all right everybody welcome back to the all-in Pod episode 174 almost up to 175 I believe there are a lot of folks getting together next week at the all-in meetups around the world to watch the show unfortunately jcal had an oral incident this week he will not be joining us I guess he cracked a tooth
and couldn't make it so he is sitting this one out very last minut decision cracked her tooth eating a bison r about the Salt Lick in hustin which is a true story freir I think we found an image of okay let's Jake out at the Salt Lick cracking his tooth on a [Music] rib let your winners ride Rainman and instead we open source it to
the fans and they've just gone crazy with [Music] it all right so we are going to announce be all-in Summit 2024 back to LA we had such a great time in LA it was a great location for everyone we really appreciated the facilities at UCLA this year we're upgrading the experience once again for everyone so the event's going
to be September 8 through 10th in La if you haven't seen it please watch the recap video from last year we put it up on YouTube and then there's all the interviews from last year are also on YouTube we're going to have another amazing lineup of speakers this year and have a much more kind of upgraded elevated experience for everyone
applications are open today so go to summit. Allin podcast.co to put an application in to join us this year as you know we had way more applications last year than spots and this year we're going to have all sorts of upgrades we're GNA have transportation to and from all the events for everyone a concierge booking
service to help you book your rooms and get you set up in La for the trip we're doing a full day event on the Sunday September 8th followed by two days of content Dy about town on the first night two blowout parties it's going to be awesome so we're really excited about it we've got a much bigger budget this year and we're going to try and really make
the uh the experience awesome while also delivering the great content so really excited to do this again in La I appreciate everyone's support of that we had a lot of debate internally about where to take it and we settled on going with what we know and trying to make it a little bit better this year so anything else you
guys want to say about Summit and there's only one kind of ticket this year right that's right so we're not doing like regular ticket and VIP we're just doing one ticket for everyone and everyone's gonna get this kind of elevated experience she'll be cool sax just show up would be awesome hope to see you there I want to invite a couple
of speakers yeah you've got some good speakers I saw yeah it's gonna be great when are we gon to start announcing the speakers freeberg we will do that in a couple weeks we already have a bunch booked and it's going to be awesome oh that's really exciting that's awesome yeah I know CP you wanted to take it
somewhere else I mean we were in debate on Vegas maybe going to some other country but uh you went to another country where'd you go this week I was in Paris France what were you doing there there's like a important AI conference and Jonathan Ross the founder of grock and I kicked it off with like a fireside chat for like 45 minutes at the
beginning just to get everybody amped up and excited cool yeah it was really anything interesting come out of it I think the sound bite that made an impact on me was was from Jonathan so I think he did a very good job of explaining where Nvidia is really strong which is really in learning and where Nvidia is trying to build the
business which is an inference but the problem is the features almost compete with each other between learning and inference and I think that that was a good clarification and then the second thing is he said that if he deploys his road map he'll have 50% of the available inference compute by the end of next year wow based on all the needs of like
open Ai and meta and everybody else which is a wait but that's a smaller physical footprint is that right and it's just because they can do higher token per second less power higher tokens per second across all the major models so it would it would be meaningfully less power and meaningfully cheaper so that was a pretty amazing sound bite
though his his whole explanation was actually really good so I mean if you listen to the spaces we did I thought it was good I thought this was even better so I'm trying to get a copy of the of the talk because it was taped so that we can kind of post it at a minimum anybody who's interested in studying
Nvidia should listen to what he has to say because I think the the nuances between us and them are really profound and they were pretty Stark the way that he described them so it was cool it was great to be in Paris frankly how does Nvidia respond to this movement or this notion that there's an entirely different chip category focused purely
on inference do they have inference focused chips in development or a different road map that they're going to have to kick up now I mean I think it's very hard for them it's it is a structural innovators dilemma and why is that because they've made some architectural decisions around things like hbm which is high bandwidth memory
or specific kinds of extremely high throughput optical cables and why these things matter is that they've gone and bought up the world Supply and they've basically bare hugged these markets as a structural part of their design now that makes sense and it's very legal the problem is that if you architect around
it and go through a totally orthogonal design process we're not subject to any of those supply chain considerations and I think he explained that really well I didn't understand it in nearly as much detail as I did leaving so I think that's an important takeaway it's also really important for for all the hundreds of Chip startups and for these
Venture investors who are ripping money into these companies to know these differences because if you are investing in a company that is subject to you know hbm in their design decisions or these specific optical cables or a whole bunch of other things you're going to be in a really difficult spot because nvidia's
bought them all so I thought that that was a that was really interesting the other thing that Nvidia does brilliantly is what Intel did in the 80s and 90s when they wanted to kind of Choke the market for CPU competition which is that they were able to define a metric that everybody started to pay attention to which for
them was clock speed and if you remember Intel would push Moore's Law and they would push transistor density and clock speed as the measurement of value now for a lot of consumers none of us knew any better and so every time we saw a new chip we would go through the Pentium upgrade cycle because we thought that's
what we were supposed to do it turns out that clock speed doesn't really factor into speed the way that you think about it and experience it as an end user using software and it's the same in Ai and so we talked about that as well so it's an incredibly important company NVIDIA is I think they're performing brilliantly they're running many of the
same plays that Intel did to try to create total dominance but there's some very important nuances around power and around supply chain decisions and Technology decisions that frankly some people would think are unsustainable and the more I understand them I would be in that camp as well so I thought it was a very
important conversation and hopefully we can post it yeah it cool it and by the way it's great to be in Paris too what do you think of Paris you know I have a new appreciation for what's going on in these major cities I think that all major cities are crumbling I don't and I don't mean to be alarmist or very dramatic about that it's just that I
spent aot lot of time with entrepreneurs that are in Paris and they struggle with the same things that the people in San Francisco do and then I had couple of conversations with some folks that are entrepreneurs in London who were there and they suffer from the same things lots of petty crime lots of garbage lots of vandalism lots of
drugs and so no place is perfect it turns out everybody is struggling from a lot of experimentation gone wrong and how these cities run that was that was actually my the biggest takeaway outside of the actual AI conference itself but that's a western City problem you're not I mean have you visited many cities in China or
other parts of Asia and is that like a western problem I have not been to China in six years I've been to Hong Kong but I've not been into China for six years so I don't know I would say that India has its own vagaries so those issues are not the same I've been to Singapore a couple times my kids were just in Japan for
spring break so I saw a bunch of the pictures those cities look relatively the same very orderly well run clean but yeah you're right these Western cities are a bit chaotic yeah sax is this like a western social liberal manifestation how cities are being challenged generally M like Malay has I think Malay said this right he said like
all these Western social liberal beliefs are having lifestyle impact in urban centers well it's hard for me to speak to what's happening in Europe but we know what's happening in the United States all the biggest cities are blue and they're run by a certain ideology and in those cities we've had now a decade plus of decriminalization de
prosecution decarceration and the impacts of this are obvious we also at least in San Francisco we have subsidies for people who want to live on the streets and do drugs all day I mean it's not prohib to do that so all of our public spaces have been taken over by people who are happy to take the whatever it is $7 or $800
subsidy and do drugs all day you also had this referendum in California that essentially lowered a whole bunch of felonies to misdemeanor basically if you steal less than $950 that's considered a misdemeanor now instead of a felony and so there there's been a huge increase in crime because of that you know shoplifting just doesn't
get prosecuted anymore and misdemeanors don't get prosecuted anymore we've had all these sour daas who don't want to prosecute misdemeanors so I think if voters had understood that lowering a lot of these crimes from felonies to misdemeanors meant that they wouldn't get prosecuted at all I don't think they would have done it but that's
kind of where we are but are we seeing a rebound from that now Sach is democracy working because I know that in San Francisco we had an election recently and in the ballots it seemed to indicate that voters were sick and fed up with the the living situation in the city and they're putting different people in
office and have an intention of changing the city Charter and changing the the laws in the city so that we can reverse this trend is that not where things are I mean like sitting you know sitting where you sit like don't you see San Francisco kind of trying to write write itself and as a result doesn't democracy work over time
yeah it's just that we live in a one party State and that one party has been captured by ideologues and so it's very hard to to change it is true that in San Francisco there was an election recently and the more radical supervisors were defeated we have I think finally a good da in San Francisco but these um radicals have had
a long time to entrench their power and the party Machinery helps keep them entrenched so yeah I think you can argue that we've bottomed out because the public has recognized the problem but it's still very hard to fix and it's going to take a while I think for the first time in a long time time I'm more optimistic than not given the people
I've seen that tolerated the conditions historically have reversed course over the last year and have said we got to act and we gotta yeah you know do our kind of Civic process well time with tell you have to remember like when when New York City was a chaotic mess in the 70s and 80s it took two different mayors and it took almost a decade for that to
get cleaned up but it took the strength of leadership first David dinkin set the framework and then Giuliani really executed Rudy Giuliani and between the two of them and I think what people call the broken windows Theory they hired a lot more policemen and they just really cleaned up all of these really bad areas
and then it had this knock on effect the problem is when I'm staying at a hotel in Paris or when I was speaking to some of my friends who live in London it's the same thing it's like the amount of knife crime is so egregious as an example that they tell you don't wear a watch I mean I don't I don't wear watches anymore when I go out but what's
crazy is they will tell you that you'll get stabbed over a phone where it's like you don't need to stab me for my iPhone here just take the iPhone so there's a level of lawlessness and petty crime that's affecting tourists that to me was like very surprising and so even when I was walking around Paris I was like should I
really feel scared here and my reaction was no I've never felt scared in Paris but then what's ringing in the back of my ears are These Warnings from people that are that are that have lived there for 10 and 20 years who've had this stuff happened to them that was really surprising to me so that stuff in San
Francisco as far as I can tell or any major city in the west hasn't really been fixed because you haven't had a shift in leadership yet where they've really said okay we're going to double down on policemen and policing and we're going to amp up the punishment that hasn't happened yet well I was just in Vegas this week and it doesn't feel how
was your trip give us the trip report yeah I went to the Google next conference but I will say first off like no crime in Vegas like Vegas is Vegas it's it's a very different environment but I yeah I went to the Google next conference I ended up going out because at ohal we did a partnership with uh with gcp so we're moving all of
our infrastructure and doing a lot of model development on gcp and it was great I think there was 30,000 people at this event which was insane have you guys been to any of these like AWS reinvent or the Google next or any of these no I have not what I didn't realize prior to going to this was how much of an ecosystem there is like you go they they
take over the whole Convention Center at manderlay Bay and there's hundreds of companies that have built services or build services on gcp that are there pitching cios and CTO of other companies and so it's this real Network effect type of business model that I hadn't fully appreciated just how like deep the
network is and and how entrenched it is I I also got to go to this thing where I spent a lot of time with c and CTO at other companies big companies and a big takeaway for me that I also didn't realize was how most of them are not on a single cloud provider almost everyone I spoke with is on multiple clouds so they're all on
like AWS and AER and gcp and they use different aspect of each cloud and there's a lot of interoperability between the clouds now which I had previously my naive concept of this because I'm obviously not deeply in the space was that a company picks a cloud and they move everything over to that one service provider but it turns out
that they split and then they allocate dollars based on the services and the pricing so it was pretty clear that everyone is it's like a race to the bottom on pricing for basic commoditizing services in the cloud like data storage right and then whoever has the better higher level Services Whoever has access to better mod or has a lower
price on running models or on running things like inference that's where the money is made and the gross margin on that is quite different and I think that's where a company like Google probably has a much bigger Advantage because of the uniqueness and the quality of the models that they've developed but yeah I just didn't I
didn't really appreciate like how much there was so so my other big takeaway was the cloud is a wide open competitive market right now like there is no AWS lockin in this market there's no a zero lock in there's no gcp lock in like you guys yeah the lock in comes from the developer services that they provide so
both Amazon and Google and I'm I'm assuming Azure as well will give you access to incredibly talented Engineers who will help you build production code yeah and the ecosystem on how so like a lot of the clouds are competing for the Consultants who actually do the work for the big Enterprises so Cap Gemini deoe PWC they have these massive booths
facilities and then go and build tools for companies is also a key part of the business strategy and yeah I mean it's such a competitive market I did not appreciate just like how much of an open game this still was sure it was a great great couple days in Vegas and I got to see some of our friends we ducked in and
saw helmuth in the poker Go studio for a minute some big tournaments going on at the ARA it was fun we had a good time okay let's move on so you know on the docket today we were going to talk about CPI the March CPI numbers came in from the Bureau of Labor Statistics yesterday higher than forecast at 3.5% year-over-year this is up from 3.2%
year-over-year inflation reported by the Bureau of Labor Statistics in February higher than expected for three straight months now let's pull up this chart next as we all know the FED did 11 rate hikes in 2022 and 23 and the intention was that we would see inflation come down to their target of 2% and they would start
to lower rate rates and obviously we're not seeing that inflation is remaining hot things are getting more and more expensive I pulled together some of the numbers on year-over-year price increase housing is up 5.7% year-over-year Transportation costs are up 10.7% year-over-year and the highest car insurance is up 22.2% year-over-year
so the expectation has been that the market will do rate Cuts Larry Summers came out and said you have to take seriously the possibility that the next rate move will be upwards rather than downwards I guess sax let me let me ask you first for your commentary on how this plays into the election cycle I know Biden was expecting a rate cut or
several rate Cuts going into the election which usually helps the case of the incumbent maybe you can comment on where the the election cycle might be influenced by this inflation report well I think it's definitely bad news for Biden I was expecting fed put this year and really the whole Market was the
market was expecting three rate Cuts this year which would have been really good news for for Biden and I think this latest inflation print was kind of a dagger to the heart of of that expectation and I think the Wall Street Journal put it best it said here Wednesday's report had been hotly anticipated because fed leaders had been
willing to play Down stronger than anticipated inflation readings in January and February as as reflecting potential seasonal quirks but a third straight month of above expectations inflation data erodes that story and could lead fed officials to postpone anticipated rate Cuts until July or later so it's not just the fact that
this inflation print was higher than expected it was also higher than expected in January and February but people were willing to kind of Overlook that saying well maybe it was just kind of a you know quirky reading but now we've had three straight months it's pretty clear that the narrative that we had going into this year which was that
inflation was on its way down that it peaked at 9% uh as the official rate I think in 2022 and then it was going down every month through all of 2023 and I think the expectation going into 24 was it would keep going down we get these rate Cuts well after three straight months of inflation being more persistent and stickier Than People
expected I think that narrative is basically dead so I think the narrative now is it's going to be rates are going to be higher longer and I think Larry Summers is reflecting that view Larry's going further he's not just saying that rates are going to be you know at the current rates for longer he's saying they might actually
increase and that's a risk yeah last summer he said and this was last summer so almost a year ago he was saying the Market's got it totally wrong we're actually going to need much higher rates than the Market's anticipating for much longer as well than the market is anticipating and so did Mario drogy both said the same thing no one paid
attention to him everyone ignored it and assumed that this was going to be a quick rebound to normalization it's clear that you know once again Larry has proven himself to be fairly preci understanding where are headed Larry Summers has for the most part been spot on from this on this whole inflation question going all the way
back to 2021 remember 100% 100% in q1 of 2021 Biden's first quarter in office the big legislative push was for the $2 trillion covid relief bill this the so called American Rescue plan and Larry Summers said that it was it risked inflation it was an inflationary bill it was stimulatory yeah too didn't need it
the the economy was already coming back and we didn't need it and Biden was risking inflation but of course inflation was only at 2% at that point so the administration kind of poo pooed Larry and said you know that's is Larry Summers being Larry or whatever and sure enough we were at 5% inflation by that summer and you have to wonder if Biden
had listened to that advice would he be in a different position right now going into the election I think probably he would have been and you got to wonder for what I mean what are that two trillion dollar accomplish I mean covid was winding down I mean these were the last bit of stimy checks and payments to these Pharma companies
and I mean it was basically a grab bag and it was passed on straight party lines and it was just totally unnecessary I mean the economy certainly didn't need it and so here we are and I think that a a lot of people including the markets thought that Biden was kind of out of the woods that this year we'd see the final leg of inflation going
back to normal but that's not going to happen and I think you know going beyond the political ramifications I think there could be several other knock on effects that we should talk about I mean one is for the consumer this means that the cost of borrowing is going to be higher for longer that makes it harder to buy a
house mortgage payments are higher that also means if there's fewer home sale transactions that means the price of housing could come down so there could be a correction in that market second if you want to buy a car your car payment's higher and if you have loans uh your your personal interest is going to be higher and this is why I think
consumers feel like they're worse off than the economic data would otherwise reflect and Larry Summers actually had a tweet storm about this about a month ago where he calculated that if you included the cost of borrowing in infl that inflation was much higher than people thought and that it actually peaked not at 9% but at 18% so Larry had
an excellent tweet storm on that and he said that the cost of borrowing which used to be calculated in inflation but is not anymore was the reason why consumer sentiment about the economy was depressed he said that that accounted for about 70% of it so people should be feeling better off because GDP growth is
good and unemployment is low but they're not because inflation is so high and if you include cost of borrowing the inflation's even higher so I think this is really bad news for Biden but it it's a story that's been going on now for three years it's not just this one inflation print right it's funny yesterday Biden said during a
press conference with Japanese prime minister kashida that he's sticking with his prediction of a rate cut before Year's end but there might be a delay uh which I think is obviously you know based on what the data is showing and what folks that seem to know and have been pretty good predictors are saying is unlikely we were supposed to
get one in April yeah and we were supposed to get one in June oh yeah remember the fed the FED Open Market Committee in December stated that they expected three rate Cuts this year and I think the market in some cases we're predicting as high as four or five right and now we may not have any and we may
actually see a rate hike if you were to follow some well if we if we see a rate hike before the election I think Biden is toast yeah but I mean I think Summers gave that maybe a 15 to 20% chance which is it's still not the most likely scenario but uh possible but possible no one's counting on that in December chamat if you're a Fed
governor and obviously the the the Federal Reserve Board of Governors sets the uh rates they meet and they they make these decisions how influenced are they politically how how influenced are they by this election cycle and you know historically this is meant to be a fairly independent board but there's been a lot of consternation over the
last few years that this board acts like almost a political apparatus particularly an election yours you mean when they're not plagiarizing well tell us what you're talking about it turns out that before I answer your question that that was a joke Nick you can please show the Tweet but there was an article that came out that said
one of the FED Governors has apparently massively plagiarized most of the work that got her to the position of being fed Governor yeah so the same thing that happened to the president of Harvard so TBD what happens to that fed Governor but it seems you know my observation there was just more that it's like the
preferred method of defenestration now of academics and the appara right before if you had right leaning views or Centrist views you get run out of town and get fired now all of those folks are using these search engines to basically f fig out really quickly that you plagiarize large quantity of your academic work and that your scholarship
is is a little bit more speculative which then brings into question why do you get the right to to help set the policy of the most important economy in the world well anyways so that that was that joke but so I think that you're asking the absolute right question I think that the FED has become increasingly
politicized and I do think that there are actions that foreign governments take to influence the election but I do not think it's what most people think when I say that most people ideas goes to like some dark room conspiracy theory and misinformation and I think that's a little bit naive I think the more obvious way in which other
governments can impact the US election is exactly how Sac said which is they know that if inflation ticks High and interest rates are up and consumers are under pressure and meaningfully displeased with the economy they'll vote out the sitting Administration and so what can other governments do they can do what they're doing so
Nick I I love this like explanation in three charts Nick chart number one please what is this so this is a core driver of inflation which is the price of energy and what you see here is that since the beginning of the year oil prices have gone up which ultimately will translate to into a higher cost of doing business right running your
factory keeping the lights on keeping your home warm getting from point A to point B all of these things go up which that ultimately get reflected in prices which is what inflation is and so that's a very bad Trend obviously we had a lot of really good stuff happen through the course of last year but it's largely
reversed itself so it's important to double click into this and figure out well who's driving this is it just a random act or is it a systemic set of decisions and it turns out it's systemic so if you go to the next chart what this shows you is what the US has been doing so the United States has clearly created an incentive to flood the economy with
oil which the laws of supply and demand would say prices should go down and by bringing prices further down they would have further brought down inflation and they would have pulled forward these r cuts that we had been expecting from the fed the problem is that the rest of the world actually said no hold on and
that's what you can see on the next chart so for every time we were trying to increase production all of these other countries have been cutting production and this is the change in the OPEC plus crude production targets of 2024 so what you see here is for every barrel of oil the US would pump out of the ground more than that one barrel of
oil would get actually restricted by all of these countries on this list which is just to show you that these countries have a very specific view about how they want that energy Market as and that's just one market but it's an input a key input into inflation and rates to work so you're saying that the the OPEC has a
price per barrel price Target and they're able to manipulate production to maintain that price Target so while the US is trying to lower the price per barrel these other countries are are able to have a stronger influence and balance out production to get when you when you make these Cuts Like This prices will go up because OPEC plus is
meaningfully bigger the sum of all the parts of OPEC plus is meaningfully bigger than just the United States on its own yeah and so the United States May amp up a few hundred thousand barrels a day but if OPAC cuts by a few million barrels a day you see what you saw in that first chart which is the price will go up and that's largely why
prices have gone up so I think why this happens is because when they see the United States trying to manage inflation and manage Global rates right because us rates are not just for the United States they're the they're the trends Setter for everything else I think that in part there's a decision that this rate philosophy the economic philosophy the
political philosophy if they wanted to support that what they would do is actually also keep prices where they were or increase production but by reigning in production what you're essentially doing is voting against that entire apparatus right so OPEC and all of those countries and those decisions are not made by an oil Minister let's be
they're made by the leaders of those countries whose decision then gets reflected by the minister of petroleum or oil in all of these countries is a vote against Biden and the United States government and the politicization potentially of the fed and then the last comment is just that when you look at
the reverse repo rate which is a fundamental measure of liquidity what you also see is liquidity very quickly getting sucked out of the system which is also generally a system health check that the FED uses to make sure that the system is operating as required so in totality what I see is that there is a structural disillusionment with the
current Administration and where people can make decisions in their own best interests versus the collective interests of the United States in a broader framework that the US may represent are voting against it and so this is why the idea of a persistent inflation rate is a lot more credible than it was six months ago and I and I
think sorry just the last point and I think it's just what sa says which means that we're probably now unbalance 5050 between a hike and a cut and I think if you don't see this thing change in the next three months you're going to see 7525 for a hike of at least 25 basis points and I do think David's right I don't see how the sitting Administration
in any government will be able to withstand the onslaught of electoral displeasure if rates are four and a half five and 6% going into November Toth if that is I think everything you said makes sense going into this election rates are high and Andor going higher what does the Biden Administration do the fact is they
are very likely going to come up with a strategy to try and win votes that will likely involve some sort of stimulatory process would be my guess and that stimulatory process may look something like more student loan forgiveness more debt forgiveness she had a whole speech about debt forgiveness and here's here's the
irony the actions that the administration is likely to take to support themselves in the election cycle are likely going to further fuel inflation and that's the biggest concern and worry I have is that there's almost this inevitable set of behaviors that are coming down the pipe here over the next few months because of the inflation
report that are actually going to make things worse not better I mean to to your point Biden just announced a new student loan forgiveness plan remember the Supreme Court invalidated his last one so now he's trying again and it would potentially give loan forgiveness to something like 30 million borrowers so yeah they're going to try and buy
votes but I think it's already very late in the game to be trying to do that I think that's what they've been doing over the past few years I mean Biden has been a huge spender you know he passed the the covid relief bill he passed the inflation reduction act which was a ridiculous name for was it 750 billion of of more
spending and uh there was the chips act which yeah and there was the chips Act and the infrastructure Bill and then remember he wanted four and a half trillion of build back B on top of that and he wanted even more he didn't get it any event I think that this is a classic case of Biden spent the last three years
making his bed and now he's going to have to sleep in it and if in fact inflation is persistent and sticky and not going away and he doesn't get rate cuts again this may cost him the election but but look I want to move beyond the political aspect of this and just talk about some more of these KnockOn effects because we talked about the impact on
the consumer there's also an impact on investors there's an impact on the government and there's an impact on on the banks so let's just deal with the banks for a second we've talked about on the show how commercial real estate developers are hanging on by their fingernails right now you know they they basically borrowed huge amounts of money
to buy commercial real estate when rates were really low and they did so at high valuations now there's been a huge correction on that market and they cannot pay back those loans and they can't get refinanced so what's happening well they're working with the banks to restructure those loans to tack on the
interest they can't pay now to the end of the loan and then the bank will hope and pretend that they'll be able to get paid back one day it's called extend and pretend well the extend and pretend strategy could work if you believe that r cuts are coming really soon because you just need to hold on until the rate
cuts are here and then you can get refinanced at lower rates but if rates are going to be higher longer that strategy is not going to work and you're going to see more and more real estate sponsors throwing in the towel and banks are going to end up foreclosing on these properties and you're going to see more and more fire sales there's a really
dramatic example just the other day in St Louis a building that was bought a few years ago for $200 million just fire sailed at $2 million I mean 99% reduction this is like like crash level that's for the equity right yeah no this is like the price of the deal I mean I asse the equity was completely wiped out yeah I guess they sold it for three and
a half million are you sure that's not the equity that's got to be the equity there's no way that's the no it's just the price of the building okay I don't know I mean with the debt it's got to have the debt attach way look I mean either way it's a total wipe out for the equity holders yeah but it's also going to be a wipe
out for the bank that made that loan originally yeah or that bought that loan when is packaged into cmbs or whatever it was so I would expect that if rates stay higher longer that's going to create tremendous stress on Commercial Real Estate and and therefore on the re Regional banking system that made all
these loans to commercial real estate developers so that's knock on effect number one knock on effect number two is is the government's cost of borrowing the 10e rate's already risen to 4 and a half% now and if rates stay higher longer as more and more of the government debt rolls it's going to end up getting refinanced at higher rat
and the need to refinance all this government debt is going to continue to put pressure on the bond markets and I think this is why Larry is fundamentally pretty bearish on rates going down is the government's financing costs are so huge and they continue to grow we're adding something like a trillion dollars of new debt every hundred days there
have been some reports of this yeah 7.6 trillion is getting refinanced of old debt in the next 12 months right 7.6 is sitting around 2% and now it's going to get bumped up to close to 5% right which adds which adds an incremental $210 billion a year of Debt Service expense just on the debt that's getting refinanced in the next 12
months not to mention the deficit not to mention etc etc so right so the government was extending and pretending as well I mean they were hoping that rates would go down fast enough that when all of those massive government debt rolls and needs to be refinanced it' be done at lower rates so the interest costs wouldn't swamp us we're
already I think at over a trillion dollars now of annual interest expense for the federal government we are yeah and it's going to get it's going to rise to 1.6 trillion so it's going to be 60% greater than our defense budget just servicing the old debt we're basically in a classic debt spiral where we're
borrowing our annual deficit is we're at 2 trillion plus now so we're not paying back the principle on the debt we're not even paying back the interest on the debt we're borrowing money to pay off all the interest and then some on top of that so that's a huge problem for the federal government and then I think the the last piece of
this is investors if you pull up this Fred chart on the FED funds rate over the very very long term so what this chart shows if you just zoom in on this is the Fed funds rate basically over the last I don't know like 75 years and you can see that it peaked in the early 1980s when vulker decided to break the back of inflation by jacking up interest rates
to like 18% and it was very painful we had a pretty severe recession and I think it was 81 or 82 but then the economy came roaring back by 83 and Reagan got elected in ' 84 in any event that began a period of declining and low interest rates for investors again starting in the mid 80s and it continued all the way through I mean especially
through I think the post GFC period and then this Co period where we had zero interest rates for a long period of time and you can see the last Spike we've had was when the FED decided to jack up rates to 5% in response to inflation so the fact that we've got this persistent sticky inflation suggests that this
whole you could call it really a almost a 40-year period of declining in low interest rates maybe over and when interest rates are going down it creates a huge Tailwind to the stock market and the bond market because the discount rate is lower so stocks and bonds are going to be more valuable well if we're in a in a long-term environment that's
more inflationary and rates have to stay higher longer that's not great news for investors it hurts the stock market and it creates in in the private investing world like VC and real estate it creates a much higher hurdle rate so it's harder for for private investors to justify fundraising so you know I think think
it's too early to say that this 40-year trend is over but I think it could be and um and and the reason for that is just the huge pressure of government borrowing crowding out private investing and this sort of everpresent need to keep issuing more and more debt at higher and higher rates to make it more
attractive is going to create I think just very bad conditions for for investors so Chim let me ask you if you concur given that today where we're sitting as of recording right now towards the end of market on Thursday April 11th the NASDAQ is sitting at an all-time high and the NASDAQ is up 1.6% today following this inflation report
yesterday what's the disconnect in the market on why investors are buying equities given that we're likely going to have persistent higher rates and as a result multiples should compress particularly in growth stocks and why the nasdaq's kind of firing up I think it's important to look at what stocks are actually lifting the
NASDAQ just like what stocks are lifting the S&P 500 and we've seen this there's a massive dispersion there's like seven or eight companies that matter and 500 odd companies that don't matter much and so the reason why things go up in an environment like that is irrespective of the economy money managers are paid to deploy money and I
don't know if you guys saw this but Nick maybe you can find it I linked to it in my newsletter last Sunday which was an article about the fact that the global amount of total available equities to buy is shrinking right so if you think about that what that means is that the number of dollars is growing right linearly and
in some years it seems exponentially but then the and so then a certain percentage of that Finds Its way into the equity markets but when the equity markets continue to shrink and there's few and fewer things to buy prices will still go up irrespective of the underlying justification so I think that the the thing is you can't look at these
things as a sign per se you know if you look at Commodities as a different example Nick I sent you this Commodities are up broadly speaking 30% since the beginning of the year the I think the reality is the following countries are feeling increasingly uncomfortable with the decisions that the United States are making whether that's its
position to keep funding the war in Ukraine whether that it's the continued instability in the Middle East whether it's posturing with China whatever it is and so every country is now making a very different calculation about what they want to do and I think how it gets reflected is that they're optimizing for
their own economies and what that yields is each of them trying to make as much money as they can in the short term and as as a country that is a net importer we are going to feel the price of those decisions as inflation and I think saaks is right like that's where we have to start figuring out how we rebalance these decisions from a foreign policy
and economic perspective because if you don't change something here all of these countries are basically going to be like we're on our own we're going to optimize for ourself they're these countries are basically voting in a way that says we are not being led in a way that we trust and that unfortunately Falls at the feet
of the sitting president yeah well look I'm hopeful as we all are that work in the tech industry that new tools and Ai and other Technologies would have a massive driver on productivity which netn net could help even this out that's the one last great hope sitting here AI obviously viewed as being highly disruptive by non- technologists and
deeply concerning and particularly in DC what is but what is that thing that Bill Gates says things are overestimated in the short term and deeply underestimated in the long term I think that that's that's what AI that's right that's right and so AI is a bunch of no offense probabilities and statistics today okay
and so we talked about this last time so we should debunk this whole thing of like there's some glowing brain somewhere that's capable of doing everything doesn't mean that we shouldn't underestimate it being capable of this in five or 10 years which is probably the window in which we have some form of AGI but today it's not that
and so the the great leaps in productivity freeberg that you're talking about are probably a 3 to five year phenomenon not a three to five month so what saak says is Right which is how does the sitting Administration buy votes today stimulatory be it'll have to make a ton of promises the problem is it can't really work its way
into the economy fast enough come the November election and so that that's where I think they're in a really tough spot which means that then and and I hate to B it bear or bad news but this is where you have a lot of these Wag the Dog kind of scenarios that come to mind because then the only way to really Galvanize a populace is to
distract them yeah well look let's talk a little bit more about AI because I do think that regardless of the near-term and longer term implications there is a peing of fear peing of Interest both different spelling of the word Peak Adam shiff yesterday proposed a bill sorry earlier this week called the generative
AI copyright disclosure act in response to I think over a hundred musicians signing a letter saying they're concerned that their copyrighted works are being used to train AI models and Nick if you'll pull up the text from the bill that I pulled out here real quick we can take just a quick look it's a very short bill it's only five pages
long and it defines a generative AI model uh that's a combination of computer code and numerical values designed to use artificial intelligence to generate outputs in the form of text images audio or video and that it substantially uh incorporates one or more models as a system and it's designed for use by consumers and what
the bill then asks is that anyone developing these models has to submit to a register run by the federal government a list of all of the data that they used that might be copyrighted to train the model and that this becomes a precursor to being able to legally develop and use AI models that you actually have to
register the training data so I have a rant on this which I'm going to preserve for the end given my rights as moderator here today but I'd love the reaction from saaks first on shift's proposed Bill Jam moth and we'll run this one around the horn pretty quick well I first of all I think it's just it's too soon for this legislation I mean the the
first thing that needs to happen is we to get the question of fair use arbitrated by the courts we've talked about this before people publish lots of information on the internet and I guess technically it's copyrighted but it's been published in a completely public way and humans are obviously allowed to read it and and use it to generate their
own work I think there's a question about whether AIS are allowed to learn from it as well and I would argue that they should be to some degree under fair use maybe if you're talking about copyright write of songs I don't know if that's different anyway these questions need to be arbitrated and once we know
that then we'll know whether there's a need for a rights Clearing House of some kind which may not be a bad idea I actually got pitched by a Founder recently to create a rights marketplace with copyright holders on the on the one side or rights holders could be musicians could be movie studios could be anyone who owns content and then AI
on the other that want to license that content for training purposes and I actually thought it was a pretty good idea so my point is just that there are entrepreneurs working on solving this problem as well and I guess what I'm saying is I'd like to see fair use figured out and i' like to see what the
private Solutions are going to be before we try to legislate this problem away from really a point of ignorance because we're so early in the development of this market now I think one of the questions you have to ask here is why did Adam Schiff introduce this bill and who is Adam Schiff Adam Schiff is a powerful California congressman who is
the candidate for US Senate right now and he's expected to win he's he's ahead of Steve Garvey who's the Republican candidate by like 30 points Schiff is in addition to being a vicious partisan who's known for for rushia gate he also is a prodigious fundraiser and when he's not in front of the camera he's very effective in closed
doors appealing to the key special interests in California that matter and my guess is that he's not carrying water here for the hundred musicians who signed that letter he's carrying water for the big studios the big Hollywood Studios including music labels but also the movie studios and he's an LA based
Congressman yeah I mean that's who he's representing now at the same time my guess is that he's run this by the big tech companies and he's probably got their blessing some degree because like Bill Gurley always points out they like rules like this because of regulatory capture they can comply with them but the little guy the entrepreneur who's
trying to create something new has a much harder time complying with these regulations so this is basically a big special interest group sort of deal that I think he's he's putting forward do you think this becomes law not yet but it's Paving the way for something and it's more like his promotional effort during his campaign effectively well I
mean his they'll still try to move it legislatively but yeah I mean the the big La powers that be like this and they love this yeah Jam any reaction to this bill I think there was an article in The Verge that I posted it turns out that open AI transcribed over a million hours of YouTube videos to train gp4 my take away when I read this was
well if Google's not going to sue open AI then this is a mood point because you're talking about one of the most valuable companies in the world with one of the most valuable sources of training data in the world and so if if that if it's true that there was a copyright violation and Google just lets us go what's anybody
else supposed to do what chance does these group of singer songwriters have and you know no offense to Adam shift but he's not going to be able to do anything so if this multi-trillion dollar company doesn't draw a line in the sand then none of this matters and everybody's going to train on everything I think like my big Takeaway on all this
is that there's a real deep misunderstanding on what these models really are and what they're doing the assump I think naively is that they take in a buch of data and then they spit that data back out and in some cases maybe slightly transformed but the truth is that the models don't actually hold the data that
they're trained on they develop a bunch of synthesized predictors that they learn what the prediction could or should be from the data and this is similar to how humans operate can you pull up the article Nick that I posted this article is from last May and you guys may remember this case I can't remember if we talked about it on the
show but Ed Sheran was sued by the estate of the writer of uh the Marvin Gay song Let's Get It On for infringement in his song Thinking Out Loud and he actually prevailed in court where he went through with the jury how he comes up how he runs his creative process how he came up with the song and how he does his work and as you know Ed
Sheron and nearly every musician or every artist listens to other people's music looks at other people's art and they synthesize that data they synthesize that knowledge and that experience into their own creative process to Output what in their mind is a novel creation and I think that AI Works in a similar vein in that it's not actually
storing the images it's not actually storing the music of third parties it's learning from that process we all like musicians learn on classical music they listen and play other pop artists music and then they learn things that they like things that they don't like things that fit together well certain
intonations syncopations and that's how they develop their own tracks and so I think that the um assumption in AI is that it's almost guilty until proven in inent is what's going to really challenge this technology getting Mainstay appeal and being useful uh in the way that it could and should be that the de facto is that it's learning and
training is copyright infringement I don't buy that you that stores the data no that that just because you're learning like a human it's not copyright infringement and I'm sorry let me let me make my last statement which is that I do think that similarity is measurable and that is copyright infringement so I
would rather than focus on how you train the model I would encourage legislators to find as Saks points out a better process to Define what makes one thing distinct from another run that analysis and then use that analysis to determine uniqueness and that analysis is ultimately what should determine whether there is copyright infringement versus
the how was the model trained exercise which is rought with challenges as you guys know how do you determine weightings how do you determine whether this was even relevant to the model we don't even know if the models ignore the data or use the data in their synthesis or in their waiting it's all very opaque
and so it's almost like hey here's a list of stuff that I read but I may not have even paid attention to 95% of it when I was reading it we don't know and so I'd rather focus on is there copyright infringement in the output does the output mimic an original copyrighted source and if it does then that's where the infringement should lie
not on the how did you do it I think that you're creating an impossible standard is it 5% the same is it 8% the same is that 14% where's your threshold is it how that different than training how's that different than training if I'm JK rling am I not allowed to read other authors copyrighted books for fear
that by reading it I will now use their copyrighted material in my novel book okay stick with that example but we can also use the Edge shear an example Nick can you play this video I could play you every song in the pop charts right now over four chords you name any song and I'll play it in the four chords so these These are CS fcgn messenger um
that's your friend um uh cuz you only need the light when it's burning low only miss when its starts only know you love when you let her go I'm walking away CRA David uh C David I'm walk away the in last one Let It Be Beatles when I why is that important obviously it's not illegal for Ed to have learned these four chords but if he tries to produce
those songs and calls them something else that's clearly somebody else's IP similarly I think that if you don't give people the right to say yeah of course the letters AB c d e FG all the way to Z are not my invention it's the alphabet I don't control that I don't control words and their meanings but when I put one
word in front of another in front of another purposefully and I create something that has value to me I should have the right to protect protect that and I think that's the fundamental question should you not have a right to protect it should you allow somebody else to take that and in some opaque way and undefinable way make a system that
could compete with that thing and have no repercussions I think that that's what people need to decide and I'm fine by the way one way or the other yeah in the Ed Sheran case he was saying the exact copyrighted lyrics and he was singing the exact copyrighted Melody he was just playing the harmony with four
chord I that was kind of the point he Wasing in the case of all the the copyrighted material you're stating I want to protect it from showing up in the end product of someone's creative process I shouldn't care about them listening to my song in their creative process everyone always references how Oasis sounds like the Beatles right they
those guys love the Beatles they listen to The Beatles so much of their music mimics and and sounds like the Beatles but the Beatles aren't going to file infringement suits against them they were inspired by The Beatles that was part of their creative process and so I would argue that the output should really be where we assess this stuff and
it's going to take a lot of cases you're creating an impossible standard where no any individual person will have the economic wherewithal to fight this and so it's basically seeding all creativity to the board and I don't think what is what is the standard of measuring how someone is training their creative process your standard is I gotta go I
don't think I got to go listen I got to go you got to tell me every time you as an artist listen to a song and then I'm going to deter determine whether or not you are listening to copyright music and making your own music that's basically what we're asking for here with this bill that's not I don't I'm not talking
about the bill I'm talking about this idea that if you train a system that can actually automate a task for you based on some learning That's Unique you should be able to uniquely protect your ownership for example we have a different set of ways in order to protect processes that are unique to you which is you can have a patent or you
can have a trade secret but if you R all of this stuff away where some system can in an automated way do anything for you and replicate a whole bunch of work that it sits on top of to be able to do that without any repercussions I think that that's a very important explicit decision and what I'm saying is you
cannot expect individual people to go and fight these little battles against these big multi hundred billion dollar companies if the big multi hundred billion dollar companies and trillion dollar companies don't fight the other multi hundred billion dollar and trillion dollar companies what they're effectively saying isone of this is
worth anything copyrights are worth nothing and I'm okay with that decision but it should be an explicit one and it's not going to happen the other way where some five-page law from a guy who's trying to get elected is not the thing that's going to make a the difference the difference is if Google doesn't Sue open AI it means copyright
is worthless and by the way that article didn't just point the finger at Google it pointed the finger at meta where there were explicit decisions to say yeah no let's just violate the copyright it's it's okay and if it's okay then it's okay sax you're the independent Arbiter here any summary well somebody's
going to litigate it somebody's litig GNA litigate it you're you're right it'd be surprising if Google didn't want to given how valuable all their YouTube content is and a competitor you know slurped it up to train their model but somebody will will litigate this it could be these songwriters who knows and then we're going to we're going to get
some messy arbitration fair use and it's probably going to work its way up over the different circuit courts you'll probably get different judgments and finally the Supreme Court will resolve it and then we'll kind of know where things stand and then and then there'll be a legislative fix I I don't know where it's going to
end up I mean I know what Jal would say if he were here I'm sure he's like chomping at the bit be part of this conversation he would say that creators deserve to get paid for their AI rights and that if you want to make money training a model on their cont you got to compensate them I also I I I buy I buy your argument too which
is you're not really violating their their rights for the AI model to read their content and analyze it which is what it's really doing as long as it doesn't output a violation of their copyright and that's what all artists do that's what all humans do the creative process is one of initially synthesis you learn from other people's works you
you learn from the environment around you you learn from the world that you're exposed to but there was compensation in those other bottles there was not you don't oh Oasis never paid the Beatles to listen to their music they the radio no that's not true they listened on the radio they may not have paid but some
Advertiser paid for an ad the radio station had to pay ASCAP and BMI there was publishing rights there was all kinds of other rights so that's not true what you're saying I'm not what I'm what I'm saying is it's not copyright just because I train my process somebody got paid so that singer songwriter did get
paid they may not have getting paid by the listener but in this example nobody's getting paid look I think there's three potential outcomes here okay outcome number one is that freeberg wins and the courts decide that this is fair use and these AI companies aren't in violation copyright infringement is measured in the work of art that is
produced not in the process by which it is generated right okay so that's solution number one I think solution or outcome number two is that the courts throw a big wrench into it or a bill like shift bill which is largely punitive throws a big wrench into it and I think what happens then is new AI companies have a really hard time
accumulating training data and so the incumbents who already have all the training data they may have to pay a fine there'll be some slap on the wrist but now you've created a real moat and barrier to entry and so secretly they're going to love it and it's going to be a big problem I think for the open source movement so that's outcome number two
and then outcome number three is you create some sort of Rights Clearing House kind of like uh exists in the recording industry where if you want to cover somebody's song or perform somebody else's song there's already predefined terms on which you can use those rights and then there's a compensation mechanism for that so you
don't have to go negotiate every single deal that you want to do you can just use the song you can use the rights and there's again compensation for that that would be like the compromise I could see that alter number three existing in which case the incumbents probably like that because they again they want there to be a
barrier to entry they want to make it hard for the guy in the garage to Pony up the the capital necessary to create a new model but at least that would be a somewhat functional system it wouldn't be outcome number two which would totally put the kabash on the use of training data so in any event I don't know which one of the three it's going
to be but those are the three potential outcomes that I see Happening Here have you guys seen UD udio uh no it's like a new music geni system it is frakin unbelievable is that vod's thing or vod's another thing I think vod's another thing this one just came out it was apparently rumored for a while ex deepmind employees started yudo
it's been this kind of like hot stealth company for a couple of months people have been talking about it as rumored to to be the best music AI but here is someone that said Dune the Broadway musical and this is what it outut go ahead of AR the greatest leader we've ever seen they say that he's a listen gu
and onand back that's crazy you can hear the layers of Music the layers of the tracks the smoothness the tempo obviously like there's just so many layers to this Nick can you pull up another one some of these are just incredible because it spans genres it spans Styles it's like so beautiful like the way it's put together every every piece feels
somewhat emotional it's Unique it really doesn't feel like you're just listening to someone printing copyright music funky dance pop [Music] song create a birthday song for my friend Irvin create an Irish folk tune with violin and [Music] instrumental it's pretty incredible and I think it shows the state-of-the-art is such now that this
is going to become a real challenging question from a legislative point of view given how far ahead these technologies have gotten and I think that musicians artists consumers are going to start to use these tools in a really prolific way given how good they are now I heard from someone that just sat for hours creating tracks that they
listen to on udio the other day and so you're basically just playing your own music all day long it's really incredible anyway exciting time hopefully all the lawsuits and the legislators don't get in the way of all this Innovation cuz it's moving really fast and we should just kind of see where it goes before trying to clamp
down totally mhm guys I want to talk about as you know this like emerging Trend that we've been talking about offline about drones in Warfare recently we saw small drones controlled by the houis attack cargo vessels in the Suz Canal it led to rather large scale Supply disruptions economic value destruction we've seen
videos I think you have one we can pull it up and take a look of Ukrainian controlled drones flying in to destroy tanks and large warehouses and Russian held territories causing tens of millions of dollars of damage I think we're seeing the acceleration of the changing face of warfare technology lots of these small form factor lowcost
autonomous physical agents and I think there's a bunch of implications both with respect to war but also how we spend money on defense and how Silicon Valley is involved in response um sax I'd love to hear your your points of view maybe you can highlight for us some of the things you've been seeing in the utilization of these new technologies in
in the war given you're our in-house War correspondent and you obviously had do some work in Silicon Valley go ahead I've heard a lot about the impact of of drones just by watching the coverage of the Ukraine war I was listening to an interview with an American mercenary who's fighting on the side of Ukraine and he described how ubiquitous these
drones were on the battlefield now he said that you literally can't get out of a trench to go to the bathroom because a drone will basically uh get you and he said they're buzzing around they sound like mosquitoes because they're kind of just everywhere on the battlefield both Ukraine and Russia have them and several
months ago going into this year zalinsky said that this would be the big game changer for Ukraine they're going to make a million drones I don't think it's worked out that way it turns out that as many drones as ukrainians have been able to put on the battlefield the Russians have even more because they're able to
mass produce them in factories they've got bigger drones better drones and I think the most important variable in in the war so far with respect to drones is that the Russians have pretty Advanced electronic warfare and so they've been able to jam a lot of the Ukrainian drones whereas the reverse has not been true for the ukrainians so I would say
that drones have been a huge factor in the war but so far the balance there is tipping towards the Russians as it is in so many other areas as well but to your larger Point there's no question this is the the future of warfare and you're seeing that it's cre creating a lot of opportunities for asymmetric Warfare so for example
with the hoodies they've been firing cheap missiles and drones at our at our ships in the Red Sea and we've been having to spend $2 million air defense missile shooting down $2,000 drones so if if that continues and we don't have a good response to this problem it's going to really change the balance of power I
don't know if this was at our Summit or if I heard it this later from some senior person in the military who said that aircraft car are outdated technology like they don't make sense anymore and we're going to see a shift towards lots of small autonomous drone like systems on the battlefield taking out targets and as a
result if you Game Theory this out the necessity for defense systems against large amounts of swarming drone like systems and then you know what do you actually have to do with your existing military architecture to play into this kind of new Tactical system and then that's going to require a massive evolution in technology and is the
United States prepared they should Silicon Valley play they should be we should I maybe Nick you can throw up this the first link that I sent you but eight years ago I came to this conclusion and I invested in this company called s drone which is autonomous drones in the Seas our customers include the US Navy the
chairman of our company actually is is Admiral Mike Mullen who is the former chairman of the Joint Chiefs of Staff but these drones are capable of going into some of the most dangerous places in the world and collecting enormous amounts of surveillance data and information that otherwise takes the United States government lots
of time and lots of money and is pretty scattershot and instead with these things you can be constantly in hotpots and if you go to the next one so much that you know we've deployed some of these drones in the Middle East and there was a point at which the Iranian Navy intercepted two of our drones and picked them up and
this was kind of like a a global thing a few years ago but I really believe in this trend and I think that we have an enormous responsibility to be funding these things these are really complicated systems to build obviously and they take lots of time so these are not overnight successes freedberg and they take lots of money which is hard to
come by as well but these are absolutely the right kinds of businesses because eventually at a minimum you Building Systems that can measure and collect enormous amounts of really critical data so that people can make better decisions which hopefully is measured in Saving life right and then over time you actually get to a military that should
be much cheaper much safer and has fewer people in general on our side and on our enemy sides on the front lines which means fewer casualties and I think that that's the whole value of this entire movement it's cheaper it's way better it's much more useful and it gives the respective armies that use these things
or militaries rather a fuller picture so that you can make decisions that have enormous consequences yeah and in February the Department of Defense on a panel in Arlington Virginia briefed reporters and Industry folks on their interest in growing their Partnerships in Silicon Valley to access the necessary technologies that are going to
rewrite the face of warfare I don't know about you guys but I've seen kind of two sides of this in Silicon Valley a good number of venture capitalists and entrepreneurs and technologists think that it's morally incorrect to support warfare technology and then there are a few that are going blazing ahead with supporting this new Evolution and these
Technologies do you guys see the same and is there going to be kind of this a big step to weaponize these things right so s drone we have a very good big thriving successful business these machines aren't weaponized by any stretch of the imagination and so I think that that comment is more genuflecting and virtue signaling than
it is real because in order to even be legitimately considered for some kind of like armed unmanned product you have to be deep inside of the bowels of the dod and Pentagon and have been working with them for years to even be taken seriously so the startups that are like assing those deals are not even close to those deals
and the startups that are close to them are probably being much more quiet and thoughtful and Hush Hush because the path to do that isn't legitimate unless you've been in business with these folks for 10 plus years yeah I think it's it's more a commentary on the fact that if this is where an organization the Department of
Defense that has a trillion dollar annual budget is going to be allocating resources that technology is going to need to come from somewhere and the investors in Silicon Valley that are making these Investments are likely going to outperform those who are not does that sound reasonable to you saxs that there is this shift underway and
that again who have sh shied away from defense technology are you know necessarily going to be left out of a you know kind of a new industry that's emerging in Silicon Valley well I guess the way I put it is that the US government spends over $800 billion every year on defense and it's not clear what we're getting for that money
because in Ukraine for example we've run out of artillery shells we've actually we've run out of Patriots we've run out of javelins we've run out of stingers so we're spending all this money we're not getting a lot for it and part of the reason is because the defense industry is Consolidated down to these five Prime
defense contractors who are basically an oligopoly and we have this Cost Plus procurement system where they just raise their prices every year and the government pays it so I think all of us want the United States to have an effective defense I mean I want us to use our military power more wisely I don't like all these
stupid Wars we keep getting in but I do want the United States as an American to be the most powerful country I do want us to get the best value for our defense dollars and the only way that's going to change is if if the defense industry gets disrupted by a bunch of startups doing Innovative things and there's no question that I think drones are the
future of warfare so your point about autonomy I think that is where this is going next is that right now the drones are typically controlled by you know somebody with like a VR heads called teleoperated teleoperated and they're fpv this firsters Vision drone and you basically strap some sort of explosive on to it and then you drive it into
whatever your target is yeah those types of drones are easier to disrupt by electronic warfare because if you can disrupt the signal from the T operator then the Drone basically doesn't know what to do and so you're right the next step here is autonomous systems that can be programmed with a Target and can find
it on its own make decisions on its own and then they also build in some shielding against some of this like jamming technology or this ew electronic warfare technology so that's where all these things that's where the battlefield is of the future is headed and in a in a weird way if you think about humans becoming a smaller and
smaller piece of the battlefield and autonomous drones becoming a larger and larger piece of it these wars become resource Wars and basically technology Wars that's right which which may or may not be good I don't know but by the way so so this is the point I wanted to make if you pull up this chart if if that is where Warfare is headed is a large
number of small autonomous systems that go and find a Target and try and execute a mission and you know in the case of Ukraine saying they want to have a million China might say I want to have a 100 million all of these systems are dependent on lithium ion battery systems today 79% of lithium ion battery
production comes out of China the US is only 6.2% of global lithium ion battery production and China has talked about scaling up drone manufacturing to a level that the US simply cannot even contemplate in its industrial architecture today so it seems to me that if that is where Warfare tactically is headed that China has a huge leg up
and is going to become a critical point of dependency for the United States to develop an Arsenal necessary to be competitive in this this kind of next evolution of warfare I will say that like if you then Game Theory this out like how do you defend against these autonomous electronic systems there's a technology called EMP or electromagnetic
pulsing where as you guys know if you run a very high current electric field you can actually send out and emit a pulse that then when it hits electronic circuits far away induces a high electric current in those circuits and short circuits them so emps are a defense system that allow you to take electronic systems and this has
been you know kind of a a part of warfare since probably the 1960s 50s but targeted emps and targeted systems for eliminating all of these autonomous systems becomes a new defense technology that I know several startups in Silicon Valley that have been funded with a lot of capital by folks that we all know very well that are kind of
pursuing this we don't have a choice because I think the point is that if you nick you just post this photo we have an enormous human capital problem with the military which is there's just not enough folks in listing anymore so we don't have any choice except to automate and become drone dependent just tell us
these numbers Jam this is a chart from the Department of Defense that shows military enlistments looking back from about the 1970s through today and these are two lines that are just going from the upper left to the lower right and so we're at alltime lows with respect to the number of people that actually want
to join the military and so if we are supposed to as saak said be this very sharp fighting force then all of the money that we're spending needs to get allocated into things that can be remotely operated we don't have a choice yeah I mean so freeberg you you asked the question how do we defend against these drones yes there's EMP technology if you
want to use an EMP you better make sure there's not any planes nearby because it will take them out of the sky you better make sure by the way there are now there's you can Target emps in a narrow cone which is part of the the technology you better make sure you don't hit any of your own stuff because you'll fire
the electronics on those unless you EMP Harden them which by the way will happen I mean if if the US gets really good at at sending out EMP pulses then our opponents will start EMP hardening their drones but any event yes it's a category of Defense so is electronic warfare the the one defense investment I've made is actually in this idea of how do you
defend against drones and it's a startup where I led the seed Dr called Allen control systems and they have a product called bullfrog which is a gun turret that uses a standard m240 machine gun but it's got a scanner next to it next to the machine gun that is searching the sky for enemy drones and it uses
computer vision to recognize them and then it just shoots them down like very quickly and it seems to me this is it's maybe not the only way of doing it but it's a really good way of doing it because uh you can mount these things to uh a vehicle I mean imagine in the future that we have these autonomous drones everywhere that are basically
assassination drones how you going to stop them I mean how do you move the president of the United States around I mean in his Caravan you're going to have to have you know his Caravan is going to have to have some sort of electronic warfare system on it to basically prevent drones but it's going to need some sort of last line of defense where
you can actually shoot a drone out of the sky or stays in his b so SX you don't you don't have any moral trepidation around investing in defense technology just to be clear well you know I'd have to think twice about investing in a in a weapon this is more of a defense technology this is defensive in nature where you're trying
to take out a drone that would be attacking one of our bases or installations or convoys so this is fundamentally defensive in nature and look I want America to be the most powerful country I'm an American I'm patriotic so I don't want our troops be able to be hit by enemy drones so no I don't have any more problem with this I do have a problem
with all the stupid Wars the United States gets into but that's on a policy level I feel like that's separate right from the question of do we want our guys to be protected yes we do and chamat you don't care you would invest in defense technology companies no I care I think that I would probably have to think
twice about making weapons and I'm not sure that I'm really interested in that but like I said eight years ago my thought was we need to move to just looking at those Trends we need to move to an entire surface area of unmanned autonomous vehicles and I really like this idea of a class of machine that's
there to surveil and collect all the important data so that you can make better decisions and it's taken us eight years but we're firmly entrenched now I think the fact that both of you highlighted degree of trepidation and you guys are like fairly outside of the middle bounds of how Silicon Valley would think and make decisions indicates
like why so much of Silicon Valley has deep concerns about investing in defense technology and the US despite having the best technology may be challenged by the fact that our Silicon Valley technologists and investors are held back on pursuing these Evolutions because of a moral suasion and I think it is something that the Department of Defense
has highlighted is that iar it's never like we've been faced with that choice and the reality is like if the choice is stay small or scale up and be really big you know it's hard to turn away from that decision but that choice isn't a realistic one this is why I was saying I think it's you you can come into it with
the moral framing but I do think that sax is Right which is if you believe that America should be the most important country in the world and you have the ability to help it be that eventually some of those decisions will come in contact with this kind of decision and usually though it takes many many years before that's realistic
and to be honest from what I've seen the opportunity to pursue that is generally so financially remunerative that everybody's like okay I think we have to do it you know I don't have a problem with investing in a company like andrel I mean America needs defense companies in order to maintain its
defense and the problem right now that we have is there's these five Prime companies that are Antiquated and really expensive and we need startup disruptors to that so I'm not like morally opposed to it and in fact I think it's probably a good thing I think my concern would be I don't really want to be part of the
military-industrial complex I feel like it might like corrupt my views on things like I don't want to you want war you'd be Gering for war yeah like I don't want to be I don't want to feel that's your demand gen that's I right I don't want to feel an incentive to be like these generals who go on CNN and Fox News and justify every single War that's my
biggest fear as well it's like it's one thing to be investing in a bunch of companies where we're sitting around hoping for cheaper clicks on Facebook and Google it's an entirely other thing to sit on the board of a company and hope for war that's a horrible place to be I think on that point that's a great point to wrap on guys this has been fun
a little more flat than it would normally be with jcal we miss him we wish him well we hope his tooth recovers and um we will be back with your it's like that scene in Dune where he eats his tooth and releases that poison gas that's right that's right get better soon jcal please uh if you're interested in the summit summit. Allin
podcast.co click subscribe on YouTube I've been given notes to say that for the chairman dictator chamath poopaa The Raid Man David Sachs I am your sultant of science Dave fredberg we will see you guys next week love you you byebye let your winners ride Rainman David and instead we open source it to the fans and they've just gone crazy
[Music] withen besties are that's my dog taking Drive wait wait oh man oh man myit will meet me at we should all just get a room and just have one big hug orgy cuz they're all this useless it's like this like sexual tension that they just need to release [Music] somehow we need to get merch [Music] our I'm going all man