let's go jason start let's go do you have any intros let's go let's go let's go let's go all right if you want intros we're not willing to pay for him so don't even go there sax is awake all right well then we'll start with you sex if you want to do your job you'll do the intros and if you want to if you want to slow roll your effort because you think you're negotiating with us
don't we don't give a [ __ ] listen i'm doing all the projects i think we care about your intros do a bad job we don't care oh my god it's so true do a couple bad jobs so that we can boot you off the show oh that'll be so cool all right here we go [Music] [Music] all in summit i pack the joint but sax won't give me an extra point his crypto holdings they can't find a floor gonna
have him flying commercial for the first time since 2004. welcome david sachs back to the program the rain man good to be here ah now freeberg i never wanted to see him go but you gotta show up for work you can't do every other show the sultan of science he's certainly not a fad but then again did you see those ratings with brad welcome back the sultan of science by the way our show beat brad's rating
so thank you very much jake out okay well a little drama always builds a little audience okay here we go champa little healthy competition well chamathi is in italy living a life so grand his next back a luxury wine and sweater brand this market is leaving him in a daze so he's been tipsy in the mediterranean for the past 10 days welcome back the dictator thank you
thank you i just i put them on stun i didn't want to do any kill shots there since everybody's a little on edge including the audience the audience had a lot to say about whether we cover a lot of the controversial topics um roe v wade january 6 and ukraine all i did a bunch of surveys 50 of people want us to talk about 50 don't so uh we'll see which ones we get to say yeah do you think we should be
surveying the audience to ask them what they want us to talk about because when we started the show we just talked about stuff that we thought was interesting sure and people happen to like it and listen and tune in for it if you end up asking the audience what they want don't you end up becoming like a fox news or like any other media company where you just ultimately
use the feedback loop to drive yeah i mean i wouldn't every week of the show i will tweet like hey anything you want on the docket because sometimes people have good ideas um but yeah certainly you shouldn't base it on like a survey no i think it was just like a way to get some feedback yeah we were just yeah that's how we started was we were just kind of being intellectually honest with each other
and curious about stuff we were interested in and it and it worked and if people don't like it they don't like it i mean i mean we should the the big controversy like like a vote for your topics and that's what we follow definitely not we should i think we'll agree on that i think just there is an ongoing debate amongst the audience of what percentage of this show should be
politics and when should we talk about politics and are we doing too much politics and so i think let's start with markets let me ask you one more question do you think our objective should be to grow the audience or should our objective to be talking about the things we want to talk about yeah what do you think i mean what do you think sex yeah i don't think it's a good idea to pull
the audience about what you want to talk about i mean the audience yeah well i think it's good to have an audience otherwise what are we doing but yeah um but look what the audience showed is that half and wanted to talk about those topics roughly and half did it i suspect that most topics are going to be like that you know unless there's not markets and people like i think 80 90 of people want
to hear us talk about markets and startups yes like our core stuff right david i'm just saying if your objective function is to maximize your audience you're gonna end up making a tick tock video of people twerking or something you know it's not like the show did you just volunteer to twerk on the show i'm not going to do that now i think so i'm pretty sure it's traumatic i have the video of fredberg
twerking at uh all in summit anyway all right let's get started with um i think what's going on in crypto because people do want to hear about that and it's been quite stunning a british virgin island court ordered the liquidation of three arrows capital three ac after creditors sued the crypto hedge fund for failing to repay its debt they had three billion in assets under
management they had a huge position in the now defunct uh stablecoin terra and it's token luna and they were trading on some massive amount of margin uh how much and what deposits they were using to do this uh we will find out um now they're being forced to liquidated to be liquidated 3ac owed voyager digital 650 million could not pay it which sent voyager stock down 60
and cost them to need a bailout from sam bankman freed which has led to uh sbf as he's known in the industry bailing out a couple of other major folks in crypto he provided a 200 million credit line to voyager digital this is a canadian crypto lender uh they'll lend you money against your crypto uh and uh ftx provided a 250 million dollar credit line to block fi uh ftx is obviously sbf's company
and according to early block five investors the ftx credit line would wipe out all existing shareholders so we're starting to see the really uh onerous term sheets to keep these things alive this is of course in the face of an entire crypto collapse with many crypto coins seeing what we saw in growth stocks is this the end of crypto uh is it going to rebound again what are your thoughts
jamaat saks free burke who wants to start on crypto did you guys see the chart that i posted into the group chat that showed bitcoin activity as a function of year and value nick can you just put that up just so that we can look at that together the crazy thing about this chart when you look at it and it's pretty obvious is that we are collectively in one way shape or form basically trading up
uh ever since 2018 really with all the stimulus because if you look at you know the mean price of bitcoin of 2018 it was a nothing burger you know what we were talking about was you know a price that was sort of between a few thousand dollars two three thousand ten three thousand you know and then all of a sudden when all of the stimulus money hit the market look what happened to it
but i think something unique also happened which is that people really understood how to run these very complicated off-chain bitcoin arbs and i think we should explain what those are because those are what's behind the three arrows capital it's behind you know i think sam had this kind of um oblique tweet that said you know some of these exchanges are actually already
insolvent they're already the walking dead so the first thing to keep in mind is that you know this is a completely unregulated market right there are no middlemaker market makers per se that actually have reporting requirements to any regulatory authority there aren't any clearing houses there isn't a way for us to understand systemic risk as it builds in the crypto market
so what happened starting in 2018 and 19 is people realize the following things were true it's sort of what we talked about last week you go and do some crazy round you uh you know mark up some phantom equity in a company that company then issues tokens you then list the tokens not on you know a blockchain per se obviously but uh in a place where trades can happen off-chain right and there's a bunch of exchanges
where these things happen off-chain because it's one you know uh company and then they have a bunch of segregated sub-accounts and what happens is when these things initially get listed retail goes crazy the price goes up folks basically dump on retail um and you know you spin that loop as fast as you can and you can extract an enormous amount of money along the way all these things like d5
all of a sudden popped out of nowhere and it's like hey you can earn 15 16 17 18 just deposit the bitcoin and so folks would deposit bitcoin but then what would happen is like the places where those deposits were held but then need to obviously find places to make that 11 12 or 13 and so then they would go off chain to some other random person who was offering to pay them even more than that
and they would try to arb the difference but it all catches up with you because when something like a tara goes to zero all the bitcoin that was used to basically you know uh run that defy process around tara vanishes you know and then all of a sudden you the lender are like hey can i have my uh bitcoin back and the broker is like well actually i don't have it i lent it to somebody else let
me ask that someone else and they're like i'm sorry i don't have it but i have these tara coins you know because i was running some arb and now it went to zero and that's essentially what we're seeing right now so we have two big problems and then i think we have a third that's kind of funny the first big problem is like obviously in the absence of any regulatory oversight
this stuff is going to happen systemic risks are going to build up that's what we're facing right now is an enormous amount of systemic risk largely around bitcoin a bunch of this money i think has been essentially just vaporized and so all these people that try to find their deposits especially in custodial accounts in off-chain brokers may be sol at some point and i think
that's just going to be a huge [ __ ] show if that actually happens and to be clear chamath they don't have the keys to their own bitcoin they gave money to a custodial account they then did this lending went out to get them to 15 and they don't have any recourse here they can't get there but look at this bitcoin owners put them in a wallet and own the keys does anybody have recourse
to this three euros capital and all of this other interrelated parties that are now you know gone completely bankrupt because of this camp the answer is absolutely not so that that's the first problem you have absolutely zero oversight which means systemic risk has been built up in the system um the second thing is that exactly what you just said jason is that people don't
even understand chain of custody here which is that you thought that you owned this bitcoin it turns out you actually may not actually own them at all you thought that you were properly lending them out you actually don't there is no enforceable contract it turns out and so i think that's going to be an entire set of different legal issues that are now going to come to the service because people who actually
legitimately lent this stuff out for example like if you short a stock and you go and borrow stock from any one of us they're really tight guard rails you know if you wanted to go and put a credit derivative swap on against that there's a central clearinghouse that make sure you're not over levered you know you have to go and get audited by a bank to even get in the kind of
account that allows you to put these derivatives on none of that was possible at crypto and then the last thing which i think is kind of funny is that we've had to listen to every millennial and gen z market observer in crypto tout how this is not like boomers and they turn out to be the same i mean this is the [ __ ] of all it's like of all of the times you've had to hear how it's so different
it turns out it is entirely the same entirely entirely in fact worse the custodian issue is definitely a major one saks what do you think is happening in crypto right now the price is obviously going down a lot i don't really have a new point of view on it i'm mainly pissed off that sbf is trying to raise my taxes in california explain that sam bankman freed he runs ftx and his company he lives in the
bahamas okay and there are probably reasons for that related to liability or taxes or something like that can you tell us what what fdx does they're like a coinbase competitor but they obviously think it's beneficial to be offshore not under us jurisdiction and they're very profitable right super yeah supposedly they're super profitable i mean he's worth like 10 or 15 billion
dollars that's my understanding so he's been very successful at this i don't know why they're in the bahamas i think either they're in there for securities regulation reasons or for tax reasons but it's one of those two in any event he doesn't live in california and yet he is sponsoring a ballot initiative here that would add a 0.75 tax on incomes over 5 million to finance a
pandemic prevention institute of his design he's doing this with dustin moskovitz another billionaire doesn't know what to do with his money he was you may remember that dustin was the guy funding chase boudin in any event this would be this pandemic preventions to be governed by an unaccountable board as opposed to something like the university of california this is like them using the ballot
initiative system to fund their pet philanthropic projects i mean there's really no need for this i mean first of all this is sounds like something that should be done federally yeah exactly it's well first of all it's looking in the rear view mirror in terms of like a budgetary priority but even if you believe this was a priority i don't know why it'd be the responsibility of
california taxpayers exclusively and even if it was you'd want to do it under say the uc system some sort of accountable board as opposed to having a report to you know sam and dustin so it makes no sense and this is really going to hurt the california tax base because if you start raising taxes on you know california millionaires more of them are going to leave the state and then that tax revenue leaves the state
and so it actually hurts the general budget and that's why you know california teachers association for example opposes this is because they know that this is going to have a negative impact on core services what is well what's offensive to me is i mean so first of all this is just a stupid idea in like every possible way but what is a guy who lives in the bahamas doing funding ballot
initiatives in california to raise our taxes thereby worsening the california fiscal situation to fund his philanthropic projects if you're worth 10 billion just fund it on your own you know do it through your family foundation i don't know why you need to raise the taxes on all of us yeah that's very bizarre why is he giving well the simple answer is because i think it helps curry favor
with politicians that he needs for other things it that's why i would do it this is occurring negative favor because first of all every millionaire in california should be up in arms over this but even i'd say yeah i mean but i'd say even liberal politicians and interest groups in california like that like the teachers association don't want this because the money's not going to a cause they
support and it will probably it will almost certainly drive down the state's tax base right because people on the margins are going to leave we already have the highest taxes in the nation we're at what like 13.3 percent for the top end we have 100 billion surplus for a reason all these ipos all of these venture capitalists ceos and rank and file tech workers are just
paying massive amounts of tax here and they're leaving right but that's highly levered to capital gains right and so last year we had a boom market we now know in hindsight that it was inflated that was all driven by this liquidity bubble so do you think that's going to be the case this year i think we're due for a huge budget shortfall next year because there's going to be no capital gains
they better hold on to that 100 billion for sure the california tax base is highly leveraged to this boom bust cycle and driving the top earners out of the state is only going to worsen that impact so you know but again i question why is a guy in the baha it'd be one thing if it was just dustin doing it i guess but i don't understand why sam's taking the lead
when he's not even a california taxpayer because i think he's a very sophisticated player in not just crypto but frankly uh regulated and unregulated finance and look he i think he spends a lot of money in dc as well and i think that he has a very thoughtful game plan and then you know when you look at who his parents are his parents are really really smart thoughtful people as well two law
professors at stanford and so i suspect not knowing and having spoken to them that i think that there's a really specific strategy that these guys have around who they need to influence and what they care about and then willing to as a pass through fund those things in order to create the you know influence that he needs for the things that he cares about and i suspect that it's that
kind of worse trading which is i think it's pretty typical in u.s politics um the the question though is what will happen if ftx um has to really talk about you know everything that's actually happening in crypto crypto you know i'm sure that ftx could do a lot to help understand a lot of this off chain activity some of the you know especially the stuff that's really in the gray
especially the stuff that's going to come to light over the next few years is i mean you you have to understand guys like you know we've torched 2 trillion dollars and it's not of institutional capital you know this is overwhelmingly retail capital all of this is going to inspire a lot of uh district attorneys and doj activity the discovery is going to be bonkers and it's all going to be regulated
to the point of in which it kills a lot of the opportunity i think this is going to become the most regulated space we've got i don't know i mean i i if the goal here was to curry favor then i think sam must think there's not going to be a red wave in november because i don't think republican politicians are going to look very favorably on a guy who's using his
money to raise taxes in a state he doesn't even live all right let let's move back to the crypto piece at this point with this many retail investors well actually let me let me start with this freeberg is there a real technology here and how much of what we've just witnessed with this crypto collapse in the crypto boom bus cycle how much is this based on what you would perceive as real technology
that is going to advance the human species forward and how much of this was hype if you were to put a percentage on it you know trillions of dollars in assets you know created and then wiped out how much of this was actually real technology how much of it was complete utter waste of [ __ ] time and a grift i'm no crypto expert and i've not been an investor in crypto currencies
i read the original bitcoin white paper makes sense bitcoin itself to me makes sense as a potential uh initially was kind of interesting as a potential alternative currency but the transaction fees were very high and so it never really seemed to make sense as a replacement for traditional financial networks until those transaction fees dropped below those of the traditional financial networks
um and the biggest concern i've always had which i've mentioned multiple times on the show is that whenever anyone talks about a quote cryptocurrency they talk about the price of it in dollars and if it really is meant to be an alternative to the us dollar why are you talking about it in the price of u.s dollars and it's up and it's down relative to dollars and that implies ultimately that the
intention would be to transact back to us dollars which implies that the intent is not to be a replacement for the u.s dollar which was a lot of the early prognostication of bitcoin was it was going to be a replacement for the us dollar it's gonna be an alternative to traditional monetary systems but ultimately if you're just measuring this in dollars and it's up and it's
down everyone's freaking out every day about crypto's up cryptos down that means it really is more like a security except securities definitionally are supposed to have a secured interest in some underlying set of assets and there's no underlying asset it's not actually a security because it doesn't provide you a secured interest in anything so it is effectively a bet on some systems of
computers that are meant to facilitate some set of activities that you know ultimately people really only seem to value in us dollars so um so i i don't know i mean like where does it all go it seems like i mentioned at our predictions episode last year that all of these smaller things are going to get blown out these quote-unquote cryptocurrencies even though many of them don't really act
like a currency and you know maybe bitcoin itself persists and it seems to me like that's always going to have good staying power as an observer i'm not a participant and uh you know anytime someone telling you something's in dollars and it's going up and it's going down and you're betting on whether it's going to go up or go down and your intention is to transact back to dollars
you know and and there's no one there's these have been securities the whole time this is the problem i have with it this has been you know a shadow securities stack that was created in parallel to the existing one with a lot of you know oversight and what did we think would happen if you created a global casino with no rules other securities have an underlying interest in something this has an underlying sure
interest in some line on the blockchain of that particular network that's exact that's exactly what it does yeah it's a secured interest in a line of code in on a distributed no it's a it's it's it has a security a bitcoin has a legitimate uh non-fungible entry in a blockchain that says it and only it represents that thing and i think that that you know is is i guess the the the link
some may call it tenuous but i i mean i tend to think at this point bitcoin has to be regulated like a security even even if it is not and it's more of a commodity only because of the the volume and the sheer size of both the market and the the potential fallout is the way you're saying it right the potential fallout when things go off the rails is so great you kind of need to have some
rails yeah i mean i mean like like again as i've said like look if you're a market participant trying to trade you know very sophisticated you know derivatives of any kind for example in the credit markets we have to go and we create these things called isdas they're called vistas you know and it's basically a kind of an account that allows us to go and you know take risk in some of these very
esoteric markets but the the underlying principle around that is a common set of parameters a clearing house the ability to monitor risk none of those things exist here and i think that's really what folks have to solve for now secondarily is what were all these kind of like shadow activities you know it just it turned you know it seemed too good to be true
when you would hear wow this d5 protocol will yield you 24 and you're just like who is paying the 24 hours was it it never made sense really but then none of us really questioned it you know i you know i had people on the sweet startups i questioned it all the time and they could never explain it to me and then now the explanation was well we were giving you we were giving short-term
loans to other people who basically wanted a margin loan you know they want to they don't want they want to hold their bitcoin but that was only four or five percent what they were also doing was giving you tokens in some other cryptocurrencies uh that they were basically originating so they basically were like we'll give you four percent on your bitcoin loan somebody else will pay
that uh you'll pay that but then the other eleven percent is coming from some tokens we're giving you that actually you know you have airline miles we have to we're giving you airline we have to answer a really important question if you we've we you know look the the markets have incinerated many trillions of dollars i just saw like for example there was 1.7 trillion you know that was just torched in etfs
alone just in the since the beginning of this year right we've done that or more uh in the crypto side we've done that or more on public equities right we're probably going to do that or more in other markets but every other market is regulated and there's a full accounting of the p l's on the dollars that are won in the dollars that are lost and here some folks have just you know basically
escaped with billions and billions and billions of dollars and the bag holder is just you know a regional investor so the real question is are regulators going to actually care to try to do something because oh yeah the level of grip that's happened in this market is extreme and especially when especially when everybody was telling you no this time is different this market is completely
different it's transparent it's on chain you can see every and it turns out actually most of it was not on chain it was off-chain and they were using they were using this hey have fun being poor this like psyops to get you to participate okay boomer you don't get it gensler i was talking to kramer on cnbc here's the quote some like bitcoin and that's the only one jim i'm gonna say
because i'm not going to talk about any of those these tokens that my predecessors and others have said are a commodity um and then he said many of these crypto financial assets have the key attributes of a security aside from bitcoin he believes you know like these things are securities and that makes sense because 99 of people buying them sacks were buying them because they wanted to see them
appreciate they were never using these as utility tokens they were buying them to you know i see them appreciate and to flip them so what do you think sucks is there is there when we look back on this whole mess in 10 years is it going to be like the dot-com era where we're like yeah i got overheated but amazon and google came out of it or are we going to look at it and go well that was tool up
season well i think there is um a future technology platform here with crypto but i mean i've been saying this for the last year that just because there's a future technology platform doesn't tell you what the pricing should be and the price action got decoupled from the level of progress in the space you know you should always be looking at what is the real usage use cases
customers revenue things like that and people stopped doing that and i think part of the reason why the narrative was so powerful if you go back to last year and the chart that chamas showed about the the increase in the price of bitcoin which is really the root of everything right because you know first bitcoin appreciates and then if you think about it like ethereum is ethereum's market cap
is like a derivative of of the bitcoin market cap it's been roughly 40 and then the altcoins sort of get the market cap the all coins is sort of derivative off ethereum's market cap so the whole thing kind of moved up in in sync and the reason why bitcoin moved up so much is that as the fed kept printing more and more money you had fans of bitcoin saying look the fed is debasing
the us dollar we're gonna need an alternative currency that was a powerful narrative that the fed seemed to be vindicating and there was a positive feedback loop which is the more the fed debased the currency the more that the price of bitcoin went up now the reason the price went up was not because they were debasing the currency it was because they were creating so much liquidity
that that they created a liquidity effect that then drove up the price that and so so consumers had money that they could buy bitcoin because they were there was more money in the system yeah you created more buyers that's exactly what happened they i mean all of this idiotic you started sorry good sex yeah you saw an increase in speculative investments across the board including but unlimited crypto so
again you know when the fed prints too much money it creates asset bubbles but there's a powerful reinforcement because as the fed was printing bitcoin and supporters of bitcoin had a really great explanation for why bitcoin was going up which is they're destroying the us dollar we're gonna need an alternative soon now i think in the very very long term could bitcoin be a non-fiat
currency yes i mean i actually think the technology works you could create a a new kind of currency that's backed by math and by cryptography as opposed to fiat government but that could take a really long time i mean that could be decades in the future and but what happened is the market started thinking well that's going to happen soon and that's where it just got ahead of itself
that was the tulip part of it yeah i think that i think that they found all of these words you know written in these economic textbooks that allowed them frankly to justify what a lot of people were doing in a lot of other markets which is just straight up speculation because the money printer was going burn and you know if the if you look at this 92 correlation to the equity markets i
suspect in bitcoin and crypto is probably closer to even 100 um because it really was the furthest out on the risk curve and it just made the most sense when you thought money was you know effectively infinitely going to be available to just buy the riskiest risk assets think about the friction taken out of this chamath you could buy these you know uh cryptocurrencies so easily you could
trade them so easily you could create one so easily people were popping up forks of these things so in a way what technology has done over the last 30 or 40 years from cloud computing to software to open source has made it very easy to pop up a startup well you could pop up a currency and then you could get an incredible reward and you get this incredible reward before you actually
make a product for consumers and and absolutely zero rules in oversight no oversight yeah the feature that was touted was actually the first one to get thrown away which was transparency yeah when all of this activity was actually happening off-chain this is why you have this systemic risk issue now when sam is saying some of these exchanges are actually insolvent what
he's saying is well that exchange has one master wallet address every time you open an account and transact on such exchange you're actually just transferring between a database entry inside of that company and so it may look like it is fine but it is actually not fun that's what he's claiming this is the problem with all of this so all of this activity you know built on these principles of openness and you
know defensibility and you know you you can't inflate it and you know devaluate and debase it turned out to not even matter because the fundamental principle that would allow us to verify all of that was violated right from the get-go which was transparency all of it is happening in the dark most of this stuff is happening off-chain and if you think that you know
it's okay to torch a trillion dollars of equities well at least there's rules on the equity side but to torch two and a half trillion dollars in crypto where there are no rules it'll be really you know it'll be a very telling sign to see if these folks get their act together and by meaning regulators and politicians and do something well then we made this crazy hybrid where we had the venture
community and i'm not going to talk about any specific firm here and to be clear you know nobody knows exactly what's happening but you had coins you can't know by the way you can't know because it was happening off-chain exactly so somebody would originate a coin and i was you know offered these deals and you would as a venture capitalist be buying some equity in a company and then some amount of tokens
would be created before the token was released to the public or before anybody had insights into this these tokens were swapping around everybody had different rights some people could sell early some people could never sell and it was as if you know you took the process of going public and you gave that to a seed stage or a series a company before they launched their
product so you're taking a company public essentially before they go but if you if you subpoena they launch their product if you subpoena the exchanges all of this gets turned over yeah because the exchanges are the honeypot of off-chain activity yeah so and that's what's going to happen i think in all of this and it's going to be really funky this is and what's terrible about this is this is why the
accreditation laws exist is like oh only sophisticated people top six percent of americans are allowed to participate in private companies and what did we do we allowed a hundred percent of people on the globe to participate backed by privacy that less than a thousand people in the world actually understand that what could go wrong what could go wrong you cannot buy a stock
but you can buy this cryptographically secure you're not allowed to buy a share of linkedin or uber or airbnb even though you stayed in an airbnb we you're an airbnb host you're too stupid to buy airbnb shares when it's private but you can buy this cryptocurrency that doesn't even have a product in marketing and and here's this white paper that has you know university level pure math as the
explanation of why it nothing can go wrong and you turns out again because nobody actually understood in the first place this is going to be a decade of discussion if you look at that if you look at that price chart what it really means is like again you know we talked about this if the equity markets have to rebase and get all this qt a qe out of it yeah right and then you have to rebase for
earnings if you believe you're in a recession and then you have to rebase for margins if you believe that there's rampant inflation those three things have to happen in the equity markets we're in the midst of that yeah but that also has to happen on the crypto markets in the crypto markets and if you look at that chart what it really tells you is that the baseline price of bitcoin where things
seemed you know where rational supply and demand were beating each other before all these you know five ten thousand thirty five hundred to five thousand yeah i would say about five thousand still seventy five percent from here yeah it's twenty thousand now so yeah we got we could have ways to go one thing that i thought was an interesting sign of potentially bouncing along the bottom
zendesk has agreed to be acquired by an investor group in an all-cash transaction they're basically going private here uh for around 10.2 billion uh if you don't know zendesk is a help desk software company it's a sas software company they turned down a similar acquisition of 17 billion earlier this year their market cap is 9.1 billion in the public markets it's gone up obviously since
it's announced this was announced but um they have uh a billion three in revenue they're up 30 year-over-year so this is a strong company but the acquisition price is 7.7 times their 2021 multiple sorry did you say they're up 30 percent a year over year the revenue's revenue is up 30 year over year they have 1.5 billion dollars in cash and securities uh that are you know marketable
securities so they're cash rich small loss 223 million for the year in 2021 so they have six years of runway if nothing were to change yeah what do you make of the sacks is why would they do this they don't have to so and is this to you like the sign of a bottom if we start seeing a bunch of these companies that went public that are seemingly strong start to go private
and to go maybe clean up their balance sheet and go public again in three years what's going on here well i mean this isn't a horrible outcome and by the way i mean i remember we shared uh when i was doing yammer a decade ago we shared a floor in uh our an office building at 410 townsend with um with zendesk and they launched that techcrunch 50. yeah yeah exactly so we had i think 5
000 square feet and they had the other 5 000 square feet and we were in a standoff both of us were expanding and we needed the other half of the floor and it was like who would move first basically and anyway they ended up moving and we took over their space but so i mean look this is a company that you know was worth 100 million bucks 10 years ago so whatever it was i mean they
were still you know they were very early stage so this is still a great outcome should they have taken the 17 billion sure with 2020 hindsight that would have been better but look you're seeing the valuations here being roughly the sas index is now down to about five and a half times revenue i think next 12 months revenue for them for the media and sas company and the median sas company is growing
about 20 percent if you're a high-growth company which starts at 40 you're trading at about eight times the next 12 months revenue so zendesk is sort of in there i mean that is what they're trading for and sas founders why go why would the founders the board want to go private is the question on people's minds it's not it's not that they wanted to go private i think that they wanted to stay public and they
wanted to build a large business but this is where the law of large numbers catches up with every company that's why it's so rare to have an apple or a google or a microsoft or a facebook or netflix where you can grow for 20 years at 25 plus percent because at some point 25 growth over last year just becomes too hard of a mountain it's a big knife and so what zendesk suffered from is
what most of these sas companies not and i'm not trying to disparage them just calling it out will have to go through which is the following the easiest kind of sas company to start and the one that folks you know really talented investors like saks will fund overwhelmingly over others are what's called bottoms up sas right things that sell to the low end of the market things
that sell into you know individuals can buy them in a corporation as opposed to the cio yeah the the unfortunate part of that growth curve is that it's pretty terminal within seven to ten years and after that you're forced to go to the mid market and that eventually you're forced to go enterprise but when you go to the mid market and you're selling to 500 and you know 1 000 2 000
companies and then eventually even enterprise you're talking about massive investments of opex people engineers product managers sales people and all of that stuff costs money and it's not clear that your product is any good so in the zendesk example it's not to say their products were bad but all of a sudden they were going up and selling a crm tool sales force
automation tool and now you're going head-to-head against companies like salesforce who are going down market and all of a sudden salesforce and microsoft and all these companies can play very aggressive pricing games with their products they can bundle all kinds of other things in for free they can give you discounts and it's very hard to compete as a single individual company so your growth
starts to stall so i suspect what happened at zendesk is they said we can make it and we believe in ourselves and they found that it was hard then instead of organically growing that's when they turned down the 17 billion offer they tried to grow inorganically they looked at surveymonkey right which our friend zander runs and said we're going to try to buy that for 4.1 billion
and the market said uh-uh no and then the market basically contracts and now they're like well if we go and now torch our ebitda goals and tell the market we're going to go and spend all that billion dollars we have to try to go up against salesforce and microsoft with a product that we don't know is going to work our stock's going to be at a dollar and so i think that that's sort of the
the parade of terribles that happened for them but it's a little bit of a warning sign for how difficult it is to get big like what salesforce pulled off right and what workday is starting to pull off what service now has pulled off i mean it you can't underestimate the quality of this i mean google apple facebook you know i'm saying i'm saying specifically enterprise yes those
companies service now probably being the last one that's really did it incredible so difficult palo alto networks is probably the next closest one now salesforce acquisitions right salesforce doesn't matter how you get there organically and organically it doesn't matter the point is it's very hard most ceos fail nobody so is this going but okay so my original question is is
this the bouncing along the bottom moment because we have peloton buzzfeed well this is a warning sign that says you cannot go into a massive investment cycle for all companies unless you can prove that you can sustain margins sustain growth and minimize opex but isn't this a very sophisticated buyer taking it private they must have a thesis of how they're going to get their money back
right so that's my point is sexy you think that this is like if the company's already public and somebody thinks hey you know if i take this private i can do better than if it's public and i'll reintroduce it to the public markets to get liquidity later isn't that what's going to happen here in all likelihood you're making that statement in the absence of understanding how these things are
financed well it's got a billion five and it's and it's break even almost so okay what about the what about the billions of dollars of debt they're going to take out and slab on this company right what about the number of people they make you're talking about post going private at the end of the day the private equity firms are not trying to make you know this 10 billion dollars go to
25. they're trying to make the 2 billion of equity they put in go to three and there's a lot of ways that two can go to three before 10 goes to 25. so they want a modest return 50 return it's a lot it's making a billion dollars it's hard yeah but but compared to the management team and the board's view of being a public company and growing 20 a year or actually in their case 30 wouldn't that be a better
opportunity for those shareholders that's what doesn't add up here saks what do you think if i had to guess i mean i haven't talked to mikel about why they're doing it i think that they're operating at a new stage of the business i don't think it's as fun to be growing a company at call it 20 to 30 a year and all of a sudden you have to generate cash flow and you're being valued on
that i mean they're passionate so management is your thesis i don't know i mean it seems a potential visas i think that's basically why people sell good businesses like i actually don't think there's a problem in their business i think that growing 30 a year with 1.3 billion in revenue plenty of cash in the bank i think they have a good product i don't think there's anything wrong with the
business yeah i think that that i do think founders get burned out and this is an exit and i do think that the phase of their business they're in right now is not going to be as fun as the high growth phase look when you're growing 100 200 a year and investors are willing to fund that growth and they don't really care if you're profitable that is just more fun than growing a business 20 to 30 a year
and investors are breathing down your neck saying when are you going to deliver cash flow and what the private equity guys do is they're going to go in there and they're going to restructure the business to deliver cash flow now i think ultimately these types of businesses they're great these software businesses they're great businesses to own because they're high gross margin
and you know they've got a subscription base that just keeps growing organically if they've got positive net dollar retention so you've got a let's call it a 1.3 billion dollar subscription base that will grow to 2 billion over the next whatever half dozen years and quite frankly i bet you the private equity guys are going to take out half the cost structure there's no reason this thing can be
generating 500 million a year in free cash flow but the management team would be unwilling to do that because it would suck it kind of sucks to do that every day to come in and fire half the team that you hired and take that hard medicine it just is a bummer for that personality type i think it is a different kind of management challenge and yeah i don't think that's fun and
but look the thesis behind software companies the justification for them burning money was look we're gonna we're gonna spend every dollar in revenue that we make and then some because we're building a subscription revenue base that again has positive net dollar retention so one day okay one day we won't have to keep investing so much in sales and marketing we won't have to
keep investing so much in r d we'll still keep investing to some degree we'll make the product better but it's going to be a little bit more maintenance mode we will get to maturity and then you can lay off a third of the staff and all of a sudden and then and then all of a sudden the company's gonna be super profitable and the fact of the matter is is that day never came because
the markets never demanded it now that day is here no no hold on it never came because the markets kept demanding more growth if you look at their long-term operating margins you know when they first beca when they first came out public it like had like a negative 30 margin two years later they had a negative 50 margin and over the last seven years so that was 2015 up to now they've crawled
their way back to negative 13 so at some point i think investors said oh my gosh this company has never made money it needs to keep investing more in order to grow and i think david to your point may be the decision that he didn't want to make was to flip it to a cash cow i don't think that's true i looked at um these guys have been generating cash their reported gap earnings are negative
because of the stock-based comp expense meaning that they're issuing well there's a big topic to discuss here and i think that's actually worth highlighting because this is an important one because people have been talking about this considerably lately so this company's been making money every quarter they generate cash but in the last quarter they issued 60 million dollars in stock
to employees to compensate them for the work that they do so that's 250 million roughly of dollars per year of stock based comp which is two and a half percent of the total shares outstanding in the company are issued as employee comp every year that number results in a dilutive effect to shareholders over time even though the business is generating cash your relative ownership as a shareholder in a
business that's generating cash is going down by two and a half percent every year because of all the new shares that are being issued to compensate employees for the work that they're doing and i think that's part of the issue that a lot of folks kind of have taken for granted this was well rooted in i would say probably google who became very generous very early on with issuing
rsu's and stock in their publicly traded securities to employees as part of their compensation package but google has a 30 40 ebitda margin in terms of incremental contribution of new revenue and um they can afford to take a point or two of dilution google by the way is actually not dilutive they they buy back shares with their extra cash so as a shareholder you actually benefit
from this considerable cash generation but a lot of uh software businesses and tech companies in general have had to rely on issuing shares to compensate employees for the work that they do so even though the core fundamental of the business is generating cash and cash is going up every year the business doesn't know how to get out of this cycle of how do you pay these engineers 400 000 a
year without diluting shareholders by issuing all these new shares every year and you'd have to do that more likely as a private company to figure out how to consolidate earnings how to trim head count and actually get the thing to generate the cash it has to generate but free book isn't that a real like you're pretending like it's some fake cost yeah it's not it's it's a real cost it's
a cost to shareholders for sure but why but why why the asterisks well no there's a specific reason because the business itself operates running out of cash it's not burning cash the business is growing its cash balance but in order to compensate employees for that cash balance they're diluting you the shareholder right i look when you own a share of a company okay which by the way is another way of
saying that the company is effectively issuing two and a half percent new stock every year to fund its operations i mean that's another way to think about it look i'll give you the warren buffett goal you can tell me that it's stupid but it kind of makes sense which is you take the number of shares you own you divide it by the total number of shares outstanding you look at the total profits
and you say my look through earnings equals that percentage times the total profits yeah and your percentage is going down every year with stock based comp that's so cool and so the question is it's also going down because you're buying real estate you're hiring people you're paying them more like it's going down for a whole host of reasons that asterix is an irrelevant asterisk in my
opinion like at the end of the day you spend money to grow how you spend the money is not that important to me let me say two two quick things on the topic one is um yeah i totally agree it's an expense yeah on on enterprise software and saks you're you're the the the master of the art but um you know as an observer it seems to me that many of these companies once you have an enterprise account
you benefit from being able to cross sell new products into that account and you can grow this net revenue retention number over time and ultimately generate cash many of the big enterprise software companies that we've talked about from salesforce to workday and others have succeeded in doing that autodesk is another good example and carl bass i think is on the board of zendesk they've
done um they've done this successfully by bulking up their product categories and they're they've done acquisitions or they've done build outs and so over time your incremental cost to uh just to sell a new product and generate um incremental growth profit goes down and the business performs better with scale this seems to be one of those businesses where ultimately they
couldn't bulk up through acquisition and they couldn't organically product and they tried and so the challenge is they're kind of a i don't want to say a one-trick pony but the portfolio of things that a business like this can sell into and ultimately increment gross profit is very limited and that business becomes challenging to operate as a public company because you really do have to show that momentum as
a scaled enterprise software business that you're actually generating real cash over time the other thing i just want to say on stock based comp and sorry sex i'll come back here one sec but chamath and you guys i don't know if you realize this but the standard in silicon valley today um when a company goes public in an ipo is to have what's called an evergreen stock grant proposal
and evergreen basically means that every year the company is authorized the board automatically authorizes the issuance of some percentage of new shares per year this is typically in the range of four percent and iss and other you know kind of institutional shareholder advisory services actually vote against these shareholder proposals and push back against them but most of the companies
in silicon valley that go public automatically include evergreens as part of their you know kind of ipo prospectus i mean can we agree on control like it's yeah every year they can they can dilute shareholders by four percent and independent of how the business operated that year which is effectively the same as doing a four percent secondary cash offering every year because it's this
you're issuing those shares into the public market and instead of getting cash you're paying your employees with them and so it avoids you having to use your own cash balance to pay your employees so you're effectively raising money every year and you're allowed to raise up to four percent dilutive effect to shareholders to do that every year and it's become a real topic and it
seems to me that a lot of the big portfolio managers of big institutional funds are starting to pay really close attention to this quote-unquote standard in silicon valley that stock-based comp expense has become so high and evergreens have become kind of a standard as almost like an ordinary course of business and it's become um you know a really contentious topic and
i don't think it would be too surprising number one to see cash salaries go up and number two as a result of that to see salaries become rationalized in silicon valley where engineers may start to get challenged on the standard 400k per year that everyone's become used to um you know in terms of you know high tier uh you know remote work maybe there is a a compromise that could be had but this
compensation you have to remember has been outrageous in some cases especially for senior management and so it makes the core business look broken but what you actually have is maybe people who are on these boards are also in on this compensation and it's just bad hygiene and it's not related to the performance of the company right i don't think i don't think the board people are quote in on
it i think that's it's just it's you have to pay an engineer 400k a year to compete effectively in silicon valley today i was talking more about the managements the managements.com the managements.com is different than the engineers you would agree for very like there have been some enormous stock grants yeah yeah certainly if you want to run the company as a high growth startup with employing these high paid
engineers and executives including stock compensation that is a certain kind of way of running the business but again if you're trying to run the business for profitability that's a different way of running the business and just to add a layer to what happened here that zendesk was under intense pressure from an activist investor called janna who is basically trying to replace the
board of directors they're running a proxy battle against them so janna has been pressuring them to replace the board to to make all these changes that to take the 17 billion offer i guess back in march they didn't do it now they did a lower offer at 10 billion why i think because the market has clarified we now it's it's clearer that we're in this regime change what
the market is valuing is free cash flow as opposed to profitless growth and my guess is again without having talked to mikkel my guess is they probably just threw up their arm and said listen you know like it's not going to be fun to run the company this way but you also have to you have to ask the question why are these highly sophisticated private equity firms buying it for 10 billion i
think they're going to make a lot of money and the way they're going to make a lot of money more than a billion yeah they are going to slash the hell out of the cost structure they're going to run it to be highly profitable they'll probably bring the growth down from 30 a year to 20 or 15 but the benefit the offsetting benefit to reducing the growth a little bit will
be they could probably generate three four 500 million of free cash flow on that business if it's doing 1.3 billion and they stop investing in r d and they stop and they bring down the sales and marketing that could be a that could be a cash cow like you said so i think that's probably what's what's going on here um is that i just want you guys to know not to burst this bubble but when people talk
about free cash flow they touted a lot tech companies touted a lot because you're allowed to add back in stock based comp as if it didn't exist the problem is that stock based comp is non-cash so when when you're only source so if you see a company that has negative ebitda negative everything all of a sudden are like quote unquote free cash flow positive it's because they were able to add back
in stock based comp but that money is not real so when the only source of free cash is stock based comp that free cash flow doesn't reflect the company's true profitability this is what i mean by people play these shell games with these numbers to allow you know oh let's you know value something based on ebitda actually no because you know our stock based comp is off the charts let's
actually go to something else you know we'll do a non-gaap ebitda measure you know you know adjusted ebitda and then oh actually wait sorry look at free cash flow because you can add back in this gargantuan amount of stock base comp i mean it's crazy i'll just the quote from community we work the the the quote from warren buffett summarizes the best if compensation isn't an expense
what is it and if real and recurring expenses don't belong in the calculation of earnings where in the world do they belong i think what we're seeing right my point is is not that comp isn't an expense it is but rather that it's an expense that you can control by reducing the amount of staff no i guess i think these private equity guys are going to basically whack the cost
structure of this this i'm just saying you can distort free cash flow as well because you can cut back in stock based comp it's a joke it's a little bit of a shell game going on it's like the dirty secrets let me ask you a a like an important investing accounting question let's say that a business like um zendesk is generating 100 million dollars of free cash a year i don't know what does that mean well
hold on so every year their cash balance goes up by a hundred million dollars they have a business it generates 100 million dollars of incremental cash every year the cash balance goes up so you as a shareholder own shares in a company that is creating 100 million dollars of cap of incremental capital per year however your shares that you own are going down because they're getting
diluted every year by roughly two and a half three percent and that's it's two and a half percent of zendesk's actual number so every year you're getting diluted by two and a half percent would you rather have a business that you are getting diluted by two and a half percent but it's incrementing its overall balance by a hundred million dollars or would you rather own shares
in a company that's burning cash each year and i think that's where this ended up from a market perspective getting rationalized his shareholders said i want to have the safety and security of cash generation and i'm willing to take on the delusion for it and that's how this became you know as standard as it is when i think about funding a new startup and i look at the competitive landscape
when i see that the competitors have all been acquired by private equity companies i generally think okay there's room for innovation here because i know that the first thing the pe firms are gonna do when they acquire a company is like zero out r d or just put the product on maintenance mode there's no innovation that happens yep with the product once the pe firms buy that buy it right so
the reality is i think so those are good targets for startups acquisitions right sex i mean they'll find something yeah they'll they'll do roll-ups right because it's they will do financial innovation they will innovate the the structure cut all the wasteful spending and all the nonsense and lunches yeah exactly once like cut out all the kind bars yeah the kind of exposed brick walls like all
this nonsense who do you think is a vegas trip yeah this stock based compensation is going to go away because they're going to get rid of all the high price engineers they're going to get rid of the a lot of the high price executives they're going to probably they're going to have to keep customer support they're going to increase cash salaries probably they'll bonus people they'll just do
bonuses for hitting targets instead of giving people as much equity in the business and they'll run it like a you know private equity type type play sex it's not fun it's not interesting to me right yeah i mean we're gonna see it's not like you're building this product i think david the other reason why it wouldn't be fun is like it's a it's a level of financial engineering
which is highly sophisticated i think for some people it is fun i think for us it's less fun because you're not necessarily creating any company per se not innovative you're not being a product person you're yeah but i would say that it is highly sophisticated and the folks that do it at these places that these private equity firms are incredibly they're very good at it savvy
at how they do it um and it's it's all the twists and turns of how you you know lever this up and use debt and blah and use a margin loan and pre-fund the com i mean and it's not the stuff that necessarily we want to be thinking about but that's what you would have to do as well i totally agree with that look i'm i'm happy they exist in the ecosystem because we need firms we need more exits
right and we know that right now in washington the the regulatory regime is very difficult it's very hard to get deals through so at least you have private equity firms that are providing some exits and we need the ecosystem needs and those eggs that you're saying sacks don't trigger like com competitive concerns with lena khan and her group right like yeah she's like some private equity firm took this
private okay salesforce didn't buy it so we don't need to get through regulators right you're going to see a lot we need exits in order to justify the risk capital that goes in at the earliest stages which in most cases going to be a zero and just to give you some other numbers out there manscaped which is a company sells razors for guys uh they had 315 million in net loss in 2021 with
310 million in stock based com by the way that number can also be distorted just to be clear if you give a one-time big grant to an executive like a ceo yeah the way that the accounting works on stock based comp it's not the kind of thing you can have a very simple kind of descriptor on but you can have these very significant short-term costs associated with a big grant that could
vest over a long period of time sure with that that has very high strike prices i mean when elon got that massive grant at tesla the stock based comp expense was significant but yeah but you know what the interesting way into it it was that was there were 20 targets or something crazy like that and all of them were based or a lot of them were based on the stock price and the
delivery of cars so that's one of the things that i think is broken yeah yeah so this is one of the things that's broken in silicon valley is that the comp in the stock based comp is not tied to performance it's like just giving people guaranteed salaries in fact i was going to say jason i could be wrong like there is more sophistication to be clear in executive comp and public
uh technology coverage i think that should trickle down to the junior people too i think everybody should rise and fall with the company's performance that's my personal feeling i mean this is the problem with entitlements you know and people being entitled to sorry to be like a red pelt here but we should have like performance should be lauded and compensated for not just showing up and
hanging out there's going to be a bunch of companies in this position so look for this as a trend peloton 964 million last quarter in revenue lost 757 million in the quarter they have a 3.1 billion market cap they've only got 879 million dollars worth of cash i'm just looking at these numbers hopefully they're they're tight um and they have a billion for an inventory that company's going to get taken out uh
buzzfeed i don't know why that even went public they're down 84 percent they had 91 million dollar media company 91 million dollars in q1 revenue they lost 45 million their market cap is down to 210 million and they've only got 74 million in cash or so with some you know maybe 100 million in accounts receivable so there's a bunch of companies right now that are public that are
about to hit in a couple of quarters running out of cash going into a recession are we going to see some big flame outs do you think and are you watching specific companies because the private equity folks must be salivating watching this well i mean look jacob you asked what the takeaway was around this and i think the takeaway is there's been a regime change in the public markets the way
that investors look at these companies is changing it's not about growth at all costs anymore they're not just looking at revenues it's also about margins and cash flow and you know we talked about in the last pod how i think a lot of founders understand intellectually that we're headed for a downturn if not a recession but they weren't taking the medicine
of basically reducing their burn well this is an indication of what investors are valuing if the only way for zendesk to create value as a public company is to sell to a private equity firm who's going to have the staff is going to cut off or some huge number of staff to run it for free cash flow that's just an indication of the regime change so you know we need founders to start
internalizing this information so they can run their businesses more efficiently you know what investors want right now they still want growth but they want it with low burn high burn operations are going to get punished i've transitioned most of my public markets time to focus on debt um and i've been looking at these companies because yeah because there's a lot of these really interesting tech
companies with a lot of because what david said i think is a hundred thousand percent right what saks just said there is a massive massive regime change here and yeah and shockingly if you don't take the medicine yeah and and what's funny is like so many of these companies have been left for dead but what is really juicy is the few companies that you think will survive and specifically making sure you're
protected in the capital structure which means to own the debt because the debt is always senior to the equity and there are some really really interesting companies out there that are in that situation and it's just like it's a much better risk reward in a moment where again you know we talked about this but why would you give up your liquidity today i don't know the answer
why why let's go around yeah you've used this term jason before like skipping along the bottom i just think it's like psychological wishful thinking as opposed to sort of like a rational summation of the actual jerome powell just said i will tank the economy in order to beat inflation he just said it in the wall street journal uh but people believe inflation might be
turning over do you buy that or not no as i've said i think you're gonna see eight and nine percent inflation prints for at least the next three or four months minimum i think that things could get um marginally better after that but i think the thing we don't know and again it just touches and i don't care what the [ __ ] audience thinks touches russia and ukraine so sorry to bring up politics but none
of these things are inexorably intertwined and if people want to go and venture and gamble in the stock market you might as well understand this because i think you know many of the scenarios will trade because of what's going to happen with putin let me ask the question here how many quarters will this recession be if we had to pick a range pick a two quarter range
i'm thinking three to five what what do you think i have no idea okay freeburg you gotta if this is the second how many quarters plus or minus two let's say uh is this recession gonna be so five plus or minus two four plus or minus two plus or minus one what are you thinking will be the bottom out point i don't like the term i've told you guys i don't like the term quote recession as if it's some absolute
negative thing i mean negative gdp growth coming off of inflated gdp doesn't feel to me as uh systemically challenging to the economy as uh you know but some other circumstance where for example there was a global financial crisis or uh 911 or some other kind of factor that that drove things uh that that really affected the core economy certainly we hadn't we had something
that that affected the core economy and coveted then we had massive stimulus so i i don't i think there's this unfortunate general characterization of quote-unquote recession being an absolute negative and i think that there's relative growth and if you're if your relative growth is negative off of an inflated number but over okay let me give you let me let me just finish but over a historic two
or three year period you're still growing the economy considerably because jobs uh jobs are growing and production is growing uh it's not as negative as it's being made out to be so i i'm not gonna okay i get you get into let me let me ask you this way then how many more quarters will we have of stocks and real estate and assets declining in value or being flat that's a financial markets question which i
think that's a different one and one thing i've realized is that financial markets in the short term uh you know the old warren buffett quote or whoever it is that over the long term equities are a weighing machine in the short term they're a voting machine as we've seen with crypto it was a voting machine that everyone voted on the hot thing to your and now everyone's voting against it so
i i don't know they're weighing it now yeah well yeah i mean at some point there's nothing there you hold a cryptocurrency long enough you'll find out how much fundamental productive value it's grading and the same is true for owning businesses or other real assets you'll find out over the long run how much productive value they're creating so so you don't want to answer the question of
when we hit a floor okay saks when do you think we hit are we are we hitting a floor now we have a lot more to go down i'll tell you one point of view i am looking at buying high quality share businesses buying shares of high quality businesses right now okay i think that there are things that are that are cheaply priced if i own them for a long enough period of time the underlying
productive value of that business will return my capital to me and so you have one that you might want to mention here that you're looking at i don't because you don't want to share some stock tips at the summit with our friend uh sonny he's his trades are up but like i told him these are longer-term trades what do you think in terms of and then we'll go to some of the political stuff
that affects markets after this well i mean i think it's all related so there's three things going on here right now economically or three underlying causes one is rate expectations have changed massively interest rates have gone up and rate expectations are going up even more fueled by inflation and until we see where we're at on inflation whether that gets controlled that issue is not
going away the second big issue is economic slowdown the recession so the first one is wall street this is main street and these two things are related because companies are slamming on the brakes because they're seeing that the capital availability is greatly getting reduced by this re-rating this regime change in markets so we're seeing an economic slowdown that threatens to turn
into a recession and consumer confidence is part of that right when your wages don't buy you as much because food and gas prices are through the roof that reduces consumer confidence and that also plays into that so that's the second big issue and i don't think we're going to know about recession it's going to take you know potentially through the rest of the year before we
figure out what's happening there and then the third part of this is the overhang of this war in europe the ukraine war which is now threatening to become a forever war there was a pretty stunning article in the washington post this week in which the administration officials were quoted as saying that they would effectively prefer or countenance was their word a global
recession and famine over letting russia keep the donbass region so they are committed now to basically prying russia out of the dawn bass even if it means global recession not to mention they say specifically the donbass or specifically standing up to putin because that's kind of minimizing what we're talking about is is the donbass region what's happened is look the russians lost the first few weeks of the
war in which they tried to strike they they basically went for a knockout blow to take over keeve topple zielinski i think we accomplished something in preventing that but since then they have achieved their objective of taking over this eastern portion of the country this donbass region in which this is where most of the ethnic russians live and these ukrainian separatists who are ethnically russian
they've been fighting alongside the russian troops and the russians have basically won that part of the war and so the question is what do we do now and what you had is you had administration officials saying that they would not accept the status quo that they are willing to fight on for years you know the same geniuses who gave us the forever wars of the middle east are
now giving us a forever war in eastern europe and they are saying they are willing to basically continue this fight even if it means global recession now i don't think the american people ever voted for this but this is what the administration is pursuing and you know you've got to remember that there's always the risk that this war spins out of control that we get a nuclear escalation
so i think that this is a huge overhang on markets it's the third big problem that we have so i don't see how we get out of this bear market until you get clarity and resolution of inflation and rates number one slow down to recession number two and basically this war in europe number three and it's reflexive because uh these next three months as i as i kind of indicated last week i think we're gonna
see inflation uh prints that are really high in part because things like rents which haven't you know which are on a lag will get folded back in so we're going to be printing eight and nine percent and then guess what jason it's the fall it starts to get colder you know uh russia's depriving europe of nat gas um where's the oil gonna come from opec is basically still stiff-arming the united
states with respect to expanded production capacity why because they didn't like the way that we were strong-arming them and a whole bunch of other topics is in it you know and so where do we stand you could have 180 barrel oil by november december when it's cold not just here but in continental europe now all of a sudden inflation gets kicks right back up again
it could be seven eight nine percent again i saw i just think all of these things are now so inexorably intertwined i think david's right we need to put this war to bed and the unfortunate consequence is that right now if we want to fight a proxy war there is no elegant off-ramp that i see so the prediction markets just so people know are predicting 0.8.9 uh additional inflation in june overall
and i think that's over last month and last month was 8.6 so we're gonna be at nine and a half jason could you imagine what the markets do if we print a double digit inflation print ten and a half percent 10.1 just the psychology of that uh well consumer psychology is really low right now no not consumer psychology i'm thinking market psychology no market too yeah so we put those two things
together and then if this war is never ending and the famine that um and the impact on 40 million people or something like that that freeberg predicted is actually going to happen in the next six months this is gonna feel quite chaotic to people around the world so we we do need to put this work to bed for sure there's no deal on the table right now but the deal that we've talked about on
previous shows there was always the broad construct here even before the war began was there were three pieces to it number one was that that ukraine had to remain a neutral state as opposed to being brought into nato and having american troops weapons and bases on russia's border that was always a red line to them and in exchange for neutrality ukraine would get security
guarantees piece number two was that in the eastern region where you had these russians these russian speakers that their rights would be respected and that they would have some autonomy and again that was something that ukraine agreed to under the minsk accords but it was never properly implemented and the third piece was that russia got to keep crimea which again
was a fatal complete that happened in 2014. smart observers of this conflict have been outlining that three-point plan for over a year and that is what we're going to end up with the only difference is that it's going to be implemented by force and ukraine will be destroyed in the process that is basically where we're at right now russia has they've taken over the donbass they've
taken over this eastern 20 of the country they have crimea and ukraine basically the the rest of it will not be part of nato that is basically what the russians have done is implement by force a plan that frankly we could have agreed to through negotiation a year ago and avoided all this death and destruction my my council is maybe i mean we don't know putin's intent and that's that's the wild card
here he is a bit of a madman i mean he's pretty much of a wild card here he's a dictator who invaded another country yeah my my calculus is slightly different i think i see two things in order to get us back to a state of relatively predictable growth and price stability number one is we need to reset supply and demand by taking 30 trillion dollars out of global markets
and then the second is we need an off ramp to this ukraine russia war so that there is predictable energy and food supply to the world so that folks can just get back to what they do best and if those two things can happen then the markets will have found the bottom um but until those two things happen in my opinion and by the way the first thing doesn't actually have to happen entirely
you just need to see a path for it and you know we're the only one that's doing quantitative tightening right now the ecb hasn't even started taking all this crazy money out you know i don't know when the bank of england is going to do it when is you know the bank of japan going to do it so this has to be a global coordinated effort before we find the bottom and this war has to stop well
can i go back to this uh unpredictable mad men narrative jason yeah look if we're in the translator yes if what you're trying to say here is that putin bears moral culpability and moral responsibility the blood is on his hands for this war i agree with you on that okay however this could you how could you not i mean he's the person who invaded yeah right but but just like
there but right but the idea that this war was unpredictable or could not have been predicted is simply false because many experts did predict it and they did tell us exactly what's going to happen and the reason they knew was going to happen is because russia has been saying since at least 2008 when there was this bucharest summit and nato declared its intent to bring ukraine into nato the russians been
saying that is a red line and russia experts biden's own cia director a guy named bill burns he was then our emissary to russia and he wrote a memo to then secretary of state condoleezza rice and what he said is that the idea of bringing expanding nato to ukraine was a red line for the entire russian elite not just putin so uh and if you go back and look about what other russian
leaders said about nato expansion gorbachev said it was a humiliation to russia yeltsin was against it they've all been against it and so bill burns warned in 2008 this was a red line and the russians been saying this since 2008. and they were saying it all of last year if you go look at contemporaneous headlines describing the tensions between the us and russia this is the headlines of
articles that can provide to nick we can put on the screen they were saying this was an absolute red line for them so the idea that this conflict was unpredictable because pune is a madman listen you can call him a dictator we can also predict highly predictable yeah okay and you know what's also highly predictable is that china considers you know taiwan or renegade you know um
province like yes dictators you know uh will tell us what they're gonna do the question is does the free world want to stand up to dictators and so while you know uh it's messy to stand up to a dictator the west you know kind of doesn't have a choice to stand up to dictators or else they will roll into other countries history has shown that so as messy as this is and as terrible as it is for the economy
i do think that we have to stand up to dictators there are plenty of dictators where we work with by they're not invading other countries they're not invading other countries and that that's the difference here saks you're giving putin a bit of a pass here he invaded the country we must stand up to dictators who invade other countries well look what you're saying i don't
mean just america i mean the free world yeah well look look where you've got us then with this policy you and the people we could have avoided yeah because you are basically spouting this this nonsense that look the question is stand up to dictators who invade other countries i think you would agree that's a good idea let him talk let us discuss okay freeburg okay listen there's no question that russia has been
the aggressor but the question is why did they do this you don't really have a theory on that jason except that you believe that on february 24th putin woke up and went nuts that's basically your explanation no that's not for what's happening in the world no it's a debated we know it's a debated region we know that they've had this conflict for a long time okay so we could just sit here on the pod many
times every every president from bill clinton to obama who has dealt with putin has written largely the same account of him in their memoirs which is look they know that he's a thug they know that he's a dictator however he always said they always said he's very businesslike he's very direct he told them what their issues were okay putin was very direct he and biden had a
summit in june of last year the russians been very direct your attempt to bring ukraine into nato is a red line for us why it's a violation of our security interests the idea of bringing a country into nato it has huge security externalities for them by the way we understand this in other contexts we understand that in the context of cuban missile crisis we didn't say that
cuba had the right to join any military alliance that it chose to because we wouldn't be able to sleep as well as at night if cuba had nukes pointed at us with a first try capability we've had this conversation yes should sweden and finland be invited into nato i would table that issue until the war is over i don't know why we need to basically deal with that right now but listen we don't even have to go back to
the cuban missile crisis right now okay there's a country called the solomon islands about 3 000 miles off the australian coast they entered into a deal with china's security deal and the u.s has been up in arms about that so you know and the reason is we don't want china extending its footprint in asia okay so we treat that deal as having a security externality for us and
yet we refused last year to recognize that there would be any security externality for russia if we brought ukraine into nato the russians were abundantly clear about what they needed so my point is this conversation on the podium yes my point is this that this war was easily avoidable through the use of diplomacy the administration chose you believe that you don't know that you believe
that you don't know that you don't even try it we've never even tried it you don't know that it's worse than that jason because here's what happened after the june 16th summit in geneva between putin and biden last year okay putin tells biden to his face this is a red line as they've always said so what does the administration do not only do they not negotiate with the russians they invite zilinski to the
white house on september 1st of last year we talked about that and then on november 10th they published a massive 10-year charter agreement this was a huge finger in the eye to the russians and on the heels of that november 10th charter agreement the russians basically delivered an ultimatum to the u.s demanding a written guarantee that ukraine not joined nato and then in
january blinken was tasked with negotiating with lavrov and blinken said there has been no change there will be no change nato's door is open it will remain open this administration was incredibly stubborn they were absolutely refused to use diplomacy to defuse the crisis now you say well we can't know what would have done well but the point is they never tried
is the ukraine a sovereign country yeah they are but do they get to pick what they do in their fate look this idea that they're doing they get to pick their fate as a sovereign country i think you would agree yes okay well here's the question is you're what you're trying to do and is is create a doctrine okay you're trying to create a new doctrine that a country gets to join whatever
security alliance they want whatever military alliance they want that is not a doctrine we believe in when it comes to the solomon islands it's not a doctrine we believe in with respect to cuba and the cuban missile crisis and the fact the matter is is that the nations of the world are engaged in security competition and the re and if if a country like ukraine joins a new
military alliance that has huge externalities and so we do not believe in that doctrine jason this is a doctrine that did not exist until february wait we don't believe more people should be able to join nato while sweden we clearly believe that but this this doctrine that the countries of the world should be able to join whatever military alliance they want that is not a that is not we do not
practice that doctrine that is not advantageous cuba and then more recently the solomon islands okay yeah i mean listen i i i'm not saying this war is not a mess all wars tend to be a mess i'm not saying we shouldn't try to resolve it with everything we have i do think the people of the ukraine and you know get to pick their fate and i am in surprise and i am in support of the of nato being
stronger and stronger and i'm in favor of isolating putin uh you know and using diplomacy as the primary tactic to do that and making sure he doesn't run over countries because he won't stop at one i think that's the the big question i think is will he stop at one do you think he'll stop at one country history has proven he won't you just are you okay with stopping him listen
you you just said that you want to use diplomacy is the primary tactic okay so we agree on that the question is what you're willing to give up because the administration was not willing to engage on the key russian concern which is the admission let me ask you about ukraine into nato do you think russia will stop with ukraine or don bess do you think that's actually the stopping point for
putin listen i think there's a few ways to come at that question one is to ask what is the motivation which is very hard to know because it's inside putin's head okay so the second is what are their interests and the third is what are their capabilities the capabilities question is pretty easy to answer i mean they have had a very hard time winning this war they've won
this eastern region of the dawn bass because i think why is that one why did they have a hard time well because their military capabilities are obviously not as great as people thought and ukraine got a lot of weapons from the west from nato exactly so this idea listen i've said it before the eu's gdp is 10 times greater than russia's and you know economic strength is the foundation for military strength
moreover we've seen that these nato weapons are incredible the us's weaponry i mean it's so you're in support of providing weapons to ukraine nato the eu the european countries i'm not in favor of creating a forever war in eastern europe that is none of what's in the cards but the question is jason you just said that we have to isolate putin we have to deprive him of any of any
positive outcome from this war no no no we have to stop him from invading countries that's right we stop him from invading more countries he's not going to invade nato countries because he's so outmatched well not nato but i mean there's a lot of countries that are not in nato so i mean i think that's the thing but i mean listen we discussed this a million times here
we'll i think we both agree we want the war to end i think we might just the question is what are you willing to do to end the war and you know my my point is this that the question is what is putin willing to do in terms of starting wars innovating other countries and what does the west have to do to react to that you know i think that's what we're talking about here we didn't start this war you know
but anyway let's move on i think well hold on we have started this war but we failed to prevent it through the use of diplomacy that's always been my point yeah i think this war i think that's normal i think this war was easily preventable if we had listened and engaged in diplomacy easily yes okay yes i'm not sure that's what let me just tell you right now the deal that would end this war is the same deal
that was on the table last year with zero bloodshed which is ukraine remains a neutral state there's autonomy for the russian speakers in the dawn bass and crimea basically remains part of russia that was the deal that is the deal that will be the deal the only question is does the whole country have to be destroyed all right well we're going to find out in the coming months and does
the world have to go through a global recession and famine these are big questions uh yeah it's not the sacrifice it takes to stand up to dictators is very significant and especially ones with nuclear bombs and it will be even worse with taiwan i mean if we think that this is difficult can you imagine this kind of escalation with a capable adversary if russia is not super capable and their weapons
turned out to not be as strong my god what would taiwan look like did you guys read this story where um it was the deputy foreign minister got demoted and there was all this um speculation like why did he get demoted and one of the things that came out was that you know he was very very pro-russia and and she is not and g is not and g was is much more hedged and moderate and yeah you know
wanted to have more optionality and felt that he was cornered because i think there was some what was the quote i mean nick you can pull it but it was something about like you know the the strength between basically china and russia is infinite but that was that was a quote that he said that was a little bit off the reservation it seems and so yeah this kind of defense yeah yeah yeah
yeah you know it's an important story as well i mean and you know it's one of the things that we can look at what's happening in these political situations i think we probably have 50 60 70 of the information not even not even really quick tell us what's going on in alpha fold world sultan of science there was a paper published about two weeks ago in the journal science it's actually
an important paper because it used alpha fold to do some really important work and the work is to actually create a 3d structure 3d model of the nuclear pore complex and that nuclear pore complex is really the scaffolding that makes up the nucleus of a cell so all eukaryotes you know all plants and animals have a nucleus in our cells and the nucleus holds the dna and the big question fredberg's internet
connection is getting bored [Laughter] sharks just let him finish his sentence did it break up oh yeah you're fine keep going you're internet connection because it was so boring what you're talking about keep going so what does this mean in terms of well hold on so um so what this team did and this is a the problem that's uh kind of been around for decades is we've never really
understood what the physical structure of the nucleus in a cell looks like and this is important because the physical structure regulates how molecules get into and out of the nucleus and how dna is expressed and how the rna that comes out of the dna goes into the rest of the cell and this regulates so much of human health in fact it's been shown and demonstrated that dysfunction
in the nuclear pores or the nuclear pore complex in the cell can lead to things like viral infection brain injury cancers cardiovascular disease many diseases their underlying driver may result from dysfunction in the transmission of molecules into and out of the nucleus of the cell and so scientists have always tried to figure out what does that transport mechanism look like what does that
infrastructure look like and um so for the first time and scientists have published theories on this and they've shown using x-ray imaging you know some theory around what these complexes look like and what this team at harvard did that they published two weeks ago is a really groundbreaking extremely detailed view of the entire nuclear comp nuclear pore complex around the nucleus of the cell
by combining both x-ray imaging and alpha fold and so what they did is they took the predicted physical structure of those proteins from alpha fold and use that to construct a sample of what the you know the nuclear pore complex looks how do they know it's accurate and so using this x-ray imaging they've been able to kind of verify some of the assumptions alpha fold yields and now
they've created this 3d model and this 3d model now gives and by the way just to think about this physically what it means like for a second the nuclear pore complex think about it as like a fence like a spherical fence that sits around the nucleus and some parts of that fence open and close some parts are static and the way that certain things open and close and what
can fit through them and how they fit through and how stuff gets stuck is really important to understand as a way to both understand the underlying cause of diseases like cancer but also how we can create therapeutics and how we can target specific things that we can fix and how we can get molecules into the nucleus of the cell to regulate dna expression and edit the dna inside that's mind-blowing so wait
if i were to translate this from nerd you basically alpha fold predicted no i'm being sincere there's a map here that we were not able to see through x-rays and through you know phys physics but alpha photo predicted some of that and filled in the gaps so now we have the map has been filmed that's a great that's a great way to describe it and so now we have this incredibly detailed 3d
image and nick can share the images on our youtube stream here of what the nuclear pore complex looks like and how each of those pores work how do they open and close what's the structure of them this isn't simply like a circle this is like all these weird tentacles and little things sticking out and that can help us predict what molecules get stuck and how one error in one of those proteins can
cause things to get stopped like a cancer or something like that yeah how this can cause certain dna to be overexpressed or underexpressed causing things like cancer so we're going to live forever a whole new area of research in medicine gene therapy and new things that we can think about targeting to fix a lot of these underlying diseases and so this was a groundbreaking paper incredible
what's the name of the paper can we just get the name of the paper so people can google it we'll put it in the show notes as well uh it's been an amazing episode yeah so it's a team out of harvard we'll send the link in the in the show note structure of cytoplasmic ring of nuclear pore complex by integrative cryo em and alpha fold uh terrible naming not for
the general audience no no it's okay saks is printing it out right right now and he's going to use it uh for his his uh new kittens i just want to highlight you know because we talked about alpha fold i think last year or the year before and how it was going to open up all these new areas of race here we are a year later incredible example of how alpha fold's been used to solve this
really misunderstood or never really well understood aspect of biology that is that the root cause of so much of disease and creates all this opportunity for medicine and therapeutics research and discovery all right um this is good it's great it's great to see this breakthrough sorry we didn't get to january 6 or roe v wade we'll get to those the next episode no no no no listen i think roe v
wade i'm not sure there's uh i mean i should do something about the reactions but we did a pretty thorough episode folks really want us to double click we double clicked with two of the most popular constitutional experts in the space when it first got leaked so please go and watch yeah or listen to that all right we'll put it in the show notes it'll be in the show notes for everybody and
we'll see you all next time bye bye bye bye bye love you so [Music] david much and it said we open source it to the fans 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] we need to get mercy's [Music]