i literally don't want to talk about getting guys though only because it's getting crazy and i had to like mod my stuff so start the recording please start the recording i'm going to strike it by brigades do you mean like maga brigades all right listen it no i'm serious do you think because i can call him off hold on hey donny hey donny yeah jkl
said he's being brigaded by magga yeah yeah yeah he can't handle it he's tapping out all right it's all good it's all good they're talking it's it's over they're not gonna they're not gonna bring anymore the psyop is over thank you thank you it was getting pretty it was getting pretty acute yeah it's done don't worry about it [Music] [Music] all right everybody welcome to episode
96 of the all-in podcast we had a bomb drop just yesterday uh with adobe agreeing to acquire figma the design tool we'll get into that in a minute what it actually does for 20 billion dollars this is just astounding for this to happen period full stop it's the largest private company purchase i believe in history this company if you don't know it helps you design web apps
or user interfaces so if you're a designer we used to make mock-ups we'd send them around in the industry as images or pdfs and then like google docs where you can put comments on somebody else's words and you can collaborate in real time we call it multiplayer mode figma is multiplayer mode the company is just a juggernaut if you work in startups you get figma
designs all day and [Music] adobe stock got crushed because of this was down as much as 18 on thursday figma's most recent valuation was 10 billion dollars in june of 2021 their series e so peak market they had raised 200 million at that time there's a lot of details to get into here but you know listen let's uh ask the sultan of sas here what you think of this because it's
double what was an incredible uh market last year that was overheated so what does this say about the market figma you know figma itself or maybe adobe's you know jumping the fence or being skittish how do we reconcile this sax well if you judge adobe stock price the other day the market hated the deal i mean the uh adobe stock price went down like 15
percent and it's 150 billion dollar company roughly so they lost almost the entire purchase price in the market capitalization of figma i think that's that's basically an overreaction i you know i know all the news is basically on how adobe is paying 50 times and that's no longer the multiple the multiple is more like you know eight nine ten times for high growth sas companies
there is truth to that but but i think it misses some important details about how fast figma is growing can we actually throw up on the the screen the ar history of this company so and for people who know the multiple is the multiple times top line revenue so really so okay so explain that to folks yeah well arr is just the annually recurring revenue it's subscription
revenue sometimes people will look at next 12 months revenue which is a similar concept not quite the same but sort of in the ballpark so you know what's interesting about this company i think it was founded 2011 2012. it had a very long wilderness period that's when i call the period where the founders are trying to figure out what the product's going to be
uh really for almost five years they finally launched a private beta in 2015 they then opened it up to public launch in 2016 and they didn't turn on monetization until 2017 so five years into the company they hadn't made a dime so you know it's roughly a ten-year-old company and for the first five years didn't make any money and then they started to make
money five years ago and then in 2018 i think they turned on the enterprise tier uh and then it's been kind of off to the races that's incredible look at this yeah what i can tell you looking at these numbers by the way so i don't know if these numbers are perfectly correct this is sort of i would call the scuttlebutt numbers these are numbers that um i believe
to be true but it's not like these are numbers that the company's confirmed or anything like that this is just me gathering you know intelligence from talking to people in silicon valley so this is what i believe can you read the numbers for people that aren't on youtube watching this yeah so in 2017 again the first year they monetized they did 700 000 they ended
the year 700 000 of ar remember that arr is kind of a point in time metric it's the amount of subscription revenue your annual run rate subscription revenue at that time so they ended 2017 with 700 000 2018 they ended with 4 million 2019 they ended with 23 million 2020 they ended with 77 million 2021 210 million and then the estimated number for this year is 450. so you've seen in
the press i think it has been publicly reported a 400 million dollar ar number is currently where they're at i've heard that they're going to end with something more like 450 this year and then the their forecast for next year is or was at some point in time when somebody heard this 800 million you know forecast for 2023. so my point is i've seen a lot of sas
metrics and i can tell you this ar ramp is phenomenal you know i'm sure people have kind of heard about the triple triple double double that's kind of what vc's want you to do they want you to triple two years in a row then they want you to double two years in a row and so forth this company did way better than that i mean 700k to 4 million is a really fast ramp
and then 4 million to 23 million is incredible that's like you know over a 5x and then they did over a 3x going from 23 to 77 million i can tell you that is super hard i think most companies even the ones that hit you know low 20s tripling year over year they tend to decelerate to two and a half times or something like that this company was still growing over 3x then
they roughly tripled again to get to 210 and then since they got a question yeah so now they're double that do you think the triple in 2020 was a coveted pull forward or do you think that that was a natural like a zoom or not that's what i was going to i mean it's possible but um if people were collaborating i'm not i don't see i mean
so far in the numbers i don't see a huge slowdown here i mean look once the numbers get into the hundreds of millions it's really hard to maintain the same growth rate you're compounding off such a large base that it's just inevitable you can't keep growing 3x year over year once you're at you know 200 million of ar but the fact they got first from 23 to 77 and then 77
to 210 and now 210 they're at let's say they're at 400 now and they're gonna be at 450 by the end of the year plus it's um it's pretty amazing and so okay so yeah so adobe's paying 50 times current arr but if you believe this they're only paying divide by two they're paying 25 times end of next year so like 18 months from now and then you figure you know within say two years after that
they're gonna be you know at somewhere between one and a half and two billion yeah of arr and then as you guys know there just aren't that many sas companies that even get to a billion of ar so so i i don't think adobe's making a bad deal here i think there's a question about is there any point at which this product hits some sort of market saturation
but adobe's in a good position to know that because they understand this market they are in this market it feels to me like i don't know i've been using adobe photoshop right around when it first came out like 1992. and this product i've used it was built web first it was built for collaborative use and photoshop over the years they've really
tried to take what is a desktop installed software application and then try and create cloud-based features and it's a terrible terrible user experience at least from my perspective having grown up on using adobe photoshop but what's most important i think is a lot of people think about this on is it the right price to pay for the company but at the end of the day the right
price to pay for the company is what adobe views to be the risk and reward for their business and they effectively paid roughly 12 dilution of their company to do this deal so they're saying let's take 12 percent of our company and effectively de-risk the biggest risk to our business take out the biggest threat to our business for 12 percent of our company not 12 was it 12
you have to factor in the actual drawdown of the stock as well so it's about 33 they they effectively well i'm talking about like assume take take the price of the stock aside the number of shares they're they're issuing because this by the way the deal value went down with the stock so i read the the merger terms last night and there's a couple billion of cash and
then a good chunk of it is in stock and it's a it's 10 billion of cash and it's 10 billion of shares at the price when the deal was announced and to your point so it's a fixed number of shares the stock it's a fixed number of shares it's not a fixed it's not a fixed monetary value so it's down 20 from the deal announcement so that 10 billion of stock is now actually
8 billion of stock so no the whole deal is now 18 billion not was it 10 billion of cash to month the 10 billion cash yeah and then there's two billion there's two billion of deferred uh rsus and stock-based compensation but they're but i mean if you think about it at the time of the merger they're they're either you know i think they have they're gonna use some term loan that
they have to get the cash but they're effectively issuing you know 10 divided by their total share count which is roughly six percent of their total shares outstanding so you know they're kind of taking six percent or let's just aggregate the two together and say they're taking roughly 12 dilution sure that the value of the stock goes down
so look i think like this deal is really interesting so first let's just give huge kudos to the ceo and the team and the investors what an enormous win for all those folks that's awesome it keeps silicon valley kind of going right and that's just awesome to see these kind of big wins i read this incredible profile about the founder and he sounded like such a fascinating
person he basically and it with the profile basically said that he was spending months and months going from office to office all around the world meeting customers sitting with customers reading trouble tickets that's what he would do you know reading help desk tickets about the product on vacation whenever you see a a ceo that is so customer obsessed typically there's good
outcomes and so this is just another validating point on that theme now let's just put figma aside and let's just talk about adobe for a second what is so incredible is you have a company yes they spent 20 billion or whatever 18 billion now but the way that they did it is really interesting if you go back to zendesk and surveymonkey when those guys
announced that merger it was above a threshold of stock where you had to go to a shareholder vote and because there was so much turbulence in the market whether the industrial logic of that deal made sense or not didn't matter as much to shareholders when it came time to vote and they voted it down right so interestingly adobe was very clever they said i'm going to do half cash half
stock so that i'm below the threshold we are below the threshold where it goes to a shareholder vote okay interesting but then you have to factor in the dilution uh not just the dilution of the stock but then the re-rating of the stock and this is where you know you lose 20 of your market cap and then you tack on this you're talking about you know
a 40 30 40 billion dollar price tag to get the deal done and i think that's where the head scratcher was in the public markets where folks basically rebuilt their model and said hold on a second you know you've been telling me that this problem is a solved problem but when you pay such a premium not only does it mean that this product is clearly materially growing and disrupting
but the existing revenue base that i was counting on in my model must be wrong as well and that's the actual flywheel that now adobe is in where people are trying to really figure out how under pressure are those existing cash flows and then if you compound that with something else which is nothing specific to adobe but to the whole market which is now interest rates are
going up behind the scenes you have this sort of parade of terribles for adobe that they're going to have to navigate right they have a very large portion of cash they have a large portion of stock they have decaying earnings in their core business that they now have to explain and then they don't really have a lot of earnings i think chantinew said that
it's going to be year three before it's secretive which is is typically a way of saying we're going to lose money and then in year three we'll make at least a penny that's what a creative means doesn't mean you're going to make billions necessarily and so these guys have to find a way for figma to drop about a billion and a half dollars of free cash flow into the
business for this to kind of make sense in the short term so i think those are all the mechanics that's sort of putting a lot of pressure on the adobe stock but it just goes to show you the amount of disruption that happens this movement to the cloud or the movement to collaboration oh yeah monolithic products are just sort of very much you know
that is the key i think you guys did a great job of summering it summarizing it this is an absolutely great deal for adobe it's a transformative deal in the same way the whatsapp deal was for facebook it removes one of the two existential threats to adobe and it turns adobe i guess into a growth story now as pointed out adobe's product was single player mode and adobe grows
at about 12 or 13 quarter right now and now you have a company that doubles and they really have been facing three paradigm shifts in the last five or so years obviously you pointed out one desktop software downloading it versus cloud-based uh software well here they go now they've got experts in cloud and then the second one yeah but they have a
thing called creative cloud and you know they are slowly trying to figure that out it's a paradigm shift inside the company they've really struggled so now they have somebody who's cloud first trim off do you guys ever use those products but hold on let me finish here there's three paradigm shifts here for feature if they look very similar no so these these three paradigm shifts the
one is the desktop versus the the web the other one is subscription so adobe was charging a thousand dollars a year for the creative cloud now they charge 25 bucks a month for it they successfully did that now they've successfully i think have figured out collaboration software what are they one thing that they have not done which i think is the real reason they had to buy figma
adobe see this is the problem with these big public companies adobe and all of their investors got very addicted to the free cash flow generation of that stock and it's been an incredible performer and let's just be honest shantanu is one of the best ceos of the last few decades in the public markets period end of story okay since 2007 he has just run a masterful
playbook at the tail end of that though you know in 2022 this is a company that has i think six or seven maybe i think maybe eight billion dollars of free cash flow it is a gargantuan money-making business and so they refused in creative cloud to go to that free tier that figma has and if you look at all of the stories around figma one of the most powerful
things they did was basically allow people to use this for free effectively forever yeah bottom up sass yeah and and the problem with adobe is like that's a business model disruption that they could not afford in the public markets because if you condition a set of institutional investors to be expecting seven to eight billion dollars of annual free cash flow
and all of a sudden you're willing to torch it to take a quarter of that and make it free that is probably the biggest reason why they had to buy this thing which was that they needed to tuck it in and they're like how can i do it well i just have to do it by diluting the stock one time that was one time stock insurance yeah it was a one but you know twelve percent diluted they're
still and then they're it's it's one and done it's one more by the way the point the point you guys are making is more broad which is it's not just about adobe this is the classic innovator's dilemma right like any big company that reaches maturity in their market and has scale and has cash flows you have a different shareholder base you move over from
growth to value and once you've got value shareholders i mean i've been to these institutional meetings when i was on the exec team at monsanto and you know they wanted dividends and they wanted stock buybacks and they they're like it's nice to see growth but at the end of the day i want to know where is my dividend going to be and what's my stock buyback target going to
be and then to say hey i got to go invest in innovating my way out of my corner because you know in this case cloud is reinventing my marketplace it is a very hard place for a manager of a business of that scale to be by the way every industry by the way i think there's another takeaway that's really interesting here which is that if you
look at big tech companies i think you almost have to sort them into two buckets at least in the enterprise and sacks you can tell me if you disagree but there's one type of enterprise company which makes basically a single linear monolithic product or a handful of those monolithic products right think workday think adobe et cetera but then there's this other type
of company which are more platform level businesses that have this you know mixture of things that they do relatively well integrated maybe each product is not so great but together they're pretty decent and you have distribution leverage and you have pricing power think microsoft and the totality of those products so what's interesting to me is
you cannot effectively compete as it turns out against microsoft at any point product and slack i think is the best example where you know microsoft teams was fundamentally cannibalizing this business which is what drove slack into the arms of salesforce and you know you could say that teams was not as great of a product i would have i would make that claim
but what microsoft had was distribution scale and pricing power where you could discount and effectively give it away for free adobe isn't in that situation right they can't do that kind of stuff and so when you compete against those kinds of businesses you have a better chance of winning the takeaway i think for the entrepreneur is when you're thinking about the next
enterprise business to start i would try to bucket these companies that you want to compete with and say if i'm going to build a newer version of x make sure that version of x is going after a company like adobe versus a company like microsoft because it's much much much easier to build value when you're competing against a monolithic product company
versus an entangled platform company sacs would you bundle if you were the ceo of figma which you now i'm sorry ceo of adobe would you bundle figma into the creative cloud and then just make it one subscription would you microsoft teams it yeah maybe i don't know i'm not sure about that i i do think that microsoft is a little bit unique in its ability to bundle
so what so tremendous right about the power of the bundling what they do is i think it's called the e5 bundle they have all these products that virtually all enterprises use from office to you know active directory to you know there's like a whole long list of them and so what they've done is they've created one price for all of those products they sell as a bundle under a
wall-to-wall enterprise license and what they do is when they see a new competitor come along whether it's slack or zoom or or octa is they'll basically just clone it create a worse version of that product and throw it into the bundle and so now every single enterprise is getting the slack clone or the zoom clone or whatever for free and that has a huge material impact on
you know it pulls the rug out from under those startups so now that's not to say that microsoft's product is anywhere near as good as those those competitors but you know now all of a sudden the the microsoft product is on a marginal basis free but then what microsoft does is you know every year or two they go raise the price of the bundle so basically you
know they get you hooked on the bundle they then use it to systematically kill or undermine a competitor and then they know you're stuck and then they raise the price they basically have inflation of the price of the whole bundle i think it's very anti-competitive actually i think it's um it's akin to dumping um i'm not sure what the logical stopping point of it is like i don't
know if we can have a healthy sas market if microsoft is allowed to keep doing this forever because think about it i mean they will just every year they will take the hot sas company du jour clone it it'll be a shitty version they'll throw it into their bundle and now they're dumping they're dumping the product in the market it's basically free it's free until they
basically drive they drive out the competitor or destroy it or basically undermine its market cap to the point where it can no longer make the kinds of investments it needs to pose a real threat to the microsoft larger entity right so think about how any competitiveness is and you don't hear a word about this from lena khan or washington they're
only focused on social networks no it's it's so funny it's like she's more focused on you know making sure amazon doesn't buy roomba that you know this stuff doesn't buy one vr app it's not very sophisticated approach you're right this is the kind of stuff that actually really matters i really think you nailed it on the headsacks it's a it's an impossible strategy to
defend against the the other thing that is interesting by the way about all of this is you know if you think that the valuation the takeout premium was basically 2x post to post what that means is that if figma was last valued at 10 is now worth 20. you know does that mean that canva which was last priced at 40 is worth 80. well potentially two well potentially to adobe
right and if you add those two together now you know what you really have is basically the the entire totality of the creative cloud for adobe is basically embedded now in these two businesses at in an extreme premium and so it makes it very difficult now i think as well for adobe to execute a strategy here without it being forced to do some more expensive
um dilutive m a well and the other problem chamoth is this is going to ring bell so when i said before there were two existential threats canva is the other one and that is the other paradigm shift that's occurred in computing is that making things radically simple you talked about a freeberg photoshop is complex and it's single player canva is how people create you know any kind
of marketing materials today and they don't hire a designer anymore the job of graphic designer is now everybody's job everybody can make something on canva but then i think saks or or freiburg maybe you have thoughts on this if you're a lena khan and they do make a run at canva adobe now are you saying like hey wait a second you now run the table on all
design tools you can't buy it it's a weird classification it's only called design tools because it was sold to someone that was called a designer before and that's not the case anymore now it's a tool that anyone can use in the enterprise setting or in a small small business setting or in an individual setting to create stuff and that wasn't the case with photoshop
and i think that's what makes this arguably a very different business a bigger business a more transformative business and a farther reaching business and i don't think that there's necessarily a speaking of the figma deal right um a case to be made here that they're preventing the uh extinction of their monopoly they're buying what looks like a very
different business and and it's really additive it's uh it's a business that can turn anyone into a creator it's really cool yeah but you're kind of you're kind of speaking out of both sides of your mouth now because on the one hand you're saying it's a different business but on the other hand you said that this is basically protecting them against an existential disruption to
their core business so if it's an existential disruption to their core business how could it not be in the same market of course it's in the same market well there are new entrants competitors there are new entrants and there are you know different underlying you know technology trends this is all about cloud but nonetheless i don't see how these things aren't
competitors with each other to some degree so i don't know how this doesn't get seriously reviewed yeah by antitrust authorities it feels so similar to facebook instagram and google youtube and by the way it's similar in both those examples in a number of ways both um facebook instagram was not competing in the same product as facebook at the time with the news feed
or whatever it was a photo sharing service that clearly created a broader addressable market that got more people to use a social network and um youtube people thought they were overpaying right and then youtube everyone thought it was crazy they paid a billion six for that business and it's probably the greatest acquisition of all time it's been the greatest managed
acquisition of all time i should say um and that business similarly i think google recognized that people were going to move to video content as an alternative to text-based web content and that it was a bigger picture opportunity than what they were pursuing and in the lane that they operated in at that time and they were right and in both cases it was more about paying
whatever it took to get the deal done then you know hey how many users do you have how much revenue how much ebitda what's your arr all that stuff goes out the window when you're sitting in that strategic driver seat at that big company and you're saying this is a bigger market these guys are transforming the market and ultimately over time that will eclipse us and you
can say hey you're protecting your business but really you're protecting your market i mean the market is going to go away is what the vision is like the market that you exist in today isn't going to exist in the same way in 5-10 years and that's what you're trying to buy your way into i have a question and a statement the statement is i think canva should absolutely go
public versus sell because it seems like they'll have a much easier time competing against whomever that they compete with i do think that david you're right that there is a lot here for regulatory review because if you go back and think about visa plaid you know it's not dissimilar meaning you have a young startup that has this really credible and viable technology
potentially being acquired by in that case it was you know one of a duopoly but here you could make a very credible claim that it's in a market where it's roughly a monopoly because there aren't really that that many meaningful alternatives so i think saks is right that there's that there's some you know oh there's a case here yeah there's a
case here where it just depends whether that was how about how about that uh vr game that facebook before like that was a tiny acquisition that maybe had a million users look and see they're just exactly they are being computer but i think i think it's taking favorites well it seems like what the antitrust authorities are doing right now in washington is they've got a list of
companies that they think are putatively suspect and our job is to stop these companies from accumulating more power and it's really about seeing everything through this lens of power but that's not what the competition authorities are supposed to do they're supposed to ensure competition it's about anticipation right and the problem with just
approaching things in this way of of the punitive way we just have to stop these companies is it creates a chilling effect on on reasonable exits in silicon valley there aren't that many great exits and we want them to go through now i think if monopolies need to be reined in there are other tools to use besides just saying that those companies can't
acquire other companies no matter how unobjectionable they are i mean let's do things like allow side loading let's basically what explain what that is well that's that's basically a way to say that i think google the android already does it but ios does not where you would be able to basically install an app or download an app without going through the apple app store you could
enable competitive app stores basically you know i think i think it's a real issue that you have operating system monopolies i mean google android and ios with apple and then amazon with sort of you know white label products those are all operating systems that are competing with apps on their own platform and there have to be some constraints and
rules around that otherwise the operating system will eventually dominate and replace any app they want to on the platform we saw that's what the whole microsoft thing was about microsoft netscape was a 100 about that so i think if you can show that somebody has an operating system monopoly there absolutely should be rules of constraints around that does it mean the
company should never be able to buy anything no i mean i think all that does stifle innovation without really getting to the crux of what the issue is i think you nailed it a good first step would be allow other app stores so google's app store could be on ios ios app store could be on another platform et cetera and i mean the other issue here is lena kahn's been pretty clear her entire
thesis in taking the job was well i want to prevent uh downstream competitive issues so future competition there's no better example of a future competitive issue and future consumer harm i think is how she phrases it then this acquisition if you're going to do it through the lens of future consumer harm this creates future cons consumer harm because figma
is not going to compete with adobe you're saying that it does it does massively massively i mean it this is the the the the dissonance here it is great for consumers because they will bundle it they'll bundle the two things together and it'll it'll make it more valuable and reduce churn and it'll make it simple to buy so that's good for consumers right you get more free stuff
but future harm and a future competitive harm here is the marketplace will be less competitive if there's one less independent strong company in it that's and if you if they buy canva that's the definition of downstream competitive harm it'll be a less competitive marketplace with these two companies together full stop so jacob do you if you're lena kahn
[Music] you actually pay attention to this adobe figma thing in like a serious way or are you still more focused on amazon and you know uh facebook i would hope that they would do multiple things you should say what would you do if i was her i would create a a rule book and apply the rule book evenly and fairly and this is the problem this feels very political it feels like
they're going after facebook because of the downstream political issues facebook causes and they're ignoring the microsoft issue and they're ignoring issues like this it just feels like they have their thumb on the scale if you look at what happened to the visa plat thing it was an enormous blessing in disguise because you know the the thing went away and
that was i think like a five billion dollar acquisition and then platt turned around and raised money and it's like a you know multiple teens billion and it's going to be a wonderful independent company to your point jason that will now you know uh create more competition in a space that desperately needed now in that case that was sort of like
financial payments and rails and visa mastercard blah blah blah but that that that could also be you know if there is a lot of attention paid to the deal and it doesn't end up being consummated that could be the positive outcome but uh if you wanted future competition i if you asked me if i was a betting man i think this thing is going to close i think it closes yeah yeah but i mean
it closes it closes because it doesn't intrude on the hot buttons of washington not because the merits of the antitrust or superior to the roomba deal or to that vr deal that facebook wants to have this is all about political and cultural hot buttons so it's it's so weird yeah but i think we all understand what's really going on it's all
political but hey jason i go back to your question i think it was a really good question i've had more chance to think about about should adobe change the pricing of figma should they basically bundle it i've spoken about the merits of what microsoft does i don't think that figma should do that here now that i've had a chance to think about it the reason is this that
you have to think of pricing as not an element by itself but as sort of the most important element of a go-to-market strategy and there's no way that you can basically reprice figma completely as part of some other bundle and expect not to create massive disruption to your go-to-market organization so for example you've got now a whole huge sales team
at figma including enterprise sales they are commissioned based on their the quotas that they close and that's based on the ecv of the deals and so on if all of a sudden you price this as being free because as part of some bundle that enterprises get because they're buying old adobe now all of a sudden those sales people can't earn commission on that sale they can't be incentivized to
take that product to market the same way the marketing team is tasked with feeding the sales team so now all of a sudden they're like wait a second can we spend money to basically promote this product when it's going to lead to a deal that's priced at zero because the enterprise already has an ela with adobe so you can't just look at a pricing change in
isolation you have to look at it as the tip of the spear of the whole go to market i can tell you what's going to happen because i kind of experienced this with with yammer when microsoft bought my company 10 years ago and by the way i'm not critical of microsoft at all they were an extremely high quality acquirer that lived up to all their promises and did everything they said
they were going to do i think if you ever get an offer from microsoft you should take it really seriously i think like i said i think they're a great company great acquirer but i can tell you what happened is that once yammer was folded in to the office suite and didn't have its own independent pricing it didn't have its own independent sales team it just disappeared i mean the
promotion of it to stop because nobody had an incentive to basically go sell it and nobody incentive to go market and promote it and it just kind of disappeared and that is why you remember a couple of years after we sold it slack kind of came out of nowhere and there was no one to really oppose them because you know all the promotional activity we
had done around yammer just ended because again we weren't we we didn't have the incentive that was created by the sales organization just to explain um the pricing thing david i think that the way this decision will get made and i'm not saying it's right or wrong but it will get made not by the sales teams and not by the product teams but it will get made by the ceo
and the cfo in talking to their largest shareholders and the reason is because there is an implied cost of capital that adobe has in fact right now if you look at like all of the models that all the analysts use is roughly around nine percent and so you know they're going to have to achieve a return on top of that cost of capital what that means is that they're going to
be forced to find a way in short order to make this accretive and to start generating incremental cash flow and i think that they will be hard pressed not to bundle and not to do these creative packaging strategies because otherwise i think that there's a risk that this free cash flow machine that folks have become very addicted to at adobe starts to
shrink and that will have huge ramifications i think to the stock and to the executives and to the morale and so i think that they're going to do whatever it takes and by the way you've seen that you've seen that in other companies who've gone into this phase of their growth oracle being the best example you know they have consistently found ways to package to bundle to
cross-sell to upsell and they have incrementally walked free cash flow generation up if they do that they're taking a huge risk because here's what's going to happen is so i agree with you about what may happen this may be decided by the ceo and the board but i think if they do this they could blow it i mean the the um you know dylan field the founder in
his blog post on this said that adobe's committed to letting them run independently well you can't run independently if you don't have your own independent pricing you just can't because how long is the question how long does it look like two years four years and if all of a sudden adobe sales people can sell this product and include it in their bundle and the marginal
price is basically free because it's part of some bundle that means the sale has been taken away from whoever the dedicated sales people are on the figma side of the house i can tell you that will create irrationality in the sales organization and very soon there'll be pressure to consolidate the figma sales organization with the larger adobe sales organization they'll
be moved in they may become product specialists or experts but the go to market efforts will be consolidated and then dylan's going to end up running a a quote standalone version of figma that doesn't have its own go to market organization and then you don't get the feedback into product from your sales and marketing team so all of a sudden you're running a product and engineering
team but you don't have eyes and ears in the market i hear all of that i think that the facebook whatsapp merger is probably pretty instructive which is jan had two years roughly where he was left alone to kind of like run independently and then slowly and slowly it was absorbed back into the mothership and you know that was a product with zero
monetization um but there was a lot of strategic touch points within whatsapp and and you know core facebook app and everything else that they were doing and i think that you have to do that because when you're spending tens of billions of dollars on something there needs to be an industrial logic that is beyond just let me just buy this thing and stick it on the shelf and let
it be on its own so i i think that you know that dye is sort of cast i think we're just debating the timeline in which it happens let's talk about it yeah you know you're probably right and that's what usually happens is is when they promise the founder that you'll be left alone that usually lasts two years coincidentally that's coincidentally
usually the length of the the earn out or the the golden handcuffs that's how long my golden handcuffs were yeah and they left us alone for one year by the way our er tripled that year but then once they got serious about integration the organization started emerging and really i was just running a product organization which is fine but that's not running an independent company
because like i said you lose your eyes and ears you lose the pulse of the market when you're not selling into the market fredberg how did youtube do it so well it was a very different situation they were yes google basically took a team of you know two dozen people and their infrastructure was terrible and they basically rebuilt the entire company so it was the complete opposite
they think about them taking the the front end shell of youtube and then they rebuilt everything underneath it ran it and then they actually put their own people in to optimize the front end they put their own ad sales team on top of it i mean they just bought a skeleton of a growth engine and they built everything um and so it was a very different story
and the one thing that youtube the one thing that google did so well with that acquisition was the conviction bet that they made on the business and they made billions and billions of dollars of investments into that business for years before it started to make money um and that is a very hard thing to do because the chimops point you often have
this question of where your free cash flows where's your dividends where's your buybacks as the business gets to a certain point of maturity but what google had that many businesses of that scale have never had before is their extraordinary growth rate that continued even as they were of that scale so the um the leeway that google's executives and board were given by shareholders was
extraordinary not to mention the dual voting where larry and sergey could decide to do whatever the heck they wanted but they really were able to take advantage of their high growth rate to take all this cash they were generating and reinvest it into this youtube platform as well as many other things many of which haven't worked out but when they do work out you have a
business that i think youtube's probably worth what 300 400 500 billion dollars at this point and and it's really paid back multiple so youtube's really a one-off because it's a one-off acquirer and it was a one-off kind of acquisition integration scenario that we haven't seen before what google in effect got when they acquired youtube was a flywheel i mean
it was a brand and it was a network effect yeah the network effect was massive it was off to the races and i remember google had google videos but they just couldn't come close to catching youtube because the flywheel of creators wanted to be where all the viewers were and viewers wanting to be where the most content was it was just impossible to
catch but that organization was relatively tiny at the time it was acquired and it didn't have any monetization and it was being deluged it was being deluged by legal problems that that google legal could solve very unique situation yeah that was one of the bold acquisitions of all time but what was incredible is right after the acquisition and google started to scale this thing
most of the content being watched on youtube was copyright content and i was at a conference and i remember philippe damon the ceo of viacom stood up and larry page and eric or larry and sergey or someone was on stage with and he yelled at them and he was like you guys are making all this money and growing this youtube business off of the back of
our content and you know the dmca the digital millennium copyright act says that um someone can file a takedown notice and then the platform has a period of time to respond and to deal with it and the amount of time it was taking them to deal with it new content was being uploaded and then they'd have to file another takedown notice so it created this insurmountable
you know copyright copyright thing and um and then what did google do that youtube would have never been able to do to sax's point they built an engine that could automatically recognize copyright content and pull it down before it was made publicly available without ruining the user experience of instant upload and availability of content from the
fingerprint system was even more nuanced than that the fingerprint system not only told them hey this is an snl skit or this is a music video from prince it said what would you like to do and it put the power in their hands and said turn it off claim it and we get the money from it and then it was like well we're telling you before you even know about it and what all these people did
was they say okay yeah you can make a remix of my prince song or this episode of a tv show we'll collect the money and that was just yeah the revenue share was the brilliant part about it because it put the power in the copyright holders names this just speaks to how singularly how singular and unique that deal was because i don't think any other company
at that time maybe microsoft would have been able to develop technology to do this and do it at the scale and do it with this low latency and high speed for users and so on uh it really was a singular transaction which free break i think speaks to their accumulation of talent especially in their early years where they were just like hire smart people we'll figure out what to do with
them later they actually had those people sitting around who could just go jump on the youtube channel oh my god solar common gar went and ran youtube and absolutely crushed it probably one of the best ceo runs that's never talked about in the history of tech he stepped in and he ran youtube and now susan runs it you know another incredible run of monetizing that thing since but i mean
and these are people by the way both solar and susan were um sub 30 employee people at google so yeah good point nick can we throw up the slide contrasting valuation to ar this is actually more interesting than just who made all the money so i actually created a plot arr is the red chart and the it's the right access so as we talked about they're at around
400 450 million of ar right now and then the left access is expected value basically this was their uh valuation and it's it's in purple and it obviously it goes up to the 20 billion or 22 billion that adobe just paid you could see e was the last round they did in 2021 where they were valued at 10 billion before that they were valued at 2 billion in 2020
and then you know the series c i think they were valued at like 440 million or something like that and then i think the b they were valued at like 125 million and then the a they were valued at like 50-ish million you know and then there was seed and so forth i think what you see here is that is how um efficient in a way venture capital is where it's tracking just
slightly ahead of arr it is predicting where the hockey stick is going so first of all look at arr it is as close to a pure hockey stick as i've ever seen in sas kudos to them i mean the crazy thing is just how long it took for the hockey stick to get going normally why didn't you invest in this company did you see it well no we didn't see it also look at
what a late bloomer this thing is you know like that you have to kind of see it like look look like hockey stick didn't really start inflecting until 2018 2019 right so it's more that you're your table is more striking where these guys for yours were toiling away and then all of a sudden this thing just took off right it's really this was such
a late bloomer and for anyone who's doing a sas company and you're in it five years and you still have zero revenue and like that doesn't mean you're dead i mean they basically were a zero crying for five years exactly absolutely nothing and now it's a 20 billion dollar exit five years later i think the only hard round to invest in this company would have been if you were
going to invest in i think the 2014 time period 2015 because you were investing in a company that hadn't even launched yet that had been grinding for three or four years with by the way the founder was like 19 when he started this he was a teal fellow he was one of the first you know 20 under 20 teal fellows yeah yeah yeah and he dropped out of school to do
this and you know and they spent several years in the wilderness i think that's when it would have been hard to invest this maybe not the first seed round because you could tell this guy was brilliant he had a really specific idea moving design tools to the cloud was i think like a very clear and um sensible vision clear you know why now underlying trend i
always say my my three biggest traits for entrepreneurial success one of them is grit i mean you you know if you have a high index on grit you're you're able to to to grind your way there it's really that's a really incredible this chart is brilliant because you know what we see in the seed stage is right before that series a is where most people give up sacks you know
you get three or four years in people aren't paying for the products you're under resourced and they don't get the a and they got you know that 2013 14 15 period they were probably trying to get an a it might have taken him two years to get the a uh and then somebody finally did it so easy for a young person to give up and go get a freaking job at google or go back to
school and to to grind it out to have the grit and the persistence and commit to your vision he didn't pivot away he persisted and he executed he clarified he clarified right yeah but he but he didn't he didn't go five steps away and say i'm gonna do a new startup and you know there was no rate in his business right and there's no pivot here yeah dylan field by the way is the
founder i had him on the pod back in the day and really the you know ultimate customer focus customer like you said yeah you need to just have your pulse on what your customers are saying constantly because the answer is there you just have to develop it and give it to them by the way also in this chart that's i think very interesting sax i'm interested in your position on this if
you look at this chart one more time they could have turned on monetization i think a year or two before they did so they purposely didn't charge for it to get the network effects going i would love to see in here the number of users as a third vector you know um as a third line on here because i think they started getting a lot of users in 2014 2015
2016. that's when that's why they got the seed but they purposely did not charge to let the network refer yeah 2015 was a private beta i don't think they were even had a product in 2014 that was usable yet 2015 was private beta 2016 was public launch and then they turned on monetization in 2017 and then they turned on enterprise pricing in 2018 so i think that's a pretty sound
progression i i'm not i mean to be honest i'm not a big fan of taking three or four years in the wilderness to build your product i think you need to get to market sooner but i do think it is a little different in a existing industry where the table stakes are high so you know adobe is not a cloud-based product but those were very rich client products and so to get
to the point where you could even compete with them with the classic clay christensen innovators dilemma lightweight version of the product there were significant table stakes there and it was a significant technical challenge to move design tools into the browser they had to do a lot of cutting edge browser tech the browser wasn't ready for it yeah
this chart is going to be call in in a few years now that i'm doing after all in 48 hours after it i think that's correct uh come join me with your questions spax are back i don't know if you saw in the news but freeburg launched a spec no no he he he announced a target and a merger agreement incredible so now he goes into the dspac process now we have two out of four besties have spacked
uh freeburg you want to tell us about uh what you expect well i mean we announced that we're merging uh the production board spec which is uh tpb acquisition corp with lavoro which is the largest agricultural inputs retailer in brazil and operates across latin america you know we've got a good slide in the presentation that i think echoes some of
the points i've talked about on our podcast here about the importance of having resiliency and redundancy in global food supply chains and increasing famine risk so we've got a slide that shows for about 30 years you know we've reduced the number of people globally that have been undernourished down to about 600 million as of about three or four years ago and in the last
three years we've seen that number spike back up to 800 million which we thought we were done with global famine and now here we are facing these issues again climate change the lockdown supply chain disruption the ukraine war and all the other geopolitical tension issues so that's been a big thesis of mine individually you guys know we've talked offline about
some investments i've made and my strong interests in the area brazil and latin america is the largest ag export market in the world so they produce calories for the rest of the world and farmers there largely lag in terms of technology adoption i've got a nice brazilian farm as my background today but technology adoption doesn't look like it does in
the u.s there's a huge opportunity to influence and drive productivity up in that region and so we partnered with the largest ag retailer ag retail is the local locations that work with farmers they have these teams called agronomists they meet with the farmers typically weekly help them make decisions about what products to use what to do how to do it
and so with the footprint and the reach that they have i think we can really drive up productivity per acre across the region increase total global calorie production and that's why i'm so excited about it fundamentally it's also a great business it's all the financials are presented in the um in the investor presentation and will be published with the sec here in the next couple days
but uh it's a it's a scaled business it's a profitable business and it's growing pretty significantly so it's got great tailwinds it's a great base business but for me there's huge opportunity to continue to drive with their drive technology through the platform that they've built uh and that's why um you know we're also making a hundred million dollar
investment off our balance sheet into the company so that's big skin in the game we put two thirds of our these founder promote shares they're you know they only vest if we can hit the stock price of 1250 and 15 over the next three years otherwise we lose them so we've really tried to align ourselves with shareholders and really put our money where our mouth is on this and show
people that you know that this is a real strategic partnership for us it's not just you know an investment that we intend to kind of you know hold for a short period of time this is a key platform for me for our for our tpb business and for many of the companies that we operate at tpb so i'm super excited it's been a long time coming it's been a very hard process as uh
chamath can attest and as we all talk about capital markets are very difficult right now uh getting a transaction announced is is the first step now there's a bigger step of getting it closed but uh yeah a lot of work but i'm i'm i'm super excited about this yeah thanks for letting me talk about it yeah well and the other thing i just want to double click on there
chamoth this idea that two there's of this the sponsor promote have to hit certain hurdles i think that's probably a pretty good thing for folks who maybe want to invest to just say hey yeah this is great we're the there's some alignment in how these shares get distributed yes i mean i think it's a good feature um i think that the thing with spax in
general in a moment like this is that it's um it actually performs better in periods of high volatility and the reason is because you know you have this uh redemption feature which essentially allows you to get back your your basis and so meanwhile while you know freedberg was hunting for a deal or whatever that cash you know that you've contributed into this back
sits in a savings account that then actually is generating some you know reasonable interest as rates go up so the whole combination of all of this stuff actually makes back a pretty good risk-adjusted vehicle when the markets are highly volatile because if at any point you don't like how you feel even if you love the deal you just vote to redeem get your ten
dollars back and effectively win the market right let's say the market goes down thirty percent from here to march of next year when freedberg's deal closes well an investor could theoretically just say you know what i just want my ten dollars back now all of a sudden they've gotten zero they've felt zero percentage of that drawdown and that's what's so interesting about
this structure in a moment like this so i think there's a lot of really interesting features that that spax in the future i think will have to incorporate in order to in order to be a successful tool in the toolbox one thing i learned from i guess the pattern ag company that i think you incubated as well or was that yeah a cup yeah you're incompetent
as well yeah and you you guys invested through the through your launch platform yeah right so we invested in the syndicate is that the way this retail works is you have farmers but then there are these retailers or these sales reps i guess they call them in the industry that service the farmers and so that's where yeah yeah that's exactly don't have this technology yeah that's
right they don't they don't know how else is a farmer supposed to know what to buy and what to do so ag retail the local retail store the people that work there are called agronomists and so the agronomists are like technical sales people they understand the science and the technology of farming they understand what the farmers have done in the past
and then they partner with them to help them decide what to do going forward what products to buy how to use them how to get the most out of their land and so when new technology when new ag technology comes to market it's the retailer that can influence the farmer to make a decision on making a switch or using a new tool or using some software uh you know to drive that decision and
so that's why ag retail is so important and why it's critical for any new technology to get adopted in farming it has to go through retail you know there's the big ag input companies they're the seed companies and the chemistry companies and the protection companies and the software companies they all don't sell direct to farmers typically
they're going through these retailers and so yeah is there a version of lavoro that's been that's an american company that's public or not yeah it's called nutrient and so nutrient uh owns cps which is the largest retail chain in the u.s ag retail chain in the u.s um about i think uh 70 80 of nutrients business is actually fertilizer production and then the rest
is the retail business you know that's the key comp that we actually show in our financial presentation that we published yesterday how is nutrient done just as a public market do people understand sort of the value that it creates in the marketplace yeah um so in the last year as we've talked about on the show companies that are in the fertilizer business are making money hand over fist
because of the um the issues with the supply chain for natural gas potash and phosphates and so if you have access to supply like nutrient does and and various other fertilizer companies do you are absolutely minting money this year and so they're having record earnings right now and uh you know people are kind of estimating that the fertilizer market
will kind of reset and as a result these companies are over earning right now which means that they're getting low forward multiples but generally speaking uh yeah these businesses have done very well and one of the you know i would say the us is about 15 years ahead of latin america and remember latin america produces and exports more calories than the u.s
um and they're all and corn farmers in brazil for example are only getting half the yield of corn farmers in america or a little more than half per acre yield per acre and the reason is the retailers in the us are so sophisticated that they're introducing services and they make a bunch of money selling services now that wasn't the case 20 years ago so now they're
offering farmers advice using software and and other kind of custom you know soil testing services and whatnot and that's really changed agriculture it's given farmers data that they didn't have before and helped them make better decisions using that data that didn't exist before and that's really you know i would say concentrated in the u.s that kind of sophisticated behavior i think
it's really important we see it happen around the world now um because we need to grow more food and we need to do it without expanding land and acreage and so on and we need to do it more sustainably which is another kind of key part of this did you worry a lot about like the fx risk of you know all these inputs coming into brazil having to deal in local currency
then having to kind of get the revenues out in into u.s dollars and all of that stuff how did you think about that yeah it's a good question so when um all ag commodities around the world most commodities right they trade in dollars and so um you know if the dollar strengthens against the local currency the rei the farmers actually make more money and
the input companies charge more money in local currency so basically the entire ag market and around the world commodity markets generally speaking inputs and outputs trade in dollars and so if you're a a local business you actually make more money when your local currency goes down and you're willing to spend more money and so businesses in a commodity cyclical business generally
are are currency hedged because of that because they're they're selling stuff in dollars and then as a result the places that they're buying stuff from charge them more in their local currency and they can still make a good spread so you know there may be fluctuations in fx risk but generally speaking i think we see um and i'm just speaking generally here not
about this particular transaction we generally see and we saw this at monsanto so that's a good example all ag input companies uh when the local currencies devalue in a market that they're selling into they charge more and the farmers can afford to pay more because they're making more selling their product into the markets i am i think this company is super interesting so i'm i'm
i'm rooting for you it looks it looks really really cool and it seems like a very good entry valuation good margin to safety too yeah 1.2 billion 1.2 billion valuation if i'm reading correctly here so yeah congratulations it's hard to get a deal done at this time for people don't know fx foreign exchange just trading one dollar or one currency for
another did you guys see that there was a title vi lawsuit filed against pfizer for some um you know in the in the civil rights act there's something called title vi which means that if you take federal funds of any kind you can't discriminate and pfizer has a program to recruit african-american and latino people into the company and they're not being sued because you
know pfizer takes nih grants they you know work with the us government they work with medicare they work with medicaid and so as a result of that um it's it's really happening one month before something else that we talked about which is there's the affirmative action case uh that's going to the supreme court where i think it's harvard actually you know push people pushing back on
harvard's ability to have some form of race-based admissions so i just don't know if you guys were monitoring this for me i just took a step back and i thought look at what has happened legislatively in 2022 we basically repealed roe v wade the supreme court also went after a concealed carry in new york and said that new york cannot legislate against
concealed carry which had pretty big ramifications with respect to gun laws the consensus opinion is that we're going to repeal affirmative action in the next month or the supreme court is going to do that these are three pieces of an enormous change in the united states civil society that that has happened in a really small condensed period of time
so i have these thoughts on affirmative action but my other thought is like it's incredible how conservatives have been able to organize and how disorganized you know progressive have been in order to create a counter maneuver against them because this has been a systematic effort since karl rove literally wrote about it in the mid-2000s said here's what we're going to do we're going to
raise a bunch of money we're going to redistrict everything we're going to get the state legislators on our side we're going to basically you know fund the federalist society we're going to and they did it uh and in 20 years they've created an enormous amount of change that i'm not sure all americans agree with meanwhile the progressives are just kind
of like naval gazing at each other i mean and then you left off this past week uh chamath that um it seems like the gay marriage bill is going to be put to a vote and that they're not going to be able to find i didn't see that what yeah yeah and ted cruz said he's not going to vote for it because it's attacking religious freedom so we had talked on a previous
episode and i think zach you said you didn't think gay marriage would come up and well no if i had to guess what the political gamesmanship is here because they think it's not going to pass they want to bring it up for a vote because it preserves the issue it intensifies the wedge issue when it looked like they had enough votes they weren't going to
put it up for a vote so i don't know i think it's a lot of gamesmanship here look i think enough republicans should vote for this just to pass it i don't why wouldn't they yeah well i think there i think there's some issues with the way the bill is written in terms of maybe requiring religious organizations to perform gay marriages i think that somebody should just make an amendment
to clarify that's not the case to solve this religious freedom issue i think if that happened then you get more republicans on board or at least they wouldn't have an excuse but yeah look i would like to see enough republicans vote for this to take it off the issue i don't think gay marriage is in at any risk of being overturned by the supreme court remember
it was gorsuch who wrote that opinion so i think this is a scare tactic that progressives are able to use to fundraise off you know their their base nonetheless it'd be nice if enough republicans would vote to canonize you know marriage equality so that they wouldn't be able to do that that's the smart play here for republicans yeah it looks like by the way breaking
news um in the washington post democrats have postponed the same sex marriage vote until after the midterms so but i mean you can understand why people are going to be nervous about this after um maybe they're doing that because they want to they want to run on it that's an issue they want to have that as an issue yeah i mean force it the 70 of people are in favor
right 80 percent look if republicans want to be smart find 10 republicans in the senate who can support this announce now that you're going to support it come on republicans have a brain don't let them change the issue from this economy that's spiraling out of control i mean the republicans are clueless what do you guys think is going on there
oh right yeah so fedex stock has dropped 25 as much as 25 as we're taping this this friday after the ceo um after a little i don't know if you saw the video i sent to the group chat but kramer jim cramer was kind of pushing him do you think there's a recession during the session he finally said yes i think there's a global recession they missed on uh revenue and they have
cut their predictions for next year severely uh and the stocks weigh down i think based on what i heard on cnbc from and reading some stories right before this breaking news is happening some people think this is 60 40 market versus management but either way i think the fed's interest rates are doing their job and less packages are being shipped because people are chamath
you would think spending less money and that was the whole point of this exercise was to slow the economy down freeburg i think this was a little bit of a head scratcher this is a new ceo so i think the game theory on this is that it made a lot of sense for him to reset expectations i get that and i think that that's a that's a reasonably smart thing to do
when you're incoming you know leader of a very complicated organization that really is at the end of the bullwhip so to speak on on consumer demand the problem is there's just so much conflicting data um you know retail sales was pretty reasonable you know china actually looked a little bit stronger than people expected just this past week on some data that came out there
it looks like europe is going to really draw a hard line and make sure that they spend whatever it takes to have enough energy so that their productivity doesn't fall off a cliff all of those signals would say that you know we're not at the precipice of this kind of like cratering of demand and then you have powell basically saying yeah we're going to go another 75
and you know we're going to take rates to probably somewhere between four and five percent so the the fedex data point was pretty starkly in contrast with at least some of the data that we've seen over the last few weeks so i don't know it was a bit of a head scratcher they got three things working against them number one amazon just continues to build out local
delivery infrastructure at an incredible pace at the end of 2020 amazon was already up to 25 market share um which put them ahead of both fedex and ups and fedex has seen their market share decline for the past eight or nine years now um so that's kind of you know a key point number two is people are just shipping less stuff doing more stuff digitally
and number three is this recession impact where they obviously have key economic indicators that allow them to do a better job forecasting deliveries than most companies i would imagine and so they can see order volume and trading volume and use that as a predictor for um you know for what volume for shipping is going to be in the future and i would guess that all three
continue to work against them it's not like they have a lot of diversified diversification in the business and other ways to expand out into so you've got a key vertically integrated player namely amazon that is investing heavily to replace whatever they use you for i think as of a few years ago amazon was only like two percent or three percent
of fedex's revenue anyway but still i would imagine amazon is playing a key role here your first your first comment to me is is now that sounds like the most credible explanation and you know to blame a recession is sort of a little bit of hiding the cheese it's probably fair to say that their lunch is getting eaten by amazon so i can understand why fedex is under a
lot of pressure because of that but if you just compare it to just all the other data it doesn't seem like this whole thing makes any sense what you just said about competition makes to me a lot more sense and yeah competition with digital and amazon i mean digital like how much do you guys sign letters today versus e-sign i mean there's just a lot and you
know i'm giving an example maybe that's a one percent impact and there's probably a few more things and these things all layer up well they could be losing market share while still growing because e-commerce is growing so violently in the world but saks what do you think i think what's going on here is that whatever the issues of fedex and no matter how overstated these warnings
may have been i think they're directly correct he's saying that the world's headed for a global recession and directionally he appears to be right i mean things look really grim we just had this inflation report that was much worse than what people were expecting it was inflation was supposed to go down to uh 8.0 percent and actually it was 8.3 that's why the stock market
cratered uh a few days ago it's like the worst day in the stock market i think maybe all year or certainly since june we're almost towards the june lows uh now this uh fedex executive is saying we're headed for global recession so it seems to me that that the economic news is just pretty grim here and we're in a we're in stagflation the fed has to keep
raising interest rates at the same time that we have persistent high chronic inflation and you have to wonder you know i tweeted a few months ago that the white house economic advisor brian deese he said that in this interview with cnn that the buying administration was willing to endure a global recession in order to keep russia from controlling the donbass
region ukraine well mission accomplished it looks like it's getting its wish the administration has made some progress in the dawn pass but we are also having a global recession so what percentage of this what percent of the recession and inflation has to do with the russian invasion of ukraine i think it's meaningful it's not useful we know it's a huge exacerbator of all these
listen i don't think the economy is going to get better with the risk of war three hanging over our heads how does that work yeah but what percent of the economic issue do you think is percentage-wise impacting i don't think we're going to work maybe you answer yeah i don't think we're in a recession yet um you know retail sales is still quite strong there's just a lot of
signals that tell us that people are still consuming a lot of things and and that gdp is pretty reasonable and that jobs and wages you know are pretty much you know quite full so i think saks you are right that we will be there because you can only bring rates up so high until you break things do you see there's a tweet by i think a charles schwab analyst
today about that issue of wages and she was tweeting off to find it that for the second year in a row we now have uh because of inflation we now have uh real wage decreases so you may be right about like where things stand today but this is about the trajectory right now of the economy and the trajectory is not good inflation is not coming down as fast as people were
anticipating it's worse than expected um you have the situation in ukraine where listen we can all cheer on the ukrainians for this counter-offensive that appear to be successful but we are playing with fire over there i mean i i don't recall a time during the cold war where we did anything remotely this risky you have america listen we have american generals american generals
we're taking credit for this counter-offensive do you see this new york times story where they talk about the inside moment of this ukraine counter-offensive so you now have america america is now giving ukraine more and more advanced weapons okay this sort of the the long-range artillery they're telling them where to point the weapons they're giving them
the intelligence for it um they're training them on how to use it they've got commanders on the ground there and um and they actually are hand correcting the battle plans the ukrainians had a counter-offensive plan the americans said that's not good enough and they rewrote it so the americans are now doing everything in this war except pulling the triggers and
taking the bullets and i don't want to minimize the sacrifice the ukrainians are making because they are dying in huge numbers and you know we can all respect and admire the sacrifice they're making for their own country but this is a very risky strategy for the united states america to be pursuing i mean we are we are basically playing with fire
and we are you know this close to being at war with a nuclear armed russia and we never came close to this type of behavior during the cold war and i don't understand what's changed so much that we have to take this kind of risk now at the beginning of this conflict i said that i was open to arming the ukrainians under cold war rules cold war rules meaning covertly like we did in
afghanistan we now have multiple examples the administration boasting and taking credit taking credit for the counter-offensive for the sinking of the mosfet for killing russian generals this seems very risky to me so sex um a court premise of the discussions we've had here is that the united states screwed up the negotiation uh with putin by not taking nato off the
table reuters reported that putin rejected a ukrainian peace deal at the start of the war uh at the start of the war russian chief envoy on ukraine told putin that a provisional deal with uh kiev had been struck dale would have satisfied russia's demand that ukraine stay out of nato uh two of three sources said the push to get a deal finalized occurred immediately
after russia's february 24th invasion does that change any of your thinking on uh what's happened here and putin's culpability i think it's a data point you know but then let me explain why i don't think it's this positive and by the way i saw the article every neocon on twitter was basically tweeting this trying to prove that this yeah i would
see it on everybody's food shimer analysis let me tell you why it doesn't okay first of all if you read the article closely this offer did not come until after the invasion started okay and we already knew zelinski was publicly saying in the early weeks of the war that they were willing to take ukraine off the nato off the table so this isn't that much news it happened
after the other key point here is that not only did it happen too late but also the offer did not come from the americans this is a really important point to understand about the russian position on this and i'm just saying this based on all their public pronouncements the russians made an ultimatum in december and then lavrov negotiated with lincoln in january they
were absolutely insistent that they would accept nothing less but a written guarantee from washington why is that well the written guarantee was necessary because they've always claimed that james baker eukard gorbachev over you know german reunification and not one inch eastward so they've always demanded a written assurance from the americans and the reason they wanted from america
and not europe is because they know that europe are america's poodles and ukraine is a client state of america so listen they wanted a written guarantee from america before the war started they never got that now if your point is did putin do everything he could to avoid this war absolutely not i will absolutely grant you that but we already knew that the question is did the u.s
state department do everything they could to avoid this war and my point is absolutely not they should have taken this ukraine issue off the table in writing before the invasion got it okay and afraid broken about ukraine no no i just uh it was major news and we have an obligation i think too i'm glad yeah that people take this one article and
they're like see there's nothing to this this is giving you the opportunity sex now let me ask you a question for free burke freeburg the other follow-up people would like us to have made here is we predicted famine uh and massive disruption in food we debated that here you were pretty clear that this was going to be or could be disastrous it hasn't turned out to be
disastrous yet what's the update on you know fertilizer is shipping not shipping are we gonna have global famine are we not gonna have global family what's the update there based on this conflict yeah we have a massive starvation problem the un told um told everyone i mean no one writes about this stuff because it's seemingly not interesting in mainstream media which i
don't freaking understand but the un thinks that 345 million people now are incrementally marching towards starvation and so i think they did this at their meeting yesterday because of the war in the ukraine um so david beasley whom who i know well he's the executive director of the un world food program he told the u.n security council
yesterday that 345 million people are now facing acute food insecurity in 82 countries where the u.n operates which is two and a half times the number of acutely food insecure people that existed before the pandemic hit and so this is creating like we talked about these rippling effects in terms of initially it was fertilizer cost which means less food is being produced
locally then there was the acute crisis of getting food out of the ukraine and now it's less planted acres and less yield getting out of those acres which i you know we said was going to start to happen in the back half of this year and if you look at the price you know a good proxy for this is the price for corn uh we're at near record highs um you
know for the last couple of years in terms of corn pricing the 2023 futures pricing for next december for corn is at 620 a bushel you know and it kind of peaked out right around the middle part of the the ukraine crisis in um april at 673 so we're getting right back to that high point and so this is a major problem that's brewing and as i highlighted at the beginning of our talk
today which i show in the presentation for the the levoro transaction i talked about earlier we have done an incredible job building a resilient food supply and excellent global supply chains to feed people around the world going back 30 years and we've been able to steadily decrease the number of people that are food insecure or facing famine and famine in the u.n definition
is less than 1200 calories per day on average for a year and so we went from like a billion people around the world facing famine about 30 years ago and got that number all the way down to 600 million and then in the last two and a half three years it's shot back up to 800 million and now the un thinks it's going to shoot up even more so we may even be retracing
our way all the way back 30 years because of the crises that have enveloped the the region around ukraine and the resulting impact on fertilizer availability fertilizer pricing and so on and as i mentioned a few weeks ago many ammonia fertilizer plants which is nitrogen fertilizer the main kind of component of fertilizer in europe are
being shut down because they run on natural gas and so government agencies and the local producers are turning those plants off to make more natural gas available for heating would you describe this freeberg as because we we are seeing uh the eu you know they remember they made that uh this is why this is why south america is so important but sorry go ahead yeah no it
makes real sense would you describe this though because the eu was also at the same time the un was uh you know highlighting these concerns the eu was also praising the massive progress we made from the the russia and the ukraine and russia and ukraine uh allowing fertilizer allowing exports and this resiliency so we got wheat moving and then we got some fertilizer exports moving right so
two steps forward one step back would be how you describe this maybe yeah that gas prices are still elevated right and and that gas availability in europe is obviously significantly restricted we get through it will we get through it do you think we can we can manage this yeah look i don't know how many look there's some number of people some number of tens of
millions maybe hundreds of millions of people who are going to starve between here and there that otherwise weren't going to be starving by the way there's always you know some hundreds of millions as i mentioned of people around the world that are starving under 1200 calories a day and that number climbing some incremental amount that's an incremental
300 400 million people that didn't need to starve and that's a condition we're now going to be facing and so people like hey yeah people are still eating you know there's still food around the world we don't pay much attention to these third world countries we don't pay much attention to these underdeveloped nations because we don't have press coverage there and and when
people are on the streets and unable to eat it doesn't seem to make everyday mainstream media coverage but it is happening and statistically it is a massive problem yeah we're doing we're doing a great job of covering kanye and kim but yeah we maybe get some reporters to to cover the people we've covered and i appreciate you guys giving me a chance
to talk about it because i think it's super important so yeah i mean you know i think when this show is at its best i think we're highlighting things that other people are ignoring i just want to say on this ukraine situation and this applies to this episode as well as all the previous ones i don't want to be right about this issue just like i'm sure freeberg doesn't want to be right
about famine coming true we don't want these things to happen okay if i could choose an outcome right now i would say be great if the russian army collapsed because of its morale problem tucked its tail between its legs went back to moscow and then the ukrainians had the good sense to respect the rights of the russian speakers living in the donbass and
crimea and this whole thing basically tamped down and basically was over okay but look i think there's an equal and opposite chance that that doesn't happen that certainly could happen okay but i think there's an equal and opposite chance that instead what happens is that we climb the escalatory ladder that putin i think we are backing him into a corner everybody says that he
cannot survive the loss of this war and yet we're not willing to give him an off-ramp so what choice does he have but to escalate so what does that mean it could mean a full mobilization of that country it could mean they resort they if they can't achieve their aims by conventional weapons maybe they resort to unconventional weapons we don't know
this seems like a highly volatile risky situation and i just think that you know we the united states of america need to be thinking very clearly about what is in our interest because all i see is a identification we're so interested in helping and identifying with ukrainians that we've lost sight of an american interest that's separate and independent of ukraine's desire for
self-determination i can understand and respect their nationalism and their patriotism but we are a different nation we better think really carefully about our interests here i i yeah and i think david sometimes you're misinterpreted as this is a partisan issue for you you're a duff you're david the dove david not a hawk you want peace listen i believe that if
america is going to risk war with a nuclear armed power there better be a vital interest at stake otherwise we should find every diplomatic off-ramp we can so do you feel uh optimistic about our ability to navigate chamath the ukraine situation uh the war in ukraine famine supply disruption energy do you think we'll get through all this are you optimistic
i think that rates are going to go somewhere between four and a half to five percent i think stan drucker miller is right um and i've said this i i don't know i now at nauseam so i'll just keep saying it but i think everybody has consistently been wrong and they have wanted inflation to be a transitory phenomenon that goes away and they've been consistently wrong even in
our group chat we see these forecasts they've been utterly consistently wrong so rates are going to go higher than people expect it'll stay around longer than people want this will have an impact to the economy uh that that impact in 2024 2025 will not be that great so that's one thing if you want to focus on ukraine for a second there's something that i
think we should focus on which i read this interesting article about russian mothers and you know in the 1980s when russia was at war with afghanistan there were these uh bodies that were sent home to russia and these mothers got very very upset and they protested and then um in uh you know 2000 early 2000s i think there was um there was a nuclear submarine that
basically sank got shot and sank and then russian mothers protested in the chechen war they are a group of individuals in russia that have enormous organizing power it turns out and they um you know they they really can tell um what the real temperature is on the ground what putin has done so far is that he's largely recruited people from
you know the spartan communities inside of central russia and used third-party contractors so he's minimized the risk of the real cohort of the russian population who will really stand you know fervently against what's going on so until you see that happening those guys have a long way to go and i think that this thing is going to drag on for
a really long time so it's a paid army therefore it's obscuring the impact on actual citizens in russia it's half paid but the other half are from places where their organizing power is limited and i think that that was putin's you know calculation seeing what has happened before again sort of like the tip of the spear these russian mothers and we're not seeing that so um
that means that the ability for him to manage perception inside of russia is pretty definitely pretty um greater than people expected yeah greater than people expected so this is going to go on for as long uh for much longer than people think so uh i would just prepare for this inevitable outcome and just kind of you know manage another year of slogging it through
a choppy waters might be one way to look at this and i think that's a very good way i think we're in a very volley choppy market for the foreseeable future yeah and that therein lies some opportunities um and also maybe some discipline in various markets one thing to just keep in mind where most people feel these rate hikes is in the 30-year fixed mortgage right this is where most
americans are going to feel it and if you look at the chart you know like this is a big jump up from our absolutely free money environment that most americans were feeling uh doing you know um you know what what do they call it when you take out equity on your mortgage like a second mortgage or a credit line credit line yeah most people have credit yeah
people were you know experiencing a lot of free money and upgrading their kitchens and taking money out of their homes yada yada but when you look at it historically uh you know even at six percent or even if it goes to seven percent for mortgages um it's a lot less than we our parents experienced and we experienced for the first half of our adult lives so i think
it's surmountable and this number you don't think is going to get up to above 10 right the 30 year fixed you don't see that happening so i think it's manageable which is going to be choppy all right listen sax didn't get to promote it but he has a wonderful film at the toronto toronto film festival about dolly and he is doing an awesome dolly experience with the
ai that paints pictures and so we're just going to insert into the end of the program the beautiful work he's doing there and his dolly film is supposed to be excellent it's the second film david is producing after thank you for smoking so congratulations to our own little scorsese uh for the sultan of science the dictator and uh the david the dove i'm the world's greatest moderator jason
calacanis and we'll see you next time bye bye love you guys bye-bye all right so i'm at the dali land exhibit here at the saint regis the st regis hotel was a very important hotel in dali's life he actually lived in the penthouse of the same regions of new york and the st regis hotel has very graciously agreed to host this exhibition for us and this exhibition is
it's basically a rendering of uh dolly studio or what dolly studio might have looked like and those works of art are actually generated by gpt-3 the so-called dial e engine so thanks to the open ai team and sam altman for giving us access to doll e d-a-l-l-e and so fans can just come here and they can use these tablets to enter you know what art they want to create
they can just enter terms and the you know the engine will spit out art that is made not obviously by salvador dali but it's in the style of salvador dali so i thought it's a very cool way to commemorate the film we are premiering at the toronto international film festival this weekend this is an independent movie i've had in development for something like
over a decade and uh the great actor academy award-winning actor ben kingsley plays dolly and gives a phenomenal performance so we're excited to premiere this movie show it to the world for the first time this weekend all right thanks for watching bye let your [Music] and they've just gone crazy with it [Music] besties [Music] your feet we need to get mercy's [Music]