jacob you look a little grifty feel okay yeah me i'm great i'm great you look half a milli richer today what's it like to be half of millie richard jacob you look like a failed hostage taker laugh it up boy slap it up boys laugh it up boys when you see my other projects drop you're going to be crying again okay i can't wait why don't you take yes for an answer jacob i i've taken this for an
answer welcome to the all in podcast where three miserable rich bastards who pull up the ladder behind him do you want to explain why it took us a month to produce a new episode jkl hold on a second attorney let me give you guys the tl dr jacal thought the all in pod was his and then he realized it wasn't no if you guys want to go there we go there i'm totally transparent i requested i requested to own six percent more of the
all-in podcast no no back up to the summit back up to when you wanted to kick me off the show back up before that where we oh my god are we really doing this yeah we're gonna do it we're gonna okay if you wanna do it we do it we can't talk about this for 45 minutes because what happens it's so boring so plan the summer we planned the summit j cal doesn't like how i was concerned about the summit and i bitched at him
and you know i was negative to him finish the summit and j cal wants to kick me off the show yes brad gerstner bill gurley would have higher rates it comes to the bottom i think it was me and jacob getting into it it wasn't it was actually it started with free burger and jacob getting into it wanted me off the show all right i'll do i get to explain the series of events right now you wanted me off the show
true or false j cal i felt that admit it if friedberg if friedberg wasn't enjoying his time here and was going to constantly complain every week about every detail why the show's not good there was always the option for him to maybe do half the shows and have brad garcia or do half the shows or have bill gurley or rotate in and so if he was going to be miserable all the time and worried about the show
i gave him the option to have somebody else take his spot did you or did you not say that this is your show you're the leader and you wanted me off the show i never said that i don't know nor would i say that i don't need to say that you could summarily replace any of us effectively you acted like we all work i don't think tremont's replaceable just for the record so that's true he does
think that he does i do not think it's replaceable freeberg i do think i mean i could pull up the brad gerstner episodes i think they have slightly more views so but people love you so we keep cal told my mom and my wife that he thought i was replaceable on the show guys i would like to jump in by just summarizing this so that we can move on so basically what happened was we had an agreement that it was 25 percent each
there was a moment where j cal believed that he deserved more we had to sort through a lot of the underlying issues that caused them to believe that we got to a good consensus we now have a signed agreement that governs how the show and other things around the show and offshoots of the show will work we are 25 equal partners and now we can move on so enough for the bitching let's go all good and i love
you all i love you all too i love you all too to be clear my position i i do feel like this nice spot here was if we're gonna make it into a media company my request was listen i think i own i should have 10 more equity and i'll go to work every day and do the work and you guys can just show up you guys agreed to that and then you guys have said you don't want to do it and i said okay fine so here we are we're back at
square one so let's just get to work we just want to do a pod and we just want to talk there's not gonna be any more summits there's not gonna be any business here it's just a pod i have other events i do i have other pods i do if i want to get paid i'll do them over there and here it's just a pod that you see every week so let's get into it everybody wants to talk about markets oh by the way if you guys want your intros
that's one percent each intros go do okay good those are one percent each so when you guys are willing to pay me my one percent additional equity you get the intros and when you want the all in summit 2023 that's another one we're gonna get an invoice each week from jcal now you're gonna get it's gonna be prorated monthly it's gonna be a point eight percent equity per month vested i just think it's so fascinating that we
went through all of this you know i don't know storm and drawing or whatever this this like you know a month of non-taping and you know and this like all this turmoil in our relationship so you could get an extra one percent from us two percent each thirty one two percent i believe i should just so you know i do this for a living and if i do extra work i believe i should uh and if you want me
to be the the de facto ceo of this then i should get a little extra we don't want that and you don't want that so that's fine that's fine this is just going to be a project we do it every week and then all your grips whatever you know you're spinning out from the production board or whatever copycat app you're making you can [ __ ] do as a side here we go do the intros let's get going come on let's go i'm not no
there's no zero intros no interest intros are out wait what about hey everybody hey everybody i'll i'll do it hey everybody hey everybody on the house hey everybody hey everybody welcome to another [Music] [Music] hey everybody welcome to another episode of the all-in podcast we're back for episode 84 with me of cour course uh the sultan of science the prince of panic attacks the queen of quinoa himself
david friedberg how you doing buddy great to be here great to be here all right can you feel the tension there's still a lot of tension there's still tension there's a little tension there jkl and i will be hanging out tomorrow night we'll we'll make it have you guys resolved it i'm cool with it i'm cool for a break on dinner i think we're good he did buy me a wonderful dinner oh my lord after the
warriors game shout out to the words uh all right and of course with us is the rain man himself david sacks how you doing buddy good you ready to go don't try and deflect this thing on to me i was only tangentially involved says the guy who spent 72 hours a contract i wrote a very fair contract so that we can move forward yeah and then you proceeded to break it in the first 15 minutes by slandering me
and disparaging me but okay oh come on that was good for ratings good for ratings yes i thought your meme was pretty great he did the meme the two buttons and the superhero triangles and i was like jason that was good making jokes uh breaking the breaking the non-disparaging clause and then of course the dictator himself uh from some undisclosed location in a european city i don't know if i'm allowed to say that
jeremiah pattia welcome back boys episode what's up boys all right uh well since we last convened let's get it on yes the the all in summit is finished all the episodes have been released uh including palmer lucky yesterday and here we go the markets are in complete turmoil uh spy down 21 percent year-to-date dow's down 17 year-to-date as sax has pointed out that is not representative of what happened to
growth socks at the same time and uh the may cpi uh went up and it was at 8.6 we also got the 75 basis point rate hike who wants to start here chamath i mean it's market so maybe i'll just dump it to you first and then we'll go around the horn to sacks and then free bird wow there's a lot to say so uh bear with me for a second but um the thing that you have to do before you talk about what is happening now i think
it's probably useful to go back and you have to really start at the end of the great financial crisis and the reason is there was a bunch of people coming out of the gfc who confused what the us government and some european governments were doing at the time there was the risk of a huge financial contagion and so the u.s stepped in and the federal reserve started to use their balance sheet to buy toxic assets
right and the ecb did that and i think japan did that as well anyways a bunch of banks did it i mean a bunch of governments did it and then there was this body of pseudoscientist certificate economists who coined this thing called modern monetary theory which basically said hey you can keep printing money and introducing it into the economy to smooth things out and to actually drive long-term growth
and it turns out that a bunch of government officials fell for it and if you fast forward to 2022 so 14 years later you know governments around the world had printed something to the tune of about 30 35 odd trillion dollars of money into the economy that should have never been there so the thing to remember is like we have not necessarily just been obfuscating true supply demand in the last six or eight
months when we've been talking about a recession or inflation we've been actually doing it since 2008 it's just that it's been building up in the system so one of the things that we have to realize is that all of that money somehow needs to get destroyed in some way shape or form if the true economic equilibrium is meant to be found what is true supply what is true demand in the absence of government sloshing
money around trying to prop up things that should not be propped up or buying votes or all the griffs that these folks have engaged in in the last you know decade and a half have to get undone so that's the backdrop so if you think about taking 30 trillion dollars out of the global economy you know you're talking about almost you know i think it's 85 trillion is the world gdp so like you know it's it's
it's almost half of an entire year's worth of global gdp it's going to take three years probably of the slow meticulous you know running off of money you know not reintroducing new money so it seems like we're at the beginning of the beginning of something that's going to be long and drawn out now that's separate from and that's separate from whether we're in a recession or not that's just the bear
market that we're in right and so you have to look at asset prices today as a microcosm of a much larger trend that has to be about fake money pushing asset prices up and now taking all that fake money out and finding out what the real price of something is and i just don't think that takes six months so for all the people that were you know fingers crossed hoping that this would be the end of it fed raises
75 we're done with this they're going to raise 75 more i just think that's not how it's probably going to be it's going to take you know 24 36 months that may mean the bottom doesn't happen for another 18 months so i think it's a we're we're in for a lot of choppy um market action saks three asset bubbles clearly all um you know being impacted we had stocks looks like that story was pretty violent uh
then we had crypto this last two or three weeks have been absolutely insane in terms of that asset bubble and now uh record high inventories for homes record um sales are now dipping below the average of the last 20 years and um we're seeing uh mortgage origination just absolutely get crushed six percent mortgages just a couple of months ago it was two point x uh for some folks so when you look at those three asset bubbles do you buy
chamats hey we're going to see even more deprecation in these for another 18 months possibly or do you think we've taken such crazy action this has come down so violently that we're now bouncing along the bottom bouncing along the bottom or 18 months of more pain well the the stock market especially growth stocks may have taken the majority of the carnage but you're right there are other asset classes and i
think we're going to see the carnage start to rotate into those so you're right if you look at residential real estate now the prices are at the highest they've been relative to median income since something like 2006 2007 before that sort of great real estate crash that precipitated the great recession of 2008. so i think there are going to be more more shoes to drop i just want to build
on chamas point about root causes here milton friedman once said that there's nothing quite so permanent as a temporary government program the temporary government program was quantitative easing we had this great recession of 2008 that could have turned into a depression they broke the glass in case of emergency they started this qe which is basically the government intervening to buy bonds in the market they had never done that
before and they loaded up their balance sheet the crazy thing is that program was still continuing until last year why i mean it was like on cruise control and so last year it was it was continuing until last month and countries like europe are still doing it nine percent inflation in europe and they're still buying bonds right so you go back to last year the fed bought 54 of the government's debt
despite the fact that the economy was growing at like 5 gdp that it was bouncing back really strongly from covet that you had the stock market at all-time highs and yet they were still intervening with this massive qe and then when we got the surprise 5.1 inflation print last summer they didn't stop qe till the end of q1 so you're right they kept basically printing money and it's still going on and that's
created massive distortions in the economy now so the fed i would say is the number one culprit here and jpal is the number one culprit but the number two culprit is the binding administration and i think biden did three things very early on in the first few months of his presidency to effectively tank his presidency number one he canceled our energy independence on his first day in office canceling the
keystone pipeline and making it much harder to drill and of course energy inflation's number one factor in this sort of overall inflation number two he pushed through that last two trillion of stimulus on straight party lines the arp the american rescue plan after larry summers said economists in his own party said this is going to create inflation don't do it and then the third thing is and no one really
talks about this is that biden could have used diplomacy in 2021 to basically find an off-ramp to this ukraine crisis before it turned into a full-fledged war and if you listen to the economist the international development economist like jeffrey sachs he basically says that biden pulled his cabinet and said listen should we negotiate and compromise with the russians they all said no and biden handed down the order we will not
compromise with the russians so now we have this massive war in ukraine that's fueling food and energy inflation it's going to take his presidency and i don't even think there was any difficulty about this we may not be negotiating against russia but we're enabling them to print enormous uh surpluses meaning i don't know if you guys saw but there was an article today janet yellen is traveling around
basically convincing folks to uh not include russian oil from a bunch of import bans so that these russian oil tankers can be insured why so that they can sell this oil to places like china and india et cetera is on a five-time five-year high the ruble's at a five-year high we push for all these sanctions europe gets on board and says we're going to do it and we're going to take the lumps and then we go around
europe and basically say well we kind of want to fight this proxy war but at the same time we want to try to fix inflation and we didn't mean to cause this and it's completely disorganized what's happening so if you had six minutes in the pool for when saks would blame biden for the economy uh you win who do you blame we talked about quantitative easing starting in 2008 so that that goes over
a couple of presents and i guess the question i would have for you sax is how much of the spending the free willing spending you know um you know was from the previous administration because it does spending is a bipartisan problem there's no question about it but i just want to make sure that we point that out yeah for sure and republicans only seem to find their principles on spending whether there's a democrat in the white
house i totally get it and i would like to see more fiscal responsibility regardless of which party is in power and i'd like to see the republicans less be less hypocritical in their principles on this but look perfect here's the thing the economy was bouncing back strongly last year and binds still pushed for this last 2 trillion of spending and then 1.2 trillion more on infrastructure
and then remember the 4 trillion to build back better where mansion saved them for themselves exactly i mean what would if what would that have looked like uh freeberg you haven't spoken yet uh thoughts on you know this these asset bubbles i guess and then the buying of the bonds seemed completely unnecessary for some period of time if we are acting as the 50 plus buyer of bonds what kind of distortion
does that create in the market because if the government's competing against other people in the marketplace to buy those bonds how could they possibly be priced correctly let's just be very careful about our framing there's the us treasury which issues bonds and raises capital on behalf of the us government for spending programs then there's the central bank the federal reserve and our central bank's job
is to number one maintain liquidity in the capital markets so that businesses can invest in growing their their products and growing their businesses and the economy grows while not providing too much liquidity that you end up with inflationary effects and inflationary effects means that there's too much money in the market and you see that money find its way into escalating prices on different you know assets
and the fed's long-term goal to remember is to provide a stated goal of jerome powell in particular right now this changes over time but generally the intention of the federal reserve is to make liquidity to make cash available to banks who ultimately make it available to businesses in such a way that there's enough cash in the system that the businesses grow and that people have capital to invest
in growth while keeping inflation at two percent so their long-term target is two percent inflation and it's also correct me if i'm wrong making sure that there's enough cash to support economic growth so remember last year you'll remember stan druckenmiller was very public about how insane it was that the federal reserve was still buying bonds and so so there's one way to introduce cash into the system is to
make cash available as a loan to banks and then those you know banks use that money to loan to businesses and it makes its way through the economy another way is for the federal reserve to step in and actually buy bonds freeing up the money that other people would be otherwise using to buy bonds to go and invest in other things so they're effectively forcing liquidity into the market by taking bonds out of the market
and last summer or q2 of last year druckenmiller was pounding the table saying guys the economic indicators on how quickly the markets are how quickly the economy is growing relative to how much inflation there is indicates that we should stop buying bonds and we should stop injecting liquidity into the markets this makes no sense it is nonsensical and there was no strong point of view from the fed at the
time other than there was uncertainty about the the bounce back of the from the recession from covid there was uncertainty about what else was happening in the economy and yada yada but the the numbers the economic indicators were showing very clearly the economy is growing in a robust pace low unemployment and inflation is starting to pick up holy crap it's time to cool it off and the fed made a judgment call
and their judgment call really kind of was to keep going and then we end up in this massive runaway inflationary problem where if you keep too much liquidity in the system for too long you have inflation even if you have economic growth and now by pulling the money out of the system super super fast we reduce the inflationary effects potentially but we tank the economy because now all this
money coming out of the market means people are spending less and buying less and businesses have less to borrow right the borrowing costs are high and then that that's that's the big vacuum okay hold on let me go to chamath and then sex the rate the rate at which we pull the money out which has had to be really really fast over the last few weeks can cause a recession and that's the the
biggest concern right now is will that actually trigger a massive recession or not that everyone's watching so chamath i guess one of the things we need to clarify here is the actual mandate of the fed i was under the understanding that the fed really was there to make sure of maximum employment and that you know low interest loans were available and price stability these are the were the stated goals for a long time not low
interest rates capital capital is available availability to grow moderate rates without exceeding inflation of two percent that's okay so maximum employment price stability was also in there that's not really gp growth because remember we can't ever pay our debt if our gdp is not growing okay while minimizing uh while keeping inflation below two percent chabot whatever point you want to make feel
free to make but also i was just wanted to know from you where did the fed go wrong with their mandate if at all here because we do have maximum employment now we have out of control price stability look here's the thing you you i think we have to also be sensitive to the fact that the fed operates on a certain class of data and that data in the 21st century is pretty pathetic nick you can probably find this but
there was an article i think it was in the new york times that really walk through how cpi is calculated and it's a bunch of people that work for the government that walk around with ipads building relationships with local businesses and all these random places all around the country and asking them to you know chit chat for 15 minutes and do these surveys now you would have thought that in 2023 or 2022
what the government would have said to you know visa mastercard american express all the payment rails the banks and stripe is send me a feed in the following structured way so that i can actually have an absolute precise sense of inflation because inflation really only occurs when a good or a service trades hands for money right and you calculate what did that thing trade at the day before and what is the trade for
today so you could get an absolute precise sense of it instead we do this random sampling thing and some extensive humans etc so if you read this article your takeaway will be oh my god this is very rickety and it drives an enormous hammer that we use to try to manage the economy that's the first thing i think you need to buckle your seat belt because the next three four five months of cpi
will probably be very very bad seven eight nine percent why there are a handful of components that have gotten completely run away number one the biggest one is rent and so rent works on a three-month lag we're going to reintroduce what the true owner's equivalent rent renters into cpi so we can already forecast that cpi going up oil is at 105 bucks a barrel russia is basically trying to break the bank
of europe by now messing with their nat gas supplies the german energy minister yesterday said that if that happens it could be a contagion equivalent to lehman brothers with respect to energy when you play all of these things out what you have is unfortunately rampant runaway costs that really have no mechanism to get back in check in the absence of some real governmental changes our policy on this ukraine
russia war you know how we intend to sort of uh work or cooperate or fight with china all of these things have to get solved so in the absence of that prices are going to continue to go up and so what does the fed do how does it throw away what little credibility it has left when there's eight and nine percent inflation prints and saying we think we're done for right now you can't do that so they will over correct
because there is just going to be so much pressure for them to act all roads i think lead to lower equity prices and i think what david said astutely is we've seen the first wave but now it has to touch all these other areas for example we have gotten totally drunk on debt as a country one of the most obvious places where we've been serving alcohol far too late into the night is in the financing of all these private equity
leverage buyouts right these are dangerous these are sketchy companies that are sort of like you know teetering on insolvency at times where private equity comes in levers up the balance sheet with debt they price it right to the edge of what's legally allowed or what's financiable and then they go do it but that's all assuming the economy continues to grow and so if all of a sudden you have some
recessionary forces or prices go up and earnings don't you'll have you know a contagion in the debt markets you could have a contagion in the commodity market so we're dealing with some really um tough boundary conditions i mean real estate most of most americans have most of their net worth tied up in real estate and if we see a 30 30 correction in real estate it could be a real problem particularly
with rising interest rates inability to refinance sacks the dual mandate is hey keep inflation two percent and then keep the unemployment rate reasonable the unemployment rate's amazing with still so many jobs out there even with these layoffs in fact one might argue we made too many jobs available to the point at which people maybe aren't working as much or just you know under working um uh and not taking advantage of these
amazing jobs out there where do you see this going sax now um that we can't seem to get inflation under control and people are looking at their 401ks they feel a lot poorer but is the demand side gone yet have have consumers decided i'm not going to buy the next house i'm not going on this vacation six dollar gas makes no sense seven dollar gas makes no sense i'm not going to go on this weekend excursion i'm
staying home yeah i mean look consumer confidence just had the biggest drop i think in 40 or 50 years um we if you look at like right track wrong track polling for the country only something like 24 percent believes that the country's on the right track right now if you poll people are we in a recession and they don't look at like you know the quarter of a quarter growth they just look at
what they're feeling 56 percent of the country says we're already in recession it's about 70 percent republicans about 50 percent democrats so the country is already hurting people already feeling it and this is psychological sacks or are they actually making decisions now to spend less well i think it's both i mean you start with the real inflation and people feel it and they also hear about it in the
media and then they start to adjust their their decisions and this is the problem with fixing yeah this is a problem with fixing an inflation problem is that it's based on expectations so once people start to expect inflation then businesses have to start operating as if there's going to be an inflation rate next year so they have to start raising prices and it's actually very hard to put the horse back in the barn
and this is why i think the fed is probably more likely to overshoot on raising rates is because if they really want to stop inflation now they really have to slam on the brakes and then that's going to lead to a recession and if they don't then we end up with like a chronic sort of stagflationary situation where you get lower growth and inflation persists so it's a bunch of bad options
right now and i think to the point freeburg was making earlier you know this ray dalio piece that he's published as a blog on linkedin he said look what you want is a fed that is alert at the wheel and gently applies the accelerator or the brakes based on what's happening and instead what we had is the fed was asleep at the wheel they should have started reacting gently to inflation last summer instead they waited
nine months and now they're slamming on the brakes and this is a bunch of bad options i think we you know we are going to have a recession the way this is can i just make one suggestion i want to put this out there because i sent it on our text and i anyone that's listening in dc please think about how we can change the way the federal reserve operates but it doesn't make sense to have humans with subjectivity
applying their subjectivity to a set of as chamath pointed out infrequent data that comes in chunks and comes in spurts and only having a mechanism of changing rates by 25 each month or sorry 25 basis points once a month we should have continuous real-time monitoring of economic data and software or ai or some sort of informed set of models should then predict what inflation and economic growth rates will be as that data comes in
react in real time and on a daily basis we should be adjusting the overnight rate in a one basis point increment so we can have the ability to more quickly more efficiently and in a higher resolution yeah smooth it out a smoother way in a higher resolution way make these adjustments it's silly that we're still operating the way we did in a pre-digital age as it is with a lot of industries and a lot of bureaucracy but
in this case it's particularly prudent and it's becoming particularly important and relevant as we're seeing right now with the stagflation risk that we're facing where we could have massive inflation and recession at the same time because if we had made smaller adjustments every day for a period of time as these economic data indicated that we should be making them more quickly we would not be in this problem
and i don't think that having humans and their judgment should necessarily be the way that we drive yeah but listen we don't need them making daily adjustments i don't think the fed can fine-tune an outcome like that i just think that they can't be asleep at the wheel for nine months i mean we should have ai running this freaking thing i mean listen i i don't i actually don't think when you
said that you know congress needs to somehow change the way the fed does business i actually think that the fed has the correct mandate which is the dual mandate of considering inflation and unemployment we shouldn't be basically junking that up by adding a bunch of mandates and actually the administration has been trying to add mandates they basically gave the fed a mandate around climate change they gave
them a mandate yeah no i agree don't you don't change the mandate don't change them it can't be the tools the tools should change yeah right we really want a focused fed and i think the administration has been politicizing the fed by giving them a bunch of mandates look if you want to pursue those policies do it at hacks do it in the interior department don't basically confuse the fed and make them pursue
climate change or equity or what have you i mean that is just bad that is not their remit right their remit is controlling inflation i really think this just comes down to the fact that for nine months they sat on their hands and ignored the inflation evidence remember this word transitory you know we heard so much last year about inflation being transitory how'd they know that you know why didn't they start
rethinking this quantitative easing the headline from the wall street journal says it all how the inflation rate is measured 477 government workers at grocery stores yeah software should be taking data from different feeds and software can learn i don't i don't agree with you and what are the predictors of inflation and what are the predictors of growth and make a recommendation i don't agree with you
that it needs to be real time in fact i think it would do more harm than good but i do think that we can know these things without sampling in such a porous way and you know you can work with private companies to give you the feed of data to to allow you to do it and now you know we're going to look we've had a system of over correcting and under correcting for years the problem is the stakes get higher and higher as the
economy grows and becomes more complicated and energy and we have more leverage and we have more leverage and we have more industries that are leveraged and more asset classes that are leveraged like housing because this is such by even a few points you could tank everything i also want to tell you guys a quick story one of the most interesting canaries in the coal mine of all of this was two days ago and what uh happened to
facebook and this sort of ties a lot of this stuff together in terms of like economics inflation asset prices equities tech we should we then we can try to talk about non sort of you know big tech but the everybody was saying oh gosh the market's going to rip on the open you know we were closed for juneteenth and then on tuesday the market you know the s p was up like 250 basis points 2.5
and the nasdaq was also up you know call it maybe 300 basis points roughly but facebook was down like 400 points right so it's a big spread and why is that and i was like this makes no sense to me what is going on with this price action everything was up apple was up google was up and so i called around and you know i was like why is this happening and this is the best explanation i got when you look at who the incremental
buyer is in the stock market it tends to give you a sense of whether prices can go up or will continue to go down and the poorest informed buyer tends to be retail and the most informed buyer tends to be these very large institutional hedge funds right so there's a spectrum and uh facebook is an example of one of the of big tech that is poorly owned by retail so it's mostly owned by smart money
and the case that smart money makes for owning facebook is that it's got an extremely cheap price to earnings ratio so you must own it and what they said was that they you know looking at the tea leaves of consumer demand what they actually re-underwrote was that actually it's not that the price to earnings was cheap it's that the e in p e was just wrong and if they pass through all of these increases in inflation and you know
their earnings expectations into facebook it's actually more like fair value at a lower price that's why they sold it so much on a day where the market was up now why is that important well eventually you're going to touch all these other stocks as well that are going to go through earnings revisions in this recession this is where i think wall street has done a very poor job on behalf of retail
if you look at the average estimates of earnings you will be shocked to hear that wall street actually has this year being record earnings next year earnings continuing to go up how is that possible well how was that how was i if you were sitting here happening do you see how do you see earnings continuing to go up into these prints like this when you cannot pass through you know 80 90 increases in energy and
cogs and whatnot how does that mean i think the what people would say is maybe they're going to lower their costs and so with layoffs and con and lowering salaries and lowering spend on advertising you know the earning the e could go up if people because start belt tightening and then we start having companies that are being run you know just more um you'll have to you have to sell fewer things because
there'll be fewer people with jobs to buy things but we have 10 million job openings so this is the weird thing about this recession is because we haven't let a lot of people immigrate into the country but exactly so many jobs is that what you think the consensus view on wall street is that basically a bunch of people get fired and so that's why earnings continue to go up well they stopped hiring for two
years in advance right facebook said they were hiring for like 2024 their hiring plans were looking out two years so now if they go on a hiring freeze maybe there's you know i'm going to number one i'm just putting out a theory i'll give you the counter factual i think wall street's wrong okay and i think that earnings are going to go down this year and will definitely go down in 23
and so i think what probably happens is the entire world of equities needs to get repriced at a lower price and in that it's going to put enormous pressure on these cash-burning non-profitable tech companies well that's for sure but in the ones that are profitable chamath they're aware of this facebook just canceled like two of their prototypes they were working on to save money so that whole 10 billion dollars
into you know vr i think they're trying to make that number looks more smaller uh sax what do you think well i think you're bringing up a really interesting point with this the 10 million you know job openings and what now that that number is coming down really fast as companies close open wrecks and they basically freeze hiring so that number is going to come down very very fast but one of the major contributors to
inflation is that the labor force participation has been very low uh millions of people left the labor force during covet as a result of the stimulus checks and the freezing of rent and evictions i mean look rent's the number people's number one expense if they don't have to pay rent for a couple of years a lot of them may not work or may not work as much so we've had this problem where we really need about two
million people to re-enter the labor force and if you describe inflation as too much money chasing too few goods we need to increase production and productive capacity and when you have millions of people dropping out of the labor force you've got less goods and services being produced that people want so just reducing the money supply is not going to get us out of this mess we also
need to improve productive capacity just to put a number on that we peaked in the 1999 era at 67 percent of participation labor force uh and then it's been down in this low 60s 61 62 and it continues to be low but that is the solution here we get that seven percent that gap um just fix the demand side because if all you do is fix the demand side what you're doing is you're killing the economy to reduce demand in order to
bring it down prices that's very painful it's all pain but what you also have to do is fix the supply side you have to increase the availability of all the critical inputs into the economy so labor obviously is one of them but also critical resources like energy you know oil natural gas and so on and that goes back to fixing the supply chain hopefully getting a resolution of the situation in ukraine the war
so if we could fix those things it's a way to improve the economy without creating more pain freeberg if the prices of just daily living of which transportation and housing and health care are now the top three i believe um groceries and health care i think have flip-flopped a couple times in the last decade in terms of cost if those things go up would that make people want to go back
to work to pay for those things or does it create capitulation where people say i'm moving in with my cousin i'm going to lower my balance sheet what is your prediction there are more people going to go to work or do we still have this you know call it 10 million people in the country who just don't want to go to work i've mentioned this in the past but i think there's more there's another kind of interesting
outcome of this we we've had several months in a row of pretty significant increase in consumer credit and i think the reason is things are getting more expensive people generally do not like to reduce their spend on stuff or they're living their lifestyle once you get used to a lifestyle like going out to dinner once a week or going to the movies every week and you create a budget you create a life experience
around that a model around that it's very hard to say okay i gotta cut budget now and i gotta reduce my life i would rather say i'm gonna keep doing that or at least there's some inertia or some momentum to keep spending on the things that you've been spending on and the way you do that in a model where you don't have as much income or you have less income and things are getting more expensive is you take on more debt
and so there is a little bit of a nervousness that i have had that people's response generally the consumer response to inflation and uh to a uh kind of a a shifting um income environment like this is not necessarily to cut as quickly but take on more debt and keep keep buying and so i am a little nervous about that but i do think obviously at some point everyone has to figure out ways to generate income there
have been a lot of these kind of ancillary markets that are typically the first to go these extra services markets where people you know have found other ways to make money side hustles and whatnot um that may or may not be as robust as they have been historically and so people may need to go back for more secure stable income and and these jobs get filled i look i mean as we all know there's an
opportunity and this is the whole concept i think behind build back better it's not super thoughtful in terms of the approach um i think based on my understanding of where that money's supposed to go because it doesn't create long-term jobs but there is an opportunity to build um new manufacturing and new infrastructure jobs in the u.s right now that could enable a healthy transition here but
that legislation needs to be done smart it can't be done with this like hey let's build a bunch of bridges and then a bunch of contractors make a bunch of money and no one has any long-term jobs out of it we've got to find ways to spend money on creating long-term sustainable um you know new industry here yeah and job openings 11.4 it's come down about six or seven percent so you know it's gonna be trailing but it's for
sure we're seeing it in our industry with the hiring freezes that you know we're gonna work through those open jobs what are the chances that inflation gets under control in the next year and should the fed go for like the one percent slam on the brakes there was some talk about that obviously they went forward remember a lot of the elements that we were um kind of saying oh my gosh i can't
believe the climate prices so you know wheat is down i think 30 percent lumber is down 50 uh gas prices are coming down so you know there are some of these um you know commodity spikes that we've experienced over the past couple of quarters uh particularly recently that are really that have had a significant part of the fueling effect on the inflationary uh trickle down into ultimately end products and whatnot uh
and those are coming down um you know there's a real question of how quickly that flows through the economy and flows through to the price of goods uh that consumers ultimately end up paying for the gas prices right now are the biggest concern right like unless you can get gas prices under control that always always has a massive impact on spending uh on consumer spending which drives a recessionary cycle um and so the if i'm
the biden administration i'm first and foremost i don't care about the general inflationary indicators as much as i care about getting the price of gas down that is a super super critical number to fix is is this are these gas prices gonna change how americans look at what car they buy because they're going to get worse last time we had that they're going to have people started looking at
not buying suvs we could have seven dollar gas oh i said there was a picture actually uh i tweeted in california there was a seven dollar eleven cents broadly broadly we could have seven dollar gas all throughout the country but jkl the um you know remember the average automotive automobile in the us lasts for 12 years that's how often people change out their cars so that's eight percent of the fleet being changed per
year yep and the interest rates for auto loans have spiked like crazy now with this change in the fed rates and as a result the uh delinquency on auto loan portfolios has spiked like crazy yeah and so you know yes sure theoretically people will think about buying an electric car but most people aren't thinking about that on average for five or six years from now because that's the average of a 12 year cycle right five
five years from now wait till all these peloton bikes need to get repossessed well all these uh actually the the the weight for cars and the overpricing of cars has ended in the last two months and there are multiple cars now on the market 25 30k for a 50 plus mile per gallon gallon car i think this actually one of the silver linings coming out of this is people might actually stop
buying as many suvs or you know i think our average is in the low 20s right now and europe's is in the high 40s the problem is like you know every other for miles per gallon part of the government acknowledges that you have to really ring fence and protect consumers right like if you look at the securities laws uh they're meant to protect them at all costs um and jason you've you know you've been frustrated by some of the
rules that haven't changed and when they change they change so slowly but the reason is because sometimes that you want people to make good decisions and if you uh you know give them a bunch of firepower they're just gonna spend it and you know what we really did was we gave folks just a ton of money and what did they do they acted rationally they spent it now we have to take it all back um and that's that's i
don't think that's going to be as easy or as simple as people think what what percentage of the money supply do you think is in excess right now in the united states well look i told you this because i wrote this in my annual letter but it's it's stunning that you know the reason the stock market went up dollar for dollar was actually tied to the growth in the m2 money supply the correlation was 0.92
so for every dollar that the fed printed the stock market went up by 92 cents so you know it stands to reason that if the fed is going to take three to five trillion dollars of value out then we have to re-rate the equity markets by three to five trillion dollars at a minimum and then you have to re-rate and re-baseline for earnings and so that's probably another 20 or 30 percent it's good yeah let's talk about
the end game here um the rates go up people stop buying homes people go back to work and uh energy prices come back down because people are not buying as much of it spending goes down and people rebalance and that takes a year the job openings could also disappear by the way i mean like they're going down 400 thousand a month is what are you doing yeah yeah you're the people you're assuming that
all of a sudden like demand is stable but it's not necessarily stable and it demand and in a demand contraction yes people get fired but then also new job openings change right yeah there's fewer of them they're they're more specific in the way that people salaries go down right that's the salaries go down that's the piece i'm waiting for that to me that would be i don't know if you guys have early warning signs but the two
early warning signs i have in my you know uh uh job of investing in early stage companies is when people well what's the average salary for an engineer if that hasn't gone down by now then that's a lagging indicator right that would be to me capitulation salaries go down or people instead of laying people off sacks they do uh salary cuts at a company that is really hard to do right that's yeah i
don't know i don't think they do solution preferences and deals right i think the way the salaries come down is that startups freeze their hiring plans where they lay people off and all of a sudden the war for talent subsides it's easier to hire people and so there's no need to keep raising up seeing that yeah i think we're seeing the beginning of it but i gotta tell you i mean i think that startups have not fully
embraced or realized what's happening i just got back from the co2 summit over the past couple of days this was an event that was hosted by kotu you know whose founders are felipe and thomas lafont very smart guys very smart investors who've been public market sort of hedge fund investors for a long time but also have a large venture fund to do growth stage investing some of the takeaways from that conference
some of the more vivid lines that stuck with me is that one of the speakers said that he said that when it comes to runway for startups three to four years is the new two years because if you just have two years of runway you're going to need to raise in a year and in a year from now we're going to be in the middle of a recession they're predicting they're forecasting that capital availability is going to
decline about 75 percent the amount of money that's venture money that's available to the ecosystem downs by three quarters so if you try to raise in that environment either you're not going to be able to or investors are going to you know have all the leverage you're not going to get terms that you like so they were recommending three to four years of runway so that is not what i think a lot of companies are just not even possible
the other thing that the other really vivid takeaway is that they did some polling of the startup founders who are in attendance okay and what the numbers basically showed is a is a contradiction on the one hand the founders sort of understood that intellectually that we're headed into a downturn we're headed to a recession and so the polling reflected that on the other hand if you ask the
founders how they're going to react to it what are you going to do about are you going to cut a head count or are you going to accelerate your business to beat competitors everybody said oh we're going to out accelerate our competitors so everybody thought that they're the exception in other words everyone understood we're headed for this massive recession it's going to be really bad but we're going to be the one company
that doesn't need to cut we're actually going to grow we're going to accelerate during the downturn so there was a real contradiction in how founders are interpreting this advice and i have to tell you when i talk to founders in our own portfolio what i see is you know we've now done multiple meetings where we lay out what's happening in the economy and they get it they understand it and when we do a board meeting they're
like okay we're going to go look at our plan and we're going to reevaluate and we're going to make major cuts we're going to bring our burn multiple down to you know the where it should be but then you know when you check in with them a couple of months later and you're like where are you on the planet i haven't taken the medicine it's it or or the medicine is like a 10 cut and i'm like
guys like 10 a performance review yeah like temperatures you should be doing every year anyway yeah you get rid of the the bottom like the c performers you promote the a's and b's and get rid of the c so no one really wants to take the medicine yet and um you know it's a problem i mean sequoia has this great chart called survival of the quickest that we should put up on the screen and it shows two
lines one company is the one that takes the medicine right away brings their burn down to where it should be and then they're able to grow from there and they really will out accelerate the competitors but then there's the company that basically delays and waits and what happens is by the time they finally get religion to make the cuts it's too late because even after they make the cuts they don't have enough
runway on the other side they burn the capital yeah they burn the capital and then they're in a death spiral so i think you know what what companies need to think about is this is a 75 reduction imagine if you did a hundred million dollar round last year right if you go try to raise next year in the middle of this recession that 100 million dollar round might look like a 25 million dollar round so imagine if
you're burning an extra 25 to 50 million more than you should be according to your burn multiple you're basically burning the next round forget about the fact that the last round gave you all this cushion think about how much of the next round you're burning and if you reward your thinking around that it could lead to a change in behavior anecdotally i'm seeing people come back from rounds where they were expecting 40 or
50 million dollars in some cases like with 250k in revenue 500k in revenue they were living in a 200 300 times revenue kind of world it was just insane and um you know they're now coming back with 10 million dollar caps 15 million caps on their notes i was offered 100 million dollars at a 50 discount and i said call me when you get to 65. and that's the best company that's literally the best
company that's the best and the best founders to bet on right of probably most private companies is that you don't like that valuation what is that valuation 40 at 50 off i i it's less of a judgment on but it's just more an observation that we're at the beginning of the beginning and again we're at the beginning of the beginning okay for all of us that lived through 2000 this was four years of sheer hell and a grind
now we have 30 trillion dollars that we have to work through the economy a recession we have to overcome a war we need to end and people all of a sudden assume that two or three rate hikes and five or six months of headlines are enough and on the margin maybe they're right but from my perspective you know it's less a judgment on but it's just an observation that we're at the beginning of something
that just fundamentally has to take some amount of time to work its way through the system and so i don't understand why anybody would give up their liquidity in this moment right now why would you why would i why would i give up 100 million dollars of cash in my bank account i would not do that right now because the cash the caps the cash gives you so much optionality that's basically so much optionality so you're going to
be looking for distress and this is the thing so you have a huge amount of capital leaving the ecosystem like we know tiger is basically out i mean they were the basically the default provider of growth stage capital over the last couple of years so you have a lot of liquidity leaving the system and then the liquidity that's in the system is waiting for distress so you're right and there's a quarter i mean like we talked
about there's a quarter trillion dollars of quote-unquote dry powder i mean i know chamoth thinks that people are going to give that money back but there's never been this much there's not there's not that much they're not going to give it back deployed yeah look at that tiger fund tiger raised a new 12 billion dollar fund that was announced in march and tech crunch we covered it on the show a
month ago yeah techcrunch an article saying was already deployed in six months so i wasn't on that show oh that was the one where you would jake i'll try to replace you with brad gerstner and we should we should do the show weekly going forward instead of monthly it might be better to keep up with these trends okay so jacob jacob you made a good point there chris go back this for a second you said that founders were
they're still anchored on this world of two to three hundred times ar valuations let me just tell you where the new valuation levels are and this is obviously in flux but i'm pretty sure the valuation levels are at 20 to 30 times arr that's for a company that's growing 3x year over year yeah three x year every year that's the best of the best the reason how you get that's 10x next year's ars basically yes exactly
and the way that you get there is that if you look at like the um the multiples for like the best public sas companies that are like say a 40 grower like a snowflake they're at 8x yeah so you know so basically giving more credit for the higher growth rate yeah right but they really have to have that 3x growth so you know if you're a founder think about the fact that when you try to go
raise next year assuming you're the best the best you'll get 20 to 30 times arr now think about your spending not last round's money you're spending the next round's money if you could just reorient your thinking that way you'd burn a lot less money yeah the the i literally had a deal you know in the 30 and 40 range and angel investors who never early stage angel investors seed funds that did not look at multiples are
now asking me because when i send a deal memo to 10 000 people for my syndicate people hit reply people are hitting reply now and saying i did the math on this this is the multiple this is this this is the burn multiple they're actually doing the math so we all of a sudden have discipline that i have not seen in this investor class in the 10 years i've been doing it so that is to me
one of the great silver linings here i think people are going to do a better job with their personal balance sheets they're going to invest less in speculative stuff and they're going to invest more in the actual builders who have discipline so we're going to see this massive swing to discipline and we're going to flush out all the people who don't product marketing think about all those folks like what's
happened in the last six months it's like they've been long unprofitable tech it's got smoked by 75 to 85 they've been long crypto that's gotten spoken by 65 more yeah i mean if they weren't using a calculator then they sure as hell should be using a calculator now to figure it out i mean people well you think about it there's a whole group of investors who have only known the up market there's a whole group of
founders who are only in the growth market if you're under 40 years old you don't understand what you're about to experience and here we are let's that's a perfect time to segue into crypto bitcoin's price is down 71 uh from the all-time high uh 69k in november of 2021 bottomed out at 17 000 or so on june 18th ethereum's price down 78 and if you look at the craziness since the last all-in episode you know this
three ac three arrow capital they're a crypto hedge fund that was letting people uh basically loan out their crypto uh they are basically closing a ten billion dollar um crypto hedge fund at its peak they're insolvent according to the reports tara luna collapsed the founders and employees of that company are not being allowed to leave south korea it doesn't mean they're guilty but it's certainly not
looking uh good and um there is a whole situation with solana and a company built on top of it so lend which is not solana it's an application built on top of it i talked to vinnie lingam a friend earlier this week about it they had a whale who had um tried to loan out a hundred million and they had to freeze their account because they thought the downward pressure since there's not many buyers
in crypto right now could collapse solana so thoughts on krypta writ large what is this going to look like saks over there i mean crash all over again i mean basically you had an extremely promising technology i mean it is a promising technology and it is a future you know technology platform but the price action got totally decoupled from the level of progress in the space and people were not valuing these things
based on real customers real usage and real use cases but it was became you know very speculative and again all this was fueled by the excess liquidity that was pumped into the system so you've said it before that crypto is like a liquidity sponge it sucks up when there's a lot of excess liquidity it sucks up that liquidity but now that sponge is getting wrung out and um you know and part of the problem
is with interest rates going up you know it's one thing when you have negative real interest rates and and and you can't earn a return on your money then you start to get you basically people start to push the envelope and invest in more and more speculative things but as you can get a real return in like let's say there's like a real risk-free rate now there's alternatives for all that
cash and then you got the problem of leverage as well which i think over the last few weeks the crypto space was heavily over levered and a lot of people got margin called and wiped out that's the contagion that's occurred and people were levered up five ten times their bitcoin on these roads wait till these token sale things get litigated i mean the amount the amount of grift by so many of these venture firms in
running these sketchy deals where they would put in some amount of money this is my understanding of the scam because it was explained to me you put in a little bit of equity at some crazy price and then you get these tokens and apparently there's no like you can just sell these tokens day one and so what happens is like you you price the equity but it's meaningless because really what you're
getting is the right to get some amount of these tokens the price is crazy you sell it and then you just kind of walk away and apparently you know you do these deals where you just rinse and repeat this thing um well wait wait till that gets exposed i mean that seems like the term the firm that did this the most is andreessen horowitz uh chris dixon i think was considered like the best investor last year or the year before
because of all these token returns i i gotta wonder when they go now that this people are losing money that's when people start suing i mean what is it gonna look like if they were what do you think their marks looked like last year versus right now i mean and all these coins like looking back in the rearview mirror and saying hey you bought all these coins you flipped some number of coins i mean
to your point your mouth like what is the litigation path and the the shadow economy that was created there was an article there's an article i think it was in bloomberg um about folks trying to figure out how to get um [Music] a lawsuit filed against binance and the problem was that they didn't even know what entity to sue um it's not clear who owns what and you know what owns the other and who the
ultimate look through ownership structure is and and it doesn't mean that binance is guilty of anything but the article was just you know showing how there was a u.s investor who lost 1.2 million dollars who wanted to file a lawsuit and they have every right to do that um couldn't even find the corporate entity to to actually file this lawsuit against so if that's what's happening in a trillion dollar market there's um
i mean it's gonna be a lot of people it's free it's it's a lot of oversight that's that's that's free what is this gonna do to regulation and crypto at this point because crypto regulators now or regulators are going to just be looking at this going wow look at all the pain and suffering and when a local d.a gets you know five or six of their people complaining they lost money in terre luna whatever it is
this is like the perfect opportunity for them to collect a pelt and get some crypto kid and you know hold them responsible and get some great headlines i mean what do you what do you think happens from this point forward in the crypto land what you just said okay there you have it folks yeah but what about regulation i guess that's the next piece because all of these entities have taken a very the sec last july or
august published this kind of initial opinion letter but remember there's also the cftc there's a bunch of regulatory authorities in the united states that have a longer process than governments xus that have had a much more kind of stringent point of view that there's a lot of casino-like gambling going on with these things and that's it there's no functional utility there's not a it's not is it a security if there's no
underlying business if it's not a security then it's just a bet on something if it's a bet on something it's gambling it's you know obvious that if it's a security it has to be governed by the sec if it's a future or commodity it's the cftc and the problem is we need congress to pass some legislative framework that puts the puck in one side of the of the arena a rink or the other yeah and otherwise all this gray
is going to exist for a long time and people you know if if governments really hate it when retail investors lose money well watch out because they just had two trillion dollars in the us we have a lot of other regulators that can prosecute cases like the dfs in new york uh this is the department of financial services they are a pretty litigious prosecutorial group i mean they go after scams and
uh people preying on consumers and retail investors in a very aggressive way often outside of the purview of the sec they often coordinate with the doj or the scc in evaluating enforcement um decisions but they will prosecute and and i think that there's a you know as you said a lot of opportunity when people have been grifted out of their money uh for politically motivated and you know
people that generally have kind of the right point of view that are in a position to prosecute to go after uh the offenders so you're right there will be there will be a lot of action on this over the next couple of years and then chemoth is right the way it gets resolved is a congressional act but by the way i'll just point out in the year 2000 congress passed what was called the commodity futures modernization act and
that cfma was really meant to kind of quote bring commodities and futures into the digital age and they started working on it in 1996 it took four years to get it done within four years it was already out of date and a lot of what was going on with respect to how exchanges operate and the types of contracts are being created it was already missed so you know the problem we have here is that by
legislating the state of the market today without creating enough flexibility in how enforcement action can be pursued and how things can be interpreted in the future you could end up in a similar situation where people just find and run around and the whole thing repeats itself in the next few years because guess what people will always want to gamble and gristers will always want to grift and so there will always be a way
to try and scan people out of their money yeah and that's just sky dayton's poker game hello hello by the way are you jacob's always going to want to jake so what you're saying oh you get out of here hey everybody download call before we pivot um if you want a perfect example of this and this is just a lesson to founders out there if you feel like you're in a gray area you probably are um people are like oh nfts you know
they're just trading cards yadda yadda and it's not a big deal that somebody at openc decided to front run the market oh they just bought a trading card ahead of everybody else who cares we know who cares it turns out the southern district of new york cares and they are a pretty serious group of people former employee of nft marketplace uh openc was charged in the first ever digital asset insider
trading scheme so just because insider trading didn't exist as a concept for nfts before congratulations doesn't exist in crypto i mean if they want to really find uh the honeypots here i mean it's the worst kept secret in crypto how much insider trading is going on amongst the organizations that run the exchanges and their side pockets that they use to to manage liquidity i mean this is the it's the biggest thing
that's been happening in crypto if you're wondering why people were spending hundreds of thousands of dollars on a board ape or whatever like there might have been some shenanigans going on here yeah well i mean no but jason it's not it's not a legal this is my understanding though it's not illegal to front run crypto trade so most of these organizations that that run an exchange
right compete for order flow and they're able to just look at that order flow and then they front run the trade and they're on the other side of that so they're always making money and so they were making tens of billions of dollars all these exchanges were yeah and then i guess the question becomes sacks you know in terms of since you're an attorney like how you interpret this stuff there may not be a law in the books
about front-running nfts but there are laws on the books about fraud and nft and conspiracy to you know um grift people out of their money so this is all going to come crashing down and the discovery is going next if the southern district of new york actually subpoenaed any of these exchanges all hell would break loose oh no they are you can be sure that's in process if they go after one nft flipper
no forget nfts i'm saying coins crypto like that's the huge market and they will they're turning over these cards because you know how they like to work they like to flip their way up to the top person um but we're not talking about january sixth year we're talking about gas in the ukraine next hey yo hey ho uh that's a little reference for y'all um listen now that we're now that we're an
hour in tenon and we've we've kind of like broken the ice and we're friends i feel good i feel like you want to reach as a team again you you want to redo our intros so you're not being such a [ __ ] i don't care i don't care can we just move forward i think we all understand i think i'd like to be recognized you said you said that you were workshopping in intros so do you want to do your intros at the end of this or not
i'm not doing the interest no i'm not strike on interest no i didn't they were here's the thing i wanted to the interview he's an extra point he needs extra no no it's not about the point that was a joke i i wanted to do intros i didn't know coming into this how sensitive people would be and then sax is like i need to have in the contract of non-disparaging nda and i'm scared about the things i said so spike
content needs to be she took that out you were the spike content guy you're the most concerned no we have an agreement around a good rule non-disparagement he didn't want to have in there i understand i took it out because i thought you would be more sensitive about accusing others of disparaging you i might this whole show is you disparaging me have an intro or not for that i don't have interest prepared no
i'll do interest next episode i promise everybody i wanted to take the temperature of my besties i don't know if people are sensitive right now you want me to make a joke about brad gerstner we got real [ __ ] to talk about can we talk about ukraine and world war iii it's not all about our narcissistic nonsense as foreign teenage boys running amok go ahead so something happened in the last week that i think is pretty
disconcerting i mean just intellectually speaking we all know that wars that go on and on have a tendency to escalate and there was an example of how this could happen over the past week lithuania is now essentially stopping the flow of goods from the russian mainland to another part of russia called kaliningrad which is called an oblast it's a little area but it's outside the russian mainland
it's basically between poland and lithuania and so goods go by rail from the russian mainland to clinton grad and they've been stopping these goods because they say they're under eu sanction the problem is listen when you think about a sanction a sanction is me not buying goods from you because i don't like what you're doing that's fair game everyone has a choice over who they want to buy from but this
is not that this is uh lithuania deciding to stop goods going from russia to russia and so the russians say this is a blockade i think with some justification and blockades are understood to be an act of war so you've got lithuania basically engaging in this act of escalation against russia we always thought it would be poland but it's right exactly and remember lithuania is a member of nato's they have an article
5 guarantee now think about the upside versus downside of this action in terms of from the western point of view the upside is this has absolutely no impact on the outcome of the war this is not going to help anyone in ukraine to blockade kaliningrad and prevent coal and building materials and steel from reaching clinton ground that's not gonna have any impact on the war so there's zero upside to this from a military
standpoint but the downside is that you now have lithuania and russia getting into it and if they get into a war then we are instantly pulled in under article 5 and world war 3. so this is the kind of dangerous escalatory act that has no upside only downside for us and my view on it is that we have to tell we have to instruct frankly our treaty allies not to engage in these types of dangerous acts because
there's a huge externality we could be pulled in this is very dangerous and i just wonder if the administration is on top of this did they give the green light to the lithuanians to do this or were they caught by surprise and what is the reaction to acts like this you know what i worry is that we're conducting foreign policy by virtue signaling where we just say who are the good guys and who are the bad guys and
you know if the russians are the bad guys the lithuanians are the good guys so therefore this is okay it's like playing cops and robbers on a global stage i think we need to be asking the question is this smart or is it dumb is this prudential or is it reckless is this in our interest or is it not in our interests and um you know i really gotta wonder about who's mining the store on this day 120 um
and it feels like this is just doesn't have an ended site is there an ended site here what's the end i mean the the indians what are the two parties yeah what do the two parties want at this point i mean the people in russia are suffering during this the people in the ukraine are being murdered uh in ukraine are being murdered i mean how does it end the problem is that biden um engaged the united states in a proxy war
without our real explicit discussion number one and then number two is then we pulled and we pressured europe to really draw a hard line but then now are kind of working around it so that the countries that suffer the most are europe now i think you're starting to see the tea leaves though last week there was a group of european leaders i think it was macron draghi and i can't remember if it was the
german chancellor or not and one other person who went um to ukraine and if i had to bet i think the message was kind of like all right listen like we need to find an organized de taunt here because there is you know according to europe a lehman-like situation in terms of economic contagion that could manifest over the next months so i think that the end game is probably some organized negotiated detent and
ceasefire um i don't think anybody will be happy with it but i think by and large russia is and has won you know meaning they've won economically they're selling oil like it's not you know like it's going out of style it's just not selling it to europe and to america um you know they're selling it to china they're selling it to africa they're selling it india is fine with it they'll they'll take some well also
they're winning on the battlefield there was an article in the washington post there was an article in the washington post in the last week or so and the washington post is basically the house organ of the washington establishment and the blob basically saying that hopes are dimming for ukraine on the battlefield the russians have now won 20 to 25 of the country they've won that eastern that
don bass region they've done it with the help of russian separatists in ukraine and the the amazing thing in this article was that they were saying that the ukrainians were days away from running out of ammunition despite the 40 billion that we just appropriated to them where did that money go and conversely they're saying russia is having just unbelievable casualties and they're running out of weapons and they
are obviously out of kiev now uh and they're in the don bass mostly so i don't think that's anything like that yeah anything the russians the the right so listen i i said on this podcast they said they're out of tanks right and then the troops they've adjusted their strategy and they've they're they're they're learning they're adapting to this new kind of warfare this asymmetric warfare where you can
take out a tank with a drone you know but but look you know remember on this pod three weeks into the war everybody who was in favor of this proxy war was saying how great it was and they were saying it was going to lead to a new birth of freedom in the west that it was strengthening our alliances you had francis fukuyama predicting that we were going to win the war and it would lead to this rebirth of freedom in the west
we should have known at that moment everything that fukuyama basically predicts the opposite is always true it's like negative one correlation yeah and remember i said three weeks in that we were potentially i think putin made the mistake in the first three weeks of thinking this would be a cake walk but that we were making the mistake of thinking the next phase would be a cakewalk and sure enough here we are
russia has now won the eastern part just to build on what you said you know we engaged in economic sanctions and i was the first one to say hey this could really work and this could be a road map for how to do it and it turned out this is the roadmap for how not to do it you can't on the front door say here are these sanctions and then walk around the back door and basically open the door for them these
these sanctions were so porous as to be like swiss cheese we focused on virtue signaling acts like confiscating a plane or a boat or a house but we didn't focus on the structural things we needed to actually um you know make the mandate that we believe to be just to come to life and so russia's completely worked around it their economy effectively you know is thriving so what have we gained how is it
thriving i mean i don't know that thriving is how they would describe their economy right now yeah i mentioned it isn't their printing record they're selling gas they're selling phosphate they're actually making a market and the prices have doubled and tripled in those commodities because the flow has been restricted so because there's a responsibility the opposite of what we tried to do and by the way i'll
point i'll point out something that i pointed out in february which was the biggest concern for me at the time when we stopped allowing trading in the securities of russian companies we yanked away 400 billion dollars of market cap that was held primarily by pension funds and retirement funds in the u.s and europe and gave that value to russia for free we basically said here you go here are
all these securities we're no longer allowed to trade in them so guess what you guys can trade in them you can have they got all of their gas and energy and mcnickel and mining for free i think it's such a good point we ripped the stock out of retirement funds and we gave it to the russians and said here you go putin take all of these securities for free enjoy oh and by the way because of our idiotic sanctions and
the way we're employing them the commodity prices are going to double and triple and all these companies are going to have record profits this year happy [ __ ] birthday the ruble's up 5x it's not a 5x but yeah okay it's a great point because if putin had retaliated against the west by nationalizing 400 billion of western assets in russia everyone would have been up in arms but he didn't even have to do that because
we just gave him we gave him 400 billion totally i mean how did this policy make sense it's this policy of conducting russian securities i'm freaking blackrock i own a billion dollars of russian securities the u.s government just took it out of my portfolio that my clients own stakes in and gave it to the russians for free they're gone poof crazy i think listen i think we've got like a two-level problem on this ukraine
war one is that our policy hasn't made sense we should have been using diplomacy last year to avoid it this we had all these false hopes around strengthening the west and the western alliance by allowing this war to happen we then instead of trying to shut it down through a negotiated settlement we try to use it as a proxy war to weaken putin instead it's done the opposite so there's a whole series of policy
failures here but there's another deeper level to the failure which is the personnel who are implementing these policies the washington establishment the blob who've been of both parties the this sort of uni party who've been implementing these policies there has been no dissent within the washington establishment the only guy who really spoke up in a decisive way was john mearsheimer the professor of
international relations from the university of chicago and he was treated as a pariah by the blob in the washington establishment everything he predicted has come true he proceeded years ago years ago predicted the us was leading ukraine down the primrose path and the result was that ukraine was going to get wrecked and so it has can i just read the first paragraph of this bloomberg article that i just posted
russia's current account surplus more than tripled in the first four months of the year the central bank said as prices research oil and gas imports and imports plunged under the weight of sanctions well you know if you're putin and you're looking at this you're like wow maybe i should be under sanctions more often totally you know what country should i invade next because this is sanctions all that
sanctions were was a restriction on the free market and when you restricted the free market you basically created a spike in price but the market his market could still operate with a narrower set of trading partners he is selling energy to certain trading partners he's selling phosphates he's making money they are exporting product and they're making more because certain people can't buy
and they've got to go drive the price up elsewhere so not not only did our sanctions package not work and not only is the treasury treasurer trust treasury sorry flailing around now trying to find even more back doors we actually opened a very dangerous precedent which is now we allowed oil to settle in currencies that are not just the united states dollar and now russia and china are trading and settling in cny that's not
good for us this is not how you preserve the identity of the reserve currency of america i don't understand the eu of cutting all of their energy and then becoming dependent on russia then creating a ban and sanctions but then they made a carve out that oil delivered by pipeline janet yellen has been negotiating this carve out we have been enabling russia to sell we know the eu passed this legislation
jason look look at the wall street journal today the articles they're reading the cnbc right now about it like the eu passed this landmark sanctions package in may but they also allowed the stuff that's coming by pipeline for some reason to be a carve out if the eu wants to contain putin from invading countries on their doorstep they gotta actually become energy independent that's the the beginning and end of not popular
and this is the problem with populism that's not popular it's not popular to continue to have to to to have energy independent nuclear was not popular and so the politicians the legislators responded in a short-sighted way to the popular opinion of the day and this is the challenge absolutely yes huge mistake on german's part they closed three nuclear reactors popular sentiment in europe got highly
affected by these environmental groups exactly that's my point but in the u.s i think the people of the country want us to be energy independent and and it's elite opinion that bought into these foolish ideas that basically we should cancel energy independence we should cancel the keystone pipeline should cancel new drilling america should be a net energy exporter 100 job number one is to be energy independent and job number two is to
move towards but now there's another piece to this you got to do this in sequence so when he came in he said that he was going to make the saudis a pariah on the world stage remember this now he's going hat in hand to them to try and get them to produce more or lower the price so what was the point of this foreign policy it it was contradictory he cancels energy independence he basically insults the salt the saudis on which
we're even more dependent for oil and then he basically refuses to engage in diplomacy on ukraine these policies are contradictory even if your goal was to basically isolate the russians you would then want to improve our relationship 100 saudi and you'd want to produce more of our own oil 100 yeah you he overplayed his hand for sure i mean you ha you can't not have uh heat in the winter in germany and the
germans that's coming by the way that's coming you think things are bad right now wait until winter and then that's only going to increase putin's leverage and that's when you're going to see a real fracture in the western alliance this idea that ukraine strengthened the western alliance i think you will start to see the fractures nationally i mean germany's got to put those the slow march of nationalism will
continue and this will be another catalyzing event turn your nukes back on and and i also think that you know thinking about the western alliance i think that you know countries like germany and france are really going to question u.s leadership when they have basically a huge economic recession and they're wondering how they're going to heat their homes in the winter but i think in the u.s it's
time to reevaluate some of the alliances that we've gotten ourselves in again with this lithuanian situation do you really think that lithuania would be basically poking that big russian bear if they didn't have the u.s standing behind them as a bodyguard no way they would be much more circumspect and prudential and the r and the fact of the matter is that these eastern european countries the baltic countries and
poland they have enmities they have friction with russia going back hundreds of years and these guys basically they have very provocative attitudes towards russia and our alliance with them can draw us in so we have to really keep a close lid on that we do not want them making moves on their own because we could get drawn into a world war here yeah and by the way to your point sacks
also you know there continues to be escalating issues with debt and concerns about debt repayment across the eu and while germany is you know looking to the u.s for support and worried about energy prices they're going to end up having to foot the bill to support a bunch of these eu member nations that are facing debt crises and will continue to face significant debt crises over the years ahead i mean greece made a payment
recently but greece's debt to gdp still over 200 italy's at 155 percent portugal is at 134 the numbers are uh pretty much you know today uh you know it was yeah the the the spread on it italian debt has spiked over the last couple of weeks right bridgewater basically is biggest germany's got another freaking crisis to fight now and i think you're right the the western alliance is more than just a military at
this point there's this you know do i really want to be the economic savior over and over again of my smaller member states and guess who's going to benefit in all of this china like they're going to look at this fracturing and they're going to be like great by the way just speaking of speaking of china for a second you know we talk and we bloviate about our desire for energy independence and you know we
exclude tesla from you know any sort of major meaningful legislation we trumpet you know these companies that are just completely woefully behind uh in building energy independence um we think about like a gas tax holiday but as like kind of like a you know something that still needs an act of congress to pass even though congress has said they have absolutely no intention of passing it meanwhile
we keep losing our footing to china just today catl which is one of the largest battery manufacturers announced a pretty meaningful improvement in their you know 3.0 battery design these guys are now building batteries that can go a thousand kilometers in both of the major you know um compositions that really matter nmc and lfp and i just look at these things and i'm like wow we cannot actually get
capacity funded to build domestic battery capability because we're too busy kind of basically virtue signaling on things that don't matter and in return nothing happens china continues to lap us we uh it's really it's really bad state of affairs we are uh we are in a very odd period in terms of government effectiveness if you think about china's foreign policy how have they lost out by not being part of all these conflicts have
they lost they're buying prices of oil that were nine months ago to 18 months ago and so there not only has russia's output price been capped but that's okay china's input cost has been capped and so they don't suffer the same rate of inflation that the rest of us do so to your point david you know our quote-unquote you know exclusionary sanctions were ineffective they were porous and we allowed our largest
competitive frenemy if you will to basically be able to you know drive their entire economy at 30 to 40 percent of the uh a discount to what we have to pay to do the same right when when china goes abroad they go abroad in search of economic resources and economic development that's the point of belton road they don't insert themselves in these middle of these conflicts that they don't
understand they were never involved in the middle east they were never involved in like policing you know all these different countries that has cost us a fortune and now the bill is finally coming due in the form of this inflation we are going to have some form or another of austerity in this country and it's partly because of this highly militarized foreign policy in which we have set ourselves abroad to
be the world's policeman we can no longer afford to do that can i make a generalization in saks you react and tell me if this is true or not if you have a country that has existed in some way shape or form you know the the borders could be blurry but roughly for hundreds and hundreds of years and in some cases thousands of years where internally the population of that country views themselves you know in a great way they
don't feel like their country is a meaningless nothing country any attempt to economically humiliate such a country tends to have failed in the past and will continue to fail and there tends to be other countries who view it as one of these things where well if them then why not us and then they sort of you know in a backhanded way support everybody so we end up in this odd situation where we
are picking fights we cannot win totally and and the consequences for us are economically really damaging right and the consequences for everybody else to stay on the sidelines is like economic prosperity that doesn't make any sense right you're afraid that russia is going to roll over more countries and that you have this existential risk that this dictator is going to attack more countries so okay if you're living in
eastern europe you might have a different view of it yeah so you might very much accept and want some help from you know nato and other folks who but you're not getting that help that's the problem with that that's the sad part about it i mean if it's poorly executed it's not working at this point in time yeah i mean there's a lot of takeout if you look at the eu okay as an entity they have
almost the same gdp and output as the us and if you compare them to russia their economy their their gdp is 10 times greater than russia they are rich they can afford to allocate a few percent of their gdp of their government budget to defense they should be able to defend themselves they really should and so this idea that we have to go over to europe and bankrupt ourselves to defend rich europeans they should be picking up
a hundred percent of the cost of that a hundred percent i don't know why we're paying for rich europeans when our country is massively in debt why aren't we passing the bill to them for that yeah we're absolutely um yeah do we have to spend that much money to to do that no and then obviously the wars in the middle east were let me pick up on this policeman what kind of policing works the best
community policing when the policemen are from the neighborhood and they know all the players they understand the subtlety of the area exactly the us has made itself the world's policeman we parachute into areas that we don't understand we did in the middle east it was very ineffective what we should do is let the regions deal with the problems themselves first and we should be the policemen of last
resort not first resort let the europeans take the lead they should be paying for their own defense you know we could still have nato but they should be paying for it they should be the first responders and if they can't handle it then we can back them up but this idea that we need to be on the bleeding edge of all these conflicts bankrupt bankrupting ourselves it's a foolish idea energy independence is a solution to all
of this we wouldn't have to deal with these death spots if we didn't if we had energy independence so we're getting we're getting circles running around us by china jason on the innovations front circles running around us by china on the innovation front example i just told you the catl battery that they just announced today yeah it's incredible yeah i mean battery technologies we have a lot going on
there as well i mean it seems like the battery technology issue has been solved for evs for some time now i mean if an ev can go 200 miles and we can build them at scale which seems like we're on the precipice of um we're going to be good you don't need more than 200 miles on average it's just a luxury every mile after that given how fast superchargers are working so just practically speaking 95 of
americans will do just fine with a electric car that does 200 mile range and the other five percent can do a hybrid or can still burn oil we just need to get more we have to be more serious about the miles per gallon right now we are just absolutely abhorrent in our use of fuel in this country it's just crazy that we have low 20 miles per gallon uh as our average when other countries are 30 40 50 you
know or 30 and 40. because we like our you know seven-seat suburbans which is ridiculous because 99 out of 100 missions in that suburban are done with one or two people in it the fact that our ubers you know in our lifts or whatever are coming with giant suburbans with one person in it is just i have a i have a fiat e500 here like a little mini oh it's incredible yeah it's incredible i mean yeah i mean this is why
i mean this is the path if we can just if you just think about it if we were to double our miles per gallon there are cars right now that are doing 50 55 miles per gallon we really have to be more punitive uh in terms of taxes give me the forecast jkl what's going to happen with biden oh okay so give me your give me your scorecard give me your grade how's he doing for biden oh it's disastrous i mean it i
think the only thing more disastrous than biden would be having trump do a second third and fourth term 100 so but so play it out play it up well i don't think he's going to run again i think they're going to happen you don't think it's going to run again i think they're i think between then and now if the economy keeps going the way it's going he would be a lame duck and impossible and i think he might say you know what
i'm going to retire to spend time with my kids and my golden years and they might convince him that him running again is a really bad idea and kamala harris is a disaster as well she hasn't proven anything in the second two years yeah who would the dems put up jkl jkl as a democrat who would you want to have put up i think it's going to be desantis versus newsome in 24. i yeah i um but sorry explain that
okay so well which part of it new summer desantis how does museum get the nod okay here so newsome has a very weak challenger in in california it's a plus 30 devastation hold on so he's gonna handily win re-election in california he's already not he's not even campaigning for re-election in california he's already campaigning to be president the thing that he did that was politically smart
and i say this not as a fan of newsome but this is someone who's analyzing the politics of it is that he went on true social and to basically counter your republican lies and so he's positioning himself as a fighter for progressive values and the reason why that's going to be flattering to the democratic base is that when the democrats lose big in november they're gonna have there's gonna be a reckoning and they're gonna
have to understand why they lost and the fact of the matter is that ideologues never blame themselves or their agenda they're gonna say that it was not communicated well and that we needed a basically a better communicator who was a fighter and so they will basically pin the blame even more on biden and so newsom is positioning himself as that sort of democratic progressive fighter
if you go back remember when michael avenatti like they were you know progressive were talking about him as a presidential candidate for a brief minute they swooned over him why did you go to jail yes he's in jail right now he's a total grifter scumbag total grifter scumbag but you gotta remember cnn had him on there every day because he counts he was a fighter jacob says his name in the funniest way possible
i've remembered a poker game when like hellmuth said he had no numbers on the jacob what's this guy's name say his name michael avenatti i don't know how he says uh is a disaster uh it's an interesting concept yeah sex can you do you think the dems will give newsome the nod can he actually win in some of these um these uh middle states well you gotta remember this is true for both parties that the general electorate does
not pick the candidates the parties pick the candidates and the base of the party picks the candidates they want someone that can win pennsylvania they want someone that can win florida but yes and no so if you remember when when bill clinton pulled the democratic party back to the center in 1992 and you had the whole democratic leadership council and they really remade the democratic party at that time
as a more centrist party they had just come off three disastrous presidential elections so reagan and 80 and 84 and then herbert walker bush in uh in 88 so you know it took three big losses for them to rethink i don't think progressives are going to rethink their agenda you know based on one midterm loss even though i think it's going to be gargantuan later this year so i think they need
more losses to really reevaluate their agenda i mean look the activists in the party are deeply invested in their agenda they're just not going to give it up they're going to blame it on a communication problem they're going to say let's find a new messenger and newsome will seem like a younger fresh face so i think that's how it could happen and if you look at the democratic bench he can also say can he also who else
they got is the issue that's going to be a bootage and aoc if they want to go full like crazy left would be and then if they want to go more moderate that's not that doesn't win an election you've got to find someone that can win the election they're going to say that was the governor of a big state which is as of now 100 million 100 billion surplus looks good for him so yeah i mean gavin it's a scenario it's a scenario
but look i think the big question is will the republicans field trump after january 6th and i i think the answer is no and um it's too shameful right to do that i i think that look i think trump's problem is he won't stop talking about the last election and i think elections are always about the future and the republicans ultimately going to nominate a candidate who represents the future no republicans
want him as going out there trying to steal an election again if you look at straw polls okay if you look at straw polling um desantis now is beating trump in straw polls in the republican party jonathan chait who is a pretty smart liberal definitely not a republican but he sometimes has very smart observations remember the whole zero covet thing anyway he has an article just today talking about how desantis has now
eclipsed trump within the republican base and if you look at the numbers at within if you if you pull fox news viewers and likely republican primary voters desantis is up a couple of points in the straw polls but among fox news viewers he's up like 10 to 14 points so in other words the republican base the activists who are the influencers they already have moved from trump to desantis you know they love him yeah
yeah so i think i feel the fifth the scientist runs he's gonna run he's gonna win uh a landslide this is why i say it's desantis versus uh newsome i think but look it could be desantis versus biden it could even be trump versus newsome i think the configurations that win for the republicans i think if biden's on the ticket i think any republican wins i think if it's desantis versus newsome i
think desantis wins i think however and this is sort of the nightmare scenario i think if it's something like a newsome versus trump i think republicans could lose that just because you know the people people people think about the future they they they want they don't be reminded of the past and um so i think there's risks there no more also insane and deranged you can't you can't have trying to steal your olds running
for president no that would be great yes yeah yeah i think all right nothing against oxygen 75 years old would be good for me all right this has been a this has been a very long episode well yeah well considering how much uh sax is gonna spike uh we'll get it back down to 45 minutes all right everybody it's amazing i love you guys it's really nice to be on anywhere everybody relax we're back
i'm not going anywhere you're going to need a wrecking ball to take me out of here jacob we don't want to get rid of you but now all we need is three out of four votes so all right good luck vote me off we never wanted to get rid of you j-cal but we knew we had to do certain things to get you to act right oh my gosh jake alberta brought a knife to a gun fight he came to negotiate you guys in trailers you're too cheap to give me
two points that's [ __ ] jacob came to negotiate the treaty of westphalia and he left with half a snickers bar that's fine it's fine you guys don't get no more interest for you all in summit no more interest hold back our payment by the way i'm about to get on a call with our lawyers we're gonna get the accounts set up get all the money transferred from your summit good luck with that money that's long gone
i put that on the warriors i tripled it we're good all right everybody we'll see you next time on the all lovely boys bye bye besties bye-bye let your winners ride rain [Music] and they've just gone crazy with it [Music] we should all just get a room and just have one big huge orgy because they're all just useless it's like this like sexual tension that they just need to release [Music] your feet [Music]