how mad is saks going to get when he sees my button situation today i'm going to join you how you doing oh my god look at the collar situation look at the button situation look at that oh this is fantastic oh hey besties so just got off the lake where the lake
it's got the lake yeah i was just on the lake the boat lake cuomo where where were you i was doing a little wakeboarding tahoe yeah still wakeboarding me and suck me and that took all five kids and we navigated the entire island of sardinia for eight days amazing
and by when you say we navigated you mean the crew navigated and you ate seafood yeah it took a village [Music] [Music] all right everybody welcome to episode 91 episode 91 of the all-in podcast yeah we're still here uh lots of news to discuss this week with me of course to
chop it up from his deposition room uh the war room the rain man himself david sacks how you doing brother big week for you they're all big weeks we're all big weeks yeah you look tired well we're recording pretty early today it's a little exhausting you actually look really tired
what are you talking about just got off the lake i feel fresh i was just wakeboarding this morning on lake tahoe i feel refreshed i'm refreshed uh and of course in front of his uh nine dollar clip art uh that he blew up on easyprince.org the sultan of science
himself david freeburg how are you sir always great to be with you jay cal are you working it boosts my self-esteem and my morale to be with you every morning that we get to connect over zoom well i'm glad that your performance has been stratospheric the last three weeks
you're going on a hot streak let's see if you can continue it on episode 91. and missing many buttons this week we've got at least a three or four button august going how are you doing uh dictator uh from your island the remote island did you you invaded an island markets go up
another five percent and one more button comes undone oh i love it so this is 20 percent up and we could go to 25. that's a [ __ ] daddy's back the more bullish he gets on the market the more he unbuttons daddy's back so all the low rise jeans on right now or are you wearing shorts what are
you wearing show us those sticklers i'm wearing these beautiful linen shorts can you stand up and show us yeah come on give us a 360. come on let's see but these are the most beautiful inner thigh inner thigh that's a little too much thigh yeah that's like a chicken wing you guys like
this it looks tight too very tight are you yeah those are definitely yours are you wearing like a children's size or something is that a junior sign i like you know i like the tighter sizes you do i do like the tighter sizes i think they uh they they personal body type
accentuate all the little bumps and nodules too much information all right let's start with um there's a lot to talk about this week i think one of the most interesting things last week we were talking about it in the group chat that doesn't exist
uh vision funds 21 billion dollar investment loss for the quarter masayoshi-san did a really great youtube video i sent it roger any of you guys watch the video yes no okay it's it's really interesting to watch we'll put it in the show notes it's like a six minute interview he put
on his earnings page right like right when they put out quarterly earnings he's like here's my interview yeah you know he comes to a podium and basically talks about uh the vision fund obviously if people don't know the vision fund one was a hundred billion dollars the largest venture fund ever
raised um and softbank's current market cap is 66 billion here's the quote from the ft article sun said on monday that softbank would now subject itself to dramatic cost-cutting exercise uh after a 59 billion dollar investment gain at the two vision funds almost
completely reverse over the past six months they were up almost 60 billion dollars at the peak and it came crashing down masa kicked off the presentation showing portraits of togugawa tokugawa gawa yasu this is the founding shogun of japan's uh tokugawa suganat and uh
you rule japan for six i mean i'm killing this such a long intro god it's so hard yeah i mean but it was just so great let me just play a clip for you here here's a 68 second clip and we'll talk about it right after and then we'll get into what all this means this is a portrait of tokugawa he
actually made a big loss against takeda shingen and came back in the background of that tokugawa yes which is much much larger army than theirs and most of the allies actually said this is gonna be the losing battle so that they should not go for it but actually it's better to stay at the
castle however tokugawa didn't want to lose his face so that he get out from the castle had a battle made a complete loss and suffered and came back and actually learned lesson he tried to remember and remind his own learnings and put it into this drawing so since
the foundation of softbank group i made two consecutive quotas loss so previous quota in this time quota consecutively we made three trillion yen develop the loss so in total six trillion yen those was made in the past six months so i believe i need to remind that myself
pretty spectacular loss and then he he goes on to take some q a and this is the i guess the killer quote when we were turning out big profits i became somewhat delirious and looking back at myself i am quite embarrassed and remorseful you remember of course and he complained a little bit
in the in this whole thing about how there was a giant bubble without ever recognizing that he kind of created the bubble with a four billion dollar check uh to we work at a 47 billion dollar evaluation after a 20-minute meeting with adam newman this chart is pretty incredible this is
the net income quarterly essentially you can think of softbank as like a holding company of a bunch of different assets including alibaba previously uber and all of this vision fun stuff 97 decrease in terms of deployment of capital so if you look at
capital deployment as well nobody ever put this much money to work especially in privates this second chart if you look in q1 of 2021 they put 20 billion into work and then q1 this year they're putting 600 million to work just quick reflections on this what we
saw here with masayoshi-san deploying 100 billion at the top of the market into and it's basically creating the market tops are there lessons here uh or takeaways for you i mean i think that people don't seem to understand that if you're gonna attempt to be great there are going to
be moments where you look the exact opposite of great you know the guy that takes the final shot is the same guy that can miss the final shot and here is a guy over his you know 50-year career has had some huge ups and downs this is also the same guy that found a way
to rip in 25 or 30 million dollars and made 125 billion off of alibaba that's the same kind of person who has that kind of risk tolerance he was for seven minutes or something the richest person in the world and then lost 99 of his wealth in the dot-com bubble
i have enormous respect for a person like this because i feel like it takes enormous amounts of courage i've said this before most people jibber jabber about investing and all of this stuff and when push comes to shove they crumble like little [ __ ] and run into mommy's coattails
it's hard to put lots of money to work and this is a guy that's done it so the same person that can make 125 billion turns out is the same person that can lose 30 billion and so one thing is i would just keep in mind that this is a resilient guy who seems to land on his feet
and the second thing that nobody talks about is how smart saudi arabia and abu dhabi were in how they structured the investment into the vision fund because half more than half their investment is in preferred equity which is effectively debt that pays a coupon
and you see it now where softbank by the way who has been pretty smart in how they've managed their alibaba position have been using these derivatives and forward swaps to be able to sell and manage their liquidity so it turns out that you know even if the vision fund breaks even
saudi arabia and abu dhabi will have made money because i think they get paid a six percent coupon on you know 50 billion dollars is a lot of money over six seven eight nine years it's a lot softbank has found a way to sell down 25 of alibaba which is no trivial feat for a half a trillion dollar company
and this guy gets to keep swinging and if he you know hits it one more time he'll end up with half a trillion this chart is pretty great um saks if you look at this this is the gain and loss on investments at the vision fund uh you can see the first vision fund raising up
uh then coming down i think after that summer of ipos that we had in the airbnb uber days and then a huge peak run up in 2021 and then coming crashing down apparently he wasn't selling uh any portion of this that to me was a big lesson of like maybe pairing some of these winners if
it sold 10 or 20 percent on the way up this could look like a completely different outcome uh but i agree with him off he he swung for the fences and there was downside protection built in for the lps into some of these sacks what are your thoughts any lessons here
in terms of the impact on our overall ecosystem or that you can take as a capital allocator yourself well uh jason i think mossa did something you could never do which is admit a mistake oh here we go wow personal quick well would i have my first mistake i'm certainly willing to admit it i'm
waiting imagine that you ran 100 billion for sovereigns instead of a hundred thousand for doctors and kind dentists you can kind of put yourself you can put yourself in moss's position yeah oh i love saks in the morning saks in the morning's like a hot cup of coffee
he's up early that's the big lesson here you make sex go to a 9 a.m wow you know look i think that softbank obviously made some decisions that were you know they were they were sort of peak decisions um they were they were a little bit bubbly they didn't take chips
off the table and they probably should have it's easy to fall into these bubbles because the psychology of it is so powerful and as you know bill gurley's pointed out these bull markets are more like a sawtooth which is they gradually go up for 9 10 11 12 years and then when they
end they just you know it's like an elevator going down so you know if the market had continued for another couple of years mazda probably would have made a lot of money but in any event look he took responsibility for the losses this was a very you sort of culturally
japanese speech i mean he didn't commit supoku at the end but it was kind of the direction they might move the camera off oh my god what is he doing with that sword it was the verbal equivalent basically and uh look he took responsibility what else can you do
now one thing i would quibble about is the idea that that softbank caused this bubble um you know it wasn't just softbank we had tons of tigers tiger had huge funds they were deploying very quickly but there was a lot of so-called tourist money basically money
from crossover funds investors who are not primarily vcs came into the ecosystem over the last few years and a lot of that was driven by sovereigns and by liquidity so you know you can't forget that we had 10 trillion dollars of liquidity pumped into the system over the last couple of years and many
billions of that found its way into the tech ecosystem and fundamentally you know vc is not that scalable there there was an attempt to make it scalable there's an attempt to push more money into vc why isn't it scalable why isn't it scalable because people have tried right this is
it is scalable it's just that if you try to scale it your returns will go to zero yeah that's kind of the same thing right like i wanna i wanna just critique the strategy for a second because um you know we're talking about as if market conditions cause these massive write
downs and that is the only reason that these funds have suffered but you know if you read a lot of the stories of masa's investments in a number of these companies and the full list is available and how much he invested there are many many stories and
i've heard many of them personally from ceos that have met with masa and raise money from him you go into masa you tell some the bigger the story you tell the more excited he gets the more of the world you can capture and you go and you're raising 100 million dollars he's like i'll invest
400 million you say you're raising 25 million he's like i want to give you 150 million and um his his motivation was always give you more capital so you can go capture the market and the problem in that model is that by giving you so much money capital becomes your primary asset as a
business and capital needs to be the fuel that enables your assets as a business to accelerate but as soon as capital itself becomes your primary asset the business is doomed to fail and that's a really key point if you let's say and let me let me be very specific about what i
mean let's say you have a direct to consumer business that requires online marketing and your your business grows well you spend 100 to acquire a customer suddenly someone says here's a billion dollars to spend on acquiring customers as soon as you have to start deploying a billion dollars
your cost of acquisition goes up the number of customers per dollar spent goes down and the business itself starts to look upside down and fail and that's what happened with a number of these businesses that masa put in and he put oversized checks in wework is a really
well documented example in terms of what happened when they started to accelerate their growth beyond the natural course of the business because of the amount of capital that they took it really started to hurt the fundamental profitability in unit economics of the core assets of the
business and um this strategy theoretically can work to a degree but masa took it to a level that had not been seen before i think i i highlighted for you guys like back in 2011 i think when andres and horowitz they pitched me on this idea i was
trying to raise 25 million dollars in my company mark was like we'll give you 40 million dollars you can accelerate your growth and he's like we want you to go capture the market and peter thiel always use these terms go capture the market and these um and blitz scaling
and blitz scale again reid hoffman with blitz scaling and the motivation is look we'll give you more money because the the core asset of the business works the core assets to the business work so the money should be more fuel for the fire the problem is if you over indulge if
you put too much money in and the the asset cannot handle that much capital the whole thing collapses yeah i would say so many documented examples of this in his portfolio and i think that the strategy is worth highlighting that there are some issues with that strategy across all these
business categories it doesn't always work right the core issue here i think is and then i'll i'll go to you saxon the core issue here that you're describing is exactly correct and it really is up to the founder to decide what they're going to do with that capital the wework example is so
instructive because they were buying under market uh buildings in the in the tenderloin and then marking them up to you know class a office space and getting those prices once they got the masa money he started buying class a and offering it at class b prices and flipped the whole business upside down
rate at which you can deploy capital does not flex right and so in all businesses understanding the rate at which you can deploy capital to grow is critical to understand how much capital you can raise and then if you raise too much money and you and you flex beyond
what the natural condition of the business is in terms of capital deployment the economics fall apart and the business itself looks terrible and eventually you will have a right down and the distraction on the founder is the key i mean look what adam newman he
was easily distracted he started buying surf machines and companies and starting kindergarten because you can't naturally deploy that much capital so you find unnatural ways to deploy let me build on that point i think there was a belief on the part of softbank that they
did publicly espouse which is that they could be the king maker totally and in fact you know we had some startups that were in competitive markets and softbank would basically announce that we're going to be anointing we're going to be picking a winner anointing a winner and
writing them a huge check and everyone kind of had to play along because if your competitor got that 100 or 500 million dollar check then you would be presumably way behind so there was this belief that they could be a king maker and make the difference and i think that
what we saw is that for whatever reason partly because of the dynamics that freebie's talking about that that strategy just didn't really work that well and what it really goes down to is that vcs can be helpful but they don't ultimately uh cause the the the winning companies
to be the winner um so this idea that you could be a king maker i think was a little bit flawed i think one way that tiger actually improved on this model was that they never tried to be a king maker they just they actually went the other direction which is we're going to
own less your company they tried to be passive non-dilutive capital and they would do high price rounds but you know with with reasonably sized checks but they didn't try to go for 25 30 ownership at a late stage and founders did like that model better now as it
turned out they both had the market timing wrong but i think this king maker aspect was was a problem and one other aspect of that i think is that and i don't want to beat up on softbank too much i'll see something nice about them in a second but i think one of the
mistakes they made is you'd see them writing multi-hundred million dollar checks into companies that were at a very very early stage free product market fed pre-product market for companies frankly that we thought were like seed investments brandless was the perfect example they were it was a it
was a company that made like soaps and dishwashers and cereal but they had no brand on it was like uniqlo of this and they gave them i think 200 million dollars and i was like this is a seed stage company makes no sense right right they were i mean look they wrote like
500 million dollar seat checks into robotics companies effectively and it's because that you know the softbank had a thesis and i think sometimes if again this goes back to kingmaker if if you're a vc and you think you're the one with the thesis and you're the one
who's going to make the difference it's actually a seductive fallacy to fall into it's the founder who has the thesis and you can't you can only do so much to help and you can't really force it and so i think they ended up making some cutting some really big checks into some
companies that were really risky and you know the way that we do growth investing is that you know it's milestone based we're writing that the size of the check is proportional to the amount of proof that the company has and and look the nice thing i'll say about softbank is
recently we've actually done some sas deals with them that i think are some really good deals and they've written checks that i think are appropriate to the size of the of the company and the amount of proof they have and they've been really easy to work with and i look
forward to doing more deals with them but i think it would behoove them to do more deals like that where again check size is related to proof i think that softbank in hindsight made one critical critical error and only one and everything else was sort of affected
complete with that one error which is that in their fund documents they made this a 10-year fund now let me explain why is that an error that is the status quo for all these funds and the more nuanced part of that decision to make it a 10-year fund is that your investment period is only five
years so you're only allowed to put the money in for the first five and then you have to basically manage the portfolio because there's an expectation that you raise a new fund so if all of a sudden you have a hundred billion dollars in a five-year investing
life the math says oh my gosh okay well i need to put 20 billion out per year and then you try to look for i don't know let's say 50 companies a year while the mean check size now all of a sudden balloons to 400 million that was the error you see afterwards the very very smart private equity folks
who saw that that was the error fixed it so blackstone silver lake when they came on the heels of softbank what they did was they raised funds with a 15 and 20 year life and what that allows them to do and what what it would have allowed masa to do in this situation was just
slow it way way down pace yourself and do fewer deals with much more capital and then be patient and say i'm going to have a 10-year investing life and i think that that would have saved them and they would have looked incredible right now because they would
be the king maker in a moment where there is no money flowing into venture an early stage tech so in my opinion i think it was just that it was such an ambitious feat that when it came time to execute whoever was really in charge of those details kind of [ __ ] it up and
they should have realized the math didn't work for a five-year fund life and they should have made it a 10-year frontline or 10-year investment life which would have put a 20-year fund life on the thing and i think they would have been fun yeah i mean if you look at it as 60
months maybe you take out august and like the holidays you got basically 50 months to deploy 100 100 billion it's 2 billion a month 500 million a week i mean how do you even process that many deals it's impossible the quality of the diligence by by necessity has to go to zero
yeah it's it was a crazy strategy if you can breathe you get money if you can get a meeting you get the money i mean basically i mean and and if they had just i i'll say if there's there was one sorry this one would be good no and it forces you to have a team that
is so broad and large and diffuse that is not this game this is another thing i would love to you know for us to talk about correct correct investing has never will never and is not ever a team sport okay it is like basketball you can be on a team but you are steph curry or you are
not steph curry you are draymond green or you're not draymond green you are lebron james or you're not there are j.r smith's on a team they're tristan thompson's on a team and you come together and the team can win a championship but there are these exceptional
individuals yes and the firms that have really done well consistently over decades embrace that philosophy benchmark sequoia you know these guys don't try to create this team-oriented glad-handing approach but they also don't allow the teams to get so diffused that there's 500 people
running around ripping money in because you basically then return the beta of the market and if the market doesn't look good in that vintage then all of your returns look pretty crappy the lesson for me in all of this is i think we talk about writing your winners on
the show that came from just so people understand when we said ride your winners and it's famously in the in the opening song here what we were talking about was like don't sell your entire position like when sequoia sold their entire apple position or other people have done but
pairing your position would have changed this whole story if he had paired 10 20 percent of some of these names that were breaking out i disagree with that too along the way oh why go ahead because that's the dumb i think that's the world i think the opposite he would have had
it up a year ago sequoia just put out an entire document and a roadmap for becoming an evergreen fund but and i read that document and what i thought to myself is all of this looks incredible unless the market goes down and then a market and then the market went way way down
why because their whole thesis is we're going to park and hold money well okay but they also allowed a revolving liquidity mechanism for their lps every year you know you're a cancer foundation and you want to fund cancer research and you expect sequoia to give you back
money you fill out a form and sequoia basically fronts you the money well excuse me but you can see how all of a sudden this can very quickly get out of control because then where does sequoia get that money they'll have to borrow it or liquidate some positions
but the whole point is to not liquidate positions this is what they said yeah so my point is i really think and david said this before i think that vc's job is to be a vc it's hard enough to do that job well and if you think that you're going to cascade across all asset classes and do
better than the market it's an extremely high bar that creates tremendous pressure and forces you to bring things on like debt and all of these leverage lines which when markets go up will work in your favor but can very quickly turn against you yeah i disagree completely because when if you
look at when you're in a private company and you're you own some private shares you know the revenue you know the velocity you know the management team you have more insights than everybody you got a massive information edge because it's all based on insider
information before it's public and pairing your positions in privates uh can be amazing because you have some overvalued company because someone like masa or tiger comes along that overvalues it so for venture funds i think when you start hitting these 50 100 x's pairing 10
pairing 20 along the way which masa could have done and these private names especially would have been brilliant you're saying don't distribute and just hold on and use data and give people give your lps them on liquidity no no no i'm saying if you have the opportunity to sell in secondary
you should pair your position in your winners 10 or 20 two or three times i'm not saying that i'm saying that this would be a different position but like you're using soft you're using apple and sequoia as an example you do remember the trajectory of apple
basically went to a 4 billion market cap for years languishing i mean the idea that sequoia would have held those shares because they had some proprietary views ludicrous why is you can see the youtube videos when steve jobs came back he said uh we may not make it yes but chamath that in that
that is part of the opportunity but putting that aside that's exactly what sequoia is doing is they're saying we want to hold the legendary companies the legendary brands with the great founders before it's all easy in hindsight how do you do it today well is unity a legendary company or should
you have distributed 165 dollars a share well i'm such an extremely hard question and i'm saying you can mitigate that question by pairing your position 10 20 percent so you have the best of both worlds what do you think well i think it's it's hard to pair down a position
while the company's still private because the companies don't don't want you to by and large but but once they do become public then the question is when you distribute and we talked about this i think it sounds like sophing was sitting on quite a few large public positions
and could have distributed i'm not fully familiar with their structure but given that they had all this debt seems like you'd want to pay off all the debt uh as soon as you could and missing every year i think it's like three or four billion dollars it's well it's
documented but that's the six percent that they that they were owed on their 50 billion dollars but did they pay it off well you have to get paid every year yeah so they did it i mean look i would just say these bubble it's it's easy you know hindsight's 20 20. it's really easy
to point out these mistakes after the markets cratered you know my experience with these bubbles whether you go back to 1999 or 2021 is when you're in them they're very powerful psychologically you know everyone's talking about how everything's going up and we i think
actually had some really good commentary on the show about back in november about how it could be the peak how it could be all liquidity fueled uh we didn't know for sure but there were some pretty good predictions on this pod but by and large it's it's pretty hard to to know whether
you're you know whether is there a grounding metric that you use i'll open up to freeberg and then everybody else when to know that the market is overheated free burgers there's something you look at and go okay we've disconnected from reality price to earnings price the sales
some valuation metrics are the things you look for so you know that this is overheated and maybe it is time to pair positions uh what what have you learned over now our third collective uh down market valuation trophy hunting i would say is a pretty good indicator
of things being things being um explain what that is in a heated market like if the the businesses the ceo the founder the venture firms everyone is all about how much you can mark up your investment as opposed to talking about the quality of the business and the quality of the
earnings and then you revert back as we just recently did to now people talking about okay uh how strong are the gross margins of this business how effectively can they deploy capital what's the return on invested capital key metrics around the fundamentals of the business versus
the value that the market is willing to pay for the business and the more heated the market gets the more everyone focuses on terms like unicorn decacorn you know and that becomes the key metric as opposed to saying this business is so good for every dollar they spend they make
three dollars in gross profit in 12 months that's what fundamentally says that's a high quality grow you know a valuable business over time as opposed to here's what the market is telling me it's worth today and if the market is telling you it's worth that much today
and you're and that's what you focus on you inevitably end up in these kind of bubbly moments where you miss out on focusing on core value creation which will actually pay off much much more over time jamaf you pointed out another signal um hey when smart people
who have the largest amount of capital in the markets are clearing positions uh maybe that's a signal of a top and then i think it's a really good insight by freeberg when the conversation the narrative is about the valuation and the status and vanity metrics as opposed to the quality of the
earnings hey that's a really good indicator we're in a bubble maybe you should start clearing positions what are indications for you that we're either in a bubble or the market is undervalued because we're really talking about this timing right timing is very important
it's not possible this is why i think that you have to define what game you want to play before you start playing the game okay this is why i think it's kind of nonsensical for example i believe that at best i am an equity investor in technology companies or things that
have a technology bias because i can generally understand them maybe you know a few seconds faster than everybody else which allows me to make a decision a little bit quicker but if all of a sudden i started investing in debt you should expect that i'll lose my money
because i don't know what i'm doing and that's not the game where i have any advantage so i think the most important thing to do is to not try to do all of this crazy stuff because this is what happens in moments where either things are very very good or things are very very bad
people try to create all these stupid rules and the rule their only rule is there are no rules so i don't know i just think it's like stick to your knitting if you're a product builder build products if you're an early stage investor just do that it's hard enough to do any one of those
things really really really well but this idea that you know you're going to come up with like some mosaic in a system i think it's just highly suspect and i think the market returns have showed that everybody that tries has failed except for maybe one or two
seconds i mean it's just not gonna work what's the point so i don't know if you're an early stage investor make good deals and then give the shares and book the win that's what i do yeah that's my philosophy um saks what are your thoughts there's a couple of metrics that i'll be looking
at from now on that i wasn't paying a huge amount of attention to before one is the price to arr of the median public sas company and so like brad gerstner has these great charts where you saw that historically that number was around six you know the median sas company was was trading at
about six times the next 12 months revenue and it went all the way to 15 during this sort of covet bubble in 2021 and for the high-growth sas companies which are the ones growing forty percent said twenty percent it went from you know like eight to thirty five
so um so i'll definitely be looking at that and you know what you're looking for is just how off the historical mean are we positively or negatively because these public valuations are the exit comps for you know the private markets and those valuations do eventually trickle down
and so if there is a bubble in the public markets it will trickle down to the private market so that would be like one metric i mean again it's not something that like affects me daily but it's something i'd want to periodically keep tabs on the other is just interest
rate policy i mean i've never spent so much time in my entire career like looking at inflation and interest rates that i have this year because who knew how much this stuff was affecting us i thought i was a micro investor i thought i was just picking
companies on a micro level as it turns out we were all massively impacted by macroeconomic policy and you know it got so we didn't even notice it the zero the zero interest rate policy the zerp along with the quantitative easing these are supposed to be exceptional measures that started
back in 2008 but we stopped noticing them they continued for years and years and years they continued until last year and we again we just stopped noticing because we got used to it we kind of got hooked on hooked on drugs so the market did um so i'm just gonna have to pay a little
bit more attention to what the fed is doing now and you know if you go all the way back to the dot com bubble what's interesting is that the fed funds rate back in 1999 wasn't low it was like four percent um it wasn't like it was even today and we still had a bubble but what popped
the bubble was that interest rates went from four to six percent in from 1999 to 2000 that's what popped the bubble so you know i i don't i don't know if we'll ever have a situation again like we had over the last years with the zerp but um i mean that probably looking for
that next time is fighting the last battle instead of the next one but you do probably have to be a little bit more aware of monetary policy and what the fed is doing yeah this chart um exhibit six from the vision fund benchmarking against pure funds that chamath just put into the
group chat is absolutely spectacular it puts sequoia insight and softbank you know large large funds uh against each other fund size 100 billion for softbank eight billion for sequoia 6.3 billion for insight and 2 months point earlier the pace is yeah really crazy 130 deals meals per
month but then the average check size is 620 million versus 130 and 70. and the deals per month 3.5 versus 0.6 versus 4.2 so insight going pretty fast with small checks soft bank going very fast data here huge tax is really you know sequoia has the benefit of being able to back
test against 40 years of returns and so if essentially what they're saying is there's really no more than five or six companies a year that are worth investing in that's a really big signal that's worth thinking about and so you know five or six companies maybe
they can absorb even 600 million dollars each you know it still puts you at three and a half four billion dollars doesn't put you back twenty which is what you need to put a hundred into the ground and two billion a month i mean my lord it's like brewster's millions or
something it's it's like some crazy i think in fairness to in fairness to softbank again you know these are the same guys that invested in yahoo they invested in all of these you know com companies and brought them into japan including great businesses like cisco you know these
guys have been big time serial winners i think the tactical mistake was not having a 10-year investment life i mean and we could be sitting here next year alibaba could double in value a couple of their other positions could recover 50 percent okay but we could be sitting there and
they could be they could have closed the gap massively anything's possible i think actually a good jump off point here uh great discussion gentlemen do we want to talk about the markets and we got the inflation print uh sax i guess depending on what political party you're in it's either 8.5 or zero
zero percent month over month uh if you're a democrat if you're republican it's eight point five percent in our uh polarized times uh but what does this tell us uh saks just at least about maybe inflation is tipped over and we're going to be flat for a little bit that
obviously caused the market to rip a little bit and we had this incredible jobs report we're now at 3.5 percent unemployment and we have twice as many jobs as we predicted i mean it's pretty extraordinary what happened in the last 30 days to the to these uh prints yeah
look i think that overall the economic data is mixed uh but we got a couple of good data points in the last month so inflation did decrease from 9.1 to 8.5 percent inflation was until now measured on a year-over-year basis not a month-over-month basis but since we got
the first good month-over-month reading all of a sudden now it's been redefined to be on a month-over-month basis just this is the same thing that happened with the definition of recession where recession used to mean two quarters of negative gdp growth
of course that happened and so all of a sudden the definition became unknowable we have to defer to this this economic board that won't render a decision until next year by the way if that were true how can we ever contemporaneously talk about a recession you know if if you had to wait until
this economic support declares a recession a year from now the press could never have ever reported for one recession yeah i'm shocked politics politicians of this are obvious which is they keep redefining terms rather than admit that there's any bad data at all
now look i don't i don't think the data is catastrophic i don't i don't think i don't think it's in anyone's interest to catastrophize the data but there's a lot of negative data out here i mean look inflation is still very high eight and a half percent if you had told any of us
that in august that inflation would still be a half eight and a half percent the beginning of this year we would have said that is horrible because remember the investment banks were all saying it's gonna come down to three percent by the end of the year
so inflation is still high the jobs picture is good um we're technically in a recession i if i were to predict i think what's gonna happen now i think you know look for a double dip i wouldn't be surprised at all if in q3 or q4 we're back to positive gdp growth but i don't think
we're actually out of the woods because i think there's a pretty good chance that next year these and these rate hikes really kick in it takes six to nine months for them to ripple through the economy so if you look at the construction industry the construction industry's just been
devastated new housing starts you talk to the builders they tell you that the construction industry has just been clobbered by these rate hikes the inventories are piling up and the affordability of there's a chart today about the affordability of home prices at a 40-year low and so
the construction industry it's really the bellwether when a recession starts they're the ones who are first impacted but it's probably going to take six to nine months because the loans are so expensive and cost of capital is expensive right you can't start new projects yeah so
look i if i had to i think we're in a shallow technical recession right now i bet that we probably bounce out of it in q3 or q4 but i think there's a significant risk that we're back in we're back in it next year just my guess free break we've been talking about
consumer credit a whole bunch buy now pay later um household debt now totals more than 16 trillion credit card balances uh make up 890 billion of that obviously student loans mortgages other things are in there and the number of credit cards uh is now at a massive high
550 million of them issued here in the united states uh we added a massive amount of debt uh it's still lower the the credit card debt just to be clear is still lower than the free pandemic level of 930 billion but consumers seem to be taking out credit i guess to deal with
inflation or to enjoy their lives because they're not stopping their spending uh and we see that in some of the stocks and the earnings reports that are coming out as well so what's your what's your take on this you know conflicting data we have or is or have you made some
sense of it and and what is your prediction of q4 sorry are you asking what my take is on the consumer credit well basically the overall macro situation here we've got consumer credit you know people taking on a lot of debt while jobs look great while inflation is still high what does
that look like you know as we go into q4 and next year what what is this telling you is there some signaling you can take from this sac said shallow recession thinks we might double dip i'm kind of getting to your prediction of q4 i mean this is a little bit repetitive i mean i've said
this i first said it in may at the all in summit and i said it again on the show twice great which is i think that the definition of a recession of negative gdp growth when you're coming off of inflated gdp is you know it's not a binary catch-all term i mean
the fact is we had uh inflated assets and as a result of inflated assets we had inflated earnings and we had inflated valuation and we inflated income and you know now the capital's coming out and things are going to go down inevitably but i don't think that this
should be deemed that there's something fundamentally negative about the u.s economy the biggest risk i still see is this rising consumer credit balance particularly in a rising rate environment people are taking on more debt if you look at the new york fed here i'll just give you the latest
this is the household debt and credit report they put out household debt rises to 16 trillion dollars amid growth in housing and on housing balances and so there are variable rate loans in there in the auto home and credit card markets those variable rates mean that as interest
rates climb the amount to service existing debt will go up each month and the amount of debt that's being taken on is also going up each month and so the key economic question is does the income gain that's being experienced or the asset value gain that's being
experienced outpace the increase in um monthly debt service needed for a large number of consumers student loans are also in here by the way and so when you put that all together um it's a it's a very technical question which is technically where do you start
to see defaults rise and when you have defaults rise then the money that's owed and the services that are the service payments that are owed on that debt trickles through the economy because bonds start to default um equities start to decline and so on so um you know i this is why i can speak
at a high level from a macro point of view that the rate at which debt is going up and consumer credit is going up and the rate at which rates are climbing that affect the revolving and variable rate um debt that consumers hold could outpace the income and the asset value gain
particularly when equities are down 401ks are down housing prices are down and so there's a tipping point and when that starts to happen then you start to really hit um an economic crunch and i've mentioned this multiple times now that it's the thing you know i
would kind of watch most closely while there are core elements of the current economy that look strong um there are uh real uh concerns around whether consumers can keep up with their debt payments uh in the monthly quarters ahead yeah chamath are you following
this consumer credit uh surge and do you think that this could be a black swan type event this could be you know um because it's right here in front of us so you know okay yeah yeah i would say like a massive contagion where there's massive number of defaults creating a black swan
contagion-like event but yes so it's it's not it's maybe hidden in plain sight what do you think jamaat is this important data uh or impacting your view on things yeah i think it's important it's part of a mosaic and i i don't i don't really know look what are we trying to get from this
discussion i don't understand like like are we trying to predict what's going to happen i mean i think david basically said it best like if you actually just take a step back and stop overlaying what we want to happen look the reality is all four of us want things to go up
and we like it when there's money in the system and everything's flush but if we had said last year that we would open an envelope and you know we would show these inflation prints we would be shocked and we would have been scared and quite honestly you know in
the process in november when i started selling i would have sold even more violently than i sold and all i can say is i saved my ass in november of last year looking at what's happened in the last six eight months so i don't know i just think that if you look at the cpi print
and you look at the components we were saved because energy basically fell off a cliff and for whatever reason a bunch of people decided not to travel and you know we didn't import as much oil and we were able to keep cost contained and that kept cpi from being really out of control
but again we're in the summer where we don't have the pressure on energy that we're going to have in october november this year so i i really don't know i mean i just think that there is like freeberg has his pet issue i have my pet issue saks has his pet issue you ask a hundred
economists they'll have their own pet issue housing affordability whatever it is the point is we have a hundred whack-a-mole problems and the question is which mouse trap sets off the rest of the mousetraps i have no idea um and so you know i just think that right
now things are a little bit too calm and that makes me feel very unsettled another shoe might drop i mean the point of the conversation is to try to understand and make better decisions in capital allocation company formation and placing bets in the next year so that i
think that's the point of the discussion we now have the spectacle of the president saying he's going to pass an inflation reduction act to solve a zero percent inflation problem to get us out of a recession that he says doesn't exist you guys know this but the the politics and the
political commentary on this are absurd i think what we're describing here is to simply more honest which is to say that the data is mixed so we don't exactly know what's going to happen yeah i mean the thing that i think is encouraging is when you look at this jobs data and you look at the
debt that consumers are putting on my theory is and i could be wrong that people want to keep spending uh they want to keep living their lives they're taking on a little bit of debt to deal with inflation and to keep spending but they're also going back to work and i'm
seeing that anecdotally a lot more people going back to work and the numbers show that that feels to me and i said this on previous episodes that that feels like a possible you know very helpful path out here and i think you brought it up saks as well which is hey if we have increased
participation that's great increases monetary velocity increases participation in the economy that's a possible path out do you do you feel like that's still holding strong secular decline on that trend for 25 years so maybe maybe on the margins a few folks
um run out of stimulus and decide to go and get a job but i don't think again it's it's kind of like you know when you're at you're when you're at the blackjack table in vegas and clapping there's a strategy happening i feel like all the like what we're talking about right now is clapping as a
strategy maybe this can happen maybe that cap you know what maybe it'll start raining gold [ __ ] coins that we can use and just worry about i mean yeah i mean i feel like the last 15 minutes have been like not a good conversation because look the structure of the
problem i think is very well defined which is we have an inflation problem great it went down from nine point one eight point five percent it's still really high two to three percent would be would be normal okay so that's half the problem is how fast is inflation
going to go back down to normal based on interest rate cuts the other side of the problem is increases is sorry interest rate increases not cuts the other side of the problem is how much will the economy be hurt by these rising rates and those are the two variables and we
see that there is a slowdown there's still a lot of jobs being filled which is good but there is unquestionably an economic slowdown and those are the two sides of this equation and we just need to see some economic data it's going to play out over the next seven years we've been asking the
same question for three [ __ ] weeks if you guys don't want to talk about the new data that's fine we don't have an opinion other than we don't know how many ways can we say i don't want to talk about inflation or recession or jobs or any of that [ __ ] anymore unless there's something really
for us all to say like something news come out well like some [ __ ] economic report was really important i mean that was a that was a massive print but it's not that it's it's oh yeah it is twice as many to keep track of what we've all read data point it's one
day there were some bad jobs reports before that print yeah i think we should stop doing the recession inflation chat every week it honestly is like repeating a better job moderating can you not dial it in you got no you guys asked to talk about it you guys put some of these
things on i don't want to talk about it anymore i think we should congratulate you let's move on what are you okay what do you want i think softbank was a great chat i think you know that was a good talk we should do that kind of [ __ ] we should talk about i don't know what you
guys think about the sequoia evergreen fun tell me what you guys think about that come on geniuses the sequoia like when they restructured are you joking i love i love when these two go silent no no i i always didn't want to interrupt anybody i don't understand
what you're saying i don't understand why you guys are trying so hard to avoid the the obvious news of this week is there something else in the news this week zach's um if trump actually had some material in mar-a-lago that was related to the nuclear program and um
you know there was an attempt to try and get recover those documents through normal means and they were not recoverable what would your course have been if you were the director of the fbi or the president of the u.s in that condition because i think that seems to
be the party line of what's going on here well the democratic kind of spin on what's going on here but like you know honestly in that circumstance what do you think would have been appropriate so there's some sort of confidential material related to our nuclear program or nuclear weapons
something something there in those materials that were attempted to be recovered or were taken without approval and then they tried to recover it for you know assume there's no nefarious intent what would be the right kind of course here well i i so i i don't know exactly
what's going on i just think that um you can't necessarily give the f sadly i don't think you can necessarily give the fbi the benefit of the doubt here in light of their history um but let's back up i mean first you had this this raid on mar-a-lago where you got 30 fbi
agents they're not wearing suits with holstered sidearms they're carrying ar-15s you know weapons of war fingers just outside the trigger guard they're wearing body armor it looks like a para military raid on mar-a-lago it's utterly unprecedented and you look at tweets by
andrew cuomo for example or uh andrew yang i mean these guys actually turn out to be pretty i think intellectually honest democrats on this point saying this is unprecedented and it's really going to here i want to read this by why aren't you andrew why don't you answer a free bird's
question i'm getting there i know you're going to cut me off so i'd like to just read these tweets so maybe you because you know maybe you'll give more credence to andrew yang he said i'm no trump fan i want him as far away from the white house as possible but a fundamental part
of his appeal has been that it's him against a corrupt government establishment this race strengthens that case for millions of americans who will see this as unjust persecution you have andrew cuomo saying doj must immediately explain the reason for its rate it must
be more than a search for inconsequential archives or be viewed as a political tactic and undermine any future credible investigation and legitimacy of january 6 investigations and let me read one other tweet by elon that's not directly about this but he tweeted this on july 11 so a
month ago and he said i don't hate the man but it's time for trump to hang up his hat and steal at the sunset that was the part that was widely reported but he also said dems should also call off the attack don't make it so that trump's only way to survive is to regain the
presidency i think there was a lot of wisdom in that and you know i'm old enough to remember when the case for biden getting elected is we have to move past this partisan warfare this extreme rancor and derangement and we were told that the media you know all these people who
had tds that that their psychosis was due to trump and if we could just move past trump this all this sort of partisan warfare would end and now and and i was certainly hoping that would be true and now sadly it seems like we're right back in this thing
um where we're right back with the media being obsessed with tds portraying this narrative that somehow he's a traitor and what does this whole thing hang on just these two words nuclear documents well listen until they actually produce those documents i'm going to suspend
judgment because the fbi the last time they did this remember they manufactured a falsified warrant to the fisa court for this type of investigation they have that history so i'm just gonna suspend judgment on what's going on here until they actually produce the documents they're talking
about can i ask him right now he stinks do you honestly question the integrity of leadership and agents uh at the fbi are you serious like you don't think yeah all right let me read you this tweet from michael burris i don't hear the tweet i want to hear your point well
no well i i i agree with what michael berry is saying so i think sometimes there's a lot of thoughtful commentary about this and what barry says is jager hoover led the fbi for five decades denied the mafia existed fought the civil rights movement shielded the kkk
multiple presidents acknowledged fear of him so what he's saying is that the fbi since its inception has political origins uh and and basically meddled politically in the affairs of the country then he says the fbi lied to the fisa court this is back in 2016. totally true altered emails leaked lies
to the press to get trump nothing shocking so freeberg listen i don't know whether the fbi is telling the truth but are you honestly going to say that the fbi's leadership has never been political that has never harbored or pursued their own agenda and that has
never had a desire to go after i'm trump i'm not making it all happen we saw we saw the text messages from comey strzok mccabe i mean these guys basically took it upon themselves when trump was elected to be the quote-unquote insurance policy yeah and an fbi lawyer
pled guilty to falsifying documents to seek a warrant from the fisa court so i just think anything's possible here now i'm not saying the fbi is lying about this i don't know but the idea that the fbi is automatically entitled to the benefit of the doubt in light of
their proven history of basically pursuing trump like ahab pursued the white whale i mean yeah these guys have been after him i'm just going to zoom out for a second the reason i'm interrogating sax on this is like it's just so telling to me that a guy like like you sacks in your position
are actually questioning the integrity of like the highest justice authority and institution in the united states um really says a lot about kind of the state of of the us citizenry the state of our society today i i think it speaks a lot at least a third of americans i know
it's incredible and what ray dalio said in his book about how during these periods when the empires begin their decline and you know when you're challenged with kind of the economic conditions that the u.s is challenged by printing lots of money lots of debt very hard to service
all that debt and we have a ton of obligations over the next decade or two that are going to be very hard to meet given our economic growth and inflation conditions right now that you start to see these sorts of behaviors historically it's happened six times in
the last 500 years where large empires like the united states are large you know economic powerhouses like the united states start to decline that the civil war begins that the institutions get challenged by a minority and then a majority of the citizenry and it really
starts to crumble and and challenge the uh the integrity of the institution and its ability to hold itself together well i'm not hold on a second i'm not challenging hold on a second i'm not well you're questioning the integrity you're you're questioning the integrity of the department of justice right
listen by the way i'm not i'm not arguing i'm just pointing out like it's it's an incredible condition for us to find ourselves in yeah but i but but but my questioning did not create that condition there this lack of trust is earned it's earned by the fbi in light
of behaviors they took just a few years ago now listen i'm not defending trump per se i don't know what he did or didn't do okay but i think that it you can't just accept at face value without further proof these leaked what are basically leaked comments by the fbi yeah i mean look i'm
not listen i'm not a naive child i mean the fact of the matter is that power can be corrupt and power corrupts okay and we have seen that the fbi from his earliest days did engage in corruption and more recently against trump himself had a vendetta against trump so i'm simply so hold on
so all i'm doing is i'm not going to automatically accept at face value what they're saying until i see some proof now i'm not saying that they're wrong or they're lying about this i'm simply saying i'm not going to accept it at face value yeah and remember trump trump was
elected on on on the platform that there is this deep state that there is institutional corruption that there is um malaise and lethargy in these institutions of the government that are funded on the order of trillions of dollars a year and that that's what he was intended to you know
to go and and blow up and repair and there there's there's a very strong and potentially close to majority percentage of voting americans that that feel that there is this core deep state corruption uh institutional lethargy that is challenging our ability to give everyone
the freedom and liberties that they deserve freebird these agencies are supposed to be nonpartisan they're not supposed to have a horse in the race and what we saw is that when trump was in office and these texts came out clearly the the top levels of the fbi these top
agents i'm not talking about the rank and file i'm not talking about the field agents i understand that a lot of them are law and order types to vote republican i get it but i'm talking about the leadership the highly political leadership in washington and
it was pretty clear that they had a horse in the race they did not like trump and they were out to get trump and you know again trump is not my preferred candidate for 2024 but what the fbi has done with this raid quite frankly i think has polarized the outcomes they are basically gonna
send trump to the big house or the white house i mean because now the republicans have rallied around trump i think he's gonna be very very hard to beat for as the nominee in 2024 unless the fbi comes up with iron-clad evidence to show that he did something significantly
wrong i care less about who did what and what was done wrong i care more about the fact that this conflict is escalating and it's creating a real condition of continuing uh polarization and it really is the the conditioning that you know biden had some historians
in the white house there was a report on this last week and these historians spoke about how the conditions in the united states are just as they were right before the civil war and um and that there's real concerns that yeah well i mean you know they you can go read the the anecdotal
reporting that was done on this thing but that was the general theme of the conversation and um you know it really it really kind of um concerns me more that this level of discourse is escalating to a point of uh you know there's corruption uh this person is a criminal and that
sort of discussion happens um you know in more dire circumstances and more and economic circumstances than has ever been seen you know the u.s is the largest economy in history and we're now having these sorts of conversations that typically lead to some degree of conflict and it's really
concerning well i just think listen i i think that trump was out of office we were told that this partisan ranker would stop once he was out and it's you know they're pulling him back in and all i can say is that when the i think we know maybe one percent of the story okay i think
this leak around nuclear documents is it feels like a selective leak it's not certainly all sides are inflammatory both sides are cantankerous and i'm suspending judgment what i'm saying is though that when all the information comes out there better be a
very significant there there no no no we've made that impossible too because he trump came out and he basically said uh hey listen if you if these guys find something it was planted and now you're going to have at least a you know 10 or 15 of the population that
believes okay this was planted it wasn't actually there and you know so whatever the outcome is um will not be good nobody will be satisfied and both both of the extremes in the united states will be even more angry further inflamed yeah further well that's what i'm saying that's
inflammatory index has now has now skyrocketed yeah by the way this is why i think at some level maybe the lack of faith in these institutions is well deserved because where is the the you know the prudence of all of this like where is the the circumspect thoughtful methodical thinking
about all of the different outcomes that could be possible so that you exhaust every option and this is the only option left and then even then if merrick garland was open to basically saying unseal the warrant why didn't you do it before and say we're going to have to serve this guy
unless he actually gives us these things there's all kinds of things you could have done oh clearly they did keep the hold on a second to keep the temperature of this thing way way down and that's what to your point jamal they could have let trump's lawyers watch them
do the search so that nobody could claim anything about anything being planted yeah so the inflammatory index is spiking i think that's my key takeaway on all of this i i care less about what trump did and what the doj did and what the fbi did like i'm more concerned about where
this takes us because the next step regardless of where it takes us you know where it takes us when you're on tilt at the poker table what do you do you cannot think properly that's right that's where everyone's at right now when people are so inflamed with emotion
they start to make very poor decisions i don't know whether the doj and main justice made a poor decision or not i think this is where we have to hold our breath and hope they didn't i don't know whether the white house knew anything or not but the whole point of all of this is
that we pulled this guy right back in to the to the to the main stage absolutely i mean you're like i said you've polarized the outcomes you're either going to basically send this guy to jail or you're going to summon the white house no i think there's very
likely no i think there's very likely a middle path where nothing happens right but it will further erode what freeberg says which is it's just a little bit less trust in the institutional integrity is eroding and when institutional integrity erodes the the fabric of what keeps everything working
starts to fall apart and i'm not saying this is some cataclysmic civil war happening just to be clear i'm not saying there's some cataclysmic civil war happening next year but it's an unfortunate decline in everyone's faith and and the stability of the institutions that we all rely on to
support and service us because the inflammatory index is going to go up and everyone's going to be criticizing everything and that's enough this is why i think we really have to ask was this really necessary i mean why did the doj and the fbi think this was necessary
yeah these boxes were just sitting there i think that's a reasonable question is like if these things were actually sitting in the box with a lot that they changed there must have been something more that was so grievous where you had to do something like this
now by the way david i just wanna i read so i don't know if it's true or not i think maybe it was in barry weiss's upset or matt tybee's upset these folks weren't armed to the teeth they came in jeans and shorts and t-shirts in fact maine justice told them like do it as
well i've seen the photos they i've seen the photos they had outside i'm saying the people inside were there for six or seven hours and only a few people knew about it they were there for nine hours they basically told trump's people they couldn't be there they had to leave they told him to turn
the cameras off and they had like highly militarized guys they were something like 40 people and something like 30 of them were heavily armed the optics were terrible if there was some nuclear confidential nuclear material in mar-a-lago and through normal means of
communication they had asked several times to have it returned and identified this for him and he had refused which i think is a very reasonable kind of you know conditioning for what may have happened here and then they said okay we gotta go get it there's no choice this
is like super confidential nuclear material we gotta get this stuff the only way to get it is to serve a warrant and go in there and get it you know under those circumstances you know do you think that this would have been kind of inappropriate like assume all other kind of communication means
were exhausted like you know what would you have done if you were president listen i think there is information that could still come out to convince me that this raid was warranted um i just haven't seen that information yet and i think the optics of it were terrible i'd
like right the point i was making i don't know why it wouldn't have been good enough to send in the fbi agents with holstered sidearms you know not ar-15 weapons of war you know where the fingers were just outside the trigger guard it looked like a paramilitary raid
so whoever was thinking about the political ramifications this clearly didn't do a very good job i also don't know yeah yeah i also don't know why you wouldn't give the courtesy to a former president united states to give them either more of a heads up or to let his lawyers attend
so that just for their own protection so they can't be accused of planning anything that would have been smart and i don't know why they would have said to trump's people that they couldn't record it and i don't know why there's been reports that the fbi went through melania's
closet i mean seriously they're like going through melania's clothes it's just weird it's weird so there's a lot about this that we don't know i'm not conclusively rendering judgment about it because there are things that absolutely could come out to convince me that it
was warranted but i haven't heard them yet okay everybody we'll see on the next episode of the all-in podcast love you [Music] and it besties we open source it to the fans and they've just gone crazy [Music] we need to get these [Music] i'm going on [Music]