that same time. And so Jason's right, the direct financial incentives
00:51:32
to basically think about this as a monocultural global world where you can just export things to every nook and
00:51:39
cranny of the world to optimize for the flow of profits back to you, trap them in any country you want because it
00:51:44
doesn't ultimately matter to your compensation. That perversion also happened at the
00:51:50
same time which I think accelerated what otherwise would have given us maybe another decade or two to realize that we
00:51:56
weren't in complete control of our destiny. So it gets um you can see it also in
00:52:01
Taiwan with like how in the world did 90% of the chips come out of one tiny island? It's just capitalism like it's
00:52:08
the best place to do it at the cheapest price, the most efficiently. And then you have now this dependency on Taiwan
00:52:14
because we didn't think about redundancy and supply chain. Freeberg, in related international news, Trump is put up or
00:52:22
the Trump administration has put up about $40 billion to help out Argentina.
00:52:27
Can you explain what's going on there? They're trying to bolster the credit rating of Argentina with the currency
00:52:32
swap that's related to the financial condition the promise proponents would argue he inherited. the opponents would
00:52:40
say, you know, he's making things worse. The US is stepping in to support his free market kind of principles that are
00:52:47
ultimately going to drive crossber cooperation. So, I think that the swap agreement puts in place a bolstering of
00:52:53
support. I thought this was related directly to the to rare earths to rare earths. I I'm not sure about
00:52:58
rare earth. All right, Jamal. Uh I saw you retweeting some of this and there's been a little bit of a back channel in
00:53:04
the last 48 hours. Kind of breaking news here. data centers are spiking the cost
00:53:10
of energy or people are perceiving it to be doing so in different geographies
00:53:16
here in the United States and I guess not wanting to be hated or get into wars
00:53:21
with consumers some big tech companies are standing down plans explain what's
00:53:27
going on here Chimathan if this is a trend yet I put this out there when I wrote that
00:53:33
because I I do think that this is the beginning of a trend. Just to be very specific, Google was planning a $1
00:53:41
billion spend on a data center in Indianapolis County or Indianapolis. And
00:53:48
essentially what happened was there was enough push back that it looked like if
00:53:54
it went to vote in the city council, they would have voted against the
00:53:59
approval of the data center, against the the necessary zoning and other regulatory approvals. And so I think to
00:54:06
avoid what would have been an awkward press cycle, Google just pulled it and said, "Don't worry, we're not going to
00:54:11
do this here." And so that in and of itself I think is an isolated incident
00:54:17
except that in this same week it happened two other times in Wisconsin there was a proposal very
00:54:26
similar to Google's but this time from Microsoft where again those local residents got pretty upset and in the
00:54:33
11th hour Microsoft pulled it and then in the third example there was an attempt by an Amazon data center to get
00:54:42
built near Tucson. That I think also was mothballled. So why is this happening?
00:54:51
When I tweeted this out or when I posted it rather, the comments were pretty instructive. I think that there are
00:54:56
three things that I took away from it. Thing number one is that people are
00:55:02
seeing their prices of electricity go up in the local areas where the data
00:55:08
centers are being built. The second is that people are worried
00:55:13
about the water consumption of these data centers and the cost of water and
00:55:18
the access to clean water and that the plans to be netneutral on water
00:55:23
consumption may or may not be real. So there's a concern there. And then the third that many of the people commented
00:55:29
was about the actual noise pollution that it was creating. But I I took a step back from this and my thought is
00:55:37
very simple, which is it actually speaks to one of three very important
00:55:43
inflection points that we're dealing with on the AI side, right? So one of them we talked about last week, which is
00:55:49
you can't have 50 state laws, right? It needs to come from the federal government so that there's one set of
00:55:56
regulation and that there's clarity. So effectively what Sax has been able to execute on the crypto side, I think his
00:56:02
intention is to try to do this on the AI side and I think the federal government needs to be given a chance to do that.
00:56:08
Otherwise locally in the United States the only winners are going to be lawyers and then we're going to create an own
00:56:15
goal and China's going to win. Okay. Second, we just talked about it is the government needs to be the economic
00:56:22
backs stop to the US supply chain that powers AI, right? And we talked about
00:56:27
all these things, the metals, the minerals, the rare earths, so that the tax that companies can extract are
00:56:34
mostly market driven and not exploitative and doesn't create air pockets in the funding cycle. Okay, so
00:56:40
we talked about that. But here's the thing that nobody talks about. When you look at these data centers, I think what it's saying bottoms up is that these
00:56:47
hyperscalers need to get these communities on their side. I think that there is no understanding of what a
00:56:54
token is. What is a token? I don't think if you ask the average person on the street, they know what it is. What they
00:56:59
know is that tokens are not jobs. And if AI is going to be embraced by the
00:57:05
public, I think what we need to do a better job of is to show the tangible economic benefits, especially in places
00:57:12
like Wisconsin and Indiana that may feel like they're missing out. So, we can't
00:57:18
have this narrative that AI may take your job away while it's also doubling your electricity price because they're
00:57:25
not feeling and seeing the abundance that we think that it can offer. This is
00:57:30
exactly right, Chama. If you think about the average American citizen, you know, they have somebody in their family who
00:57:37
drives for Uber or Door Dash, they have truck drivers, they have Amazon factory workers, and all those jobs are going
00:57:42
away. It's just a matter of when. And some people believe we can handle the displacement, others don't. ahead. Uh,
00:57:47
Freeberg Jal, my idea, just sorry, my idea, my idea is you have to use the balance sheet of these big companies, use that
00:57:54
free cash flow and it can act as a cushion for a lot of what needs to
00:57:59
happen. So, they can pay higher tariffs for electricity. They can also just frankly go and pay
00:58:05
for some amount of the electricity bill of these local folks. They could pay for solar and storage if they wanted to.
00:58:11
There's a plethora of ideas here where they probably are going to need to step
00:58:17
into market to get folks on their side and I think they have to do it. It's interesting you mentioned that because I
00:58:22
just had Zack Dell from Base Power on this week in Startups last week and what they do is they put batteries on the
00:58:29
side of your house outside their square ones so they're not as felt as industrial like industrial ones and then
00:58:36
they will fill those batteries when the uh electricity is cheap. They'll deploy it when it's expensive. They get the
00:58:42
arbitrage and I said to him on the show like it's only they only charge consumers I think $500 or $1,000 to install it just so
00:58:49
they have some skin in the game. you don't have to rip your roof apart and put solar on. It's just batteries. And they said, "Well, why don't you do that
00:58:55
and like do an entire neighborhood? Like when they build these 3,000 home infill
00:59:01
neighborhoods, why don't you put them on every single one and then create a network for data centers?" And he said,
00:59:07
"Stand by. That's what exactly what we're working on." So it kind of combines your idea. Saxs, you're the
00:59:13
zar. What are your thoughts on what Chimath points out is which is the
00:59:19
average working American and their perception of AI? You have job loss, you
00:59:26
have electric bills going up, and then you have, hey, fake news, the reality, is this real or not? These sora slop
00:59:34
videos I'm seeing, it feels like there's a little bit of a trend towards um a negative framing of the AI innovation
00:59:40
and maybe it's not going to help the bottom half of society. Uh, are you seeing that? Do you believe it? And do you have plans to counter it?
00:59:47
Well, what I see is that we just came off a quarter of 3.8% economic growth,
00:59:52
of which 40% was attributable to AI. So, in other words, if we didn't have this
00:59:58
AI boom going on, by my math, our GDP growth rate in Q2 would have been 2.3%
01:00:03
instead of 3.8%. So AI is the difference between having great GDP growth, say around 4%. And
01:00:12
modest GDP growth around 2%. So it seems to me that everyone who wants to have a great economy should be supportive of
01:00:19
this AI boom that's happening. The job loss narrative is just that. It's just a narrative. It's a story. The media loves
01:00:26
to tell it. It's mostly theoretical. It's mostly anecdotal. You can point to
01:00:31
a few jobs here and there, but there's no evidence of widespread job loss. This is just something that people are
01:00:37
prognosticating about the future. And in every previous technological revolution
01:00:43
that we've had, yes, the jobs have shifted, but they've shifted from more rote jobs to more sophisticated jobs
01:00:50
that create a higher standard of living for everybody. The best example being that in the year 1900, 50% of the US
01:00:57
economy was involved in agriculture. In other words, one out of every two people were farmers. By the year 2000, that
01:01:03
number had dropped to 2%. The difference, the 48% did not become unemployed. They went off and did other
01:01:10
things. They worked in factories, for example, and they went into the services part of the economy. So I think what's
01:01:16
going to happen here is that AI is going to enable people to shift their work to
01:01:22
more gratifying and less wrote parts of the economy that will increase productivity and standards of living for
01:01:29
everybody. Biology has a really good way of explaining this and I think this goes to the heart of why the job loss
01:01:34
narrative is a fallacy is because humans are endto end. What makes them really good and irreplaceable is that they can
01:01:41
do an entire job end to end and they can pivot their objective and figure out what their objective should be. AI is
01:01:46
not like that. It has to be told what to do. It has to be prompted and then when it gives you a result, that result has
01:01:52
to be validated to make sure it's not hallucinating. And then frequently you don't really get the result you're looking for. So you have to iterate and
01:01:59
you have to reprompt and you go through this loop where you do it over and over again until you get something that's valuable. So in other words, humans do
01:02:06
the things at the end. They do the prompting and validation. AI does the stuff in the middle. So as biology says,
01:02:12
humans are end to end. AI is middle to middle. This is why fundamentally I think that AI and humans will be very
01:02:18
synergistic. AI will not be a replacement for humans. They're going to do the stuff in the middle that humans
01:02:23
don't like to do and it's going to allow humans to be much more productive. So right now I'm very optimistic about this
01:02:29
boom. And I do think that people who are criticizing it should really think about
01:02:34
whether they want the US to have 2% growth rates or 4% growth rates because
01:02:40
that's what we're really talking about here. Freeberg, CEO of Uber and Tesla believe
01:02:45
the opposite. They think these driver jobs are gone pretty quickly. Uh the data showing there's a bit of a serious
01:02:50
problem right now with young people getting jobs specifically because of AI.
01:02:56
And obviously GDP is not wages. The people we're talking about who are affected by these job losses don't own
01:03:02
equities. The top 50 55% of the country own equities. So what do you think about
01:03:07
this narrative? Do you believe it's a false narrative, a true narrative somewhere in between? Okay, here here's how I would think about what may happen
01:03:16
rather than think about someone quote losing their job, which you know is a term you keep using and others keep
01:03:22
using and I think would be yeah I don't what whatever it is it you're you're acting like they're passively in
01:03:29
a victim state. We have the lowest unemployment in history and there's an extraordinary demand for new capacity of
01:03:36
work by humans to do stuff in the United States right now because of the extraordinary manufacturing buildout
01:03:42
that is underway driven largely by AI and soontobe robotics and several other
01:03:48
industries. We just talked about rare earths mining and processing. There are many industries that are taking off in
01:03:53
this country that have not existed and there is a demand for labor. And when there's a demand for labor and there's a shortage of people to do the work, the
01:04:00
employer typically says, "Let's go recruit. Let's go spend. Let's go train." And when you have an innovation
01:04:05
cycle like is underway right now, the hiring for the new jobs happens before
01:04:11
the loss of the old jobs happens. So you have to have someone that builds all the Model T's before people stop becoming
01:04:18
horse buggy drivers. So who's going to do all the Model T building? They're going to get paid. they're going to get
01:04:24
offered money to go do those jobs. So what typically happens in these cycles
01:04:29
is that there's a recruitment exercise, a recruiting cycle that happens upfront. And so rather than say all these drivers
01:04:36
are going to lose their jobs, another way to frame it is that all of these drivers are going to be offered new,
01:04:43
higher paying jobs before there's lower demand for driving. And they're going to say, I can go make twice as much money
01:04:49
per hour by going over to take this new job. And then they're going to say, "I'd rather do that than drive. I'm getting
01:04:55
paid twice as much and I get to work on more interesting stuff. I like that." That's how this is likely going to go.
01:05:01
That is the more positive view on how what you're calling job displacement actually plays out in the US economy in
01:05:07
the decade ahead. A recruiting cycle precedes the elimination of old jobs
01:05:12
that aren't needed anymore. That recruiting cycle is a net positive for people. They say, "Wow, that is an
01:05:18
amazing improvement in my income, an improvement in my lifestyle. I get to work on more interesting things. My life
01:05:24
is better because of it. And then years later, the demand for those old jobs starts to die down, but at that point,
01:05:30
everyone's been recruited away anyway. So, Freeberg, you mentioned the the Model T putting all the horse and buggies out of business. And if we had
01:05:36
today's media environment around back in the days of Henry Ford, that's exactly what they would have been bemoning is
01:05:42
that all the horse and buggy guys are going to be put out of business. And part of the reason why that would have
01:05:47
been a very bad take is because it's easy to see the people who are being
01:05:54
displaced in the short term like maybe the Uber drivers or something like that. But it's hard to see all the new
01:05:59
industries and all the new businesses and all the new jobs that don't even exist yet that are going to be created.
01:06:04
So for example, what were the downstream effects of the Model T? Well, first of all, it created this new kind of
01:06:11
industrial assembly line which applied not just to cars but to all sorts of goods. I mean Henry Ford pioneered that
01:06:17
and that had huge ramifications for the US becoming the industrial power that it ultimately became which led it to
01:06:22
winning World War II. Then just in terms of the car, you had things like the build out of the interstate highway
01:06:28
system, the tire industry. Yeah. that just about the highways that led to
01:06:34
to Holiday Inn and hotels and motel and drive-through windows and McDonald's and
01:06:39
car culture and and the taxi cab industry itself emerged. George Lucas got his start as a director
01:06:46
by making the film American Graffiti which was all about car culture in the 1950s. So that led to Star Wars. I mean,
01:06:53
there's all these butterfly effects of the Model T being invented, which are absolutely massive. And it would have
01:07:00
been impossible to foresee all of that stuff a hundred years ago. When you have these new industrial revolutions or
01:07:06
these new technological revolutions, it's going to increase the capacity of humans to design all sorts of new
01:07:11
products, create all sorts of new businesses. And what we've seen is that this lump of labor fallacy that you have
01:07:17
all these humans that we don't know what to do with so you have to just keep them busy has always proven to be a fallacy
01:07:22
throughout human history. And by the way, those buggy drivers did not ch did not lose their jobs. They chose to go into one of these new
01:07:29
industries where they were offered more money. I don't think this is the issue at all. I would say that when you look at
01:07:36
Arizona, Indiana, and Wisconsin, what you are looking at are people whose jobs are not at risk today, tomorrow or the
01:07:43
next day because of AI. I don't think that's what it is. And I think that they probably on the margins benefit. The
01:07:50
question is more how are they getting information and how are they processing their point of view so that they show up
01:07:56
to these local municipality meetings and essentially cancel progress. That is a
01:08:01
very important thing to diagnose because it is not isolated. So I'm trying to ask
01:08:07
the question which I think is a more practical and important one is what do we do to make sure that the narrative
01:08:13
and the facts are clear because right now you're seeing very different and diverse pockets of people in largely
01:08:20
purple and then some red states voting against the exact things we need to
01:08:26
bring this abundance forward. And I think we need to figure out why and how that's happening and have a version that
01:08:34
counteracts that. Otherwise, this will become more slowed. It will not go
01:08:39
faster. Well, you bring up a good point there. There are I would say there's legitimate and illegitimate reasons to be skeptical
01:08:46
of AI. So, the one that you bring up, Chimoth, that I think is very legitimate is that we are going to have to stand up
01:08:51
a lot more electricity power generation. Otherwise, it could drive residential rates up and that will create a backlash
01:08:58
to AI and the buildout of data centers and we don't want that. So, that's a legitimate issue that has to be solved.
01:09:04
However, there are what I would call illegitimate reasons to fear AI. And that's got everything to do with the
01:09:10
media environment. And there spreading of all these unproven narratives in many cases based on contrived studies where
01:09:17
they're saying that, you know, there's going to be 50% job loss in the next few years or you have all the Terminator
01:09:24
type scenarios where AI is going to grow beyond our control. all of these doomer narratives that are being created that
01:09:30
are scaring people and creating a knee-jerk reaction at the state level, which we talked about last week, where
01:09:35
there's now a thousand bills going through state legislatores mostly because the legislators feel a need to
01:09:41
quote unquote do something, not because they know what they want to do. So, there's a lot of unnecessary fear out
01:09:47
there that's been created by the media and then by organizations and companies who have a regulatory capture agenda
01:09:53
around this. I hear you. What what I'm saying is we need to figure out how to fix this because you can't have Google,
01:09:59
Microsoft, and Amazon cancel essential projects that advance this entire sector
01:10:04
and economy forward. We're not talking about some random fly by night business here. We're talking about three of the
01:10:10
five pinnacle horsemen of the AI race that we are fielding on the field.
01:10:15
Well, you we're looking for suggestions. Do you have any off the top of your head? Do you think it's in education? Do
01:10:21
you think it's in explaining the value of AI and how those people in those states would benefit from it or do you
01:10:26
think it's just simple economics lower their electricity bill? I think there are two things. The people in Indiana and Wisconsin said again
01:10:34
electricity prices, water and noise. I think that we can fix those problems and
01:10:40
I think we we meaning our industry and specifically the hyperscalers
01:10:45
need to start using these gobs of free cash that today public markets don't value anyways. It's not like Google,
01:10:51
Amazon, Facebook gets credit for their cash. In fact, Facebook's stock price went up when they basically burned
01:10:57
through all their cash. You want to see them invest. And so, if you really want to take the capex around AI and make it
01:11:04
a true super cycle, there's another avenue of where capital can be deployed. I would encourage the CEOs of these
01:11:11
companies to wake up and get their act together and do it. That's number one. And then the second thing is I think
01:11:16
that we need to have better spokesman for our industry. So meaning every time you see somebody talking about all these
01:11:24
naval gazing technologies and then can't translate it into simple English into
01:11:29
product value. For example, this week on the one side we have anthropic AI
01:11:35
doomerism that Saxs had to confront, but then on the other side there were all of these people that got freaked out
01:11:40
because open AI wants to push towards erotica and all they could think of was the impact to their children.
01:11:47
Again, this is not necessarily true or not true, but the point is we need to have better, more eloquent,
01:11:55
reasonable spokesman who can articulate a vision that everybody can buy into. And I said this on X, what is Arabella
01:12:03
and Soros going to get behind now to find a boogeyman? You don't have Israel. You're not going to have, you know,
01:12:08
Ukraine soon. So, what are you going to find as a boogeyman? And it's it's unfortunately sitting right in our
01:12:13
backyard. Yeah. I'm I'm not sure Altman is the greatest spokesperson for the industry.
01:12:19
Just to to clean up a little bit here, uh Freeberg, my position isn't doomerism. I just think displacement is
01:12:25
going to be more significant than we think. And the evidence I have of that is just watching what's happening with
01:12:31
young people applying for jobs and the increase in unemployment there. And then looking at the people who deploy AI at
01:12:37
the highest velocity which are obviously tech companies and if you look at Alphabet
01:12:43
you know they had peak Googlers in 2022 190,000 and they've had massive earnings
01:12:50
and profits increase and have 187,000 people now in other words less. And then you do the same for Meta Uber and
01:12:57
Amazon. You know, Meta peaked at 86,000 employees now at 75, Uber at 33, now at
01:13:05
31. And Amazon, where you'd think you'd have a lot of growth here, uh they're at
01:13:10
they peaked at 1.6 and now they're down at 1.55. So, these companies are not
01:13:15
hiring. the gains they're talking about publicly in the deployment of AI are
01:13:21
significant and they all have aggressive plans to use automation specifically in
01:13:28
robots and self-driving and obviously knowledge work to reduce headcount
01:13:34
increase profits and I think that's going to become the narrative that's going to be very challenging for our industry because if you look at our own
01:13:39
companies they're saying wait a second your companies aren't growing and my kid got a computer science degree if you look at the unemployment level of people
01:13:46
graduating with computer science degrees who are developers. It's increasing. Unemployment amongst developers is
01:13:53
increasing and that's just really notable. So, I wouldn't say I'm a dumerrist, but I am concerned that the
01:14:00
new jobs might not show up as quickly as the old jobs or the static team size uh
01:14:06
trend continues because we've had static team sizes for years now. Okay, this has been another amazing episode of the
01:14:12
number one podcast in the world, the All-In podcast. Tell your friends, write a review
01:14:19
about how much you love the All-In podcast. We'll see you. This is episode 247.
01:14:26
Thank you to our Sultan of Science. We missed you last week. To our Zar, have a
01:14:32
great time this weekend at Sluck Con. Be safe at Sluck Con.
01:14:37
Slutcon's already happened to be clear. I'm not going. We missed it. Where's the afterparty? There's got to be a postplay party uh
01:14:44
this weekend. Who knows? It's got to be an afterparty. And of course, puts the dick and dictator. Your chairman.
01:14:52
He puts the dick in dictator. You play the [Â __Â ] and slutcon. I sure you put this bizarre and bizarre
01:15:00
and he puts Oh my god. the anus in your anus and calccanous.
01:15:05
And he puts the anus in. I don't think you want to use that word. I don't think that's one you want to use. Anus. All right. And Moose is doing
01:15:11
great. Thanks. I love all you guys. Thank we'll let your winners ride.
01:15:18
Rainman David. And it said, "We open sourced it to the fans and
01:15:25
they've just gone crazy with it." Love you. Queen of Kino.
01:15:30
[Music]
01:15:36
Besties are gone. That is my dog taking notice your driveways.
01:15:43
Oh man, my appetiter will meet. We should all just get a room and just have one big huge orgy cuz they're all
01:15:49
just useless. It's like this like sexual tension that we just need to release somehow. Wet your feet. Wet your feet. her feet.
01:15:59
We need to get murky's I'm going all in. [Music]
01:16:09
I'm going all in.
