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we don't want to talk about andrew i think that guy palmer lucky is super fascinating the oculus why do you want to talk about that company because i
00:00:06
think he's launching a syndicate soon no why are you an investor lucky hates me he won't come on this week in startups
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literally what did you call him parma lucky palmer lucky cosplay palmer he's a
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cosplayer i like the fact that he does what is that that's when you dress up as comic book earth like superhero
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characters and go to conventions you know how you dress up in the clothes of old italian women he dresses up like a
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in italy there's like a culture like in the in the olden days like it's like you used to have these things called salati
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which basically meant like all the decisions of the country were made by these people in the living rooms after
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dinner and you know the the most powerful people in the salati were uh these women who were married to these
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men and they would be the architects of all these diseases and he would never finish the pasta he
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always leave with so much on the plate and people and people would call them matronas right so i'd probably be a matron i've
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always felt you were like the old italian lady in our groups
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[Music]
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[Music] hey everybody welcome to another episode
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of the all in podcast yes we're still publishing yes we haven't been cancelled
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but it's early in the show so you never know uh with me again the dictator himself chamoth
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the sultan of science david friedberg whatever beverage you like he'll make it for you right now in
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his replicator and of course yeah the rain man himself yeah
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definitely going to win the midterms yeah david sacks everybody have a great week getting
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their asses kicked in the market i'm pretty good you're okay everybody okay nobody
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look i can't look at my portfolio anymore i just stopped checking it i uh
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not a fan of the color red i actually um i i've been using this
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period to kind of desensitize myself um i went back and i started to think about like all of the
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sort of errors of commission that i've done in like the last decade and i
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i was able to look at like four or five specific trading moments where i was like wow what did i do that for
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and i came away with two things one was if i confuse an investment with a trade
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i'm done for meaning like there are things that you invest in that you just want to own forever and then there are things that are trades that are just
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speculative and you know at the end of the day you have a sense that it could be up in the short term
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if i confuse those two i've made huge mistakes and then the other one is i would always get really emotional and panic at the
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lows and so i was like you know in early december or november when i wrote that
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letter on twitter and we talked about it and i sold a bunch of stuff after jeff and and elon were selling
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raised some cash and i was like okay now i have enough buffer here
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the whole point from here on out is to basically like insulate myself from my own emotional
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turmoil stocks go down and so far so good and my litmus test is when i go home
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uh at the end of every day you know i check in with nat and i'm like am i an [ __ ] because if i when i guess what
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does that have to do with investing when i get crushed in the market i tend to i tend to take it out of my friends and my loved ones obviously because we're your
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friends we come to your poker game when your socks are down and you're just like oh
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my god i brought it once that's it i'm popping the glides up i can't take it anymore do you remember last year jamal
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during the the market collapse uh when at the start of kovit and you decided
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you didn't care about having nice jeans anymore and then you fast forward to december and you were proclaiming the
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virtue of a five thousand dollar fresh alpaca sweater or whatever i think i think another another indicator of
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sentiment in the market for you is your clothing uh oh my god uh choice but this is a this is a really
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nice cashmere ribbed sweater from loropiana okay well we're back in the games it's good to see we're back to
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normal now yeah let me ask you then i'm going to put a couple of uh items out there is bitcoin a trade for you or an
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investment for you or was it and is it now well i invested it in 2011 at 80 dollars yeah yum yum
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i wrote an op-ed in that same year in bloomberg which i hope at some point
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they take off the paywall yeah and the whole thing was you should have one percent of your net worth in this
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thing yeah it's remained an investment ever since so still an investment yeah i've
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structured it so that i don't hold any bitcoin personally myself because i don't want to have the pressure and the risk of keys and coins and wallets and
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this and that but i still really believe in bitcoin in the long term got it sex how do you how
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how do you deal with the emotional turmoil of opening up your stocks crypto whatever wallet and seeing red and then
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going to work every day or you just curled up in a ball playing chess with peter taylor
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yeah i mean you just gotta try and ignore it okay try was a key word in that sentence it doesn't really affect me that much i
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mean so i run the avoidance acceptance function i have removed my emotions no
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look there are there are countervailing benefits so when exit prices are great
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entry prices are lousy and when when entry prices are great exit prices
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are lousy so there's an inverse relationship so in other words all the the companies that i mean
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the public markets have massively corrected and though and now finally you know we talked about this few few months
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ago those new price levels have trickled their way down into venture markets and so finally you know venture deals are
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starting to price at more reasonable prices so in terms of harvesting
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gains from old investments um obviously it's not as attractive as it was three
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months ago but in terms of making new investments is much more attractive and for a relatively
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young venture firm which is what we are you know we yes we do have some investments that are kind of in the harvesting stage but you know we're only
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a four or five-year-old firm we're still the bulk of our activity is making new investments so
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you know it's not it's um it's all just kind of part of the game and i'm not really that worried about it said another way fortunes are
00:06:44
made in the down market they're collected in the up market is the way i always phrase it but it's true things are going to be on sale right now we saw
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bill ackman i think uh who i think is a friend of the pod i think he listens yeah super super
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super smart brilliant yeah and i just i just want to emphasize because i don't want founders to get the wrong idea it's
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not like we're trying to pull one over on founders and get some sort of sweetheart deal or something like that
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my view of like our role as vcs is just to be a price taker of whatever prices
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the market sets we don't try and negotiate something better than market really we just take the market price
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and we pick the companies we want to be in so that's our job is really just to pick not really to negotiate that much
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you're not you're not able to haggle it's not like you can go yeah exactly the market's super marketers like oh bananas are a dollar a pound i'll take
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them for 50 cents they're like oh sir this is a whole foods we don't negotiate breakfast right so we're we're a price
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taker in in good markets or bad markets and um it's just that i think that the prices now are coming down because what
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i've heard is that the crossover investors like tiger like co2 who are deploying all this money they've really
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uh slowed down now i think they're all kind of licking their wounds and so like all this money that was flooding into
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the venture space is kind of on pause right now and that's caused the price levels to
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drop the end of last year in q4 my public portfolio really started to
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turn over took a huge amount of losses going into the end of the year
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and then i took an accounting obviously of like the entire book and uh the public portfolio every single
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thing that i owned ultimately basically broke even last year some were up i made some early sales
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some were way down by the end of the year net net i kind of broke even but my private book was up a billion
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dollars and i told the team i'm like uh no this is not real so we have to take those marks because you know you have
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other venture firms that are pricing these deals and we get audited k-1s and so we have to take the up
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billion but i told them you should consider this that we had basically a down you know so net net our returns
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were like you know we were up like 15 and i said this is not real we were at at best break even and probably we lost
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money but you can't you can't not take these marks because like you know you have an entire fund complex that lives on these marks
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yeah it doesn't affect my compensation at all but i have to take it freeberg then sex good for you that's a really
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important point because i think we talked about this one or two episodes ago um but there's a significant
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disincentive for venture firms to take markdowns to raise capital into a
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private business at a price that's lower than the prior round because when they do that the the marked value of their
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portfolio goes down and then it makes it harder for that venture firm to go out and raise the next
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fund that they're going to try and raise from their lps because it looks like they're not good investors and the reality is and so in every round as
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everyone on this pod knows there's always an incentive and a push to see can you get the valuation higher even if
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the business performance didn't meet the objectives of the prior round and things have gone sideways a bit doesn't
00:09:55
necessarily mean that it's a bad business but it doesn't necessarily mean that it should always be getting an uproad just because it's being kept
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alive and there's this artificial um pressure in private uh equity uh in venture to
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always drive the value up or to run away from the company because otherwise you're gonna have this markdown and you
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don't wanna be putting money in a markdown that looks like a loser and so on and if you look at the public markets
00:10:19
every successful company has had significant downturns in their stock for um significant periods of time from
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facebook to facebook to amazon to netflix and all
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of those businesses were sound businesses it's just that for whatever reason there were perturbations and markets perturbations in the business
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but the long-term value creation was still there and so i think we need to kind of you know be really thoughtful
00:10:43
you know and and entrepreneurs should be very thoughtful not to give in uh to the venture mandate to always
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drive value up but to be really thoughtful about getting the right valuation for your business and getting the capital you need with the right partners can i say something about this
00:10:56
it's so important what you said one of the tactics that i started three years ago was i run
00:11:01
my own shadow portfolio where i don't take the marks and i just keep them at my cost basis
00:11:07
and i'm not allowed to use that for anything i don't you know i can't use that obviously i would never use that for compensation with my team or
00:11:14
anything else but i use it in my own head to say okay if i invested a dollar let's not
00:11:20
think about what somebody else may think about what that dollar is worth let's just keep it at a dollar unless it's impaired but i don't take the markups
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and i look at my portfolio that way but it's a very difficult thing to do and the reason i do that is because i
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don't have the pressure to raise incremental funds but if i did i wouldn't be able to play that game and i'd be very
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focused on making sure other vcs marked up my deals because to your point it takes 10 12 years to drive liquidity
00:11:47
literally that's the key here and so what are you supposed to do if you're a venture business in year three or four
00:11:52
except raise money on markups paper markups are the they're the they're that's the
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lifeblood of what events industry going yeah totally well i mean the interesting thing for me is i lp a couple of these
00:12:05
small like emerging fund managers you know microfunds 10 million or so 3 million and they were sending like a lot
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of updates and so i'm in some top-tier venture firms that some of you are in and they send you an audit every year
00:12:17
and they send you a distribution cash on cash here's where you're at and then i was getting like quarterly
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emails as everything was going up these new fund managers are like we're at 100 irr we're at 200 irr because this crypto
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investment we did got marked up and i was just thinking about what bill gurley would always say which i think is a howard mark's quote you can't eat irr
00:12:36
like what are we doing here like why is there such a focus on this is because you want to raise your next fund
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and then the other game people were playing was and i got into this um because people were like oh you know
00:12:48
you're grossly undervaluing your uh funds because robinhood is
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trading at 30 a share on the private markets com is trading at this in the private markets and the second people
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were using secondary market transactions as their mark so i'm curious sax how do you think about
00:13:05
if you invested in a company the series b was a hundred dollars a share but then somebody bought it at 150 a share in the
00:13:10
private markets where do you like to mark that in your funds or how do you think about that in getting ahead of
00:13:15
your skis in terms of valuing your private funds well to the most points we
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have accounting rules around this so we can't like subjectively decide like what
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mark to set for each company for you know obvious reasons our lp's want like
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a predictable accounting so the way it generally works is that you the mark is set by the most recent
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private you know financing this is the way it works and if people
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want to discount it from there they certainly can you know what about a secondary transaction is there any
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more complicated rules around that because it's a different class of stock so um it's some combination of sometimes
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we use a 49a sometimes it's the latest preferred round it's um you know it just uh there's like
00:14:02
complicated rules around it by the way i'll just to rehash what was already said and just to
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say it one more time chemoth pointed out that it typically takes 12 years to liquidity from the time a startup is initially funded to the time that you
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sell it or go public show me one public company that has had 12 years of cons consistent gain in its
00:14:21
stock price it doesn't exist and so again like this this notion that you
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know every startup is seeing some perpetual persistent increase in value uh is an artifice that um
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doesn't really represent it doesn't it doesn't exist in tech and that's that's a feature not a bug right meaning the
00:14:38
things that can go up predictably for 10 to 12 years are not necessarily businesses disruptive they don't take
00:14:44
risk they're not dynamic no they don't take risks yeah saks can you define perturbation for the audience i heard
00:14:50
freiburg say that a couple of times perturbation would be perturbation changes what like volatility basically
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yeah rapid change anxiety mental uneasiness okay a cause of anxiety or uneasiness
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okay i got it i thought you were saying another word you don't use the word perturbation i i thought you said another word what
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word was
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speaking of markets we were on a text on our text thread talking about if we're about to have the
00:15:27
uh start of world war iii and then
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maybe this is not in the news now how do we look at the uk russia
00:15:38
situation in the ukraine obviously 100 000 troops are amassing on a border
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and what is the goal here um because biden is saying hey listen
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if anything happens we're going to go to war and there's a lot of saber rattling
00:15:55
here i don't exactly understand what putin's goal or motivation is and that's
00:16:00
i think what i'm not hearing in the news is exactly what is his goal what what are your thoughts on what's happening in uh
00:16:07
the ukraine and russia uh sects okay well i think first of all we have to kind of level said in historical
00:16:14
terms about how unusual and unprecedented it would be for us to send troops
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to fight you know potentially russia in a border conflict with ukraine
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which and by the way the bind put 8 500 troops on alert for deployment this week
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it's really without historical precedent uh during the cold war
00:16:37
you know in 1956 soviet tanks rolled into hungary to crush rebels air eisenhower did nothing 1968 soviet tanks
00:16:45
rolled into czech slovakia to crush the frog spring lbj did nothing 1981 the
00:16:50
soviets crushed the solidarity movement in poland ronald reagan did nothing even
00:16:56
though he had campaigned on getting tough with the soviets and then more recently in 2008
00:17:02
when russia invaded uh georgia george w bush did not intervene
00:17:07
militarily and in 2014 when putin occupied crimea
00:17:13
obama did nothing and so this idea and the reason for that in all those cases is because america has a vital national
00:17:21
interest in avoiding war with a nuclear-armed russia and we did not have a vital national interest in defending
00:17:28
the territorial sovereignty of those nations that's the bottom line
00:17:33
and so for us to be now beating the drums of war and talking about sending
00:17:39
troops into a war zone with russia is just it's unbelievably
00:17:45
friedberg uh one might speculate uh if they were cynical some sort of wag the
00:17:51
dog situation here biden's not doing well he's lowest popularity ever
00:17:56
midterms are coming up is there any political motivation here do you think and what biden's actions
00:18:02
are you know given the context of what saks just outlined i i think that there's um this is like showing up to
00:18:08
the you know the last 20 minutes of a two-hour movie and then saying oh my gosh what's this guy doing he's so crazy
00:18:14
there's a long narrative that precedes the current news cycle on what's happening with putin and the ukraine
00:18:22
you know in large part the united states helped to start the fuel um the expansion of nato in the 90s
00:18:29
and the intention was to make nato as a western allied kind of organization
00:18:35
contain russia step up right to their borders get very close and
00:18:41
and ultimately make these kind of you know areas free liberal democracies
00:18:47
that are aligned with the west and put them right on russia's border and and that is obviously
00:18:53
antagonistic if anyone tried to do that to the united states like russia did with the cuban missile crisis
00:19:00
we would view that as a hostile act and we would react accordingly and for years
00:19:05
the pressure has been building and has been mounting as putin has started to kind of solidify
00:19:11
uh his political power at home and his allies abroad in trying to figure out ways to push
00:19:17
back on this wall that has been built around him and his nation and you know to some degree i think we look
00:19:23
at this as like his aggressive behavior but to some extent it is a defensive behavior over a
00:19:30
very longer cycle when when viewed that way and again like remember the us had this
00:19:35
monroe doctrine um which president monroe put in place in i don't know 18 1800 something that said you know anyone
00:19:41
that comes into our territory and tries to influence nations around us to be hostile towards us is is a hostile
00:19:48
act in and of itself anytime someone tries to influence our politics it's hostile and i think russia viewed our
00:19:54
behavior and nato's behavior this way and so his primary demand is and has always been that the ukraine cannot and
00:20:00
will not and should not join nato and the u.s response has and continues to be and and the eu and the eu and we're
00:20:06
saying look we we believe in the sovereignty of the ukraine and we want the ukraine to make
00:20:12
their own decision about where they go and what they do but the reality is for us this is a key part of a very
00:20:17
long-term strategy to keep russia contained now meanwhile there's this beautiful backdrop of what's going on
00:20:23
with china and if i'm china i would love to see the u.s and russia in conflict
00:20:28
because it will weaken the u.s and if i'm russia i would love to see the u.s and china in conflict because it will
00:20:33
weaken the u.s the u.s is in a very precarious situation right now and for us to actually end up in conflict it's
00:20:39
going to weaken our position with one of these other two emerging you know challenging you know superpowers
00:20:45
and this is a a really precarious time i think to sax's point it's highly unlikely we're gonna end up sending military but the posturing is such that
00:20:52
we need to kind of hold our line until the very last minute we'll see what happens i did say you know at the end of
00:20:58
the year i do think that we're in this kind of economic status right now that
00:21:03
if there were an opportunity for conflict we're probably more likely to want to engage in conflict than not because it does create something that we
00:21:10
all get behind it creates you know kind of a political unity it creates economic unity it creates driving forces that
00:21:16
maybe might help us through what is clearly a very volatile and difficult time at home um so
00:21:22
let's see what happens i think obama's already given us the end game i just think we have to go through the machinations to get there he said to the
00:21:29
atlantic i think it was in 2016 or 17 he said the fact is that ukraine which is a non-nato country is going to be
00:21:35
vulnerable to military domination by russia no matter what we do and you know every time there was this brinksmanship
00:21:40
we effectively blinked and rightfully so because it didn't necessarily make sense to
00:21:46
to all of a sudden engage the war machine to go to war in eastern europe
00:21:51
the thing that's interesting about what happened here though was that this was a slow moving train wreck that was really
00:21:56
visible years and years ago why is that well if you look at what was really happening
00:22:02
this is really a european issue and you got to think well why is america being the leading actor here when you
00:22:09
know where's europe in all of this well it turns out that you know the strongest power in europe
00:22:15
germany is in a really difficult situation because they rely on russian energy
00:22:22
50 of uh the nat gas that comes in or 50 of the energy i think that comes into
00:22:28
germany is from russia and they've in fact been building an entire pipeline system
00:22:34
um from russia that bypasses the ukraine and goes straight to germany and so when all of the saber rattling was happening
00:22:41
germany basically had to blink because they need russia's energy and why did they need russia's energy
00:22:47
well they needed russia's energy because 20 years ago the environmentalists in germany won and they started to decommission all their nuclear reactors
00:22:53
that's so ridiculous there was no so at summer along the way nobody took a science class in germany and figured out
00:22:59
that nuclear was both safer and cleaner instead burning fault fuels was the only wiser to not have a dependency and after
00:23:07
the fukushima they went turned them all off they accelerated it yeah it made more sense to burn fossil fuels number
00:23:13
one and then to get those fossil fuels from russia so unfortunately we are in the state of
00:23:19
affairs where you know germany has said at least it's been reported that they
00:23:24
would shut down this pipeline nordstrom 2 if uh if russia did something but the reality is i think obama basically told
00:23:31
us that you know it's going to be very difficult for us to justify an act like this especially against somebody who is
00:23:37
fortified and clever and smart this is not like invading the middle east and so this is a massive if this happens the uh
00:23:44
the stock markets will just go absolutely to zero i mean if you could have negative stock prices this may be a good one
00:23:51
to take these netflix shares please that's unbelievable it's it's really really crazy
00:23:57
this is it seems like a situation where we're assured not to get into to mix it up with him like i i don't
00:24:04
understand putin i don't understand biden saying that he's absolutely going to react to this
00:24:10
because we're not we can't afford to get into a war right now that's right and if that is true then
00:24:17
you know us dominance the u.s ability to hold the line starts to decline
00:24:22
and i don't know if i agree with that because um i think we could defuse this crisis very easily
00:24:29
yeah which is the exit ramp yeah tell us well the the exit ramp here is what is putin demanding putin is demanding that
00:24:36
we affirm that ukraine will not be part of nato in my view in my view that's giving him the sleeves
00:24:43
off our vest because we should not want to add ukraine or georgia
00:24:48
to nato that would do nothing to enhance the security of the united states we wouldn't get anything out of it but we
00:24:53
would be obligated under uh article 5 of exactly to defend them so admitting ukraine or georgia or
00:25:01
moldova could ultimately bring us into a war
00:25:06
exactly so to free to freeburg's point earlier we have been poking the bear for two
00:25:12
decades with our expansion of nato right up to russia's front porch and if you go
00:25:18
all the way back to 1990 when george herbert walker bush was president and james baker was secretary of state
00:25:24
there was an assurance made by james baker that you know basically they had gone to gorbachev and
00:25:30
said we want to you know we for help in reunifying germany and the promise made that famously that james baker said is
00:25:37
that what gorbachev said is we don't want nato expansion and baker apparently said not one inch eastward
00:25:44
was the line and um and we we think back to how well uh herbert walker bush and james baker
00:25:51
manage the end of the cold war how do they do that they they did that by making assurances to russia that we
00:25:56
would not bring nato up to the front porch as well which is what we did in 2000 we've now added something like 14
00:26:02
countries in eastern europe to um you know to nato including in 2004 the
00:26:09
the baltic countries and that decision by george w bush really is the thing that pretty much severed our
00:26:14
relationship with putin you have to remember that putin is he is fairly popular in russia because
00:26:21
he stokes russian nationalism and what is the source of that nationalism it is because a single
00:26:27
tree organization nato now has this huge contiguous border with russia they now
00:26:33
feel encircled and if we were to add ukraine to that organization there'd be
00:26:39
a 1200 mile again border which um that russia would have with
00:26:44
with just this one this one alliance it would be akin to imagine if we were still in the cold war
00:26:51
and canada were added to the warsaw pact right i mean we would be incredibly threatened by that
00:26:57
so and so but but you know you never hear jacob you never hear any of this on the news all you hear is the beating of
00:27:04
the war drums and putin is portrayed as this mad dictator he has no legitimate concerns now look putin is an
00:27:10
authoritarian and you could describe him as a bully and a thug and he has provoked a dictator he has provoked this
00:27:16
situation certainly okay but you know we treat him as if he has no valid concerns
00:27:23
whatsoever and i think the simplest thing to do to defuse this crisis would simply be to say yes we have no
00:27:29
intention of adding ukraine to nato and then we will find out if putin is a liar or not well that would be a great move
00:27:35
like it's a that would be like hey let's take a five year pause okay you know what we'll negotiate with you we'll take five years we won't put them in nato
00:27:41
give give a little bit of a concession because their country is not doing well their gdp trials china and the united
00:27:47
states their gdp per you know uh each citizen is incredibly
00:27:52
low compared to the west like and then we could just work with germany to get on sustainables which is what their goal
00:27:57
is and we could economically continue to trounce them because as you point out
00:28:02
every week chamoth they're not an important economy here's what obama said about putin obama said the truth is
00:28:09
actually putin in all of our meetings is scrupulously polite very frank our meetings are very business-like he never
00:28:15
keeps me waiting two hours like he does a bunch of these other folks he's constantly interested in being seen
00:28:20
as our peer and as working with us because he's not completely stupid he understands that
00:28:26
russia's overall position in the world is significantly diminished yeah he's not crazy he's not dumb and by the way
00:28:33
nationalism as sax points out which is a a a primary you know drum call for for putin
00:28:41
is not a novel sense we we are a nationalist country nationalism is um
00:28:47
you know pride and and wanting to make sure that your country is treating with treated with respect and has sovereignty
00:28:53
and so i don't think that putin is an irrational actor his behavior is very rational in response to what's gone on for 30 years and his requests are that
00:29:00
he is feeling threatened and he's trying to avoid military conflict as much as he can and we portray him as being an
00:29:06
aggressor that's demanding military conflict and at the end of the day our behavior over a long period of time as a
00:29:12
country has driven us to the brink here and i think saks is right you know the right decision
00:29:17
may very well be to to kind of you know leave the region alone and focus on issues that matter more deeply to us and
00:29:24
are a higher priority rather than drawing us into this but a better investment would be in sustainable energy i think the economic seed is
00:29:30
planted for us to be in some sort of conflict this year so you know we're going to end up explaining what you mean by that freeberg economic seed to be in
00:29:36
some sort of conflict i think that you know generally if if you're not going to see homegrown
00:29:42
you know economic productivity gains and you're suffering trade issues like we're going to suffer this year given the
00:29:47
supply chain problems globally we're going to look for some place to manufacture growth
00:29:53
and uh there's no better way to manufacture growth and through um the dog through conflict the foreign policy
00:29:58
establishment in washington you know the neocons the you know the so-called washington blob i mean here they are
00:30:04
being the drums for war we haven't been in a war for what six months we just got out of afghanistan and now they want us back in another war
00:30:10
and and the media just keeps fueling and fermenting this and they don't you know their coverage
00:30:16
of it is well it's exactly what we talked about last week jake out when i pointed out that you're your rhetoric your humanitarian rhetoric
00:30:23
as noble as the sentiments are when it gets whipped up into a lather in a frenzy by the media it blunders us
00:30:31
into a bunch of stupid foreign interventions let's call it beliefs my beliefs are not rhetoric but i i get your point
00:30:38
but here we are one week later and exactly what i said the risk of this is has now materialized clearly you're
00:30:43
blaming my position on human rights now what i'm saying is that this type of rhetoric is used by the
00:30:49
military-industrial complex and the washington blob and the neocons to stampede us into wars that don't make
00:30:55
any sense that's what i predicted a week ago that's or that was my concern death that one here we are one week later and
00:31:01
we're in exactly that situation it is our most successful export it is our most successful export jkl really
00:31:07
important there's a difference between there's a difference between belief and how do you act on that belief and
00:31:12
what are your actions based on your belief yeah and i think that a big part of what's gone on and this harkens back to a few episodes ago when we all got in
00:31:19
trouble uh or there was an attempt at cancelling us after we spoke about this but but when
00:31:24
those beliefs are um sacks pointed out harnessed in a way that um ultimately co-opted in a way to
00:31:32
to fuel and to drive you know conflict uh it uh it obviously
00:31:37
goes beyond belief and it starts to move into an area where there is a very wide spectrum of action yeah and uh it's very
00:31:44
easy to tip yourself onto the one side of the spectrum and as a result caused a lot of harm and a lot of damage like we've done in
00:31:50
afghanistan like we've done in iraq here's a great lens what is the cost of going to war in the ukraine versus
00:31:56
whatever human rights or sovereignty issues they have hundreds of thousands of troops going to
00:32:01
war is going to result in more human suffering than what's currently happening for ukraine it's sort of
00:32:06
exactly they're going to they're going to be in the middle of a the war is going to happen on their turf the humanitarian interest is in diffusing
00:32:13
the situation and the way the way to do it in a way is to
00:32:19
is to you know accede to this one demand that putin has about not emitting ukraine to
00:32:25
nato which just to say something more about why we shouldn't want that the problem in ukraine and georgia and
00:32:33
moldova first of all these are not north atlantic countries right this is mission
00:32:38
creep by nato they're in the caucuses and the problem they have is they're sort of these breakaway you know russian
00:32:44
republics but inside of these countries there's breakaway provinces
00:32:49
you know there are ethnically russian areas within these countries that want to
00:32:55
break away from them so you have a breakaway within the breakaway and so you've got these powerful complicated
00:33:01
it's very complicated so for example in georgia in 2008 when there was a war there and russia did invade georgia but
00:33:08
it was on behalf of these breakaway provinces of south ossetia and abkhazia
00:33:14
and then in uh in ukraine they've got um the donbass
00:33:19
and and crimea which has now been annexed by russia which are these majority ethnically russian areas
00:33:27
you know and same problem in moldova so the problem is you've got these like
00:33:33
incredibly complicated border disputes within these countries based on ethno-nationalist tribalism
00:33:41
and you know sounds familiar right the us does not have a vital national interest in getting involved in those disputes
00:33:47
and by admitting these countries into nato they could pull us into those disputes because the key provision
00:33:53
article five of nato says an attack on one is an attack on all we're obligated to go to the defense of those nations
00:33:59
how is the security of the united states enhanced by that requirement they get a lot out of it we don't get anything out
00:34:06
of it this is slightly this is a distinctly different than say taiwan as an issue but let's put that aside and
00:34:11
we'll get to that in a second if china and russia and the united states
00:34:17
are in this very complicated chessboard is there a way not only to defuse the situation but is there a way and i know
00:34:23
this sounds like a crazy hail mary to deepen the relationship with putin and make
00:34:29
russia and the united states in some way allies against this relationship with china because the russia-china relationship is
00:34:36
also very complex is it is there some path to us having a relationship she's
00:34:41
holding a summit the last person he saw in real life was
00:34:46
the leader of pakistan in 2020 before the pandemic started do you know who he's meeting with in two weeks before
00:34:53
the olympics started in a week it's put yeah in person
00:34:58
and then the there's going to be a tripartite uh alliance conference between uh china
00:35:04
russia and iran great so i think this idea that
00:35:12
that all of a sudden somebody's gonna found some holier holier-than-thou perspective on what the right thing to
00:35:17
do is for other people is going to be challenged so those guys are going to think about themselves
00:35:23
and they're creating alliances to basically further advance their own objectives and so i think we have to as
00:35:29
well the thing here i think what de-escalates all of this is economic sanctions and monetary impact
00:35:36
because if nordstream 2 doesn't get turned on which is in germany's control
00:35:42
that has a huge economic impact to russia explain what it is north stream two is that pipeline that i just talked about the nat gas pipeline that that
00:35:48
basically doubles the amount of nat gas flowing from russia into germany and essentially
00:35:54
into all of europe but hasn't germany said if they invade the ukraine they haven't said it they
00:35:59
haven't said it on the record they it is it is thought that chancellor schultz that that it's
00:36:05
theoretically on the table but it hasn't been officially declared biden today
00:36:11
said that he's talked or somebody in the white house um has talked to all the major banks in the us about crippling economic
00:36:17
sanctions so i i do think the way this gets de-escalated is through money and if you you know if you severely
00:36:24
impinge russia's ability to sort of grow their economy that foments a lot of you know
00:36:30
anger at home and i don't think that you know that'll probably weaken and destabilize putin
00:36:36
more than you know uh trying to sort of have a an i don't
00:36:41
know some kind of like get together and hug it out session with him yeah i mean so jason you raise a good
00:36:48
point with you know can we improve our relationship with putin obama tried right we had the whole reset and
00:36:54
ultimately it wasn't tremendously successful but i think a lot of it has to do with the
00:36:59
way that the foreign policy establishment washington sort of reacts
00:37:04
and i obama had some really good quotes about this um i think it was in that atlantic article where you know first
00:37:10
he's described that uh you know that russia has a vital
00:37:16
interest in ukraine in a way we don't because it's right there it's on their border they've been attacked russia has
00:37:21
through the ukraine you know throughout history so again it's just a primary interest of
00:37:27
theirs and uh so after saying that um obama then
00:37:33
you know he he basically got attacked you know by you know in a but it was
00:37:39
some of it was partisan but and then he responded to the attacks by saying if there's someone in this town washington
00:37:45
dc that would claim that we would consider going to war with russia over crimea and eastern ukraine they should
00:37:51
speak up and be very clear about it that he challenged and then he said so so so
00:37:56
the ish and no one did right noah was willing to just come right out and say that we should go to war over this
00:38:02
and that's how he defused the attacks on himself and then obama continued he said there's a playbook in washington that
00:38:07
presidents are supposed to to follow and the playbook prescribes responses to different events and these responses
00:38:12
tend to be militarized responses you are judged harshly if you don't follow the playbook even if there are good reasons
00:38:18
so what obama is saying is that noah would defend a more militarized uh posture and and
00:38:25
going to war against russia over the crimea and yet he was somehow portrayed as suspect
00:38:32
you know by not being tough enough on russia and um so you know if you're putin and you see
00:38:39
constantly the foreign policy establishment you know reacting in this way it's it's not a problem that even
00:38:46
one president can just fix overnight you know what would change this is if when we send a hundred thousand troops over
00:38:51
there uh it's a draft and you know it's not a all paid military the fact that
00:38:56
these people in washington who got their kids in georgetown or harvard or wherever they are stanford don't have to send their kids over there to fight this
00:39:02
war is one of the reasons they can write these documents and have these doctrines that hey you gotta send all these troops into harm way harm's way like if they
00:39:09
had to send their sons and daughters it would be a much different discussion of like where we're going to start a war whether it's afghanistan or the ukraine
00:39:16
right let's go to markets um bill ackman uh came over the top he's buying a ton of netflix and tesla just
00:39:25
absolutely flipped to becoming a money printing machine
00:39:30
uh and had a ridiculous quarter revenues up 53 to 53 billion up 71 year-over-year
00:39:38
q4 revenue 17 billion 65 year-over-year and they increased their deliveries by
00:39:44
71 and uh you know now you're all of a sudden to start to see some uh
00:39:50
you know income coming into the company so flipping from money losing to break even to now printing a ton of money
00:39:56
microsoft had an absurd quarter uh their revenue hit 51.7 billion up 20 percent
00:40:03
in the quarter 20 year over year pays for 200 billion dollars in revenue
00:40:09
in 2022 and their net income was also up 20 plus percent at 18.8
00:40:14
billion so the money printing machine in these companies is just extraordinary chamath what are your thoughts i think you're
00:40:20
you're you forgot a couple of key things which is that the fomc meeting happened this week and powell basically said look
00:40:26
we're going to start tightening in march i think the way that he said it you know all of these words tend to be so scrutinized and overanalyzed but
00:40:33
the instead of figuring out what people thought i think their actions post the fomc are important
00:40:40
which is that you know we effectively now started to price in about five rate hikes this year so
00:40:46
probably five 25 point rate hikes effectively that's what that's what the that's what the yield curve tells us if
00:40:52
you take a big step back i just want to remind people like
00:40:57
it's really hard to live through volatility right and we're in the phase of it now
00:41:03
but typically these big drawdowns so like you know when stocks go down it actually precedes so it comes before
00:41:11
the actual starting of a rate hike cycle and so if you go back to the you know
00:41:16
from 1950 onwards today every time the
00:41:21
government has started to raise rates or the federal reserve has started to raise rates the stock markets have actually rallied now why is that
00:41:28
it's typically that they see through the end of the rate hike cycle and they start to price the business as
00:41:33
if these rate hikes are done and to to rebase things and on average i think the stock markets go up between seven and
00:41:39
eight percent so call it seven and a half eight and a half percent and so what's interesting to me is now
00:41:45
we're finally starting the process of these hikes and the real question is going to be how
00:41:51
data dependent do these guys get and what i mean by that is so you know we talked about this before but you know
00:41:57
china cut rates this past weekend actually germany decreased their gdp forecast
00:42:03
and so you're starting to see two huge countries already say hey wait a minute we need to be you know we need to be
00:42:08
more realistic about what long-term growth looks like here it's inconceivable in my mind that those
00:42:15
countries are slowing down and we won't and so i think what happens in these other huge gdp drivers of world gdp will
00:42:21
affect us and so you know sax and i have said this before but the marginal risk will be
00:42:27
that we over correct and actually create a recession that doesn't need to be one so we slam on the brakes too hard
00:42:33
and another way of saying it is so the rain hikes are the market is a leading indicator of what's going to happen post
00:42:40
the rate hikes we had a nice relief rally going until i think some of the words that powell used was that there was plenty of room for rain hikes yeah
00:42:47
meaning that because unemployment's at three and a half percent that you know we're at full employment and that means
00:42:53
that the fed can you know has this dual mission of keeping inflation low and you know keeping employment high so if
00:43:01
employment is high then they've got more room to raise rate anyway it was that language around the plenty of room that
00:43:07
freaked markets out and it triggered a huge sell-off i think to jamaa's point i
00:43:12
don't see how you can have this much wealth destroyed so quickly and have it not impact the
00:43:19
real economy there's a lot of people out there who feel a lot poorer because their portfolios have gotten
00:43:25
slashed in value i mean with bell tightening they'll clench not spend as much money on a vacation not buy a tv or
00:43:31
a car so these wait lists for cars might get you know become sales the luxury markets
00:43:37
of the economy the optional purchases uh start to really slow down and so
00:43:42
i think that the risk of recession now is much higher than it was even a month ago now
00:43:48
you know it's going to be hard to know so basically i think what we're saying is it's going to be very hard for the
00:43:53
fed to engineer a soft landing here where we don't trigger a recession uh in the process of
00:44:01
stopping inflation and um look we'll judge powell's performance
00:44:06
you know at the end of this you know we're not going to know i think it's but i but i think that he's turned out
00:44:12
to be much more hawkish in his statements than markets were expecting again and in 2018 you know he was
00:44:18
probably overly hawkish and he actually created effectively a little mini recession we we didn't pay
00:44:24
attention enough to it because you know trump made it impossible to see the signal from the noise
00:44:30
but it did happen and it was powell being a little too trigger-happy and so
00:44:35
you know we have to remember that you know the fed has nine trillion dollars of assets on their balance sheet and so
00:44:41
you know if they start to take nine trillion dollars of cash out of the system by selling these assets into the
00:44:47
market right you're taking the money out right because you're getting money back that's going to have an enormous huge
00:44:52
impact as well so if you think about your question what happened once again let me just finish one second one second let me finish please so you know so when you
00:44:59
have these two things happening at the same time you have a potential rate hike cycle which makes
00:45:04
the cost of a used car more expensive the cost of your credit card balance is more expensive
00:45:10
the obligations you have to pay just become naturally more expensive you feel poorer so you spend less and then
00:45:15
separately in the financial markets you actually take liquidity out of the system and so people value you know uh
00:45:22
liquidity more it becomes it becomes worth more you you value current cash more
00:45:28
i mean we're putting ourselves in a really delicate position so he's got a delicate balancing actor he is
00:45:34
definitely on a tightrope so if we pull 9 trillion out we've been talking about this deficit if he starts selling all of
00:45:40
those assets does that mean on the united states balance sheet that will reduce our national debt
00:45:47
no where does the money go we're getting nine trillion of cash right you sell an asset you get cash for it right and so
00:45:53
it pulls money out of the economy in the same way it created liquidity when they were
00:46:00
buying assets right when they were buying this debt it would put push money out if they're selling the debt it pulls
00:46:05
money back in what happens to those dollars is my point like what is the dollars
00:46:12
in the united states the dollar stays in the us usa's bank account but the obligation the note exists in some
00:46:18
financial intermediary that holds it clearly powell does not want to be remembered as the fed chief that let
00:46:25
inflation slip the leash right i mean he he's gotten religion now around the idea
00:46:32
that this inflation is not transitory which was his position for months i think that now bit him and the risk is
00:46:38
potentially an over correction but he's not gonna let inflation he'll then he'll be the first fed governor to have caused
00:46:43
two recessions i think it's like a serious risk and and by the way these market levels that
00:46:49
we're at right now i mean look sixty percent correction and growth stocks okay but this is with that's still in a
00:46:56
good economy in peacetime conditions and now we have a risk of recession and war
00:47:02
so you know there's still room for you know a lot more negative news here
00:47:08
is kind of my point and um but look sentiment's also very negative so when sentiment is this negative
00:47:14
there's also the potential for markets to quickly recover but the sentiment is there for the wrong
00:47:21
reasons i think i don't think people are thinking recession i think people are thinking my gosh these rate increases my gosh i can't own these high growth
00:47:27
stocks anymore and none of those things are true those are just perceptions that get amplified by one's emotions when
00:47:33
you're getting punched in the face which is what happens when you wake up every day in your portfolio by the way five or six percent it generates
00:47:40
incredible opportunity the uh you know the idea that markets
00:47:46
bucket quote-unquote growth stocks together i think um kind of obfuscates an
00:47:53
important point which is that some of the businesses in that category are real businesses that are going to succeed
00:47:58
over the long run and some of them are speculative and are likely to fail over the short run
00:48:04
and um you know as you saw netflix sell off bill ackman very smart came in and bought a bunch of the stock
00:48:10
i don't know if you guys remember this but in 2011 tcv which is traditionally a private
00:48:15
equity investor at the time and there wasn't a lot of crossover and public market stuff happening [Music] they were a private investor in um
00:48:22
netflix netflix stock tanked from um i think it was around 220 a share
00:48:29
down to 70 bucks a share in a couple of months and tcv did a 200 million dollar pipe into netflix um and everyone's like
00:48:35
oh my god what are they doing it's incredible and by the way that was uh on an adjusted basis that's ten dollars a
00:48:41
share in today's share price so that that that 200 million investment that they made went up 60 60x
00:48:48
you know at the peak of netflix a few weeks ago and so you know seeing bill ackman come in and underwrite netflix again and and
00:48:55
make a big investment at its current market price so jay hogue i think it is really highlights that there is just
00:49:02
because the market price is down doesn't mean that a business isn't fundamentally valuable and going to grow and going to
00:49:07
generate significant returns over time as a as an operating business and that distinction starts to present
00:49:14
significant opportunities in a market condition like this and the businesses we all talk about generally growth
00:49:19
stocks are down 60 but maybe most of them shouldn't have even been public companies in the first place maybe they should have been speculative private
00:49:25
investments where more than two-thirds of them were likely to fail and they shouldn't be failing as public companies and the few that are getting damaged and
00:49:32
hit with this market sentiment shift can be picked up cheap and there's a lot of opportunity and so i wouldn't view the
00:49:38
market condition to be necessarily reflective again of the economy or the condition of businesses in general jay
00:49:44
hogue was a partner at tcv he's a founder of tcp that did that deal and he's also the one that participated and
00:49:49
led the billion dollar uh round into peloton before they uh whiffed earnings
00:49:56
and got and got decapitated but he's an incredible investor that trade is probably one of the best trades of all time
00:50:02
so let's look in the good news column wages way up earnings weigh up
00:50:09
10 million job openings in the united states pretty close to record low unemployment
00:50:15
and the pandemic ending ending and people having record savings in their bank accounts and personal balance
00:50:20
sheets so how does all that good news the pandemic hasn't ended it's ending for people i think it's over for people
00:50:26
like j kell i'll tell you the thing i'm most concerned about there's a reverberation that that persists in supply chains i
00:50:33
don't know how much hardware lab biotech consumer goods businesses
00:50:38
you guys are involved in i'm involved in a number of them every single one of them are crippled in some way right now
00:50:43
by supply chain issues i mean i'm talking about like businesses that have been operating at steady state for many
00:50:49
many years when do those get worked out we don't know and everyone's getting surprised and hit upside the head every
00:50:54
week with some new supply chain shortage whether it's some chemical you need for some lab equipment or you know the the
00:51:01
delivery of some big piece of equipment or even plastic bottles that we use it's to kind of fill up our beverages that we
00:51:07
ship that's a pretty sizable business we've never had supply chain disruption like we're seeing right now i'd like to
00:51:12
bleep out the name of that company yeah but it but it's it's like it's a bleep this out but it's a significantly
00:51:18
sized business that um has never had supply chain issues it's all us-based but some of the
00:51:24
suppliers of the suppliers have had complete failure and delivery and all of a sudden it's now reverberating through
00:51:30
the supply chain you guys saw that gm didn't deliver a single freaking electric vehicle last quarter because
00:51:35
they couldn't actually get the chips that they needed to make cars so the real risk to the economy in my
00:51:40
opinion right now is when and how we're going to work our way through the supply chain issues and it is so complex and
00:51:45
there's a myriad of problems and it is a global problem that it's really unclear how this is going to play out over the
00:51:51
next six months and what will happen is this quarter and next quarter businesses that you didn't realize and
00:51:56
didn't expect are going to get hit with supply chain problems are suddenly going to say guess what our revenue is off by 20 30
00:52:02
because we couldn't sell this product because and half our shelves are empty because product didn't show up or
00:52:07
whatever the the narrative might be all right so it's a real problem i think it's a really i think it's a great point
00:52:13
because you don't solve these supply chain issues with rate hikes right it's like
00:52:19
nothing to do with that nothing to do with it so the rate hikes slow the economy that's why i'm i'm way more worried about this than rate hikes
00:52:25
right what does clean it up is capitalism the end of the system
00:52:32
um and the reason i'm less worried is when you actually talk to the companies that that are spending enormous amounts of
00:52:37
money on capex they've actually guided to the fact that by the end of this year in the beginning of next year most of these things will be worked out that's
00:52:43
indigestion so i think i think we're i think we're dealing with a you know six to nine month issue of having turned
00:52:49
things off and now we're now rapidly trying to turn things back on and we can't necessarily
00:52:55
get that timing right but i do think it'll work itself out faster than people expect personally that's what i think
00:53:00
because the cost of apple and tesla specifically guiding to that is too enormous you're talking about you know
00:53:06
collectively almost 4 trillion of market caps so they're not going to get something like this wrong and they were pretty clear in the last few days that
00:53:12
that this will be done by 2023. early 20s so saks or moth i just listed all the good
00:53:18
news to counter you know the the the slog and the and the bad news
00:53:23
how do you account for record low unemployment record number of jobs record wages going up massive cash on
00:53:30
people's personal balance sheet massive amounts of sideline cash massive amounts
00:53:35
of venture funds being raised that have to be deployed in the next five years all that good news where does that on
00:53:41
this balance sheet of good versus bad you know work out for you sex well the the negatives are that yes the
00:53:47
unemployment rate is very low but a lot of people have dropped out of the labor
00:53:52
force so the labor participation rate is still quite low so because of well because i think a lot of people dropped
00:53:58
out because of covet you know everyone wants a remote and um i think you know they got these to me checks and i think
00:54:05
a lot of people got used to not working you know maybe maybe you had a household with two
00:54:10
people used to work and now only one of them is working you know maybe they move to a cheaper part of the country
00:54:16
so i mean maybe it's a good thing right but a lot of people dropped out of the the labor force and
00:54:22
they haven't come back and so that's the negative and then you know the fact that wages are going up is
00:54:27
good but we don't know how much that's inflation right so you know those would be the negatives
00:54:33
but there was a report that inventory levels did rise in q4 and so
00:54:40
the supply chain issues do seem to be ameliorating to something totally i was looking at cars and now a lot of the
00:54:46
people who had you know there's no way to get this car now they're like hey we got a couple of
00:54:51
these cars available if you want them and then if you look at the housing inventory it does seem that maybe that's
00:54:57
taking a plus too and people couldn't find houses and now maybe even though it's still a housing crisis maybe there's more available or they're
00:55:03
staying on the market a little bit longer yeah i mean it i think it's pretty clear that economic activity is slowing um and again things like rate
00:55:10
increases they uh it increases the the cost of a mortgage right so
00:55:16
that could affect house prices i think there's an interesting startup story um there's a private company that's doing
00:55:23
essentially life extension that a bunch of rich people put three billion dollars into you wanna
00:55:29
tell us friedberg in your science segment well it's just to make us live longer or not well i think i mentioned
00:55:35
this company a few episodes ago
00:55:41
but i think they just announced their um three billion dollar investment
00:55:47
um and and again this goes back to the um the point i made on the prediction show
00:55:53
so last week altos labs announced that they've landed three billion dollars in funding and this has been an ongoing
00:55:58
funding that's been going on for quite a while into this business but this business was set up
00:56:05
uh to commercialize yamanaka factor-based cellular reprogramming for age
00:56:11
reversal and there was a paper published just yesterday i'll put a link in the
00:56:16
show notes that if people are interested in reading a scientific paper they can take a look incredible results
00:56:22
scientists took mice gave those mice short bursts of these yamanaka factors and then measured all
00:56:28
the biomarkers all of the chemical signatures in the blood of those mice to determine their age because there are
00:56:34
known ways that we can measure the age of an organism by looking in their blood and measuring certain biomarkers and
00:56:39
with just a few short births for about a week of these drugs these um these yamanaka factors the mice all of their
00:56:47
age signals reversed to making it look like they were very young again and it did not do what the challenge has
00:56:52
been with yamanaka factors in the past is if you put too much of it in in a body in an organism the cells
00:56:58
rejuvenate to becoming stem cells which is kind of like what a fetus might have and starts to grow a lot of tumors they
00:57:05
were able to avoid having tumors show up in the mice and the mice in fact all looked extremely young from a biomarker
00:57:12
basis so an incredible result an incredible paper whether or not it gets repeated and shown by others
00:57:17
but i think this speaks to the quality of the science that's underlying the three billion dollar investment that was
00:57:22
just made in altos labs which is probably one of the biggest seed investments ever no idea it clearly is the biggest seed investment ever in a
00:57:29
startup and i think it speaks to what i highlighted what what will be the new frontier in biotech and will completely rewrite like
00:57:35
you know the course of humanity is if we can take drugs and for a short period of time completely reverse the age of
00:57:41
ourselves and it sounds so crazy and so wacky but it's being now proven in in a single week we've now had an amazing
00:57:47
paper published and we've seen the startup announced their three billion dollars of funding to pursue commercialization of this technology and
00:57:53
this is going to be the year i think this will be the front cover of a lot of magazines this year as people realize the that this is real and that it's
00:57:59
getting commercialized why do you think they have to start with 3 billion
00:58:06
and i'll tell you why i asked the question yeah whenever i see these grandiose prognostications of future
00:58:12
progress and then see these companies raise exorbitant amounts of money i have never found a single example
00:58:19
where it's ever worked ever in fact every time i see a company raise an exorbitant amount of money in a
00:58:24
series a i write them off in my head yeah sure yeah so why why should i not in this
00:58:29
case so or it's more actually actually a better question why would somebody listening to this pod go work there
00:58:36
by the way by the way the same has been done and can be said about calico which is alphabet subsidiary that's that's
00:58:42
pursuing similar research where billions of dollars have gone into that business and there's a similar sort of
00:58:48
research track underway and i think the general principal chamath is they don't know what the product is they don't know
00:58:54
the way to market they don't know you know what area they need to explore but the underlying principle is proven the
00:59:00
underlying principle is something that people believe in this science is proven this science is real we don't know the
00:59:06
commercial path and we have to try lots of different things and run lots of different research programs in parallel to figure it out and each of those
00:59:12
research programs is like a hundred million dollar biotech startup and so i think that the principle is let's put a
00:59:18
lot of shots on goal all at once in parallel and make sure because if any of these shots on goal work this is going
00:59:24
to be worth many many billions of dollars so i think that's generally the idea it's almost like having a three billion dollar venture fund but the
00:59:30
venture fund is targeted at one core area of interest that we believe is real
00:59:35
and i think that's the way a lot of these things are being set up but i'm asking this question have you ever seen a company try to do 30 different things
00:59:41
and it works no no yeah i mean it's not the typical capital allocation milestone based
00:59:48
funding scheme i have it the theory but it's not a product market fit thing right it's it's a it's a research program and it's a series of research
00:59:55
programs but i mean look let me reframe it for each month have you ever seen a three billion dollar
01:00:00
venture fund that makes a hundred bets with smart people at the helm with smart people working at the individual
01:00:06
businesses fail right like yes and in fact i've never seen a three billion dollar venture fund do much more than
01:00:11
return two extra money yeah well look let's see i mean it's a it's a big bet and obviously there's
01:00:16
some people making nice management fees and nice carry on this thing i'm not trying to be a wet blanket i'm just curious you know why do it that way
01:00:23
meaning you know every startup let's get bob nelson on he'll talk about it yeah
01:00:28
yeah every startup i think is forced in some ways by the market
01:00:33
to make an educated guess about where product market fit lies and to try to build some minimum viable product that
01:00:39
that tends to be how value is created i mean you could have said that you know google could have had 90 different
01:00:45
algorithms but you know larry page started with backroom that's how it started he had to make an educated guess
01:00:50
that he had to make decisions and that's what startup's about you have to make decisions in your choices well you have
01:00:56
to make a bet on your on your own why why don't you put all your capital into one company oh because mostly the
01:01:02
companies won't let me but i would if i could oh interesting so i i think that what's happening here i mean you're
01:01:08
absolutely right if i could i would but they don't let me you could buy you could put all your money back into facebook or back into forget facebook i
01:01:14
know you got issues but what about alphabet or amazon just put all your capital in one bet and just you know write it out right but then it comes to
01:01:20
what i think where i can generate the best return meaning you know i think that i could generate much higher returns than what i think
01:01:26
google will give me yeah that's why i do it well here's what i think's happening here there are a lot of rich people
01:01:33
who are going to die soon and they're counting down like bezos and they're saying if why not if i'm worth a hundred
01:01:41
billion put one two three billion into this and have them go for it because i've got
01:01:46
nothing to lose because i'm dying in 20 years this is a fear of death by billionaire bet which is exactly what i
01:01:52
think happened with the google guys they were just like the team involved in these projects are
01:01:57
not first-time founders or people that are great pitch men it's people that are repeated tried and true entrepreneur
01:02:03
success stories that have done this over and over in biotech and they're the ones that are being drawn into working on these projects and they're saying look
01:02:09
because we've got the people that have done it over and over give them the capital i mean that's a good argument yeah i believe in yamanaka factors and i
01:02:17
believe that there will be innovation my only question is is the innovation going to come
01:02:22
through a small team that raises a small quantum of capital with one very focused idea that gets it right
01:02:28
or this sort of you know monte carlo simulation approach to product innovation and all i'm saying is just an
01:02:35
observation that historically it's been very difficult for these monte carlo simulations to
01:02:40
ever work either to generate product market fit and an innovation and to make money now hopefully these
01:02:46
guys are the exception that proves the rule because i think we'd all want this to work no it's a it's a great point and i hope you're right and i hope to start
01:02:53
that small project and whiteboard that's right now you're saying the key thing because
01:02:58
despite the three billion dollars you're still going to go after it which implicitly is your way of saying i'm
01:03:03
short that company and i'm long my own company and this is this is the point i was trying to get to which is when when
01:03:09
it's really really smart people see these things they tend to look at it with a grain of salt thinking it's very difficult to
01:03:15
build a startup as it is yeah sometimes it's kind of like growing great wine you need to have a little
01:03:22
pain and suffering along the way and when you have three billion dollars it's the opposite of pain itself totally true
01:03:28
and i'll also say what let me just support your point which is the people i see get hired to big projects like this and there are a
01:03:34
number of them that get funded not just also in in other kind of deep tech stuff they hire the tried and true experienced
01:03:41
executives who generally have older kids and live in a nice house and have made a bunch of money and the earnestness the
01:03:48
motivation the hunger uh the fuel the the creativity because they know what they know and they're not
01:03:54
willing to accept that they don't know what they don't know um those folks generally are less likely to succeed
01:03:59
than the folks who are doing this maybe for the first time for that very reason when you're doing something innovative so i totally
01:04:05
support your point and uh and i really do hope you're right but i thought jason when you were talking about talking
01:04:10
about startups i thought we were going to talk about bolt and the striped mafia fiasco this wow that's a good story
01:04:16
it's a pretty crazy story where does everyone follow what side does everyone fall out on that does
01:04:22
anybody have any equity positions in either company let's start there no no stripe holders no sacks saxophone are
01:04:28
you an lp in any firms that have uh i am an lp i'm an lp in funds that have
01:04:33
exposure to it absolutely yeah for sure i'm an lp and a fund that has exposure as well but it doesn't miniscule that doesn't
01:04:39
affect minuscule doesn't matter no skill for me too okay here we go so for people who don't know bolt is like
01:04:45
one click checkout software they compete in some ways which stripes payment api the ceo ryan breslaw
01:04:53
did a tweet thread basically saying that yc and stripe are the mob bosses of silicon valley it was pretty charged
01:05:00
obviously uh stripe and yc worked together uh stripe is the biggest company to come out of yc ever i guess
01:05:07
along with airbnb um he claims that a lot of the top vcs were blocked
01:05:12
as a strategy by stripe and i think there is some truth to this when you invest in one company you don't invest
01:05:18
in the competitor i don't know if that happened here as a strategy but it is a viable strategy
01:05:24
that other people have used where bolt claims stripe got all the top
01:05:29
investors therefore they couldn't raise money he also was saying they were voting things up and down on y
01:05:34
combinators hacker news as if that matters yada yada it was
01:05:39
kind of a uh weak argument in my view i'll give you my results hold on a bunch
01:05:44
of vcs dunking on hold on i'll give i'll give you my outtake so first of all bolt is now a 14 billion dollar company or
01:05:50
something okay so the you know these guys i think this was a very brilliant pr
01:05:55
strategy and it worked what do i mean by this this is a company that most people
01:06:01
didn't know about until this past week they went and they punched up which is a pretty tried-and-true pr strategy
01:06:08
always fight up you pick the big guy who's an incredibly pristine extremely well-run company that is sucking up most
01:06:15
of the talented you know people in silicon valley to work for is a you know centicorn
01:06:21
could be a trillion dollar company over some lifetime so they went and they punched up and what happened everybody fell for it
01:06:29
they baited all of these folks and then all of these folks had to come out on twitter and land past them and basically
01:06:35
the net result of it is if one person knew about bolt before now hundreds and thousands of people know about bolt
01:06:41
afterwards so not only do they not know them they're now they're contemporary just in terms of the practical reality
01:06:47
they are now part of a discussion and in a framework of companies in this space that they were never a part of
01:06:54
before this is steve with a 1984 commercial he said ibm and
01:06:59
then microsoft our big brother we're going to attack them join the rebel alliance be part of apple and of course
01:07:04
apple and ibm responded and that was the big mistake and mark andreessen sequoia
01:07:09
a bunch of different venture firms responded sax what's your take on this i see you're chopping at the bed or
01:07:15
maybe you're biting your tongue which isn't no i i agree with jamath that it was kind of a brilliant pr move if
01:07:22
that's what it was i i do like startups punching up and he took a punch at stripe which is the big company in the
01:07:28
space so and then yeah stripe stripe didn't respond directly the colsons didn't
01:07:33
respond but their surrogates did and then that looks like punching down and it draws more attention to it
01:07:38
so i get the pr strategy i would say that as to the merits of the allegation i do
01:07:44
i i it's interesting that you know he didn't get into yc because i think that he is a very talented founder
01:07:50
and um you know we looked at this company pretty yeah pretty early on it was for like
01:07:56
sort of a mid-stage growth round and it was like one of the toughest decisions we uh we fa i'd say the
01:08:02
toughest decisions as a vc are when you actually want to invest in the company but the valuation
01:08:09
is like 2x what you think it should be and that was kind of the situation at the time when we looked at it is i think
01:08:16
we actually would have invested this is the valuation was too high so it would have been a great bet for you yeah he
01:08:21
grew into it and so it would have been a great bet so it was a bad decision on your part yeah yeah clearly we should
01:08:27
have invested it's just that you know at the time you invest you have to have some basis for
01:08:33
valuation and and that's the sense in which i think you know maybe ryan's
01:08:38
accusations don't totally make sense is that he's been able to raise a lot of rounds at really high
01:08:44
valuations and so he he hasn't had a problem you know raising a lot of money at you
01:08:51
know great prices and it you know it almost feels like a slap in the face to his investors where like
01:08:56
what's the complaint i didn't get any tier one investors or that it was just hard to meet with investors and that
01:09:02
stripe called the investors and told them not to invest that that was the allegation
01:09:07
yeah no i mean yeah i i i can't really speak to that but he was clearly able to raise uh
01:09:13
great rounds so can i read to you an email exchange between me and ryan breslow
01:09:19
oh dramatic reading from 2015. uh-oh here we go hmoth hopes all all's well um fyi things
01:09:26
felt too rushed on our end so we're toning down our series a discussions for a couple months
01:09:32
and this was this was in july of 2015. i'm i'm reading you my answer because it's so fabulous
01:09:37
hi ryan after a wholly unsuccessful few weeks of attempting to win a world series of poker bracelet i'm back at home licking
01:09:45
my moons how about we talk in a week or two so not only did i have a chance to win a
01:09:51
world series of poker bracelet according to this exchange which i didn't win obviously duh i had a chance to do the
01:09:56
series a in a 14 billion dollar company screwed that one up too big dummies i
01:10:02
mean the things we miss are there's like 20 things you missed as an investor for everything you hit so i might i i've
01:10:09
interacted with ryan back in the day and i just remember me being super super smart and i do think that you know
01:10:14
there's a lot of very smart people now around the table at bolt including joanne bradford so i don't think that
01:10:20
this was something that wasn't planned and i just think that they executed it well and it worked and i think a lot of
01:10:25
people know this company that didn't know before now they still have to execute and build a product and scale it
01:10:30
and do all of these things but yeah and i think that the response he provoked i mean since i was a little bit
01:10:37
critical of what he said me to say that one of the vcs who responded said that
01:10:42
the reason they didn't invest was because the numbers weren't good that was not my experience when we looked at this company they had great numbers it's
01:10:48
just the valuation was ahead of those numbers but the numbers were always great i actually responded to that and
01:10:53
that was sequoia partner sean mcguire who said that and i responded to him like hey dude
01:10:59
vc code is you don't reveal the numbers on things you learn confidentially what
01:11:04
are you doing like and he's like well they said some bs about stripe i was like yeah it still doesn't change vc
01:11:10
code that if you learn something under nda for nda essentially in a meeting you're not supposed to
01:11:17
weaponize that again unless you unless you have a 30 billion dollar position i still think well
01:11:22
whatever i still think it's like i've never seen a vc honestly it's the first time i've ever seen a vcd jason jason come on i i don't
01:11:29
i think it's pretty i think we all knew where he was coming from he's defending an enormous position of his insecurities
01:11:34
jason you've always been in here but i've
01:11:46
they met with them but he was conflicted out so why would he meet with them hey guys nick just texted that i uh had i
01:11:52
had i found a way to get off my lazy ass not be playing poker and do that deal i would have generated a 222 x on my
01:11:59
investment price which would have been 15 million times 222 i think i think we looked at when like a
01:12:05
400 million evaluation or something like that or something in that range my gosh well the series they have been i mean
01:12:11
the series they would have been at like 20 30. three million according to pitchbook oh yeah
01:12:16
you know it was one of those meetings we came out of where it's like that's a super interesting founder so yeah me too
01:12:22
that's what i remember too from ryan yeah super super super interesting founder write the check i said earlier
01:12:28
in the program that like our philosophy now is just to be price takers and just to pick the companies yeah that we want
01:12:33
to be in and then the market sets the point that's the biggest mistakes i've made as an investor i've got two people
01:12:38
we should have done that with bolt this was the decision we faced was like a few years ago and so we just shouldn't have
01:12:43
worried about valuation by the way sorry jkl as soon as you said it was 63 million you know what my reptilian brain
01:12:49
said oh that feels so expensive even now you know that the outcome is 14 billion
01:12:54
and so your point david that's a really good lesson for for investors to learn is just you're a price taker totally get
01:13:00
behind these really interesting people that are world beaters and just let them do the work place to bet yeah all right
01:13:06
so there you have it uh this has been another amazing episode of the all-in podcast bye-bye bye-bye love you bassist
01:13:15
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01:13:24
and they've just gone crazy with it [Music]
01:13:35
besties [Music]
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we need to get back [Music]
