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E121: Macro update, Fed hike, CRE debt bubble, Balaji's Bitcoin bet, TikTok's endgame & more

March 24, 2023 / 01:34:29

This episode of the All In Podcast covers the Federal Reserve's recent rate hike, the ongoing banking crisis, and the implications for commercial real estate. The hosts discuss the Fed's decision to raise rates by 25 basis points, the potential consequences of this move, and the state of the banking system amidst rising inflation and economic uncertainty.

David Sacks expresses skepticism about the Fed's ability to manage inflation and suggests they have been reactive rather than proactive. He highlights the need for a more cautious approach given the recent banking failures. Chamath Palihapitiya counters that the Fed should have raised rates more aggressively to address inflation, arguing that their current strategy lacks clarity.

The discussion shifts to commercial real estate, with Sacks sharing insights from his own experiences in the sector. He notes a credit crunch affecting developers and the challenges posed by rising vacancy rates in major cities like San Francisco. The hosts analyze the potential fallout from these issues, including the risk of defaults and the impact on the broader economy.

As the conversation progresses, the hosts touch on the implications of the debt ceiling and the potential for a government response to stabilize the banking system. They also discuss the recent scrutiny of TikTok and its future in the U.S. market, emphasizing the bipartisan concern over data privacy and national security.

Finally, the episode concludes with a celebration of a successful rocket launch by Chamath's company, Relativity Space, highlighting the advancements in space technology and the future of commercial space travel.

TL;DR

The episode discusses the Fed's rate hike, banking crisis, commercial real estate challenges, and TikTok's scrutiny in the U.S.

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what are you eating Freeburg is that

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Buffalo jerky what is that that's a red

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pepper it is not the bull tongue I got

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pistachios

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oh wait wait look at this

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[Music]

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[Applause]

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look guys that are branded pistachios

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aren't these the best pistachios they're

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the best salt and vinegar yeah some of

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the vinegar yeah yeah they're the best

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are those unpeeled pistachios

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guys are so rich people peel their nuts

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people have been peeling my nuts since

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the Facebook I feel

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[Music]

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[Music]

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hey everybody Welcome to episode 121 of

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the world's greatest podcast the all in

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podcast with me again of course the

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dictator himself tremath polyhapatia the

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Sultan of science David Friedberg and

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the Rain Man himself yeah definitely

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David sacks gentlemen the world's

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greatest genuflector ah

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the world's greatest moderator is here

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oh this you guys I gotta tell you

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something the grift is on a lot of

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corporate gigs for me to moderate I

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don't even have to prepare I just show

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up and moderate oh so great what is an

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example of such a such a gig

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there's a lot of Corporations and

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conferences that pay a pretty penny to

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have the world's greatest moderator come

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and interview people this is like the

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used car parts Association of America

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I did one with like a thousand

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litigators at an attorney conference for

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like the SAS software they all use and

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it was a wonderful Fireside you know

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it's just great this is like the grift

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no ads do you have to fly commercial

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whenever they fly private

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it's commercial at this point yeah what

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is your what does your Rider say what

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kind of book do you want do you ask for

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spiced salted macadamia nuts but I do

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not have them peel my nuts no

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what I do is I blend the travel cost

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into the speaking fee and then nobody

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knows when I'm in or out what hotel I'm

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staying at or whatever but

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basically I'm back on the road folks I'm

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back on the trailer do you get you know

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no no no what he's saying is no what

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he's saying is he gets a 2500 travel

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budget and instead he comes the day of

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and leaves the day of saving and netting

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himself an extra 2500. well you know uh

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you can optimize if you're saying

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optimize I did use I had you know during

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covid I racked up a million and a half

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two million of these United points and I

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have just been grinding those United

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points down so shout out to United

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and the pandemic

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all right there's a lot of news so

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you're right your mouth it's even worse

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than that it's even worse than for

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travel expenses when he's not even

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paying anything maybe it's part part of

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the part of the grifter is using the

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cash app to commit fraud and murder

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I mean that Hindenburg report is I mean

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it's a work of art but we got to start

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with the FED hiking rates by 25 basis

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points uh and the general

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feeling in the country that maybe the

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FED doesn't know what they're doing

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and maybe it's time for regime change

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the FED increased rates by 25 basis

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points yesterday Wednesday

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so the FED has increased the federal

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funds rate from nearly zero in March of

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2022 to now the range of 4.75 to 5

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fastest rate hike since the 70s

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speculation the FED might pause rate

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hikes or even cut

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do the

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the recent banking failures didn't

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happen so if you bet that they were

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going to pause you were wrong if you bet

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they were going to cut you were also

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wrong but the market has ripped

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a bit a day after

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which people are trying to figure out in

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the group chats doesn't seem like

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anybody has

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a theory here but let's start with sax

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maybe an explainer a little bit on how

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the Fed works

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there's a board there people serve a

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14-year term

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I guess they replace somebody every two

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years and Jerome Powell was placed in

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2018 by Trump

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and

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I guess there's a lot of handwringing

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now that they were late on

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inflation obviously and then they went

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too fast and maybe now they're not

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slowing down enough so what's your take

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on it objectively sex putting aside

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partisanship and you know for this

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Administration versus that

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Administration just objectively do they

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know what they're doing and how could

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they do a better job no I don't think

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they know what they're doing they

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clearly reacted way too late to the

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inflation we've talked about this before

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we had that surprise inflation print in

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the summer of 2021 5.1 percent they said

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it was transitory they didn't react

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until November they continued QE for

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another six months and they suddenly got

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hawkish in November of 2021 and they

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didn't even start the first rate

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increase until March of 2022 so they

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were really asleep at the wheel and late

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to react to the inflation by about nine

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months now I think they're potentially

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making the opposite decision which is

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they are late to recognize what stress

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and distress the economy is under right

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now and Powell had the there was three

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choices I could have made at this

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meeting they could have raised race

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which is what they did they could have

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cut rates which they didn't or they

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could have done nothing basically held

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Pat and the argument for raising rates

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is just that well we have this inflation

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problem we need to keep raising interest

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rates until uh the rates are above

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inflation and that will bring inflation

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down then you can start to lower rates

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that's sort of the conventional view I

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think the problem with that view is it

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ignores that we've just seen a run of

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bank failures and there's tremendous

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stress building up in the banking system

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from unrealized losses on long-dated

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bonds also unrealized losses on

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commercial real estate loans and we've

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barely scratched the surface of seeing

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that problem that's I think the next

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shoe to drop in this whole thing so I

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think that the right decision here

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was to either cut rates or to stand Pat

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you may have seen that Elon said listen

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we should be cutting rates here there's

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way too much latency in this inflation

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data the economy is seizing up and we

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don't need to be raising rates right now

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we actually need to be cutting them I

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think that probably if it were me

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looking at the upside downside of these

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decisions I probably would have just

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stood Pat because again we've just seen

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this banking crisis why wouldn't you

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just wait one month to see maybe there

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is latency in the installation data

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maybe that banking crisis is not over

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why won't you just stand Pat for one

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month you can always raise rates in a

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month I think that this move here could

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in hindsight be seen as the straw that

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breaks the camel's back chamoth would

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you have paused and waited to see

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another card and then watched the hand

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developed or do you think they're doing

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the right thing by raising or should

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they have cut I think they did the worst

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thing possible which is they took the

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middle path

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if you think about what the Fed

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has the ability to do they obviously

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have the ability to raise and lower

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interest rates but what we don't talk

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about is they have a balance sheet that

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can absorb assets

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for the last 10 or 15 years we've had a

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phenomenon called quantitative easing

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and for folks that have don't understand

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what that means that is essentially the

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Federal Reserve buying assets out of the

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market and giving people money for it so

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that that people can then go and buy

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other things with that money

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last June they started what's called

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quantitative tightening which is

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essentially reversing that policy and

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restricting the liquidity in the system

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so if you look at those tools and you

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sort of play a game Tree on what the FED

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could have done

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I think that you have two choices one is

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you massively

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let inflation run amok where you have no

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tools to fix

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or

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you have massive illiquidity in the

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financial system

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but you actually do have tools to fix

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that which is through some combination

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of quantitative easing and tightening

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depending on how much liquidity you want

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in the system so I think actually I

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disagree with Saks I think they should

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have done the opposite they should have

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raised 50 bips

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it would have

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created

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a little bit more chaos in the short

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term

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but it would have set us up to

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understand what was fundamentally broken

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and still give the Federal Reserve the

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ability to use their balance sheet and

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use liquidity in the future to solve the

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problem they took the worst option which

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is neither did they cut nor did they

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raise enough

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and so this problem that sax represents

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actually is the fundamental problem now

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which is you won't have enough Clarity

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and signal to really know whether this

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25 basis point enough look I've

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maintained now for nine months that

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rates are going to be long higher than

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we like and longer than we want

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and so I think it's high time that we

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acknowledge that we have a sticky

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inflation problem

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who's back we have to break

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we've known since Volker era what we

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need to do to do that which is you need

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to get interest rates to be greater than

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terminal inflation

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which means that if five percent fed

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funds rate is insufficient so we're

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going to need to see a print of five and

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a half five point seven five percent

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and that's when you're going to have

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enough contraction and then the FED can

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come back with liquidity but if they

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don't take these steps we're going to be

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in this very choppy neither here neither

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their situation and I think that is what

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causes the real damage because it's the

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corrosive effects of uncertainty and

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what that does to lending to risk taking

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and I think is really bad for the

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economy Freeburg where do you land we

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have sack saying they should have stood

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Pat

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which I'm not saying either go hard take

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the medicine I don't know I'm not like

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an economist on judging

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the balance that they're trying away

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right now I think

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everyone's got a different you can hear

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a cacophony of opinions on this one

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what I'm more interested in is

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you know we talk a lot about the banking

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crisis underway and I know we're going

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to talk about this question on

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Commercial Real Estate in a minute but

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if you look at the yield on the 10-year

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treasury I think

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um coming out of this past

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two weeks

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you know the yield on the 10-year

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treasury dropped from 4.1 percent down

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to looks like it closed at 3.4 today

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nearly a point seven percent

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decline in the past two and a half three

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weeks and that's also off of 3.8 since

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the start of the year and remember when

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we talked about the impact on asset

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values at Banks I think if you look

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holistically at the roughly seven

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trillion dollars of assets held at Banks

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some you know whatever the the set of

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banks are that we looked at

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the average kind of equity ratio is

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about 15 percent

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so you know a two percent or sorry a

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three percent adjustment over 10 years

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on the treasury impacts the value of a

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chunk of that portfolio down 25 which

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starts to put you into dangerous

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territory and there's obviously a

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distribution

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of what that does to certain banks that

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are overweight you know 10-year bonds

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whether they're loan obligations on

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mortgages or treasuries or corporate

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bonds or real estate bonds a real estate

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debt

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and so the more encouraging point that I

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think we should pay attention to is does

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the market tell us that these short-term

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rate actions are driving down the long

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the medium and longer term rates in a

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way that will improve the balance sheets

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of all these institutions that own a lot

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of this debt particularly the banks and

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and funds and so on and you know I'll do

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the math here real quick but just in the

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last two weeks the impact on the 10-year

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treasury has probably had a pretty

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sizable impact you know we talk about

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unrealized losses it's reduced those

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unrealized losses it's improved them so

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I think that that's like the more

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important metric to be tracking is

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you know

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if you look at all the assets that we're

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all worried about right now are they

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going up in value or down in value in a

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way that introduces more stability into

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these kind of banking systems that we

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care about and I think right now it

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looks like maybe things are improving

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um and that might be part of the

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optimism around you know Equity markets

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and folks buying and so on yeah and so

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this is I guess where people have

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started to talk about the next shoe to

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drop we obviously had this time-based

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liquidity issues with Silicon Valley

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bank now the Wall Street Journal is

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talking about commercial real estate and

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how much debt there is uh since covid

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obviously people are doing more remote

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work a lot of the skyscrapers it's not

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just San Francisco but in many locations

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remain empty or underutilized people are

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now having their leases come up uh every

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year more and more of these leases will

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become vacant and then we'll see if

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these buildings are worth what people

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paid for them smaller Banks hold around

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2.3 trillion in commercial and real

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estate debt including rental apartment

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mortgages almost 80 percent of

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commercial mortgages are held by Banks

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according to this Wall Street Journal

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story sax you are an owner of some

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commercial real estate and you play in

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the space you have a lot of first-hand

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knowledge

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what what is your

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putting aside your personal Holdings or

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exposure what is your take on what

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you're seeing what is the game on the

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field right now in terms of commercial

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real estate in San Francisco and Beyond

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well if you talk to the commercial real

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estate guys they'll tell you that the

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situation is dire

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um there's two dire there's two problems

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first there's a credit crunch going on

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so there's just no credit available if

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you're a commercial real estate

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developer and you have a building and

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you want to refinance your construction

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loan or put long-term debt on a building

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you just can't do it I mean the banks

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are not open for business they literally

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don't want the business and I think that

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comes back to the fact that Banks right

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now are hunkered down in a defensive

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posture they're seeing deposits flee

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from their Banks unless of course you're

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one of the top four does that does that

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freeze on the bank's pre-date the

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Silicon Valley Bank crisis and it was

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exacerbated were people having a hard

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time getting loans before that it

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predates it but definitely what you're

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see what you saw with svb and these

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other Banks including Credit Suisse is

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that you know Banks now are getting much

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more paranoid and that's why you saw

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that if you look at the

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the discount window which is when the

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banks go to the FED as lender of Last

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Resorts and basically post collateral to

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get liquidity we had the biggest spike

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in discount window borrowing since the

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2008 financial crisis yeah that line on

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the right side that is that is a spike

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in one week's borrowing this exceeds

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anything that happened in 2008 the

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warning sign should be flashing red over

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something like this now to bring it back

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to be clear that's Banks who have real

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estate exposure going to the FED going

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to the government saying hey can we get

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some money to cover these it's not

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specifically about real estate it's more

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about Bank liquidity the banks are

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saying we don't have enough liquidity

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right now to cover our needs which are

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highly volatile right now because

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basically depositors are moving out of

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community and Regional and small Banks

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into the big four so-called systemically

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important or sib Banks so what's

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happening is that again banks are

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hunkering down they're getting very

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defensive they do not want to make new

00:16:01

loans because they can't tie up assets

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they are trying to stay liquid

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themselves so that's what's happening

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now in sort of with respect to new

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Lending

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and then on the other side of it you

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have existing loan portfolios there's

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something like 20 trillion dollars of

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commercial real estate debt and most

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commercial real estate lending is done

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by small banks by Community Banks so

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they are sitting on these huge cre loan

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portfolios and I think something like

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300 billion needs to be refinanced or is

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coming due in the next year normally

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that's rolled over and refinanced there

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was separately there was a study showing

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that unrealized losses in these loan

00:16:42

portfolios in the banking system may be

00:16:44

around two trillion dollars it was a

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study that was reported on by The Wall

00:16:47

Street Journal so in the same way that

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we had huge unrealized losses in these

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long-dated bonds I think we also have

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actually Silicon Valley Bank

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specifically that's where we're the

00:16:57

worst offender but it's a systemic

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problem I think similarly we have huge

00:17:02

unrealized losses in commercial real

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estate loan portfolios and this is I

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think even a more subtle and pernicious

00:17:09

problem because with Securities like

00:17:12

t-bills or mortgage bonds it's very easy

00:17:14

to know what the unrealized losses are

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the reason why they hadn't realized the

00:17:19

losses was not because they didn't know

00:17:20

what they were it was because of a

00:17:21

stupid accounting rule that said they

00:17:23

didn't have to realize the losses if

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they were quote unquote holding them to

00:17:26

maturity with these loan portfolios we

00:17:29

don't know how big the exposure sure is

00:17:31

and we won't know until you start seeing

00:17:33

some defaults and repricings of assets

00:17:37

and really commercial real estate is a

00:17:39

much more Dynamic market right you have

00:17:41

to have a buyer there you have leases

00:17:43

you have leases coming off at different

00:17:45

times you have sub leases occurring

00:17:47

and you have the owners of them flipping

00:17:49

them right and refinancing them

00:17:51

constantly to buy new buildings and so

00:17:53

right and those loans aren't as

00:17:56

liquid right with a mortgage Bond those

00:17:59

are basically a bunch of Loans mortgage

00:18:01

mortgages typically that have been

00:18:03

packaged up and turned into a security

00:18:05

and there's a liquid Marketplace to

00:18:06

trade them in the case of these loan

00:18:08

portfolios there may not be a liquid

00:18:10

Marketplace so you don't really know how

00:18:12

impaired that loan portfolio is until

00:18:14

you actually get to a place where when

00:18:17

will we know what because that that's

00:18:19

the thing I'm wondering we I saw a lot

00:18:21

of headlines you know Pinterest bought

00:18:23

themselves out of their new headquarters

00:18:25

in the Bay Area San Francisco I believe

00:18:27

specifically I heard Facebook got rid of

00:18:29

a couple billion dollars and wrote down

00:18:31

some expansion Amazon is selling

00:18:33

buildings they had gotten a ton of

00:18:35

buildings and we saw last week they got

00:18:36

rid of another nine thousand or they're

00:18:38

planning another nine thousand in a riff

00:18:39

and they can't get people to come back

00:18:41

to the office so how bad is the overbelt

00:18:45

I guess is the question because that

00:18:47

will be the driver of the value of these

00:18:50

buildings because if there's too much

00:18:52

Supply then what are these buildings

00:18:53

actually worth are they worth 90 a

00:18:55

square foot what if there's no what if

00:18:56

Amazon doesn't want more space you can

00:18:58

see it in the credit default spreads of

00:18:59

these Banks it's in the water table

00:19:00

already so you can Nick you can just

00:19:02

throw it up if you look at any Bank

00:19:04

that's lending and that has a portfolio

00:19:07

this is Deutsche bank's you know Euro

00:19:09

denominated CDs

00:19:11

but it's the same for Barclays it's the

00:19:13

same for sock gen it's the same for a

00:19:14

bunch of American Banks there is a risk

00:19:17

in the system that Saks articulated that

00:19:20

is now getting priced in there are all

00:19:22

kinds of loans whose payments which the

00:19:25

banks need

00:19:27

cannot necessarily be insured which

00:19:29

means that then

00:19:30

there could be illiquidity there there

00:19:32

could be a flow of deposits out from

00:19:34

those Banks which would then make their

00:19:36

ability to pay their debt holders lower

00:19:39

you also have this complicated issue

00:19:41

already where

00:19:42

it's really like the first time in a

00:19:45

long long long time where debt holders

00:19:47

actually got wiped out in the Credit

00:19:49

Suisse debacle before the equity holders

00:19:51

did

00:19:54

and that's created all kinds of Ripple

00:19:56

effects so this credit bubble

00:20:00

is here and it's being manifested right

00:20:03

now in these very sophisticated parts of

00:20:05

the market and eventually they'll Ripple

00:20:08

to the broader

00:20:10

economy at large but how a person feels

00:20:13

this is they're not going to be able to

00:20:15

get a car loan or a mortgage or the

00:20:17

interest rates they pay will go up

00:20:19

and then how bondholders will react to

00:20:22

all of this stuff is they'll just start

00:20:23

to find different assets probably the

00:20:27

front end of the curve money market Cash

00:20:29

Gold

00:20:31

and they'll just abandon all these

00:20:33

assets and then the other problem

00:20:36

is that it's just really really bad for

00:20:39

risk assets so the things that we

00:20:41

invest in

00:20:43

startups technology companies either in

00:20:46

a world of inflation run amok because

00:20:48

the FED isn't hiking fast enough

00:20:51

which just destroys future cash flows

00:20:53

or in a world where the FED pivots in a

00:20:57

moment like this and Nick you can show

00:20:58

the second chart both result in the same

00:21:01

outcome which is that you just see these

00:21:03

massive drawdowns in the value of risk

00:21:06

assets

00:21:07

so

00:21:09

we're in a really complicated moment

00:21:13

and this is why I think again the FED

00:21:15

needed to take leadership this past week

00:21:18

and actually do the hard work of either

00:21:21

cutting 50 bips

00:21:24

or raising 50 bips and this middle path

00:21:27

is the absolute worst path because

00:21:29

trying to thread a needle in this

00:21:31

complicated economy I think is just

00:21:33

going to be impossible and then what

00:21:35

happens is then the markets move around

00:21:36

them right the markets have completely

00:21:39

said we now discredit what you did

00:21:42

and they're basically banking

00:21:45

that the FED will be forced to cut rates

00:21:48

massively in short course because the

00:21:50

crisis will be so severe

00:21:53

that it'll outweigh the risk of

00:21:56

inflation

00:21:57

think about that yeah so all of this

00:22:00

real estate comes on the market

00:22:02

there's no buyers for it the mortgages

00:22:05

are due does that mean a commercial real

00:22:07

estate owner just basically gets

00:22:09

foreclosed on and they hand the keys

00:22:10

back to the bank or the banks as this

00:22:13

Wall Street Journal story was sort of

00:22:15

alluding to that the FED will say you

00:22:17

know what we'll just extend we'll

00:22:19

backstop this real estate which happened

00:22:22

in the last bubble and we hope that over

00:22:24

time it works itself out and demand

00:22:26

returns now of course that's different

00:22:29

than a postcovid world so this time

00:22:31

could be different what happens in the

00:22:33

case of 2024 2025 all of these office

00:22:37

spaces are returned and the keys are

00:22:40

handed back yeah so okay so so Jason you

00:22:42

asked the question like how does this

00:22:43

problem manifest let me describe from

00:22:45

the point of view of that real estate

00:22:46

owner there's basically two problems one

00:22:49

is that you have a tenant who's in a

00:22:51

long-term lease five seven ten years

00:22:53

that lease rolls so that that least

00:22:56

comes to you now they don't need the

00:22:58

space anymore you know we know that take

00:23:00

San Francisco which has got to be the

00:23:01

worst market for theory in the country

00:23:03

right now that's something like 30 to 40

00:23:05

percent of the space is vacant so that's

00:23:08

either space for rent or space for

00:23:10

sublease because no one's using it so

00:23:12

they've put it back on the market well

00:23:14

all those subleases they're still paying

00:23:16

rent because they have a contract

00:23:18

so what happens is as those leases roll

00:23:21

now all of a sudden you don't have to

00:23:22

pay rent anymore so you're going to stop

00:23:23

or if you still need the space you're

00:23:25

going to negotiate a much much lower

00:23:27

rent so now all of a sudden the real

00:23:30

estate owner

00:23:31

can't make their Debt Service Covenant

00:23:33

ratios the income from the building is

00:23:36

just substantially less they can't make

00:23:38

their debt stories on that and explain

00:23:39

that ratio to folks you have a certain

00:23:42

amount of debt you own let's say sales

00:23:44

of course Tower in salesforce's case

00:23:46

they're subleasing 125

00:23:49

000 square feet let's say they were into

00:23:51

that for 500 million what is this Debt

00:23:53

Service ratio explain that to the

00:23:54

audience when the bank underwrites the

00:23:56

loan they just figure out the interest

00:23:58

that you got to pay on the loan relative

00:24:00

to the value of the building or the

00:24:01

income that is generating but all those

00:24:03

ratios are upside down now because the

00:24:05

value of the buildings the rent has gone

00:24:07

down so much because there's so much

00:24:09

vacancy I mean when these loans were

00:24:10

underwritten San Francisco had like a

00:24:12

five percent vacancy rate and now it's

00:24:15

like 30 to 40 percent they're just no

00:24:16

tenants and then you know in parallel

00:24:19

with that Jason you've got all these

00:24:20

cases where

00:24:22

you don't only have tenants or leases

00:24:23

rolling you have loans rolling you know

00:24:25

again if the owner of the building has

00:24:28

either a construction loan or like a

00:24:30

long-term debt and that needs to roll

00:24:31

they have to refinance it and if they

00:24:34

can even get credit which they may not

00:24:35

be able to because of this crunch

00:24:36

they're going to be paying a lot more

00:24:38

for it so now all of a sudden the income

00:24:40

statement for that building doesn't make

00:24:41

sense think about it your borrowing

00:24:43

costs are higher and your revenue is

00:24:46

lower so now all of a sudden the

00:24:47

building's underwater so where does that

00:24:49

end up well they default on the debt and

00:24:52

the bank ends up owning the building so

00:24:53

then what happens is you end up with you

00:24:55

know all of downtown San Francisco owned

00:24:58

by a bunch of banks what are they going

00:24:59

to do with it they don't want to be in

00:25:00

the real estate business so they have to

00:25:02

fire sale those buildings in a bunch of

00:25:04

auctions at rock bottom prices Because

00:25:07

by the way there's no cash or liquidity

00:25:08

out there so who are the buyers

00:25:11

there are no buyers we have a 30 vacancy

00:25:13

rate there's no uh renters so so what

00:25:15

happens Detroit like is it just like a

00:25:18

dead City and then the tax base

00:25:20

collapses the city because so much the

00:25:21

tax base is dependent on you know real

00:25:23

estate so listen I think they're gonna

00:25:26

have to work this out I don't think they

00:25:27

can just let the free market take its

00:25:29

course here because you're going to end

00:25:30

up with a scenario I just painted so I

00:25:32

think what hopefully would happen maybe

00:25:35

is that the the banks do some sort of

00:25:37

deal with the real estate owners that

00:25:40

you know they blend and extend or

00:25:42

whatever but in order to do that they're

00:25:44

going to need to be backstopped by

00:25:45

somebody and that's the FED Freeburg

00:25:47

what are your thoughts just writ large

00:25:49

as it were on the commercial real estate

00:25:51

space because it's ninety dollars it was

00:25:52

90 a square foot right for class A Saks

00:25:56

in the city

00:25:57

is that the price I mean what's that

00:25:59

going to be 60 70 80 90 bucks a foot

00:26:00

depending on what kind of building

00:26:02

you're talking about I mean you have all

00:26:03

these empty office Towers so look I I

00:26:06

never invest in office Towers I do small

00:26:07

boutique kind of brick and Timber spaces

00:26:09

in Jackson Square we're doing okay

00:26:11

because people still want to be in those

00:26:13

spaces but these office Towers on Market

00:26:15

Street or in Soma

00:26:18

I mean which is where all the investment

00:26:20

went during the boom nobody wants to be

00:26:22

in those buildings anymore and it

00:26:23

doesn't help that the city has allowed

00:26:25

this giant you know open-air drug Market

00:26:28

to metastise right outside their door

00:26:31

um Freeburg yeah I think it's inevitable

00:26:33

we'll have probably two to three

00:26:34

trillion dollars of federal money

00:26:38

you know spent uh

00:26:41

backstop and support the asset I mean

00:26:43

that's the general theme here in case

00:26:45

everyone isn't paying attention at home

00:26:47

is that the

00:26:48

fed

00:26:50

the US government will continue to print

00:26:52

money and create programs uh to

00:26:55

effectively support asset values such

00:26:57

that there isn't

00:26:59

a crippling economic ripple effect and

00:27:02

this is

00:27:03

the dangerous depth spiral of debt and

00:27:06

it's why I always talk about how

00:27:08

concerned I am about global debt levels

00:27:10

and particularly debt levels in the US

00:27:11

but really Global debt levels I'll say

00:27:13

the statistic again and over and over

00:27:15

again 360 Global debt to Global GDP

00:27:20

but you know even within some of these

00:27:21

asset classes a significant amount of

00:27:23

debt has been used to fuel asset prices

00:27:25

and to fuel Equity value and then that

00:27:28

Equity value gets levered and reinvested

00:27:29

and so the Rippling effect in the

00:27:30

economy of declining asset value can be

00:27:33

magnified through Leverage

00:27:36

and

00:27:37

it unfortunately debt in general forces

00:27:40

growth without growth uh debt fails

00:27:45

and so when we've used debt to demand

00:27:47

growth on a macro perspective it causes

00:27:51

you know significant stress and strain

00:27:53

on the system when you're going through

00:27:54

periods of like we are right now what

00:27:56

should be natural recessionary effects

00:27:58

from covid and shutting down the economy

00:27:59

or natural asset price declines because

00:28:01

of that and we can't let it happen

00:28:04

because if it were to happen the

00:28:05

Rippling effect would be crippling so

00:28:07

this is a good example you'll probably I

00:28:09

don't know what the facility will look

00:28:10

like maybe the government passes some

00:28:12

Congressional bill that says hey guys

00:28:14

here's three trillion dollars to support

00:28:17

you know all this real estate here's

00:28:19

another you know two trillion to support

00:28:21

Banks and you know giving them liquidity

00:28:23

because the other problem as you guys

00:28:25

know is most people's most of the

00:28:28

population in the U.S has most of their

00:28:30

assets uh their asset value or their

00:28:32

Equity value in their home

00:28:34

and those home prices are supported by

00:28:36

residential loan programs and you know

00:28:40

if you actually have a massive write

00:28:42

down on the value of that asset class

00:28:44

that's when you know everything kind of

00:28:45

falls apart so you know we will continue

00:28:48

to be buoyed by that that that kind of

00:28:50

inflationary Behavior unfortunately

00:28:53

biology I think has it right we'll talk

00:28:55

about it in a minute

00:28:57

that there has to be money printing to

00:28:59

get out of this hole I don't know if

00:29:01

it's necessarily In This Moment

00:29:02

hyperinflation area as he predicts

00:29:04

you know he uses the Deutsche Mark and

00:29:06

the Weimar Republic as this kind of

00:29:08

storyline that this is what's about to

00:29:10

happen in the U.S the truth is it looks

00:29:12

a little bit more like the pound

00:29:13

sterling at the end of the uh British

00:29:15

Empire where you know there's certainly

00:29:17

a an inflationary and devaluation effect

00:29:20

that arises but it's not it is the

00:29:21

reserve currency of the world today

00:29:23

let's so it's really hard to kind of

00:29:25

just say hey it's going to be

00:29:26

hyperinflationary and the value is going

00:29:27

to go to zero it's just not going to

00:29:28

happen so that seems to be the the

00:29:30

dollar of the dollar yeah so that seems

00:29:32

to be the BET Now trim off at

00:29:35

as some folks are predicting

00:29:37

catastrophizing hey this is the end of

00:29:40

U.S Supremacy the end of the dollar of

00:29:42

course modern monetary Theory seems to

00:29:45

stay you can just keep printing dollars

00:29:47

and make a couple trillion dollar coins

00:29:48

a backstop it and by the way tarp was

00:29:52

profitable modestly for the United

00:29:53

States and the backstop of real estate

00:29:55

totally worked so where do you land on

00:29:57

this do you think these backstops and

00:30:00

modern monetary Theory stating that you

00:30:02

can just print money you you own your

00:30:03

own fiat currency is going to work or as

00:30:05

we pivot to the billion dollar

00:30:08

I'm sorry the million dollar biology

00:30:10

Bitcoin bet

00:30:11

that this is the end of days

00:30:14

I I think it's not the end of days but I

00:30:16

think you're conflating a bunch of

00:30:18

things together so look mmt yes I am yes

00:30:21

was in hindsight idiotic in the moment

00:30:24

it never quite made sense but in

00:30:26

hindsight it's clearly idiotic and

00:30:29

I think that we can properly dispense

00:30:31

with that

00:30:33

but the reason that we print so much

00:30:36

money is sort of what free Brook says

00:30:38

which is that we just want a

00:30:40

well-functioning society and the

00:30:43

simplest and shortest way to do that is

00:30:46

to make sure that there aren't any

00:30:47

winners and losers anymore and the most

00:30:50

effective way to do that in the markets

00:30:51

is with money print a bunch of money and

00:30:53

there are no more winners and losers

00:30:55

and so everybody can kind of win some

00:30:58

people may may win more but nobody

00:31:00

really ever loses

00:31:02

so I think that's the that's the mo that

00:31:05

we're operating under

00:31:08

the thing is I know something unhealthy

00:31:10

to that your mouth you're sort of

00:31:11

alluded yeah but no losers that's a more

00:31:14

philosophical and a commentary on

00:31:16

capitalism and a bunch of other things

00:31:18

and you're right I don't think it makes

00:31:19

sense I do think you need winners and

00:31:20

losers

00:31:22

to really make Society function well

00:31:25

but the other part of it is like does it

00:31:27

reinforce or does it decay U.S dollar

00:31:31

hegemony and I think it actually

00:31:33

reinforces it and the reason is just

00:31:36

very practically speaking when you look

00:31:38

at how dependent other people other

00:31:41

countries are on the US dollar in times

00:31:43

of stress they actually become more

00:31:45

dependent and that has a lot to do with

00:31:47

their boring patterns the amount of

00:31:50

dollars central banks need outside the

00:31:52

United States and so what did you see in

00:31:53

a moment of stress actually the FED

00:31:55

opened up swap lines to all the central

00:31:57

banks that they work with uh their most

00:32:00

important operating partner so Europe

00:32:02

Canada Japan Etc Switzerland and they

00:32:06

moved the liquidity window from weekly

00:32:08

to daily and they pounded the swap lines

00:32:11

so I don't know I think that most people

00:32:13

that that kind of like it's like a boy

00:32:15

crying wolf maybe at some point somebody

00:32:17

will be right but you're going to lose

00:32:18

so much money trying to take a point of

00:32:20

view

00:32:21

around this topic that it's more

00:32:23

practical to just look at Dollar flows

00:32:25

and dollar flows go up in moments of

00:32:28

stress not go down and they go up in a

00:32:31

distributed manner across the monetary

00:32:34

Plumbing of the world all right so let's

00:32:36

explain the biology bat since that

00:32:37

trended and he is the boy who as you're

00:32:41

saying what cried wolf this past week

00:32:43

cry Bitcoin yeah the boy cried Bitcoin

00:32:45

very well said

00:32:46

so a friend of the Pod apology

00:32:49

on March 17th predicted that Bitcoin

00:32:52

will reach one million dollars

00:32:55

in 90 days

00:32:56

due to U.S hyper inflation

00:32:59

hyperinflation is defined as prices

00:33:01

going up 50 percent month over month

00:33:04

just so we're clear on exactly how

00:33:06

dramatic that is he made the bet on

00:33:08

March 17th against a pseudo-anonymous

00:33:11

a Twitter user James Medlock who said

00:33:15

they would bet one million that the U.S

00:33:16

would not experience hyperinflation so

00:33:19

biology sort of inserted Bitcoin into

00:33:21

that bet it wasn't a Bitcoin bet uh then

00:33:23

and I think he's done two of these bets

00:33:26

so he's betting two million in total on

00:33:28

bitcoin hitting 1 million by June 17th

00:33:31

which there's probably no chance of that

00:33:33

happening or a very tiny chance unless

00:33:35

the panel in a second

00:33:36

Bitcoin was trading at uh 25 26 000 at

00:33:39

the time it's now trading at over 28

00:33:42

000.

00:33:43

and Balaji has been on every podcast

00:33:45

known to man in the last 72 hours

00:33:47

talking about this I've watched one or

00:33:49

two of them

00:33:50

and it's uh pretty out there argument I

00:33:53

think and you can just type in biology

00:33:56

on YouTube and watch any of the 20s done

00:33:58

uh he believes Regional banks are

00:34:00

insolvent he thinks the feds need to is

00:34:02

going to need to print a massive amount

00:34:04

of money

00:34:05

like we've said here do more QE and then

00:34:08

cut rates all seems reasonable but that

00:34:11

that will lead to hyper inflation it's

00:34:13

not reasonable wow

00:34:16

we just printed that they're gonna cut

00:34:18

rates we just discussed they're going to

00:34:20

eventually cut rates and there'll be

00:34:21

more QE so that part is reasonable um

00:34:23

just that one little piece but then he

00:34:25

believes is the part that is kind of out

00:34:27

there that hyperinflation is going to

00:34:29

devalue the dollar and this is the time

00:34:31

um

00:34:32

he does not and I made a bunch of I I

00:34:36

asked him this a bunch of times and he

00:34:37

would not be honest about it uh or

00:34:40

didn't want to answer my question I said

00:34:41

hey what percentage are you in Bitcoin

00:34:43

somebody says he's 99 in Bitcoin he will

00:34:46

not confirm and so I was like well if

00:34:48

you own a thousand Bitcoins if this goes

00:34:50

up you know a very small amount

00:34:53

four or five percent you're gonna pay

00:34:54

for the bets and uh are you talking your

00:34:57

own book here or not sex what do you

00:34:59

think of this overall bet is it a stunt

00:35:02

yeah he's saying like this is the

00:35:04

lifeboats moment and just to add to it

00:35:05

he says you have to leave the United

00:35:07

States and get to Singapore uh or a

00:35:11

place or if you're gonna stay in the

00:35:12

United States you need to get to Wyoming

00:35:14

or Texas or somewhere that explicitly

00:35:15

allows Bitcoin because the closer you

00:35:17

are to the United States banking system

00:35:18

what happened to Silicon Valley Bank on

00:35:21

that fateful weekend where people

00:35:23

couldn't get their cash and we're gonna

00:35:24

have to you know Miss payroll he says

00:35:27

that's the dry run for the entire U.S

00:35:30

banking system sex so first of all I

00:35:32

don't think you can disparage bulgy

00:35:34

because someone who cries wolf says this

00:35:36

repeatedly and makes a dire prediction

00:35:39

repeatedly and is wrong and we can't say

00:35:41

yet that biology is wrong do I think

00:35:44

that we're gonna have a million dollar

00:35:45

Bitcoin in 90 days I personally find

00:35:47

that very unlikely but you can't say yet

00:35:50

he stuck his neck out making a

00:35:52

prediction that will be easily falsified

00:35:55

if he's wrong second the last time that

00:35:58

biology made a dire prediction was

00:36:01

coveted he was right about that one so

00:36:04

you can't say that this is just like a

00:36:06

Doomer who throws out crazy predictions

00:36:08

and is always wrong he's actually pretty

00:36:09

selective about his now that one

00:36:11

predictions yeah there is a tweet from

00:36:13

January 30th of 2020 in which he

00:36:17

basically predicted a pandemic based on

00:36:19

a coronavirus and laid out a whole bunch

00:36:21

of sequences that mostly came true which

00:36:25

is why we're talking about this this is

00:36:27

not just some like random person like he

00:36:29

actually has yes a pedigree and a track

00:36:31

record

00:36:32

but here's my view on it

00:36:34

yes

00:36:36

the two of our opening speakers All In

00:36:39

Summer 2023. those would be our bookhead

00:36:42

speakers book them down anyway so so

00:36:45

look now what do I think about it I um I

00:36:48

I posted my own Theory today which I

00:36:50

would call sort of bulgy light

00:36:54

um which is

00:36:56

um okay look if you if you think about

00:36:57

this spiking interest rates that we've

00:36:59

had and that Jama thinks Washington

00:37:00

continued quite a bit longer there are

00:37:02

three main effects that it indisputably

00:37:05

has number one undercuts the value of

00:37:07

long-dated bonds number two it's made

00:37:10

lending much more expensive particularly

00:37:12

for big purchases like real estate

00:37:14

number three it's increased government

00:37:15

lending costs okay now play that through

00:37:18

the financial system what does that mean

00:37:19

well if the value of long-dated bonds

00:37:22

has sharply decreased well that's led to

00:37:24

this banking crisis with the unrealized

00:37:27

losses that's already happened number

00:37:28

two it's made lending more expensive the

00:37:30

credit Crunch and cre where we aim to

00:37:32

see that and I believe that's going to

00:37:34

play out as the second crisis of this

00:37:36

larger financial crisis and then number

00:37:38

three is the increase in government

00:37:40

borrowing costs that will eventually

00:37:42

play out in terms of being a government

00:37:44

debt crisis of some kind and I think

00:37:46

it'll involve you know a spike in

00:37:49

borrowing costs at the federal level and

00:37:50

involve sovereign debt issues

00:37:53

internationally I think it will involve

00:37:55

budget deficits at states and cities so

00:37:58

I think there's three phases to this

00:38:00

financial crisis we're in phase one and

00:38:03

I think cre and government debt are the

00:38:05

next two phases and I think I think a

00:38:07

lot of that lines up with what biology

00:38:08

thinks where I disagree with him is I

00:38:11

don't think we can know what's going to

00:38:12

happen in 90 days I think that the cre

00:38:14

crisis is highly deflationary it's going

00:38:17

to create distress everywhere in the

00:38:19

economy that is going to lead to a

00:38:21

massive reduction in liquidity I think

00:38:23

that the government debt crisis assuming

00:38:24

the government wants to inflate and

00:38:27

monetize the debt as a way to solve that

00:38:28

problem

00:38:30

that will be highly inflationary but

00:38:32

when these things play out we can't know

00:38:34

I think that's what makes this really

00:38:35

hard is I think jumping

00:38:37

all the way to the sort of finish line

00:38:40

and saying we're gonna have a million

00:38:41

dollar Bitcoin in 90 days because the US

00:38:43

dollar is worthless I think that's

00:38:45

premature I think this could play out

00:38:46

over the next couple years we have a

00:38:48

real problem if Bitcoin is the exit ramp

00:38:53

for an inflationary crisis because it

00:38:55

it's not accessible enough it's not

00:38:58

easily transactable for for I'm sorry to

00:39:01

be negative to the Bitcoin maximalists

00:39:03

I'm generally in favor of this kind of

00:39:06

independent

00:39:08

storage system that's outside of

00:39:11

government State control I think there's

00:39:12

just this unfortunate reality I mean we

00:39:14

saw what the wells noticed at coinbase

00:39:15

today

00:39:16

they just arrested that that crypto guy

00:39:19

gokuan was arrested

00:39:22

great country Kraken won't let you wire

00:39:24

money in or out as of I think Monday or

00:39:26

Tuesday

00:39:27

and so you know it's clearly becoming

00:39:30

kind of a less accessible system of

00:39:33

storage no what's more accessible well I

00:39:36

do think that one of the reasons we're

00:39:37

seeing the market move the way it does

00:39:39

is because folks are shifting their risk

00:39:41

assets around quite a bit right now to

00:39:43

figure out where is a good place to put

00:39:44

money

00:39:45

I was

00:39:47

talking with a

00:39:49

asset manager

00:39:50

you know this morning and you know they

00:39:53

had a very strong point of view folks

00:39:54

are are moving Capital away from what

00:39:57

they think are going to be most impacted

00:39:59

by the risk of this kind of massive

00:40:01

inflationary event that may arise or

00:40:03

this massive banking crisis that may

00:40:05

arise or this massive real estate crisis

00:40:07

that may rise and there are other places

00:40:09

to then put your Capital that's not just

00:40:11

Bitcoin and sure maybe some of these

00:40:13

things are dollar denominated but for

00:40:15

example there are many businesses that

00:40:17

sell products in non-dollar denominated

00:40:19

currencies globally and while they

00:40:21

report and trade on U.S stock exchanges

00:40:22

you're buying a security interest in a

00:40:24

business that generates most of its

00:40:26

income you're referring

00:40:28

I'm referring to many different

00:40:29

companies

00:40:30

yeah and so there are many companies

00:40:31

that get the bulk of their revenue the

00:40:33

bulk of their sales

00:40:34

internationally there are also many

00:40:36

companies that will benefit in an

00:40:38

inflationary environment businesses that

00:40:39

are tied to other types of real estate

00:40:41

businesses that are tied to certain

00:40:43

Capital Equipment where consumption will

00:40:45

not go down unless there's you know

00:40:47

significant massive you know Global

00:40:49

socioeconomic shock

00:40:50

and so I think that that's kind of a lot

00:40:52

of what's going on right now it's less

00:40:53

about hey bitcoin's the only place to go

00:40:55

and be safe and it's more about let me

00:40:57

reallocate my risk assets a little bit

00:40:59

you know to places that maybe benefit

00:41:01

that may benefit from or may be better

00:41:04

guarded from a massive kind of

00:41:06

inflationary shock um let me just say

00:41:09

let me say one more thing I I think one

00:41:11

of the biggest risks that is not being

00:41:12

talked about is the debt ceiling vote

00:41:15

that's due in June

00:41:18

in June Congress needs to pass

00:41:23

an increase in the debt ceiling because

00:41:25

the amount of debt that the U.S that the

00:41:28

federal government is going to have to

00:41:30

take on in order to meet our budget

00:41:32

deficit and refinance our debt and pay

00:41:35

our obligations historically

00:41:37

means that we're going to have to have

00:41:39

more than what we're uh you know we've

00:41:41

approved to date in terms of the total

00:41:42

amount of debt now this has historically

00:41:45

been a last-minute vote you know crazy

00:41:47

dramatic thing

00:41:48

that drives markets nuts

00:41:51

the hill had a public opinion piece from

00:41:54

Peter O'Rourke and Mary Spade but I

00:41:57

think they make a good point

00:41:58

you know I've talked to a lot of folks

00:42:01

who are call it in the fixed income

00:42:03

Market but also folks who are in the

00:42:05

equities markets publicly who are pretty

00:42:07

nervous about this debt ceiling vote and

00:42:10

if it does look like the Republican uh

00:42:12

party takes a very hard line and says

00:42:15

because this is the current party line

00:42:17

if you don't agree to massive deficit

00:42:20

Cuts or spending cuts uh and and really

00:42:24

commit to that um in a bill that we can

00:42:26

pass

00:42:27

that Ben also approves the increase in

00:42:29

the debt limit we are not going to

00:42:31

approve increasing the debt limit

00:42:33

and you know what this opinion piece

00:42:35

argues I think is a very good middle of

00:42:36

the line solution which is you know come

00:42:38

up with points of view uh and actually

00:42:41

document those points of view on um

00:42:44

making sure that government spending is

00:42:46

effectively accountable that there's no

00:42:47

more wasteful spending and that there

00:42:49

are certain programs that both parties

00:42:51

can very quickly agree to as being you

00:42:54

know very wasteful and if you start

00:42:56

there you maybe get enough across the

00:42:58

line that both parties kind of say this

00:43:00

makes sense let's do this and then we

00:43:02

can kind of increase the debt limit

00:43:03

because in the absence of that the US

00:43:05

will have to default on debt this is

00:43:07

always the big threats never happened

00:43:08

and if that happens or there is the

00:43:10

looming threat of that happening

00:43:11

combined with the banking crisis

00:43:14

combined with you know the the liquidity

00:43:16

crisis combined with the real estate

00:43:18

crisis that may be emerging here let me

00:43:20

ask you a question you can have things

00:43:22

really meltdown so look because yeah I

00:43:24

think this is the biggest like Black

00:43:26

Swan it's not a Black Swan but this is

00:43:27

the biggest kind of elephant in the room

00:43:28

right now is and I think that and sorry

00:43:31

I think if people in DC could get

00:43:33

together today and if you could instead

00:43:35

of doing the typical last minute 24 hour

00:43:37

vote a day before the debt ceiling needs

00:43:40

to be increased if this could be

00:43:42

addressed today it could start to put in

00:43:45

some of the layers of backstop and

00:43:46

coverage and protection and safety that

00:43:48

the markets I think really need

00:43:50

to manage some of the trepidation in the

00:43:52

in the weeks and months ahead I want to

00:43:54

jump to the crypto Crackdown and get

00:43:55

your opinion on that stack Source but I

00:43:57

want to do a clarifying Point here with

00:43:58

Freeburg you have been in the ray dalio

00:44:01

end of Empires Empire's collapse and

00:44:04

that hey maybe the US is winding uh down

00:44:07

its Supremacy and

00:44:10

apology was pretty much saying Yep this

00:44:13

is the moment

00:44:14

where is there any light between your

00:44:17

position of like pay dalio's correct

00:44:19

this is the end of the Empire ambology

00:44:21

is like it's the end of the Empire right

00:44:23

now

00:44:24

where do you stand on that free burn so

00:44:27

I mean I've always I've been concerned

00:44:28

I've told you guys this for like three

00:44:29

years and I've obviously promoted this

00:44:31

book for two and a half years

00:44:33

and dalio's points of view with lots of

00:44:36

kind of empirical wisdom behind it I

00:44:38

think indicate that the US is on a path

00:44:40

and the way we spend and the way behave

00:44:42

we behave and the way markets are

00:44:44

reacting I think indicates that a lot of

00:44:45

what has happened historically is

00:44:46

happening now in the U.S

00:44:49

now

00:44:51

it doesn't I don't know if it's gonna

00:44:53

happen overnight that's where I would

00:44:54

have light with Biology okay the notion

00:44:56

of kind of hyperinflation again

00:44:59

I think

00:45:00

means that so think about all the US

00:45:04

dollar holders around the world

00:45:06

it would be a shock for the collective

00:45:09

system it would require the collective

00:45:11

system to collectively agree to get off

00:45:13

the dollar very quickly for that to

00:45:15

really happen

00:45:16

yeah in the meantime I do think there

00:45:18

will be inflationary effects I do think

00:45:19

there will be massive kind of asset

00:45:21

value shocks

00:45:23

but I'm not sure there's going to be

00:45:24

this kind of like Weimar Republic

00:45:26

Deutsche Mark I got your hyperinflation

00:45:28

thing because it is the reserve currency

00:45:30

and it's so widely held by everyone it

00:45:32

would require Collective

00:45:34

giving up it also seems like there may

00:45:36

be you know we talked a lot about the

00:45:38

Petro Yuan trade which I think is

00:45:39

critical to see that actually happen I

00:45:41

think that's going to be the linchpin

00:45:42

got it maybe that catalyzes this and

00:45:44

that seems to be a little bit tightrope

00:45:46

right now too it doesn't seem super

00:45:48

definitive that Saudis are embracing

00:45:50

China there's obviously this Behavior

00:45:54

you know it's not as definitive right

00:45:56

now I think that that needs to happen to

00:45:58

kind of really catalyze that let's get

00:46:00

our tinfoil hats on here for a second

00:46:03

in relation to the biology bet there has

00:46:05

been a lot of action against crypto

00:46:07

obviously authoritarian countries took

00:46:10

control of crypto long ago China Banning

00:46:13

it

00:46:14

Etc North Korea other uh authoritarian

00:46:17

places kind of tighten their grip on it

00:46:19

now here in the United States coinbase

00:46:21

got a Wells notice uh that is a warning

00:46:23

basically and giving you a last chance

00:46:25

to kind of respond to the SEC

00:46:28

and this was based on their loaning

00:46:30

programs and on top of that a number of

00:46:33

other crypto crackdowns have occurred we

00:46:35

saw celebrities getting smacked down

00:46:38

and getting fines and doing settlements

00:46:41

this has led sax to a theory that the

00:46:46

United States government wants to break

00:46:48

the back of crypto crypto has done a

00:46:50

great job of breaking their own back

00:46:52

with plenty of cryptographs insider

00:46:54

trading and all kinds of shenanigans

00:46:56

with FTX and front running and painting

00:46:59

the tape any grift or criminal activity

00:47:01

possible seems to have been exploited

00:47:04

do you think that these two things are

00:47:07

in some way coordinated or there's a

00:47:08

coordinated effort by the US government

00:47:10

to destroy and kill crypto as an

00:47:13

off-ramp for the US dollar while the US

00:47:15

dollar is dealing with these prices

00:47:17

thanks

00:47:18

well there's a really interesting

00:47:19

article that was just published on sub

00:47:21

stack by Nick Carter who I guess a guest

00:47:24

writer on Mike Solana's sub stack called

00:47:26

pyro wires just a follow-up piece to an

00:47:29

article he wrote six weeks ago where he

00:47:31

laid out the an operation by the Biden

00:47:34

Administration called operation choke

00:47:35

point which made the case that the bind

00:47:38

Administration was quietly attempting to

00:47:39

ban crypto and now you know a month

00:47:43

later there's all these things that are

00:47:45

all these steps that the administration

00:47:46

is is taking to go after crypto and he

00:47:49

you know he lays out a bunch in a bullet

00:47:51

point list so the SEC announced a

00:47:54

lawsuit against crypto infrastructure

00:47:55

company paxos crypto exchange Kraken

00:47:58

settle with the SEC SEC chair Gensler

00:48:01

openly labeled every crypto asset other

00:48:03

than Bitcoin to security

00:48:06

senate committee on environment and

00:48:07

Public Works held a hearing land-basing

00:48:09

Bitcoin binding Administration proposed

00:48:11

a bill that singles out crypto miners

00:48:13

for owner's tax treatment New York

00:48:15

attorney general declared ethereum which

00:48:17

is the second largest crypto asset to

00:48:18

security that's a huge change by the way

00:48:20

yep SEC continues its anti-consumer

00:48:23

protection efforts

00:48:25

by doubling down their attempt to block

00:48:27

a spot Bitcoin ETF

00:48:29

OCC let crypto Bank protegos application

00:48:32

for a National Trust Charter expire and

00:48:35

then the SEC just sent coinbase a Wells

00:48:37

notice so I think it's hard to argue

00:48:40

that there isn't a concerted effort now

00:48:42

to crack down

00:48:44

on crypto buy a wide variety of

00:48:47

government agencies and authorities

00:48:50

starting with Gensler at the SEC who

00:48:52

seems incredibly hostile to crypto

00:48:55

so now the only question is is this

00:48:57

correlated with the stress that the

00:49:01

banking system is under or is it just a

00:49:02

coincidence and that I don't know but I

00:49:05

think the argument biology would make is

00:49:06

that

00:49:08

at the same time they're going to

00:49:09

deflate the dollar they're going to make

00:49:11

it harder for you to find an off-ramp

00:49:13

and he actually brought up a historical

00:49:17

example that I wasn't aware of I think

00:49:18

it's called executive order 6201 which

00:49:20

is FDR way back in the 1930s actually

00:49:24

had an executive order that confiscated

00:49:26

all the gold private gold bullion in the

00:49:28

country and They seized the gold bullion

00:49:30

making the accusation that private

00:49:33

citizens were hoarding too much gold so

00:49:37

in any event this is the theory I don't

00:49:39

know whether it's true or not it could

00:49:41

be a coincidence you think that this is

00:49:44

correlated in any way with uh the crisis

00:49:46

or is just the fact that FTX blew up and

00:49:49

all these other things blew up and the

00:49:51

public is really upset that they lost a

00:49:53

lot of money on this and the SEC has got

00:49:55

to cover and

00:49:57

be a little bit more active instead of

00:49:59

reactive when it comes to dealing with

00:50:01

the crypto losses that consumers had

00:50:03

that's the latter I mean I think that

00:50:05

there was a rumor going around I don't

00:50:07

know how true it is that FTX was days

00:50:12

away

00:50:13

from getting a critical approval by the

00:50:15

SEC to actually even further legitimize

00:50:18

their U.S exchange before they went out

00:50:20

of business so

00:50:21

I think Gensler had to Pivot very hard

00:50:23

from at a minimum being very Pro FTX and

00:50:26

there's all kinds of stories about his

00:50:28

interrelatedness with Sam and his family

00:50:31

to very anti-bit or anti-crypto in

00:50:34

general that's clearly happened

00:50:37

but look I think that this is like a lot

00:50:39

of tin hatting which I don't think is

00:50:41

very productive if you look at the total

00:50:44

number of non-zero Bitcoin wallet

00:50:48

addresses in the world and let's be

00:50:50

extremely generous

00:50:52

and say it's a hundred million there's

00:50:55

still 7 billion people in the world and

00:50:58

so I just think everybody that tries to

00:51:01

speak about the fragility of the U.S and

00:51:05

worldwide banking system is right

00:51:08

but and that part I think is quite lucid

00:51:11

and unemotional

00:51:12

but every time they try to connect it to

00:51:14

bitcoin they sound like a crazy person

00:51:16

because they're just talking their book

00:51:18

and that is exactly the case by the way

00:51:20

with this kid Nick Carter yeah and the

00:51:22

best example

00:51:24

to demonstrate this is in all of this

00:51:26

chaos

00:51:28

if Bitcoin or crypto Assets in general

00:51:30

were truly a legitimate off-ramp

00:51:34

and

00:51:36

salvation from US dollar hegemony and

00:51:39

all of this stuff

00:51:41

why isn't Bitcoin at least at 35

00:51:44

000 a coin right now it's barely above

00:51:46

28 000 it really hasn't moved that much

00:51:48

and I think the real answer

00:51:50

is that most people in Bitcoin are not

00:51:53

trying to hedge their existing fiat

00:51:57

currency exposure they're just picking

00:51:59

off people in retail

00:52:01

and they're just day trading this thing

00:52:03

I mean I think that explains how else do

00:52:07

you explain an asset that is not

00:52:09

absolutely ripped in the face of all of

00:52:11

this terrible news about the financial

00:52:13

system and I think the answer is because

00:52:16

it's still a cul-de-sac of users

00:52:19

it's not broadly available not broadly

00:52:21

adoptable not broadly used I I still

00:52:24

believe that it's valuable I was the

00:52:26

earliest proponent of Bitcoin 2011. yeah

00:52:30

2012. so I believe that there's a place

00:52:32

for it in one's portfolio but I just

00:52:34

think connecting these dots misses the

00:52:37

point and I think the point is much much

00:52:39

bigger than a crypto off-ramp the point

00:52:42

is that we have a lot of systemic shocks

00:52:45

that are building up in the system we

00:52:48

have broken a ton of the systems

00:52:51

that caused the financial infrastructure

00:52:54

and the world to work properly and we

00:52:56

are just starting to uncover how they're

00:52:57

broken so I think we need to focus our

00:52:59

energy on that and dial down a little

00:53:02

bit of the Bitcoin Maxi stuff because it

00:53:04

distracts from a really important set of

00:53:07

topics that are more inclusive and

00:53:09

actually touch seven billion people we

00:53:11

have to do the cleanup work and just to

00:53:13

be perfectly clear here Nick Carter is a

00:53:17

career

00:53:18

crypto he's on his third fund his 250

00:53:22

million dollar third fund according to a

00:53:24

quick Google search he's a partner at

00:53:25

Castle Island Ventures and I believe

00:53:27

biology believes what he's saying and at

00:53:30

the same time is massively in Bitcoin

00:53:34

and the two million dollars he'll

00:53:35

obviously lose in this bet or the 99.9

00:53:38

chance and he said that already

00:53:40

I think he believes he's doing a service

00:53:43

just like he did believe he was doing a

00:53:45

service with covid so I do not doubt his

00:53:47

intent but I believe it's his book is

00:53:50

based on this and the two million

00:53:51

dollars will be yeah

00:53:54

he's a very smart and good guy my point

00:53:57

is put this in the who cares bucket and

00:53:58

get back to the facts Friedberg

00:54:00

mentioned it we have a debt ceiling

00:54:02

problem that's in the offing sax

00:54:04

mentioned it we have a commercial real

00:54:05

estate crisis

00:54:07

we just talked about the fact that he

00:54:09

didn't raise rates enough nor did he cut

00:54:10

enough so we're in this weird middle

00:54:12

path that Jay Powell we're talking about

00:54:15

so those are the facts on the ground

00:54:16

that I think we should focus on because

00:54:18

those will have implications to how

00:54:20

people can borrow start businesses

00:54:23

capitalize risk assets

00:54:25

that's a big problem I guess the moral

00:54:28

hazard comes up sax and the critique I

00:54:31

think that people have had of you

00:54:35

you know focusing on bank bailouts Etc

00:54:38

has been you have been anti-bailout and

00:54:42

now hey maybe backstopping the

00:54:45

deposits not backstopping the bank the

00:54:48

shareholders loss you were very clear

00:54:49

about that but let's talk about moral

00:54:51

hazard here for a minute are we started

00:54:54

getting not for bail when did I say I

00:54:56

was either I just couldn't understand

00:54:57

you or not I just clear stage you're not

00:54:59

I'm saying this is the critique that

00:55:00

people have had of you so I'm giving you

00:55:02

a chance to address why why are you

00:55:03

giving him people's critiques of him

00:55:05

would nobody because I want him to talk

00:55:08

about the future moral hazard people

00:55:10

these are 76542 on Twitter

00:55:13

okay

00:55:16

Wall Street Journal the New York Times

00:55:19

and everything let me jump in and just

00:55:21

clarify I was really clear that sgb's

00:55:24

shareholders should be wiped out there

00:55:26

are bondholders to be wiped out they're

00:55:27

Management stock options should be wiped

00:55:30

out in fact if it turns out that they

00:55:32

should have known the thing was about to

00:55:34

go under I think their stock sales

00:55:35

should be clawed back so I'm not in

00:55:37

favor of bailing out svb I don't care

00:55:39

about SCB yes of course now let's do

00:55:41

that for commercial real estate no the

00:55:43

question is what you do with deposits

00:55:44

and depositors correct I think there is

00:55:46

a real debate

00:55:48

about how you treat depositors in a

00:55:52

banking crisis and I think there are two

00:55:54

views on that there's kind of an

00:55:56

old-fashioned View and then there's kind

00:55:57

of a more modern regulatory view the

00:56:00

old-fashioned view is that if your money

00:56:03

isn't a bank and that bank goes under

00:56:05

and you know you're over the FDIC amount

00:56:08

you lose your money and we need people

00:56:10

in the system to lose their money

00:56:12

because that creates discipline on the

00:56:14

banks it'll make those depositors do a

00:56:16

better job shopping for the right bank

00:56:18

that's kind of what I would call the

00:56:20

old-fashioned Hardline view there's a

00:56:23

more modern regulatory view which is

00:56:24

that listen the typical depositor even a

00:56:29

fairly sophisticated depositor like a

00:56:30

small business or even a high net worth

00:56:32

individual they're not in a position to

00:56:34

evaluate the balance sheet of these

00:56:36

Banks how are they going to figure out

00:56:38

if there's like toxic assets that are

00:56:40

hidden on the balance sheet of these

00:56:42

Regulators didn't see it oh it's talking

00:56:44

about a lot of these Banks so you don't

00:56:46

really get that much more moral hazard

00:56:49

by putting the depositor on the hook for

00:56:51

for that remember the management of the

00:56:53

bank already is penalized severely by

00:56:55

losing all of their stuff so I'm trying

00:56:57

to get to before Tremont interrupted me

00:56:59

I'm trying to get to the bigger moral

00:57:00

hazard picture here which is Jason [ __ ]

00:57:03

you before you're interrupting but the

00:57:04

point each or not for a second

00:57:06

the point I'm trying to get to is should

00:57:07

commercial real estate should that be

00:57:10

bailed out how should Society look at

00:57:12

that next card that you are saying is

00:57:15

going to tip over how would you handle

00:57:17

that piece should they okay well let me

00:57:19

just stretch the thing on on depositor

00:57:20

so the modern regulatory view is that

00:57:22

when you open a bank account you

00:57:23

shouldn't have to think about the bank's

00:57:25

balance sheet you just want it to be

00:57:26

safe you don't want all the brain damage

00:57:28

and and look I think there's a lot of

00:57:30

Merit to that argument as it turns out

00:57:32

I've been trying to look into this how

00:57:34

much would it cost the system to just

00:57:37

fully insure depositors it turns out

00:57:38

that

00:57:40

we have about 17 and a half trillion in

00:57:42

deposits in the U.S almost 8 18 trillion

00:57:45

and one of the misnomers you'll hear as

00:57:47

well it would cost us 18 trillion to

00:57:49

basically insure all the deposits that's

00:57:51

not true because that's not first of all

00:57:52

10 trillion people don't even it's

00:57:54

already insured under FDIC it's only

00:57:56

about seven and a half to eight trillion

00:57:59

that's less than half is left okay

00:58:01

that's right exactly it's about it's

00:58:03

around 8 trillion so isn't it shocking

00:58:05

the enumeracy of people that make these

00:58:07

claims

00:58:09

this is

00:58:11

20 or top 10 in the world because we're

00:58:14

actually breaking down the numbers right

00:58:16

so continue the leading proponent of

00:58:18

this theory that we should just

00:58:19

basically not bail out but backstop the

00:58:22

deposits as Bill Ackman and he's been

00:58:25

making I think a pretty compelling case

00:58:27

that if you don't protect deposits at

00:58:29

small Banks all the money is going to

00:58:31

flow to the top four Banks that's right

00:58:33

it's happening yeah we're watching it

00:58:35

happen right so I've been trying to

00:58:36

figure out how much it would actually

00:58:37

cost us to do that and what I've

00:58:39

realized is that it's not 18 trillion

00:58:42

it's it's 8 trillion but by the way

00:58:45

that's the amount of deposits that's not

00:58:47

the risk premium so if you look at FDIC

00:58:49

at the end of last year there was about

00:58:51

130 billion that have been paid in to

00:58:54

the FDIC fund buy premiums paid by these

00:58:58

Banks so in other words the insurance

00:59:00

premium paid by Banks was about 1.3

00:59:03

percent

00:59:04

so if you were to now additionally cover

00:59:06

the whole thing all the deposits it

00:59:09

would be another roughly 100 billion of

00:59:10

premiums paid by these banks that seems

00:59:13

very manageable to me actually the

00:59:15

question is is the FDIC fund adequate

00:59:18

and I think we're about to find out it

00:59:20

may be the case that a 1.3 percent

00:59:22

insurance premium grossly

00:59:25

you know understated the true risk of

00:59:28

putting your deposit in a bank and we're

00:59:29

about to find out that the FDIC is

00:59:32

inadequate I don't know the answer to

00:59:33

that question well I think this boils

00:59:34

down to the profitability that an equity

00:59:37

shareholder of a bank expects of them

00:59:40

and to your point is it

00:59:43

viable

00:59:45

for large

00:59:46

g-sibs to

00:59:49

guarantee a hundred percent of their

00:59:51

deposits absolutely the implication of

00:59:54

that will be an enormous hit to their

00:59:56

short-term profitability and their

00:59:58

return on invested Capital it would just

00:59:59

take a massive hit and so as a result

01:00:01

the stocks of those Banks would fall

01:00:04

pretty precipitously which would have a

01:00:06

real negative impact on the executives

01:00:08

and the CEOs of those Banks and the

01:00:10

shareholders that own those Bank

01:00:12

equities so I think ultimately it'll

01:00:15

come down to that decision which is that

01:00:17

if you do want to protect the depositor

01:00:19

in the American banking system a hundred

01:00:21

percent for every dollar

01:00:23

and do it in a simple way it will come

01:00:26

at the sake of the equity holders of the

01:00:27

banks and if you're willing to make that

01:00:29

trade-off then you can guarantee 100 of

01:00:32

the deposits if you do not want to make

01:00:34

that trade-off then the equity holders

01:00:36

will still retain more value

01:00:38

than they would otherwise and Freeburg

01:00:40

we've seen a couple of examples of the

01:00:42

market the free market looking at the

01:00:45

situation and making new products and

01:00:46

services

01:00:48

wealthfront Mercury Bank both

01:00:50

talked about load balancing across 12

01:00:52

accounts three million dollars so that

01:00:55

would make some people who had over 250k

01:00:58

just instantly be backstopped

01:01:01

and insured and then

01:01:03

where you know there's discussion of

01:01:06

um we I talked about last week hey why

01:01:08

don't you just have a vault where you

01:01:09

pay a bank to hold your money safely I

01:01:11

got a ton of responses from all in fans

01:01:13

pointing out multiple Banks and services

01:01:16

that have been trying to do this and

01:01:18

also crypto solution so is it going to

01:01:20

be a free market solution you think or

01:01:22

when we're starting to see them emerge

01:01:24

that maybe covers this Gap a little bit

01:01:26

Freeburg and then what are your thoughts

01:01:27

just generally on should we backstop the

01:01:29

banks and the deposit I'm sorry the

01:01:30

banks the depositors to be clear so if

01:01:32

we just quickly

01:01:35

analyze the function of a bank

01:01:37

they loan money to

01:01:40

either residential real estate buyers

01:01:43

like homeowners or commercial real

01:01:46

estate buyers or businesses that need it

01:01:48

I think the majority of the capital goes

01:01:50

to residential real estate

01:01:51

and if they can't loan enough money

01:01:55

they typically buy bonds right they buy

01:01:57

other people's loans

01:01:58

in the form of bond Securities like

01:02:01

treasuries or asset-backed Securities or

01:02:04

other things like that

01:02:06

our mortgage-backed securities

01:02:08

so they use the cash to make those

01:02:10

Investments to to make those loans and

01:02:12

then they obviously earn a return on

01:02:13

that you know I think we've talked about

01:02:15

this in the past the thing that that

01:02:17

biology I think has misstated and it

01:02:20

would be good to have a conversation

01:02:21

with him about this publicly because I I

01:02:25

have listened to some of his interviews

01:02:26

in the last couple days

01:02:28

he says the banks are they don't have

01:02:30

the money

01:02:31

that you the depositor thinks that you

01:02:34

have and so

01:02:36

what he's saying kind of implies that

01:02:38

there is no money that there is no asset

01:02:40

value there at all he uses Sam bankman

01:02:43

freed and FTX as an example that the

01:02:46

money that was given to Sam bankman

01:02:48

Freed's you know exchange fund was used

01:02:50

to buy assets that then very quickly

01:02:52

declined in value by 99 but he held them

01:02:56

on the book at 100 and then he

01:02:58

reinvested the money in all sorts of

01:03:00

other different stuff

01:03:01

and in the case of the loans made by

01:03:05

Banks and the assets that they as a

01:03:07

result hold

01:03:08

the value may have dropped by 25 in kind

01:03:12

of the worst case which is you know the

01:03:15

Silicon Valley Bank 10-year treasury

01:03:17

bond scenario where they bought you know

01:03:19

all 20 billion dollars worth of Treasury

01:03:21

bonds and and you know they took a big

01:03:23

hit on that

01:03:24

but it doesn't mean that there's no

01:03:25

asset value it means that the value has

01:03:28

declined and typically there's a buffer

01:03:30

between the asset value that the banks

01:03:32

are meant to hold and the deposits that

01:03:34

they owe back to their customers and if

01:03:36

that buffer gets exceeded then the bank

01:03:39

is technically has negative equity and

01:03:41

if all the you know depositors said I

01:03:44

want my money back and they went and

01:03:45

sold those bonds into the market they

01:03:47

wouldn't be able to make the depositors

01:03:48

whole but it doesn't mean the depositors

01:03:50

end up with zero it means instead of

01:03:52

getting a hundred cents on the dollar

01:03:53

they get 93 cents on the dollar 88 cents

01:03:56

on the dollar and it would require an

01:03:58

orderly dissolution of the bank's assets

01:04:00

selling those bonds into the market to

01:04:02

generate the cash to pay back the

01:04:03

depositors so the reason we've seen this

01:04:06

kind of this fed vertical Spike number

01:04:08

is because assets are moving so quickly

01:04:10

depositors are moving their value so

01:04:12

quickly from One bank to another that in

01:04:14

order for the banks to make the cash

01:04:16

available to those depositors they've

01:04:17

had to borrow from the fed and then

01:04:19

they're going into the market and doing

01:04:20

this kind of they should be doing this

01:04:22

orderly asset sale of the bonds to

01:04:23

generate the cash to pay back the FED

01:04:25

which is exchange musical chairs money

01:04:28

causing these problems as musical chairs

01:04:30

and if the musical chairs stop then we

01:04:32

don't have this problem correct

01:04:34

so if people stopped moving uh deposits

01:04:37

around then you're right the banks

01:04:39

wouldn't need to borrow money to give

01:04:41

depositors their money and then go do

01:04:43

the work of selling the bonds in the

01:04:44

market people free without moving their

01:04:45

money around because I'm insured because

01:04:48

it's not insurance so here we go so you

01:04:50

just ensure it and this whole thing

01:04:51

stops so it costs them nothing to just

01:04:54

say that right yeah exactly here's the

01:04:55

thing Jake how you mentioned this case

01:04:57

that you hear a lot of people saying

01:04:59

well why don't you just take your two

01:05:00

and a half million dollars and break it

01:05:02

up into 10 accounts which is what people

01:05:04

are doing yeah yeah well look it's not

01:05:06

feasible when you need to run a big

01:05:07

payroll at the end of the month and

01:05:08

you've got payables it's

01:05:09

administratively too complicated and by

01:05:11

the way what have you accomplished doing

01:05:13

that if you haven't solved anything so

01:05:15

that's an accomplished for the startups

01:05:18

I'm just given that prediction the

01:05:19

system yeah why won't you just raise

01:05:21

FDIC to two and a half million or have

01:05:24

FDIC be based on the number of employees

01:05:26

in your company or allow a higher class

01:05:30

A business class of FDIC that goes up

01:05:32

yes exactly 10 million and in exchange

01:05:36

the quid pro quo has to be that the bank

01:05:39

can't put that money in Risky assets not

01:05:42

this is so obviously

01:05:45

the reason I walk through that whole

01:05:47

explanation because I want to answer

01:05:48

your question I'm sorry it took so long

01:05:49

but like I want to highlight that

01:05:51

because that is what an insurance

01:05:52

underwriter put aside the FDIC and put

01:05:55

aside Banks and put aside the

01:05:56

government's role yes that's what an

01:05:58

insurance underwriter's job would be

01:06:00

they would look at the volatility and

01:06:02

the pricing on the bonds that the bank

01:06:04

holds and they would determine

01:06:06

ultimately two things probability of

01:06:09

loss and severity of loss and the

01:06:10

probability is How likely is it that you

01:06:12

end up in negative equity and that you

01:06:15

have people requesting money and you

01:06:16

have to sell those bonds and lots very

01:06:17

quickly and then the severity is how

01:06:19

much would you actually lose so if if

01:06:21

you know the FED raises rates by three

01:06:23

percent and your entire book is tied up

01:06:26

in 10-year bonds you see a 25 decline in

01:06:29

the value of your bond portfolio that's

01:06:31

as bad as it gets if you start with a 10

01:06:32

buffer now you only we have 85 percent

01:06:35

of the money you owe the depositors so

01:06:37

your loss is 15 cents on the dollar so

01:06:39

the insurance company would say what's

01:06:41

the probability of that event happening

01:06:42

how much should we underwrite it for

01:06:44

what should we charge as a premium to do

01:06:45

that and that's ultimately how the rates

01:06:47

would get set now the problem with most

01:06:49

insurance

01:06:50

models around this sort of a problem set

01:06:52

is that these are the extreme tail

01:06:54

events that have never happened and so

01:06:56

the insurance to Sax's point is super

01:06:59

cheap leading up to the extreme tail

01:07:02

event and then everyone's like oh my

01:07:04

gosh we underpaid for so many years we

01:07:06

didn't realize how severe the losses

01:07:08

could have been we didn't realize how

01:07:09

significant this was going to be and as

01:07:11

a result you now see this kind of

01:07:13

multiplying effect because people are

01:07:15

like oh my gosh if it happened to them

01:07:16

it could happen to me let's all sell and

01:07:17

it gets worse and worse and worse and so

01:07:20

you know the real rate for the insurance

01:07:22

going forward will now have to take into

01:07:24

account this massive risk but the game

01:07:26

theory problem is as saxes point out if

01:07:28

you just ensure everyone the cost of the

01:07:30

insurance actually goes way way way down

01:07:32

because now you don't have this money

01:07:34

movement problem

01:07:35

and so you know the the point is the

01:07:37

more you insure at this point the

01:07:39

cheaper the insurance will actually be

01:07:42

if you're an Actuarial or free market

01:07:43

underwriter you know free market kind of

01:07:46

you know underwriting process on this

01:07:47

thing because now the probability of

01:07:50

having this Bank Run goes way way down

01:07:52

and therefore the cost of the insurance

01:07:54

should go way down

01:07:56

and so the the irony is if you actually

01:07:58

did and this is getting super technical

01:08:00

but if you actually looked at the

01:08:02

statistical model and said how much is

01:08:05

this going to cost to insure every

01:08:06

deposit it gets much much cheaper the

01:08:09

higher the

01:08:11

the the deposits that you're willing to

01:08:12

ensure would be that's my sense of what

01:08:15

the free market would do here and it's

01:08:16

certainly what I think the federal

01:08:17

government should probably think about

01:08:18

doing if they're going to continue to

01:08:20

play a role in backstopping Banks the

01:08:22

net net is people

01:08:25

startups right now are doing five to ten

01:08:28

Banks I'm watching it happen they're

01:08:29

doing all these sweep accounts they're

01:08:31

doing multiple accounts so the

01:08:33

government if it doesn't raise the FDIC

01:08:34

limit is basically just creating extra

01:08:36

work for everybody and it's going to be

01:08:38

the same outcome so this people are

01:08:40

gonna the street will find its own use

01:08:41

for technology and how to hack this and

01:08:44

that's what's happening with these

01:08:45

Services yeah in real time just a steel

01:08:47

man the the old-fashioned view or the

01:08:49

traditional view of this they would say

01:08:52

that well you want those startups being

01:08:54

paranoid do you want those Sharps doing

01:08:55

the work of disciplining these banks by

01:08:58

moving their money elsewhere if they

01:09:00

detect a problem however the problem

01:09:03

with that is you get these Bank runs

01:09:04

that is what a bank run is in Parts is

01:09:07

people moving their money because

01:09:08

they're fearing that the bank is not

01:09:10

doing a good job with their loan

01:09:12

portfolio so this is why in the let's

01:09:15

call it the olden days before FDIC we

01:09:18

had Bank runs and panics all the time

01:09:20

and that's why FDIC was invented so

01:09:23

there's a hugely destruct a problem that

01:09:26

comes along with placing the depositor

01:09:30

in charge of disciplining the banks and

01:09:33

I would argue that the deposit is not

01:09:35

the best person to do it it's the

01:09:36

regulator just to kind of layer on what

01:09:37

what Friedberg was saying

01:09:39

I think there's like a fundamental

01:09:40

market failure with banking

01:09:42

in the sense that the depositor or the

01:09:45

consumer and the bank think they're

01:09:46

getting two completely different things

01:09:48

when you open a bank account or a

01:09:50

checking account you think you're

01:09:52

getting a checkbook an ATM card a place

01:09:55

to do payroll run you know and it's a

01:09:58

service that's a service and maybe you

01:10:00

make a little bit of interest but it's

01:10:01

not even your main motivation okay

01:10:03

that's what you think you're getting

01:10:04

your money most of all is safe because

01:10:06

you're not signing up with a service

01:10:08

provider to have any chance of losing

01:10:10

your money you're not gambling right but

01:10:11

now what does the bank think it's

01:10:13

getting you know what the bank thinks

01:10:14

it's getting an unsecured loan that they

01:10:16

can then turn around and invest in

01:10:18

whatever they want or whatever the law

01:10:19

so there's a disconnect between the

01:10:21

parties and the transaction exactly it's

01:10:23

a total disconnect and moreover the way

01:10:25

the management of the bank is

01:10:26

compensated is that they only have to

01:10:28

pay back

01:10:30

your loan your deposit basically isn't

01:10:32

their loan at par and anything they make

01:10:35

on a bet that they make with that money

01:10:37

they get to keep they get to keep all

01:10:39

the upside their stockholders and

01:10:40

management get to keep that and those

01:10:42

incentives are driving this and that's

01:10:44

what drove the risk in all likelihood at

01:10:45

Silicon Valley Bank they were getting

01:10:47

200 billion dollars whatever percentage

01:10:50

point they got chemov

01:10:54

their incentive it's not just them but

01:10:56

the whole banking system creates the

01:10:58

incentive they're highly leveraged the

01:11:00

deposits from their standpoint are

01:11:03

leveraged they're leveraged ten to one

01:11:04

so their incentive is to go to the

01:11:06

casino and gamble it because they get to

01:11:08

keep all the upside and if they lose it

01:11:11

it's basically someone else on the hook

01:11:12

final work your mouth

01:11:14

in early May the FED will

01:11:17

release their investigation

01:11:19

into Signature Bank and svb okay Powell

01:11:23

said that this week

01:11:24

I think it'll be really interesting to

01:11:26

see how much honesty they

01:11:28

both put into the report and then

01:11:31

whether the entirety of that report is

01:11:33

made available to the rest of us to read

01:11:36

but I think sax has very eloquently

01:11:38

summarized what's happening and

01:11:42

it doesn't take a genius to figure out

01:11:44

that this doesn't make sense and so the

01:11:48

question is what is the tolerance that

01:11:50

we have for changing something

01:11:53

that clearly is

01:11:55

mischaracterized

01:11:58

what consumers think they're getting and

01:12:00

what banks are then doing are two

01:12:01

totally different things and

01:12:04

If the Fed actually is really really

01:12:06

honest

01:12:08

and really lays bare everything that

01:12:10

happened

01:12:11

it'll be very hard to not legislate

01:12:13

changes based on it and this your best

01:12:16

uh swing at a legislative change would

01:12:18

be what chamoth what is the what is the

01:12:20

low-hanging fruit what's the layup here

01:12:23

well I think we've seen this happening

01:12:24

in other markets for a while which is

01:12:27

that

01:12:28

banks have become In fairness to them

01:12:30

much much better at risk management post

01:12:32

Dodd-Frank post great financial crisis

01:12:35

and the result of that is that there's

01:12:37

been a lot of emerging private credit

01:12:39

markets because most the bank is about

01:12:41

lending right they're not really buying

01:12:43

equities they're lending money they're a

01:12:45

debtor in possession of something right

01:12:46

and

01:12:49

there's been a just a massive explosion

01:12:52

of private credit and it started in the

01:12:55

most obvious areas it started in things

01:12:58

like Clos it started in asset-backed

01:13:00

Securities solar car loans credit cards

01:13:03

mortgages

01:13:04

private Equity backed deals so I think

01:13:08

the

01:13:09

rational answer is that Banks need to

01:13:13

protect a hundred percent of deposits

01:13:16

and that if they want to have

01:13:19

extracurricular activities if you will

01:13:23

they need to be able to raise money from

01:13:26

investors put that to work in a really

01:13:28

fair and transparent way

01:13:30

and then

01:13:32

share in the profits between all of the

01:13:34

related parties that are involved in

01:13:36

that transaction no different than any

01:13:38

other risk-taking organization and I

01:13:41

think that this is now what we've

01:13:43

probably shined a light on is in really

01:13:46

odd loophole

01:13:48

that just needs to get closed in 2023.

01:13:50

there's such easy uh hygienic changes

01:13:54

here like let's put it a different way

01:13:55

if you

01:13:57

raised money for a liquid hedge fund

01:14:00

that had quarterly redemptions

01:14:02

and then violated the LPA and stuffed it

01:14:05

into private companies that had 10-year

01:14:06

illiquidity

01:14:08

there would be hell to pay yeah and vice

01:14:11

versa if you raise money on tenure a

01:14:13

liquid locked up capital on the

01:14:15

presumption you were going to invest in

01:14:16

startups and then instead put it in the

01:14:18

stock market thinking that you could

01:14:20

flip it and make some money

01:14:22

you would have violated the LPA and

01:14:24

there'd be held to pay similarly I think

01:14:27

what Sox is stating is that there is a

01:14:28

mismatch

01:14:29

of what the depositor in this case the

01:14:32

investor expects

01:14:34

and what the risk manager is doing

01:14:37

and I think that you have to correct

01:14:38

that one way or the other make it

01:14:39

abundantly clear that we're never going

01:14:41

to ensure 100 and deal with that risk

01:14:45

or make it 100 and deal with the Fallout

01:14:48

which is largely about uh wiping out a

01:14:51

lot of equity value in Banks LPA equals

01:14:54

limited partnership agreement right just

01:14:57

just to clarify one thing I'm not saying

01:14:58

that these bank managers are all going

01:15:00

to the casino and gambling the money I

01:15:01

think that they are generally more

01:15:03

responsible than that what I'm saying is

01:15:05

that the incentives

01:15:06

created by this crazy system we call

01:15:09

banking

01:15:10

create a weird incentive for them to

01:15:12

gamble because they're so highly levered

01:15:14

from their standpoint your deposits are

01:15:17

their leverage everybody but the gsibs

01:15:19

because I think the g-sibs there's so

01:15:21

much scrutiny if you look at how

01:15:23

well-run City B of A Wells and JPM are

01:15:26

relative and contrast them to the

01:15:29

sub-g-subs

01:15:31

it's like night and day and so the other

01:15:33

thing that I think we've realized is who

01:15:35

thought it was a good idea to raise the

01:15:38

bar on eligibility from 50 billion of

01:15:40

assets to 200. clearly now that made no

01:15:43

sense it makes more sense to actually

01:15:45

categorize every Bank

01:15:48

as systemically important maybe not

01:15:51

globally but at a minimum to the US

01:15:52

economy because these people play a

01:15:54

vital function in society and they were

01:15:58

allowed

01:15:59

to take a much more aggressive wrist

01:16:01

posture because they were able to Lobby

01:16:03

the government to change the rules the

01:16:04

CEO of tick tock which claims to be an

01:16:07

American company now or an international

01:16:09

company

01:16:10

was in front of Congress today his name

01:16:13

is show Chu this is the first time he's

01:16:15

really

01:16:16

I think spoken publicly in an extended

01:16:19

period four and a half hours he was

01:16:21

grilled

01:16:22

and it was absolutely brutal it's the

01:16:25

first time I've seen

01:16:26

a congressional hearing that was

01:16:28

bipartisan in a long time

01:16:30

and he said that quote the bottom line

01:16:34

is this is an American date this is

01:16:37

American data on American soil by an

01:16:38

American company overseen by American

01:16:40

personnel

01:16:41

and then was immediately

01:16:45

squirrely when asked if Chinese

01:16:49

employees including Engineers have

01:16:51

access to this U.S data and he said this

01:16:53

is a complex subject over and over again

01:16:56

he was evasive

01:16:58

and this did not look good for tick tock

01:17:03

well the question now becomes does it

01:17:04

become divested and go public or does it

01:17:07

get shut down sex I think his Goose was

01:17:10

cooked as soon as they asked him the

01:17:11

question in preparation for this hearing

01:17:14

did you consult with any member of the

01:17:15

CCP and he could not just outright say

01:17:18

no no so that's his Goose was cooked as

01:17:21

soon as he couldn't just say no what do

01:17:22

you think about the bipartisan nature of

01:17:24

this and what do you think the outcome

01:17:25

is sex well this is one of the rare

01:17:26

things where it is bipartisan I mean

01:17:28

there's there's so much outrage and

01:17:31

anger at this I think that they should

01:17:33

let the company divest it I think it is

01:17:37

divestiture or shutdown for tick tock

01:17:39

since we're not Communists here I think

01:17:41

they should be given the chance to fully

01:17:43

divest to an American-owned company

01:17:46

but look I just wish that there was as

01:17:49

much bipartisan consensus and outrage

01:17:53

directed not just at Chinese spying of

01:17:56

Americans but on the American deep State

01:17:58

spying on Americans because we just had

01:18:01

hearings showing that the American

01:18:03

government conducts elaborate spying

01:18:06

operation surveillance of Americans on

01:18:08

social media this was all revealed in

01:18:10

the Twitter files and

01:18:12

we got certainly no bipartisan consensus

01:18:14

on that Republicans were outraged but

01:18:16

Democrats tried to portray it as some

01:18:18

sort of spat between Trump and Chrissy

01:18:20

Teigen I mean that's all they wanted to

01:18:21

talk about so I would like to see this

01:18:25

problem comprehensively addressed and

01:18:27

that means I think Tick Tock going into

01:18:30

the hands of an American company but I

01:18:32

also would like more assurances that

01:18:34

American companies will not be working

01:18:36

with the Deep state to spy on us and

01:18:38

infringe Chrissy Teigen and Donald Trump

01:18:40

who are two people you'd never invite to

01:18:42

a dinner party

01:18:43

free park what are your thoughts is it

01:18:46

going to divest should it be forced to

01:18:47

divest

01:18:48

being intellectually honest about it

01:18:50

what are your thoughts on tick tock in

01:18:54

America

01:18:55

uh yeah I think I've shared this in the

01:18:57

past I think they're probably going to

01:18:58

have to spin this thing out and if they

01:19:00

hold any Equity if the Chinese parent

01:19:02

company holds any Equity interest it'll

01:19:04

probably be non-voting shares

01:19:06

and there'll be a mandate that the

01:19:08

majority of the shares and some degree

01:19:10

of oversight I believe that's the right

01:19:11

thing to do

01:19:14

from a national security issue for

01:19:15

America to force them to do that I don't

01:19:18

know from a national security point of

01:19:19

view I really don't I don't have an

01:19:21

opinion from National Security and Tick

01:19:23

Tock I don't know

01:19:25

I I've always thought that Tick Tock was

01:19:27

a really

01:19:30

what's the right word like it's like a

01:19:32

firefly

01:19:33

for you know Chinese Invasion and it

01:19:36

feels like you know it's a very easy

01:19:38

kind of Target

01:19:41

for I think what is generally a big kind

01:19:43

of social Consciousness right now

01:19:45

so you know whether or not there's

01:19:47

actually like

01:19:49

uh some National Security points if if

01:19:52

there were I'm pretty sure that a

01:19:53

national security person would have

01:19:55

stood up and said we need to stop this

01:19:56

thing I'm not sure I've heard that

01:19:58

publicly

01:19:59

uh but but I will say like my point of

01:20:02

view from like just seeing the political

01:20:04

behavior is that they're probably going

01:20:06

to mandate that these guys spin this

01:20:07

thing out to U.S investors and and that

01:20:10

they have you know don't own any that

01:20:11

the Chinese don't have any Equity or

01:20:13

management oversight or interest in it

01:20:15

in China

01:20:17

itself

01:20:19

the Chinese government does not allow

01:20:21

kids to play video games during the week

01:20:22

and only three hours on the weekend

01:20:24

they're using apps like

01:20:26

WeChat to dictate social score and

01:20:30

social behavior whether it's smoking on

01:20:31

a train or not paying your bills

01:20:33

and

01:20:35

they are saying they will not divest but

01:20:38

anybody who is an investor in a company

01:20:41

that had a chance to go public for tens

01:20:43

of billions of dollars and eventually

01:20:45

take on and people believe that this is

01:20:47

a viable competitor to Facebook and

01:20:50

Instagram this could be a company worth

01:20:52

ultimately hundreds of billions of

01:20:53

dollars if you were an investor in China

01:20:56

you would want to IPO you would want to

01:20:58

get liquidity so if they are refusing to

01:21:01

sell what does that tell you as a market

01:21:03

participated in a participant and

01:21:06

somebody who's been a capital allocator

01:21:07

for over a decade there's bigger

01:21:08

problems in China than even Tick-Tock

01:21:10

U.S represents for them I think it's

01:21:13

probably what it means so it's a pretty

01:21:15

bad tell

01:21:16

I don't think divestiture is a real

01:21:18

option because when you think about the

01:21:20

details of that

01:21:21

how will the government be satisfied

01:21:23

that the code base was separated

01:21:25

elegantly that there was no malware

01:21:30

surreptitiously planted

01:21:32

how will you actually prove all of this

01:21:34

to a degree that satisfies a legislator

01:21:38

so I think the pound of Flesh

01:21:40

that they want

01:21:42

is more easily and more salaciously

01:21:44

satisfied by shutting the thing down so

01:21:46

if I had to bet on what happens

01:21:49

I bet more on that I didn't think Tick

01:21:51

Tock did a very good job and I think

01:21:53

that there are some they were terrible

01:21:55

today and I think that there are some

01:21:57

real issues around how much control does

01:22:00

actually flow back

01:22:02

I don't think that it was definitive he

01:22:05

needed to be much

01:22:06

clearer

01:22:08

and adamant that this was an independent

01:22:11

business that didn't have back doors to

01:22:13

China and the CCP to appease Congress he

01:22:16

didn't do that no he was like I have to

01:22:18

check in on that I'm not sure yeah I

01:22:20

think it was a little bit of the exact

01:22:21

opposite actually sax is right like that

01:22:23

first question was just the death blow

01:22:25

right from the beginning it's like oh

01:22:26

this is not going to go in a good place

01:22:28

because they should have been able to

01:22:30

see that that question was going to get

01:22:31

asked

01:22:33

and you need to have that asked and

01:22:35

answered philosophy where the only

01:22:36

answer is no

01:22:38

the only answer you could have given is

01:22:40

no and the fact that he wasn't able to

01:22:41

say that

01:22:43

it was a bit of a feta complete as soon

01:22:45

as that was in my mind I was like this

01:22:46

thing is getting shut down because I

01:22:48

don't think there's a shutdown yeah

01:22:49

there's no divestiture plan that can be

01:22:52

technically audited in a short amount of

01:22:55

time to appease these folks they want a

01:22:59

pound of Flesh and then separately

01:23:01

the bigger issue that I think

01:23:04

you have to deal with is what does that

01:23:07

mean for how other governments may be

01:23:09

pressured to act who want to be on the

01:23:12

pro-us camp and I think that that's a

01:23:15

question because

01:23:18

bike dance and Tick Tock have presence

01:23:20

Beyond just China and the U.S

01:23:22

a third question is

01:23:24

how does the golden vote get used on the

01:23:27

bike dance board and what do they do and

01:23:30

do they even want this thing public

01:23:31

explain golden vote essentially they'll

01:23:33

decide what happens to that company and

01:23:35

they have that in Alibaba they have that

01:23:37

I think a 10 cent I think they have that

01:23:39

at bike dance so

01:23:40

the Chinese government has a very strong

01:23:43

hand in the direction of these business

01:23:45

and then the final point

01:23:46

is that

01:23:48

there's a secondary app that Tick Tock

01:23:50

has called cap cut

01:23:52

which also is enormously popular in the

01:23:54

United States which is yet another

01:23:56

potential back door

01:23:58

for privacy or spying violations

01:24:00

whatever the U.S Congress wants to pin

01:24:02

on them so

01:24:04

I think it's a very complicated moment

01:24:06

for that business and their U.S asset

01:24:11

sex it's pretty clear the CCP is making

01:24:14

this decision

01:24:15

if they decide let it burn let it get

01:24:18

kicked out of the United States what

01:24:20

does that do in terms of Game Theory

01:24:22

between the two countries and going

01:24:25

forward because obviously they don't

01:24:26

reciprocate we're not allowed to have

01:24:27

Google Twitter Instagram whatever in

01:24:30

China so is this just you know

01:24:33

reciprocity what's what decision are you

01:24:36

saying the CCP is making well the CCP

01:24:38

has the golden vote it's their decision

01:24:40

to divest or not divest chimately they

01:24:43

will not divest I believe they're saying

01:24:45

that is they're not going to have the

01:24:46

choice I don't I don't see what decision

01:24:49

the CCP has in this

01:24:51

that's right it's not a divestor or

01:24:54

don't divest I think it'll be shut down

01:24:55

I think they're getting kicked out of

01:24:57

the United States

01:24:58

okay do you but you believe they're

01:25:00

going to divest sex

01:25:01

I'm saying that that's what I would

01:25:03

support

01:25:05

so what do you think is going to happen

01:25:07

maybe you're right I'm not sure but I

01:25:09

think they should be given the chance

01:25:10

and if you truly can't move the servers

01:25:13

to the United States and vet the code

01:25:15

base I feel like you could

01:25:17

I think you could have an acquirer

01:25:20

figure it out you know vet the code base

01:25:22

move the data centers make sure there's

01:25:24

no back doors I think it's not

01:25:26

impossible hard but not impossible

01:25:28

okay so let's go with the scenario that

01:25:31

it gets kicked out of the United States

01:25:32

is shut down are there any second or

01:25:34

third order impacts yeah is this rashes

01:25:37

up the tension between the U.S and China

01:25:38

but we're already

01:25:40

we're already there yeah we're right

01:25:42

there no change all right listen this

01:25:44

has been an amazing episode oh chamoth

01:25:47

did uh your 3D rocket company make it to

01:25:51

space I saw they had a nice uh little

01:25:53

lift off there thank you

01:25:55

I just wanted to give a shout out this

01:25:57

is like while all this chaos is

01:25:59

happening in the world it's amazing to

01:26:01

see pretty incredible engineering so

01:26:03

last night

01:26:05

we did have a successful launch

01:26:07

so relativity has a 85 percent 3D

01:26:11

printed rocket which over time we want

01:26:12

to try to get to

01:26:13

95 but it's the fuselage it's the

01:26:16

engines

01:26:18

it brings the cost of space flight down

01:26:21

by an order of magnitude

01:26:24

it is a hugely disruptive idea and so

01:26:27

what they tried to prove was that they

01:26:28

could get this thing into space

01:26:30

and they accomplished a lot of goals

01:26:32

they got past Max Q which is sort of the

01:26:35

point at which the atmospheric pressure

01:26:36

is the strongest on the fuselage so we

01:26:38

proved

01:26:39

structural Integrity we got to main

01:26:41

engine cutoff we had stage two

01:26:43

separation

01:26:45

so a lot of really important technical

01:26:47

Milestones were achieved it allows them

01:26:49

now to unlock

01:26:52

a bunch of contracts that allow us

01:26:54

frankly just to keep going and building

01:26:56

there's still a lot of work to do from

01:26:57

here we're building now the Next

01:26:59

Generation rocket which is called Taran

01:27:01

R and Rocket engines which can take

01:27:04

instead of 1500 kilograms about 20 000

01:27:08

kilos so

01:27:10

enormously proud to

01:27:12

have been around this journey my partner

01:27:14

Jay has been really

01:27:16

the key person on it but I just wanted

01:27:17

to give a huge shout out to Tim Ellis

01:27:19

and the team at relativity it's super

01:27:20

super cool but they pulled out just

01:27:22

amazing how uh access to space is being

01:27:26

democratized and the prices are being

01:27:28

lowered so dramatically what's the

01:27:29

impact that's going to have ultimately

01:27:31

for your Berg you think on Humanity I

01:27:33

mean obviously going to Mars is this

01:27:35

incredible feat technologically and just

01:27:39

mind-blowing but what do you think the

01:27:42

the net result of all this space

01:27:44

activity is going to be for The Human

01:27:46

Condition and the species I mean I think

01:27:48

there's a Vibrant Community of startups

01:27:52

and money coming into this space right

01:27:54

now I do think all these guys are going

01:27:55

to have to in order to gain wider spread

01:27:58

Capital markets attention

01:28:00

like Elon has had to do with SpaceX

01:28:02

they're going to have to find business

01:28:03

models that have

01:28:05

kind of near-term viability that don't

01:28:07

depend on government contracts like

01:28:10

Sonic like starlink yeah and so I think

01:28:13

that's the key question it obviously

01:28:15

these are very Capital intensive

01:28:16

businesses they have very long Horizons

01:28:19

to hit their milestones

01:28:21

so there's certainly Capital available

01:28:24

in the early stages

01:28:27

to make bets on whether or not they can

01:28:28

get these Milestones but but you know

01:28:30

the broader kind of attention in capital

01:28:31

markets is going to come from these

01:28:34

things building real kind of businesses

01:28:35

that generate value for consumers and

01:28:37

markets

01:28:39

you know one of the things that I think

01:28:41

can unlock

01:28:43

opportunity for this Market overall is

01:28:46

low-cost energy you know if we can get

01:28:49

below call it

01:28:51

one cent to three cents kilowatt hour of

01:28:54

power call it one cent a kilowatt hour

01:28:56

power I forgot the exact relationship

01:28:57

you can get very cheap

01:28:59

um you know hydrogen and oxygen fuel

01:29:01

sources and so you know the it's funny

01:29:04

if you actually play out the the scale

01:29:07

factor for space for the space industry

01:29:10

much of it at scale will get driven by

01:29:13

the cost of electricity so it's another

01:29:15

reason why there's going to be I think a

01:29:16

pretty tight coupling between the cost

01:29:17

of power and ultimately

01:29:20

the vibrancy of this Market you

01:29:22

mentioned something important the other

01:29:23

key thing that we proved was that this

01:29:25

is a pure methyl Ox engine so CH4 and

01:29:28

liquid oxygen and it was not just stage

01:29:31

one but also stage two which is unique

01:29:33

the only other folks that have tried to

01:29:35

prove that you could have multi-stage

01:29:37

methylocks is China and their most

01:29:39

recent launch failed but it highly

01:29:41

simplifies the engineering problem at

01:29:43

hand

01:29:45

especially the ground operations and

01:29:47

whatnot and sort of like filling these

01:29:49

rockets and making them viable so that

01:29:51

was another really big milestone the

01:29:53

producing of that fuel Friedberg

01:29:55

requires energy if that energy was cheap

01:29:58

it would be cheaper to make and process

01:30:00

that fuel

01:30:01

that's right yeah this is a pretty

01:30:03

pretty direct tie-in particularly with

01:30:05

scale manufacturing on

01:30:07

fuel that would be used in these rocket

01:30:09

systems and and power prices here on

01:30:11

Earth so if and as we get power prices

01:30:13

down either through scaled Renewables or

01:30:16

ideal infusion or some other kind of new

01:30:18

technology yeah yeah or nuclear fission

01:30:20

or something

01:30:22

then the cost of you know Fuel and the

01:30:25

cost of these space programs goes down

01:30:27

and that ultimately I think the real

01:30:29

question everyone asks is how do you get

01:30:30

away from it just being government

01:30:31

services businesses which you know have

01:30:34

a low multiple uh in markets and

01:30:36

obviously you know High dependency on

01:30:38

one or two key customers and how do you

01:30:40

actually get private markets uh private

01:30:42

market products moving

01:30:43

so tourism obviously makes a lot of

01:30:46

sense

01:30:47

travel

01:30:49

you know around the Earth in 20 minutes

01:30:50

or something or you know

01:30:52

some people have talked about mining or

01:30:54

colonies and you know who would fund

01:30:56

that real estate it's unclear right now

01:30:58

what the ultimate traveling is a wild

01:31:00

one yeah I've talked to Elon about that

01:31:01

but the idea that you could have a

01:31:03

rocket ship take off from Texas and then

01:31:06

be in Tokyo

01:31:08

you know like half an hour of minutes

01:31:09

later

01:31:10

I can only speak for myself but uh I

01:31:14

would really like to visit Uranus Reaper

01:31:16

all right everybody

01:31:18

came back look at the player here he's

01:31:21

got layers are for players sexy people

01:31:22

look at this he is he has two layers in

01:31:24

can you get an ascot that's subtle isn't

01:31:26

it he's pulling a Steve Bannon yeah you

01:31:28

gotta get more disheveled he needs the

01:31:30

six pens in the pens No Shave can you

01:31:34

tell us do you have a stylist an actual

01:31:37

person you pay for the rest of you Nick

01:31:39

can you please put the picture of Steve

01:31:41

Bannon where he wears the multiples polo

01:31:43

shirts again you uh need to stop for

01:31:47

next week attacking me it's really weird

01:31:49

oh yeah Bannon he thinks you're a

01:31:51

venture a vulture capitalist or

01:31:52

something who's been attacking you

01:31:54

banana was one of many people attacking

01:31:56

me on Twitter

01:31:58

I think on his podcast I think yeah you

01:32:01

seem to have made a lot of a lot of new

01:32:02

friends on Twitter lately when you pass

01:32:04

around half a million followers

01:32:06

basically what happens is you become a

01:32:08

politician you will net there will

01:32:10

always be a fringe element of people who

01:32:13

need to manage their anxiety by venting

01:32:15

and that's what you're feeling you'll

01:32:17

live that now at million use uh you know

01:32:20

followers 2 million 10 million whatever

01:32:22

there's always going to be a small

01:32:23

percentage J Cal doesn't know this

01:32:24

because he has mostly Bots that are his

01:32:27

followers that's true real when you have

01:32:29

real people this is what it is you'll

01:32:31

get this one percent or less than one

01:32:32

percent and just the number goes up so I

01:32:34

would ignore it don't care don't worry

01:32:36

about what user 747 don't feed the

01:32:38

brigadunes don't care what seven users

01:32:40

74786 has to say don't worry about it

01:32:42

yeah absolutely I love you all right and

01:32:45

I'm looking forward to seeing you on

01:32:46

Thursday for the Rain Man himself David

01:32:49

sacks the Sultan of Science and Prince

01:32:52

of panic attacks are PAL David Friedberg

01:32:55

and the host with the most gonna make it

01:32:58

what about me what about me I'm going

01:32:59

I'm calling you the host with the most

01:33:00

I'm adding something the host with the

01:33:02

most who's making me the shiso leaf

01:33:04

Tempura with

01:33:05

Hokkaido and you are the world's best

01:33:09

genuflector I am the world's greatest

01:33:11

guest greatest house guest if you need a

01:33:13

house guest to look at your house Italy

01:33:15

Tokyo and Seco wherever you need a house

01:33:17

guest I'm ready to come and make it a

01:33:19

good time you're the modern Kato kale

01:33:21

and you're horrible absolutely the best

01:33:23

you keep inviting me every week you are

01:33:25

enjoyable though love you boys

01:33:30

[Music]

01:33:34

somehow

01:33:38

[Music]

01:34:09

is

01:34:12

[Music]

01:34:18

[Music]

Episode Highlights

FED's Rate Hike Controversy
The FED's decision to hike rates sparks debate among the hosts about its implications.
“The FED doesn't know what they're doing!”
@ 03m 11s
March 24, 2023
The Ripple Effects of Credit Bubbles
The current credit bubble is creating ripple effects that will impact the broader economy.
“This credit bubble is here and it's being manifested right now.”
@ 20m 00s
March 24, 2023
Real Estate Crisis Looms
A potential crisis in commercial real estate could lead to significant economic distress.
“The real estate owner can't make their Debt Service Covenant ratios.”
@ 23m 33s
March 24, 2023
The Future of Bitcoin Predictions
A bold prediction claims Bitcoin will reach one million dollars in 90 days due to hyperinflation.
“This is the lifeboats moment.”
@ 35m 04s
March 24, 2023
Inflation and Bitcoin
The discussion centers on Bitcoin's role as a potential escape during inflationary crises.
“Bitcoin is the exit ramp for an inflationary crisis.”
@ 38m 48s
March 24, 2023
Debt Ceiling Concerns
The looming debt ceiling vote raises significant concerns about potential market impacts.
“We have a debt ceiling problem that's in the offing.”
@ 54m 02s
March 24, 2023
Understanding Deposit Insurance Costs
The cost to fully insure deposits isn't 18 trillion; it's closer to 8 trillion.
“It's about 8 trillion, not 18 trillion!”
@ 58m 45s
March 24, 2023
The Disconnect in Banking
Consumers think they're getting safety, while banks see deposits as unsecured loans.
“There's a total disconnect between the parties in the transaction.”
@ 01h 10m 21s
March 24, 2023
Need for Legislative Change
The Fed's upcoming report could lead to significant changes in banking regulations.
“If the Fed is honest, it’ll be hard to not legislate changes.”
@ 01h 12m 06s
March 24, 2023
TikTok CEO Grilled by Congress
During a four and a half hour hearing, TikTok's CEO faced tough questions about data privacy.
“This is an American date on American soil by an American company.”
@ 01h 16m 30s
March 24, 2023
Successful Rocket Launch
Relativity Space achieved a significant milestone with their 3D printed rocket launch.
“It's amazing to see pretty incredible engineering.”
@ 01h 25m 55s
March 24, 2023
The Future of Space Travel
Discussion on the implications of new technologies in space travel and their potential impact on humanity.
“Access to space is being democratized and the prices are being lowered so dramatically.”
@ 01h 27m 26s
March 24, 2023

Episode Quotes

Key Moments

Pistachio Delight00:13
Credit Bubble20:00
Ripple Effects20:10
Real Estate Crisis23:33
Hyperinflation Bet32:52
Deposit Insurance Debate57:38
Legislative Changes Ahead1:12:01
Divestiture Debate1:17:41

Words per Minute Over Time

Vibes Breakdown

Podcast thumbnail

August 16, 2024

01:46:02

Break up Google, Starbucks CEO out, Kamala’s price controls, Boeing disaster, Kursk offensive

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01:41:14

E80: Recession deep dive: VC psychology, macro risks, Tiger Global, predictions and more

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01:17:38

E75: Fast shuts down, board culpability, Elon buys 9% of Twitter, deplatforming's evolution & more

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November 12, 2022

01:25:18

E104: FTX collapse with Coinbase CEO Brian Armstrong + election results, macro update & more

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01:56:25

E118: AI FOMO frenzy, macro update, Fox vs Dominion, US vs China & more with Brad Gerstner

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January 18, 2025

01:42:52

Red-pilled Billionaires, LA Fire Update, Newsom's Price Caps, TikTok Ban, Jobless MBAs

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01:36:57

E135: Wagner rebels, SCOTUS ends AA, AI M&A, startups gone bad, spacetime warps & more

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August 13, 2022

01:09:01

E91: SoftBank's $21B+ Vision Fund loss, signals of a bubble, macro picture, Trump raided by FBI

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December 08, 2023

01:32:29

E156: Ivy League antisemitism, macro, SaaS recovery, Gemini, Figma deal delay + big Friedberg update

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01:21:36

Presidential Debate Reaction, Biden Hot Swap?, Tech unemployment, OpenAI considers for-profit & more

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01:30:50

Grok 4 Wows, The Bitter Lesson, Third Party, AI Browsers, SCOTUS backs POTUS on RIFs

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August 20, 2022

01:39:03

E92: Adam Neumann's second act, a16z's $350M bet, housing policy, Inflation Reduction Act & more