You want to run a marathon at 57 years old 50 to 51 to 52. I'll be honest, I miss you, can you come back to the United States please? I know you miss you, too. I mean, the poker game can't by definition be as much fun if I'm not, there it plays a bigger States and it's more challenging, but it's not as much fun. There's not as much laughing what's on the menu tonight? For austerity 2023, the amuse-bouche is Madeline with like Katerina foie, gras fantastic in honor of Freiburg.
And then rutabaga rutabaga salad and then some duck thing, duck breast, you know, I love to and then and then butterscotch. Panna cotta. Wow, that is great lineup. And it, you know what, I like the idea. We're doing some poultry. Chef Sean is firing on all cylinders these days. If he feels very like engaged, he was very engaged. Yeah, he's kind of going for it. He's been on. Yeah, that was quite nice. The other day Brad because it's austerity measures. We had this incredible dish and we're eating it and then he said,
Cavaliers on the bottom. So we just we don't put the caviar. It's probably just put it up.
Who are your winners ride Rainman gave its eyes open source it to the queen.
Alright Sachs is here. Everybody said that means we have a quorum hopefully the Sultan of science who is on Wall Street today taking a company public so congrats to our best eat Friedberg.
Ding he couldn't make it he's at a dinner so with us the fifth Beatle as it were Brad. Gerstner is here to talk all things macro. Welcome back to the Pod. How's life been good to be back a little domo arigato to you. Jason is you eat your way through Japan? Yes I am on my culinary tour. I'll be back Sunday but I am having the time of my life here. Are you running AdWords on your food blog? That's what it's come back to back to the weblog think days. I'm just trying to make
Twenty-six hundred dollars a day. I noticed your Tick. Tock. Got 22 likes. Yeah, you know, I'm trying to figure out Tick-Tock. I'm going to but you do right as they shut it down, that's when I'll figure it out. Well that rev-share, buy you another Japanese pancake or not, those pancakes men are Next Level. The fluffy pancakes here with everything, actually, with the exchange rate coming to Japan is so affordable. It's nuts. And this is a crazy because it's the Tokyo Marathon. But everything is so affordable. The people are amazing. It's the best country to visit in the world.
I think for me, it's Italy, Spain and I mean Italy is ready there too but I would say Japan is like it's definitely top two or three. What do you love about it? Best food, you know, I went there, I took the I took the kids like five years ago, the older three at the time, but they were younger and, you know, there's there's a - birth rate in Japan. And so, number one, when you have any kid, but frankly, multiple kids, the Japanese embrace you with so much love because they love seeing these big families.
Yeah, they're unbelievably kind. We went to Kyoto did the professor's walk saw the Cherry Blossom Festival. Basically ate our way through Japan. That was my, that was my only vacation trip. I did, I've done like 10 or 12 trips for work. Once we, I went with Reid, Hoffman and read set up this thing where we went through all these different parts of Tokyo and ate. At this incredible sushi place. You have to go with somebody who can dial it in. Yes. And have all the hookups Brad, you spend much time.
Time in Tokyo and Japan. I haven't. I've been there only twice. Then that was when I was poor and I stayed in a really small room and it really shitty food. All right? So you're saying in 20 in 2022 when you became polygon and with us, of course, the next Department, what kind of position you're going for sex, when which we should we start flowing here?
Oh my God.
Here you are with a disinformation. Starting already,
he cites a compliment Secretary of sashes with us to Santa's had a pretty great article in the Wall Street Journal.
No, really. I'm so what is it?
When they revoked the special administrative status for Disney? He wrote an article I think was Wednesday. Hmm. Tuesday or Wednesday in the in the Wall Street up at what was his premise that they it was a corporate or as a culture that woke ism is basically modern Marxism and we have to defeat it. This is his language, not mine.
at every turn, and
Disney needs to just be business people and not feed the vocal minority's inside of their company. Like every other company should they should be subject to shareholder concerns that apply to the majority of
shareholders? Well I think this is why I think DeSantis is doing well with the Republican base and you know if you see pulling up the Republican primary as he understands that it's not good enough just to have this sort of reaganesque, totally hands-off government approach because the radical left is advancing its agenda.
Not just legislatively but through corporations through ESG really through taking over key, private sector institutions. And so he's willing to use government to push back on that agenda on behalf of parents or on behalf of, you know what he sees as the majority of the country. And so it's a very different approach than you know the Republican Party would have been 30 or 40 years ago. This is why, you know, in the parlance of the base. He understands what time it is.
And what's required here is not again, this totally laser fairer approach but rather a much more energetic aggressive approach towards checking these bad ideas, wherever they come from.
It's not the only one, I don't know if you saw this week. Bill Maher went on a bit of a press tour and he was on with Jake Tapper and he made a very interesting, I think point about liberalism versus whoa, Chasm. And it was quite articulate, you know, he's a pretty good Observer of culture and he said there.
And of casting out the Liberals in the party for this woke ISM and the intolerant nature of the woke movement versus the liberal movement specifically under the lens of trans rights. But let's put that aside for. Now we got a full docket before we go into the culture wars and presidential elections. Let's start
With will go private markets to public markets because they obviously dovetail so nicely item one on the docket today, there is just a massive AI fomo frenzy going on. Condoms publish a piece this week about the insane fundraising in the generative AI space. This is stuff like chat GPT stable diffusion. You've heard these names and there are now five hundred generative, AI startups. According to this report that tracks, with what I'm seeing.
The early stage and not counting the open, a I-10, Billy, from Microsoft investment donation rev-share, round trip. Whatever that is they have so far, collectively raised more than eleven billion dollars. The article included this chart, which you can see if you're on our YouTube channel and just tons of folks working and audio image and text. So we're basically looking at the multimedia basically revolution of PCS in the 90s occurring,
And
a complete platform platform shift Doug Leone from Sequoia one of the greatest investors in history of Silicon Valley had this to say and we will comment on the other side of this 50 second clip from
Doug. I actually think that AI is the next platform shift in the same way. The mobile was the one before internet was the one before. So I think AI is real but I said earlier, we're going to overestimate in a short term, we're going to invest in everything in.
The same way that in 1999 we invested in everything but then Google
came out of that or Facebook
came out of that.
So I think you have
to have a good head on your shoulder where you don't practice fomo where you don't chase every company, AI is real, a eyes and next platform. But how do we not invest in everything that walks? How do we make certain Investments, based on Market Maps, based on thought processes that are more rational
Journal and not do every investment. Just because every other Venture firm is doing everything bus.
All right, your mouth. What do you think of this massive influx? I think it's important to think about what the incentives are is Charlie. Munger says, show me the incentive and I'll show you the outcome. I posted it into our group chat Credit Suisse sent all their private banking customers and offer. They are now offering 6.5% for a three-month t-bill.
6.5%. And if you go back to what we talked about before, when the risk-free rate is somewhere north of five or five and a half percent and banks are willing to give you six and a half percent. In the short term, you have to generate more than three times at to make an investment make sense when you're investing in the long term. So if three month money is going to pay you six and a half or seven if you're going to
Vest for 10-15 years, which is what you need to do. Typically for a start-up, you need to get 20 to 25%.
So there's going to be a lot of pressure for Venture investors to put the money to work because otherwise their LPS, their limited partners. The people that give him the money, we'll have this attitude that goes somewhere along the following lines. Okay, I've committed to you. Why aren't you investing? Because otherwise I can get paid six and a half percent on the front end and so this is becoming very problematic. What am I paying you for? What am I paying you to percent a year in management fee for so, I think
What happens unfortunately is the opposite of what Doug says, I think good investors will try to follow Doug's feedback and advice and the ones that have a track record of distributions of DP. I can do more of it than not but I think most people will be under pressure to deploy the capital and so the 500 companies. Jason you mentioned will get a lot of it and it'll get torched because most of them, probably won't amount to much of anything in the short term you will create way too much.
Correlation and you will have zero time diversity, which as we've learned is a recipe for terrible returns time, diversity. Being hey, you deployed all this web to Capital, web three capital, sorry, crypto, whatever. In this very short period of time you overpaid. You can also fire little bit of fire. Brad when you hear trim off, talk about the 6.5 percent, and then you look at private markets, you invest across the lifecycle of companies. Obviously, you're in some private companies, we all know very well, famously snowflake. I think your biggest win ever correct.
Wrong. And in terms of a private, how do you look at this? When you're a steward of Capital Public markets, private markets and then just YOLO just put it into you know, some charts tables or yeah, bonds or whatever? Okay first, let's just frame. Right the chart that you showed, I think you should said, you know, X open a.i. I don't know something like 10 or 11 billion dollars, have been invested into some 500, AI companies. I mean I have
To agree with dog, that this is a platform shift on the same magnitude is the internet or mobile itself. In fact, it may be bigger than both of those.
But, you know, when I look at 10 or 11 billion dollars, you know, let's put it in context. Metas going to spend 20 billion in one year alone on a RV R and this is on an entire platform.
So I don't know. I I think whenever you have something as tectonic as mobile or Internet it deserves a lot of investment and yes, it's going to be messy and yes, shh months, right? The cost of capital frankly is limiting the amount of money going into these businesses already. So we see a lot of dry powder sitting on the sidelines. This chasing new ideas,
I think one way one way to frame it as well, it's like think about in 2000, we all knew that the internet was going to be big. We may have been lucky enough to conclude that search was going to be big. But if you invest in and Yahoo or infoseek, or AOL or excite lycos, you tore all that money went to 0, right? So now think about just these large language models, right? The foundation models, which are driving and enabling all of it open, a.i., you've got open a
Why you got to drop it? You got cohere, you got character, you got stability, you've got Lambda.
It is almost impossible to know with any certainty much like it was with the search engines in 99 2000. Who's going to emerge, where the value captures going to be? It may all end up with Microsoft and Google. I mean, this may end up looking like IOS and Android at the foundation model level. And so, you know, I think as investors, for example, on the foundation model side, I think it's very difficult to choose, just one particularly when the largest one is, frankly, captive and a proxy to Microsoft and they're capping.
Or upside return. So like those are difficult investment decisions that doesn't detract from the fact that I think it is as big as Doug suggests and I do think they're going to be applications and tooling layer to come out of this. It's going to produce really big Winners. I would say that we are spending an extraordinary amount of time.
In this space, we haven't made a lot of Investments. I think you have to study, you have to get deep. I mean, Timnath, certainly, and I have been investing in this space, for at least a decade, maybe 15 years, but don't underestimate.
That the Transformer model really did change the game here and we're now producing impacts much larger sacks last week, you said lap 3 and crypto didn't kind of stick with you. You didn't see the use cases and you in the first inning here or first at-bat. You rattled off three or four really compelling use cases from summaries to. You know the assistant guide on your side concept is this Akin in your
Mind because Brad just said, it could be bigger than mobile internet. Mobile AI Revolution. If you were to look at those three, do you think it's bigger than actually mobile and then we'll get into return, profiles of 6.5% on cash versus what a VC is going to be able to do in this kind of
Market. Yeah, I mean, so I agree with Brad and dog that this is the next big platform shift whether it's as big as mobile or, it's more like social or Cloud. I mean those have been the big platform shifts over the last decade or two and I think this is definitely
Par with those. I think Brad's, right? We don't know where the value capture is going to be. Maybe it just all ends up, creating to the big companies. You can make massive investments in the space. You know, one difference between the internet ecosystem today and 20 years ago, as you do have these giant companies who are not totally incompetent, right? I mean, they are they do have lots of talented engineers and you know, like 20 years ago, you'd have company, you know, the big companies would just sit on their hands and the face of a platform shift and it just be sitting duck.
To get disrupted or not, it's not going to happen today. That being said, I do think that any new platform shifts creates opportunities for startups and it may not be efficient the way that these opportunities get pursued in the sense that yeah, dogs, right? That this me a lot of spray and pray, but I think that it is kind of efficient for the ecosystem as a whole, right? Because, like any smart engineer with a half decent idea, ends up getting funded and out of all of that, you get kind of a
Cambrian explosion where you know the ecosystem involves a lot of different types of businesses. Most of them don't work. They get wiped out, they go extinct but they'll be some good things that get funded. So we're more like I think Doug and how we see it. We don't want to spray and pray, one be very selective. We want to put more money behind fewer opportunities that we think are better and Doug Leone. You know, I think he generally gives good advice of the tough love variety, and this is of a piece with that. And so I agree with him.
That being said, there is a certain value to the ecosystem and having all these seed funds to spray and pray, right? Because this gets a lot of plants, a lot of flowers and then you see what blooms
I would say. Yeah, to build on that sax. This is a perfect inefficiency. You know you when you see it from the outside, you're like well this is super inefficient why. So many companies, if you're free your mind and just say their experiments, two, or three person, experiments, 500k to a million and a half, in that first stage. When I invest, right before you do, when you do your series is at 5 or 10 million.
Milestone based funding is back in the tech industry and that was something trauma that we lost for a little while there. People would just come out and they would raise a series B out of the gate. No product Market fit excetera. Now, what we're seeing is people are raising that 12 to 18 months. They got their backs up against the wall. Speaking of tough love, which you reference acts that tough love of, hey, you have to hit the next Milestone. What did you accomplish with the 1.5 million in order to get the 10 million in order to get the 30 million?
That 500 is going to go 10x will be 5,000 of these startups but it'll quickly Whittle down. Wouldn't your mouth as people go through this Milestone, based funding system in Silicon Valley, we haven't given enough time for a logical framework of investing to develop which also is tied to a logical framework for entrepreneurship to emerge. We're just way way way too early. So the thing with all of these language models is that they are Grist for the mill. And we talked about this before, if it
A highly proprietary asset. You would have never sold 49 percent of it to Microsoft for 10 billion dollars because you would assume that it was worth a trillion dollars. So it's a huge towel on the part of open a.i. their deep understanding and they understand it better than anybody else that it's a bit of a capped upside. So what is uncapped I guess is maybe the better question? Well if you look at the 18-49 Gold Rush as an example, the people panning for gold in my
in are the people building language models today.
They're going to come in, they're going to go. But who's going to win? Well, the Pick & Shovel providers one. Levi Strauss one. So, what is the equivalent of that today? I think it's at the Silicon layer because you need to really read. Architect, how compute will actually work in a world of all of these models? Those folks will get paid. If you look at AMD and Nvidia, they've been getting paid for years. They continue to get paid, they probably will continue to get paid even more. And so folks that actually,
Take a step into doing something hard and difficult in a, I like custom silicon could get rewarded and then there's what I call the white truffles. What are these unique albo white truffles? These singular sources of data that when used in reinforcement learning, make your output, just zing and that's where I think.
Facebook is an obvious white truffle core has a white truffle, but there are a lot of startups that could become white truffles if they gather enough data and that's like a pretty reasonable framework. And so in that framework, if you apply to today, there's way few silicon startups and there's way few white truffles and said it's everything is the bologna in the middle which is random people talking about some random model that's just going to again, become highly commoditized. You have remember all these models are open source than none of them mean
Mean anything? In the absence of the data you give it to train on 100% Brad. Hey, okay.
Well, I want to add one other piece of news that we saw this week which is open a I announced that its developer AI. They were cutting the tax on that or basically the metered rate they charge to use it by 90 percent. So I think this is going to be a game changer. I think this is based on the chat GPT 3.5 API, and, of course, you're coming out with 4.0 later this year.
I've already had explained to the audience. What an API is and why this is important for those people who don't know,
just application programming interface that allows a developer of some other application to build on top of you. So, in other words, like a developer wouldn't have to use this chat interface to get access to the large language model, you could just submit your request through the API.
And so give an example of what of like a popular app and how they might hear it. Yes. So
I think like notion actually had a demo
Oh, that they published wearable. It was a pretty incredible demo. We can find it and it would do think they added actions in the demo like generate at assless. So you could take like a document or a meeting summary and would spit out recommendations for next steps or tasks. It could, you know, spit out a table. Basically, it's the autocomplete for everything that we talked about, right? So now, no, she doesn't need to build their own llm expertise. They just don't use the
API.
So, when the notion app you say, hey, I'm building a marketing plan. And you say, well, okay, give me a list of things that should be on my marketing plan for my new app. It sends a signal to the chat GPT API which will be on Azure Microsoft's platform and then it gives you the data back. You don't have to build the language model.
Yeah. Credibly powerful notion has all the content that they need, but they don't have the AI expertise. Now, they don't have to generate your create AI expertise in-house, they just use the API. I was very powerful and that but just to
The thought here, I think that one of the things that's probably misleading about these stats around funding, and the, there's like almost 600 starts already. There are AI startups is that, you know, what happens when there's a new wave is our Founders are smart, right? And they know how to Market themselves in the way that is most compelling to VCS and they know that like VC's, frankly are a little bit lemming-like in terms of their migration to the next wave and wanting to glom on to the next big wave. So feces are now looking for AI if you're a founder.
And your you build one feature on top of the, you know, open a i API. Now all of a sudden you're going to Market yourself as an AI company. You're not gonna Market yourself as just a SAS
company and so that's valid. Yeah, I mean, it could be named or it could be like a great pivot, you
know. Yeah. And it's not it's not totally one or the other. I mean it's just that if you have a plausible connection to a i as a Founder, you're going to start marketing yourself as an AI company. And so that's how all of a sudden you can have
Rid of these companies you know that are all of a sudden out there in the wake of this sort of chat GPT as I think a lot of companies are re categorizing themselves
and literally had this experience not three weeks ago, right? Before I went to Japan cereal founder and team that we've backed for that had an exit said, can I show you something? I said, yep. Got on. The zoom showed me a little proof of concept using chechi PT and he said, this is my idea. This is the vertical. And I just said, okay,
What do you want? He said 500k for 10%. I said, okay, done. Great, let's learn. And it's easy back for us to make because we know it's a Serial team for open a.i. The way that it could become a trillion dollar company is actually by cutting the cost to such a low degree that nobody else can effectively compete with it. And then at that point, they can become a small, small, small tax. You'd rather just pay it. Then try to compete with it. And I think for open a.i., that's actually a very brilliant strategy. So that's how they they could get to become very, very large in valuation.
Ian would be to become so pervasively, relied upon and where they take, such a minuscule, take rate of their participation in you building a company that could be really effective for them like cloud computing, right? Like we're going to just take such a small Tax. Nah, that's not a small tax. That's a large
text. That's the picks and shovels. Play in a way to create the developer ecosystem for AI and Robotics a to your point. I mean, I think you raise a good point that you know what was your motivation to take such a dilute of round you know the 10 billion that was evaluation at
30. And yeah and it does that imply. That they're not confident mean the the flip side of it could be maybe they know they want to compete on the basis of rapidly, you know, becoming the developer platform and so they're going to subsidize that developer platform you know with - gross margins for some period of time and maybe that's why they need a lot of
capital and they were in kind of a reflexive Loop of just cost of getting better versus the amount of money they had to get better and so maybe they were forced to do it. And then in that point, how would you justify?
Why you would say? Well, the other 50% is still hugely valuable. So that's enough for us. And I think that that's, that's very logical. Brad. You have your finger on the pulse of LPS limited partners who back funds, like jamaat's Sachs is mine and yours.
We heard 6.5 percent on your money for no risk. Well you and trim off this position. Is he have to Triple that if you want to be a private Market investor? That's about 20%. 20% Rule of 72. That means every three and a half years. You got a double if you're doing that, for a tenure fund, you're looking at a 5x fund is kind of table Stakes, then I think, just back of the envelope, math, whatever, LPS thinking right now, are they looking at this world and saying I should be all in cash or are they saying? Yeah, everybody.
We should be all being cash. Therefore, there's not going to be enough money in private. Therefore there's an opportunity there we know the 6.5 percent rate. You know that's not going to be here forever. It may be here for a little while but we need to we need to keep investing in venture or are they just cut throat about it? Like let's pause, Venture investing private Market investing. It's a great question first. When I look at the three or treasury bill, it's like 4.7 not to quibble here. So I think Tomas getting a little Goosey Goosey on his 6.5 but the
Of the matter is these juicy Goosey.
It was like, some sort of like bond rate that included corporates or something. Maybe it
was. I'm getting a 5.2 from Robin Hood on. My Robin Hood can forge a training so it's right. What is in that? What is in that Jason? They probably got it. Some junk Bonds in there. Ripping you off, whatever. Whatever it is. I'm getting Five Points. It sounds pretty awesome. Until you're not your are until you're
not. It's 100% Tebow.
Do parentheses and junk bond
fund.
Look at the fine print.
Jacob. LPS have a 10-year view. They understand. Like, most people, I didn't listen. If you look out at the tenure, the reason that tenure is, you know, that we have real interest rates at about 1 & a half percent. So that's the 10-year less expensive expected inflation.
When you look out, is because it, people expect inflation to come down, and they expect rates to come down. So, if you were an LP and you said, I'm not going to invest in Venture and the next to vintages, which may be the best to vintages we've seen in a long time, because prices are adjusting etcetera, and I'm going to move it all into some rate bet first, it's just very difficult to do. They don't move their allocations around that quickly. Now a wealthy family as an LP could move their allocations around really quickly but if you're Texas or your Ohio,
Or you're a sovereign, wealth fund, you're betting on the Arc of value creation, I would say this, the consequence is they're narrowing their aperture as to the Venture funds, they want allocate Capital, it's okay. So then that unpack who they are, narrowing, the aperture turn to, we've talked a lot on this pod about the power law. And the truth of the matter is whether we're talking about AI or software, or anything else that, you know, people are going to be funding, its 10% of the Investments that are
going to yield 90% of the returns. And so,
They're looking at that and saying, who are the top 10 firms in Silicon Valley, I either want to get allocation to those firms who are seeing the best deals converting, the best deals and are more selective like sacks talked about or we just don't want to allocate. And so I think, you know what we saw of the last two years, Jason was an explosion of new funds and explosion and move, you know, first time, second time funds, I think subscale small funds.
With no DPI, they're going to find a really, really tough time. To Tomas point about DPI, raising capital and courtesy, the scale player scale. So part of that is clearing out the inventory from the last cycle to news stories this week about companies, you know, maybe struggling, Sequoia got off the board of Citizen. If you don't know citizen, that's that app. That tells you where crimes are happening in your city, very popular in San Francisco. It's literally
goes off every 90 seconds. It's pretty dystopian that company citizen, which is a pretty cool app. Has raised 130 million to date. Sequoia led the series a in 2017, they did a pay to play around. If you don't know what that is. Basically, if you don't invest, you get cramdown, how does the cramdown work? Well, your shares in the company went down 10 to 1 and you probably got moved to Common shares as a bird to as opposed to Preferred which has a serious are protections. They get their money out. First, yada yada.
But Sequoia refused to participate. According to this ft story again, Sequoia, I did not comment on this. It's kind of something. You don't do it. As a VC. When something goes bad at a company and you leave the board. You generally don't want to say bad things. Are taint the company anymore than leaving the board does? So a bunch of cram Downs happening and then dovetailing, with that instacart, according to the Wall Street Journal, had a big queue for As It prepares to go public.
Instacart. If you remember, we talked about on the show. Cut its internal valuation. 75 percent last year, from thirty, nine billion, to 10 billion, according to sources instacart, skew for results. According to the Wall Street Journal up more than 50%, even though order volume, grew only 16%, why they turned advertising on the app just like uber. And Amazon, a lot of this Commerce, ferc's folks are building ad business inside of there's
So, what do you think about? What's happening? As we clear out this private, anybody have thoughts on instacart or the cramdown rounds, go either way with this and then we'll go to Paris.
I wouldn't Focus too much on those two companies. I think we're going to see in the second half of 23 and all of 24 is a lot of medicine being taken a lot us down rounds. A lot of structure, it's going to be A Tale of Two Cities. The hot area, you know, AI is going to continue to receive new investment and all these companies that, you know, route that receive
Valuations and train 21 are going to have a Day of Reckoning either. You know, if they're lucky, maybe they have a flat round or model modestly up around but a lot of them are going to have down rounds or restructuring and that's just going to be going on for the next year and a
half. What's your philosophy sacks on leaving aboard? This is a really dicey issue, when you give up on a company, what's the best practice there? How do you do it without damaging the company? Obviously, the founder relationships going to be hard. What have you learned about this as a private Market?
Investor, I think,
I think that sometimes we like, flip board members internally at craft is because people have different amounts of capacity. That's not a statement at all. About the way craft feels about the company is just a reflection of our individual bandwidth or whose expertise are needed at a time. But when the firm itself, quits aboard, I think there's no way to read that of and, you know, a statement of protest and I don't know what happened with that company, but it seems to me that, you know, again, it could be a sign that
the Venture firm isn't happy with the way that they're being treated to
cram down Shema. That's that's a bitter pill to swallow. Why would Founders do this cramdown? Instead of just adding a little more to the top and is there a way to do this without
You know going scorched Earth or poisoning the well as it were we emptied again putting this app and Sequoia side this this happening all over the ecosystem. So is there a way to do this gracefully or is it just going to be messy? I think it's going to be really messy. I mean to State the obvious. No no Venture Capital investor ever, quits the board voluntarily of a great company that's doing well. That would be dumb.
So, as David said, sort of like the proof is in the pudding. There.
And at the same time, there are a lot of in companies who don't want to.
See the writing on the wall and will do all kinds of gymnastics to try to stick a landing on a contorted financing.
And sometimes those things have real consequences to other investors who just don't think it's the right thing to do. I wouldn't read too much into this except that
Good Founders. Have a responsibility to do. What's right for themselves and their employees. Nobody else. And the thing to keep an eye on investors really know nothing. Cute. I think you absolutely have to prioritize the people doing the actual work, and if you actually did prioritize them, what you would probably say to yourself is, oh my gosh. There are people who I work with, who I look in the eye every day. Because investors, you'll see once a quarter, but I have my fellow employees that I as a Founder, that I look in the eyes.
Every day who have been toiling with me for umpteen hours, a day, every day for years and they are now totally underwater. What is the right thing to do for them? And I think, if you just answer that question, you wouldn't do all these contorted things, you would just reset the valuation. You would refresh the equity pool, you would issued options back out to those employees and you would move on. It's all these other things that get in the way of a van.
That simple simple question, where people fuck it up?
I've done that before
you sacked. If you don't have a team and you don't have a motivated team, you have nothing.
I'm sorry about before. I don't want to rehash. What am I more? Miserable experiences, but I was dealing with a company that had a grossly inflated valuation. It was total problem case we voluntarily, Sasha valuation in half and reissued options to the employees to keep you motivated. No, big deal. Yeah, yeah, exactly. And it's
not that it's no big deal, but it requires some amount of 42.
Attitude and like, you know, understanding your priorities. I guess what your body has it? What do you think? Yeah, you know, like first, I think it's revealing that we think what happened here is so out of the ordinary, I mean you flash back to 2001 to 2004 Sequoia, I don't think funded a single loser in their portfolio, right? Like that's a time where you walked away from the ones that weren't winning and you fed the ones that were because you have limited.
Capital and you don't know when you're going to raise your next Capital. This idea that you have unlimited Capital, you can give money to anybody no matter what they're doing with respect to their plan. I think is a function of the last 10 years. But to Tomas point, the idea of tough talk, you know, either out of CEOs or out of board members has been in short supply in Silicon Valley. This idea that saying the truth. Just speaking the words about needing to get fit or needing to lower the valuation that somehow
How that is founder unfriendly. Is nonsensical the truth is founder friendly by definition and I think to Tomas point the less complicated you make this right? You reset the valuation. You re up the option pool and then everybody has a choice to make. And if the people who are on the board and backing, the company choose not to re-up for whatever reason, they no longer believe in the path, forward for the company, that's incumbent upon the founder, to go find people who will that's not abandonment, as it's Being Framed in this story.
It is a trade and I think maybe if you look at Public Market investors Brad, nobody gets upset by a trade trade to trade. But in the private markets there's a lot more emotion involved, a lot more relationship material and this founder friendly concept of like, you're abandoning me, it's like no, the trade here. It makes no sense for this firm. And for this fund, and for these LPS, right? You at certain points, sometimes the founder needs to have the courage to look in the mirror and say what I'm doing.
Is not working. I had a plan. I missed the plan by 70%. I'm lighting capital on fire. This is a charity. Not a business. It's best to say, it didn't work. Shut it down and move on and do something else, okay, so of course, you're referencing Salesforce or what pivot to that. I'm joking. It's not that bad but I think this is a good time to maybe talk about the public markets and inflation and what we're seeing in macro.
So can I set up a question for Brad actually sure. Go ahead. Yes. Yes. Also saw on a previous podcast,
I laid out my theory of how you could just use the 2-year bond rate relative to the FED funds rate to understand where the bond markets, sort of prediction Market about inflation is going and a month ago. The 2-year bond rate was at four point, one percent relative, to 4.5% Fed funds rate. So, in other words, the bond market was betting that interest rates would go down between now and two years from now relative to where the FED had it. So therefore it
lived that inflation had been conquered now fast-forward, just one month later and the 2-year Bond rates at about four point nine percent year, the FED funds rate is about four and a half percent that is a massive swing, basically, 80 basis points Wing in the, I gesse to your bond rate and so the market seemed to be saying, all of a sudden, not just that they expect rates to be higher longer, but also that the FED needs to keep raising and that is a
A change. So Brad, what is the basis for that? And what do we now believe about inflation? I think just a few weeks ago, we were thinking that this problem was licked and the market took off like a rocket it ripped, now Elvis, and it seems like investors are really worried. That inflation is not over. So where does this stand right now?
Well, I think when we started the year, you know, the the 10-year was close to 32 or now we're closer to four percent. The 10 -
To is as negatives as if it's been in the last probably 10 years. So, the market is clearly saying, you know, we saw some inflation prints that came in hotter. I think it's now consensus, which you guys have been saying on the Pod that, you know, although the second derivative is slowing that it's sticky, right? We're going to get stock at this, for four and a half, three and a half.
And it's at the slope of the curve downward is going to be slower. We've gone from thinking, we're going to have 225 stew. Now, think it will have three or four.
You know, and so I think everybody is now bracing for more inflation, but remember when we started the year on January 1st, the consensus wisdom was we were going to retest the SP at 3200. We're going to have an earnings recession and that inflation was going to continue to run hotter. The only surprise in my mind so far this year is how well the equity markets have held up in the face of a tenure that's gone. Parabolic, right? And an actual earnings recession, right? And you know, use you posted, you know,
Oh in our Thread schemata about just quality of earnings, you know, even the earnings beads are pretty low quality. And so I think, you know, we now are going to have a couple inflation Prince coming up over the course of the next couple of weeks that are going to be important.
My hunch is, you know everybody has tilted again on you know what we saw in the last couple Prince my suspicions. If you look at Morgan Stanley, Goldman Sachs the consensus view is that we're still heading in the direction of four percent faster than I think people emotionally think. So I would say there's maximum uncertainty in the world, the fear that inflation is uncapped the way Larry Summers was articulate in November, and December is less today than it was. But
Submerged is this idea that we're going to have higher rates for longer? And we're going to have a higher inflation for longer. Now, the question, I'd throw back at you is the market abhors uncertainty, the markets done totally fine during periods, where we had three percent inflation, and five and a half percent rates. Right? When the internet boom, that was, you know, 2000 to 2005 rates were a hell of a lot higher than the rates are today. So I don't think
Think that higher rates and higher inflation means that we can't you know invest in Venture backed companies that have huge secular growth. The world doesn't end. But what I do think of me, it's like if there's massive uncertainty in the world, if allocators of capital, don't know, whether rates are going to double again, whether inflation is going to double again, then everything just shuts down and that's really bad for the economy. I don't see that happening right now, but I do think that the prints over the course of the next eight weeks are going to be important.
Trim off. You have any macro thoughts here at the same time? This is happening. We saw rents broke in the last month, so, rents got cheaper. Yeah, my governing principle. I think I probably said it too many times, but I'll say it again. Rates are going to be higher than we like and they'll stay here longer than we want. So if you use that as a principle,
Whenever the consensus thinks we're done, it's been pretty profitable to be on the other side of consensus.
And so I still kind of maintain that we're probably going to have a five and a half percent fed funds rate.
Which means that matter know, maybe Credit Suisse will offer me seven and a half percent soon on three-month t-bills but we're going to have higher rates and I do think Brad's right though in the sense that as long as we know that then that's it and we can forecast it into the future without a changing too much. It'll be okay.
But right now, what we're seeing is a lot of Make-Believe going on in in the stock market. So Nick if you want to just throw up that image. So this is a really interesting chart of cash flow versus earnings. Yeah. So this is something that I saw on Bloomberg, which I thought was really interesting. And if you focus on the period of 2022, 2024, what you see is the white line which is net income adjusted for depreciation amortization and the blue line is cash.
As from operation. So what does that mean? And this is for S&P 500 firms. This is the best 500 companies in the world. Yeah. And the white line is what you tell Wall Street in terms of what you make on paper. The blue line is what actually appears in the bank account. So why could there be a gap between what you tell somebody made? I made a dollar versus what's in the bank fifty cents. Well, the reason is that there's all kinds of accounting tricks.
That you can use accruals inventories and all of these things allow you to present a healthier earnings report than is actually true. And so right now, we have the worst learning situation. So, the worst gap between what we are telling people versus what is actually in the bank account that we've had for 30 years since 1990. And so it just brings into Focus. The fact that we may be in the
a few Innings of trying to make sure this all looks okay, in which case one faction of the investing world, who thinks that
This earnings recession is actually at hand would be kind of right and then what they would say is that once we all realize that these earnings are fake and you reset down 15%. That's where you get to the mid 3000 in the S&P 500 right now. It's around 4,000. I don't know if that's true or not, but there's more and more evidence that would support that the way that they see the world could be credible, the other side says,
Hey listen, this is a bump in the road. We're getting a handle on things and it's stabilizing. So even though it's higher than we'd like, it's not going to change that much. So now just think about 10-15 years from now and let's go. And those are the folks that want to rip the money into growth stocks and tech stocks again. How does the consumer play into all this record low unemployment, like, it's 1% in Utah. Three and a half percent for the country, two and a half jobs for every American who's unemployed, and then these rents coming down.
But consumers have seemed to have burned off all that extra money, they had so Brad. When you look at the consumer driven economy that the world lives in, that's not true because you have to understand, stimulus is still entering the economy, it's just harder to measure. So for example, take Social Security, you have cost of living adjustments in Social Security that's lifting payments by 10 and 15 percent because it's backdated for what was going on last year. And remember, last year, we had two, three, four, five percent, inflation rates. So there is more and more.
Money coming into people's pockets that we don't realize, and we're all on the hook for that as us taxpayers. So I think it's very dangerous to kind of look at one data point and try to pick off what's happening in consumer land because there's all kinds of hidden ways in which money gets back to people Brad you have thoughts on the consumer because you know I test it does seem like consumers are still men spending money, but the cost of goods in some cases is coming down. I mean, how do you look at the consumer and try to
Make sense of what's going on here. Because it does seem the United States is in its own little bubble here, world of just over employment still. Even though we saying these layoffs and ten, I would say number one that the pop we've seen in rates which impacts consumers by way of higher mortgage has higher variable expenses on their credit cards was offset over the last few months by lower energy costs. So their cost of gasoline went down, add in the things that jamaat's talking about and I'm not sure you took a lot of money out of people's pockets.
It's I would say this that again what we're talking about here, retail sales have continued to do really well, e-commerce sales in January, we're quite strong.
That would all be consistent with the soft landed. But here we are, you know, again talking about macro, I think when you spend this much time talking about macro doing what we do, you know, like last year, I'll be the first to raise my hand and say you know, like our friend Bill girly would say it lead you in the wrong direction. The fact of the matter is it's totally unknown and unknowable where we're going to go over the course of the next three or four months I think there's a better ability to predict maybe over the course of the next couple of years but the fact is, if you
Have told any I was just with a bunch of investors. You probably represent a trillion dollars of public market demand 10 or so long. Only investors if you would have told any of them that the 10-year was going to be at 396 they would have told you that the NASDAQ would be down 10% to start the year and it did just the opposite so I think you got it you know your you have a bunch better chance particular if you're playing at home right then trying to guess the direction of that find five companies that you think are going to grow and earn more money.
Irrespective of the direction of rates and inflation own those and enjoy your life.
I'm looking at the world and going Sachs, my Lord, I'm seeing great Founders, great companies and five to ten million dollar, valuations. And I can buy five, ten fifteen percent of these companies. This feels like the best. It's been for me as an angel investor seed investor or seed fund for a long time. This is fantastic. Great deal flow. The deals are taking six weeks to close. We're having very thoughtful discussions. People are taking a real focused approach to how they deploy.
The capital, it is not YOLO. People are building models again, people are showing their kak. They're being thoughtful about how they spend the money. They're being thoughtful about salaries and hiring. So what's your you seem to think that you know what, we're seeing here is challenging or a problem, what are your thoughts and how it's affecting your day-to-day business as somebody who's a company
Builder? Well, let's separate two things. You know, there's the tech ecosystem and there's the economy as a whole.
Fact of the matter is that Tech already had its bubble and 2021 it had its crash in 2022. And now we're largely on the other side of that. There's still a lot of companies like we talked about, they're going to need to restructure who raised during the bubble and may not have come to grips with that. But if you're talking about new investment, new rounds, new companies are starting with a clean sheet of paper and a blank slate. You're right things seem good and normal, right? People are making intelligent Investments and obviously the Innovation cycle doesn't
Have anything to do with the macro picture. I mean, technology wants to evolve and it's great engineers and product people who drive those ideas forward, and they're not thinking about interest rates, I never thought about the FED funds rate at all when I was a Founder running companies. So let's just put that aside and acknowledge that great mystery weekend vacations, going to keep happening, no matter what the macroeconomic picture looks like. That being said, I mean, just for the linear listeners of the show, aren't
Startup. Founders. I tend to be a little bit gloomy about the macro picture right now because, yeah, it's true. That what Brad said that we've had good economies of five percent rates before, but I think you also have to look at the pace of change or the rate at which the the FED funds rate has been going up. And if you look at the chart of rate increases, it is a very steep chart of rate increases, and I just think that, for the last decade or so. We've been operating in this like, zero,
Low interest rate, or zirp environment with loss of monetary stimulus. And I think a lot of companies, a lot of parts of the economy, got addicted to that stimulus, they got hooked on drugs. Now, all of a sudden you're putting him through withdrawal very very quickly and obviously their withdrawal pains are going to be worse if you can't taper off slowly. So it looked like just a few weeks ago that the Fed was done. Raising rates. Now, we know that there are not we don't really know.
When they're going to stop. So I tend to be a little bit gloomy with respect to the big macro picture because I just don't see how you can change rates this fast and I mean, look at like real estate. For example, we just saw the first year over year or decrease in the housing market in a while and again that's all driven by rates. The cost of mortgage is going
up and two big defaults in the first two big
default. Yeah, so I think that there's going to be
Some pain ahead. Now, you know, ironically from the standpoint of the tech ecosystem. We may have already taken our medicine and we may already be on the other
side and that is a good way to to look at. As we took the medicine, it's painful. And what if you're Jason? Maybe maybe that's the segue to talking about benioff, I would say, we haven't took it, we're taking it. We're starting to take our medicine. What makes sense that benioff with his, you know? Very
Loving family kind of approach to running the company might actually, it might take him a little while to become a bit Cutthroat, so as everybody knows, benioff and Salesforce have had a lot of turnover, a lot of senior Executives have left voluntary or involuntary, but shares were up 11% on Thursday, after reporting, their Q4 earnings through up forty percent year over year.
Small net loss, but the company bought back 2.3 billion dollars worth of its stock. We're going to see more of that for sure. And they're going to be increasing its share buyback program to 20 billion dollars going forward and like meta which suddenly got fit and got religion. Benioff is now basically with all these activists I guess on
On his ass. He says in this is the quote from the earnings call, we're more closely scrutinizing every dollar of investment in resource and very focused on driving operational excellence. And automation across our business focusing on four key areas which are larger moves against restructuring employee productivity. There, it is product Innovation, and building relationships with shareholders. Profitability is are truly our number one strategy and that's my number one strategy. That's the number one thing we talked about at the start of every
Every meeting we have in this company quite a, turnaround, your thoughts brand. I don't think the story is that, you know, that many of, you know, made these cards and that activists around the rim, what was significant, was his comments that he made, and I tweeted about it today, you know, he said, every CEO in Silicon Valley has looked at what Elon Musk has done and ask themselves. Do they need to unleash their own Elon within them and, you know,
We've been talking about this for nine months. The reality is, if you look at the employee count at Salesforce in 2015, they had 19,000 employees. As of last year, they had 80,000 in seven years, they for X. The number of employees, they were a mature Company by 2015, their employees catered at 23%, you know, we don't talk about it in this way, but these large companies, these employee basis they're not
Unions. But they may as well be right. I think that that's, why would they be? You know, I just think there's there is during this Age of Excess wear. It was just easy for people to hire more people and build more things not to make tough choices, Etc. Right. We just had an explosion like we've never seen in Silicon Valley, in the number of employees. In these businesses, metal went from 10,000 to 80,000 to 85,000. Google went to 185,000,
And at those levels. It's very difficult to govern them. And when the CEO is went to make decisions in the businesses, there would be protests revolts within the business 30, or 40,000 people with scientist, even say no petition back to the office. No, we're not going to work three days a week. No. You can't name Rai bought what you want to name it because it offends us. And so to me what's more significant
It's over the last six months, we've seen courage gain momentum in Silicon Valley. Right? What's deeply underappreciated about meta and the changes they made. It would be one thing. If it was just window dressing, we cut 10% of the workforce, kind of tighten our belt, a belt, a little bit, but Zuckerberg God on his call. And he said, we only have two priorities in 2023. One is efficiency and he went into depth about once they started cutting people, how the company got
It faster, the product release cycle, sped up the employees, got happier and now it's an end in itself to delay or the business. That's what we're hearing out of been the office as well. And I think it's, you know, people can quibble with how Elon went about the change which you and you and David are very familiar with it Twitter but the reality is he lit a fuse in Silicon Valley that is giving courage I what whether its private
Series B companies pre-ipo companies, public companies. I've had that conversation more times than you can imagine over the course of the last six months. And I think it's a really important change because I think it breathes new productivity and to all these businesses and importantly, it unleashes these Engineers back into the ecosystem to start the next wave of companies. Yes, Jason, I
mean you and I got to tag along with Elon during that transition phase at Twitter, and the thing that
So I took away from it was just how much agency, you know, CEOs have that they're not using. I mean, Elon went in there and he basically changed whatever he saw that he didn't like, I mean, unsentimental, eat and quickly. And you know, and so you look at all these other companies you talk to CEOs, sometimes and they act like they're prisoners of their companies. Like I can't change this. I can change the content from. Yeah. Yeah. It's like you know, I've got all these
He's and all these layers and but I can't, you know, there's always some reason I'm afraid of the bad PR or you know, whatever it is. And I, you know, the thing I came away realizing is just how much agency particularly founder CEOs have that, they just don't use, you know, they're always like hemming and hawing and wringing their hands and acting like they're tied down by this or that. And the reality is they can do whatever they want. Just about, you know, within the bounds of what's legal and
And I think they're starting to realize, oh wait a second, like I actually can do that. You know, I can walk into my company one day and if there's a team that's not performing, that's giving me answers. That, don't make any sense I can start over. I'm just going to start over. Yeah,
Reba, I mean, if you can't get it done, then we need to have somebody who can do it and it's, it's incredible like it. We were doing an analysis on this week, in startups of then, you know, employees per company. And the revenue per employee per head count. And I got roasted
For having this car even having this conversation and now here we are. Chamath people are looking at efficiency. We're looking at, you know, really how efficient can these companies be run? Is there a limit to where this is going? And if we were to look at this as a process, where are the Fangs, the Amazons, the Google's, the Facebook's, where are they at? In terms of percentage to being
At you want. If you if you were to put Twitter and Elon as the goal, where are these companies? And I don't know that that is the goal. Maybe maybe he's cut too much. Who knows? We'll find out. I think it's a pretty radical experiment. He's doing there. Yeah, I don't think that's a reasonable or an achievable goal for a public company. Okay. I mean, I think the thing we have to keep in mind is elon's also capable of doing that because he paid forty four billion dollars of his own money to buy something that he owns outright that. No,
Longer has Revenue pressure to outside stakeholders different circumstance, Revenue went down 70%, a Twitter while that only affects him and his ability to pay whatever he borrowed in order to buy that company and as long as he's willing to fund that somehow, he's literally allowed to do whatever he wants. That's no longer the case. When you're borrowing money from other people to build your business which is what every other Capital Market participant does public market participant does and private Market participants. So I think that that
Action is just a little bit important because it probably means that there is a shadow of what Elon is doing. That's probably the threshold of what's possible and it's probably, you know, sort of 50% headcount reduction. That's probably the Bound in which things break, because I think the thing to keep in mind is that over time, this stuff is like, collagen in the body, it just like it creates these interconnected.
Webs of just very difficult stuff that you sin. You that you cannot tease apart block so. So even if you try to go in
And cut 50% of a company like Facebook or Google or Microsoft or apple or Amazon. It would be so difficult because all of a sudden, the coordination that happens at that scale, I think would get lost. So I'm not sure if it's possible, you kind of, have to do what they're doing, which is cut 5%, then cut, 10% then cut 5%, then cut 5%, and I know it frustrates people on the outside looking in, but I think it's the, it's probably the only way it can be done without torpedoing the company.
What does that do? Our culture basis? Then? Because that is the big critique. Hey, you're creating. Now this culture of fear. I guess the opposite of that is your credit and culture of performance and expectations. So how do you think about a culture basis because that keeps coming up from Founders to David's point? It depends because I think companies, when they're smaller. I mean, I can tell you
When I was a part of the Facebook senior management team we would rank all the employees.
So we had a very good sense of who was the best in the most performant, all the way down to, who was not and we were able to do that, probably up to two or three thousand employees. That's not possible at 50,000. And nor is it fair. So because you don't know who these folks are the real contributors, are you have to do what Ilan did, which is literally go person to person and say who is unbelievably performant or critical? Yeah,
In the absence of doing that, you just don't know who to let go. And so you have no choice except to bleed down the question that I have and Brad. Maybe there's a smart analyst on your team that can do it is right and it's more of a statement as well. Can you imagine the totality of stock-based compensation given out by all these companies since 2015, when they work a Goering, their employee basis by 25% a year, I bet you it's
A trillion and a half dollars of these. You think it's that. You think it's in that order manager. 100%, this has been the greatest grift in the history of Silicon Valley, for sure. Let's pause for a second. Can you explain what we're talking about here? Stock-based compensation obviously, is the stock given to employees. It's generally not counted. Well, let's do in the air conditioning, right? Let's do it this way. Let's just say that you believe in capitalism. Okay. Yep. So if you, if you believe in capitalism, let's say the four of us.
start a company and there's a dollar of profit and we each own 25% of the company, got it
Normally, what you would say is each of us, get 25 cents, right? Reasonable, we owned 25% each. There's a dollar profit, we each have 20. So that means that in four years, right, we, each will have made a dollar because so, let's just say, cost a dollar to get off the ground or four dollars to get off the ground. All in Summit budget. Believe, we all would have been made. Whole, we all would feel great and then now every year afterwards that 25 cents we get is profit. Now let's say that Jason you add a fifth person and Brad
And David. And I can't say anything about it. Okay. And that fifth person now gets a fifth of it, right? And so now all of a sudden our 25 cents goes down to 20 cents. Mmm then let's say you add five more people. Now all of a sudden are 25 cents. Went to 20
And then it went to 10. Yep. And at some point Brad and David and I raised our hand and say hey this is not the deal we signed up for and you say, well too bad because Revenue would not be what it is and profits would not be what it is without these extra six. People
And that's effectively what everybody debates. When they own a stock to shareholders want that number to be as small as possible. And I think what Brad is observing is that in Silicon Valley, what has happened is there's been for accountability for what, all of those extra people do and profits have been written risen fast enough to make the existing three people on the cap table feel, okay? About it. And that instead of talking about three people and six,
And a dollar you're talking about trillions of dollars and hundreds of thousands of extra shareholders, Brad impact millions of extra shield. And then we have some charts here. So we can do some fun with numbers. I think taking a step back. I think it's very important to realize that stock as a form of compensation to create alignment excitement. In the early stage of venture capital is part of the true magic of Silicon Valley, you know, you're starting a company. You ask somebody to go on this adventure.
Take a bunch of risk. They often have to cut their pay. They could get a Google by half to join your adventure. It's only fair that you give them stock in the company and they share in the ups. And if the company smokes it, they get rich for taking that incremental risk on their behalf and on their family's behalf.
What's happened over the last 15 years is something totally different which is this stock as a form of early-stage compensation, right continued.
And there's a feature in Silicon Valley as companies came public. One way to kind of hide an expense in a business is to bury it in SPC. So let's say Google wanted to hire somebody for four million dollars which they're doing today in AI.
But instead of paying them for million in cash, which would all count against their operating profit, they give them five hundred thousand in cash and three and a half million dollars in stock. And let's say they make all that stock vegetable immediately adjacent in this year. It's obvious to you when I that's just cash the person turns around and sells it to real expensive. The business real expense to the shareholders, but when they report their earnings and they report adjusted ebitda, they adjust out the three and a half million dollars that they
By way of SBC. Why did stock-based Compass BC get excluded from accounting? What is the history of that? And is that going to change? Now are people going to say and shareholders demand in this new economy in this new, you know sort of reality. Hey you know what you can't play fun with numbers here. Stock-based cop has to come out. What would you like to see Brad? It's fairly esoteric, but they're back in the mid-2000s 2004 2005. There was a Ana County, there's a big debate.
About this Warren Buffett was famously saying, listen, it doesn't matter whether you pay in stock, whether you pay in cash, whether you pay in Cannes appears like it all cost the same. He's right? And so there was a debate we had a statement and accounting statement as be 123 man in that statement it said Gap ebitda must include the cost of stock-based compensation. So all of a sudden if I'm reporting Gap even Tha I got to include the cost of
Which it does today, but what? But but, but what happened, they started adjusting it out, right? Because they said, hey, this is a real expense, right? Because we're not, it's not cash. We're giving out the door solid. Do they come up with a term for the suggested that the crime here is that when rates felt
20 and everybody was making money on tech stocks, nobody wanted to rock this boat and everybody just said, you know, like adjusted e but kind of ignore it. I can, I can model it into my future dilution. So we model of share count over the course of the next three years. But this literally over the last five years when parabolic. Because I just shared with you, the number of employees, exploded, the amount of share based, compensation exploded, I could have
Competition for those employees. We would assume Pace I think just reported SBC, which I hold your hat. Sachs was seventy percent of Revenue, not 70 percent of their earnings. 70 percent of their revenue is Proclaim base. We're talking about here, that's for coin Basin. So, you know, last week, there was something that I thought was pretty brave
Booking.com on their earnings call really called this out. And what they said is listen, we've been playing by the rules. We understand that? Stock base Compass cash and they say every, every metric we report includes the impact of stock-based compensation. And if you look over the last 15 years, if I'm an owner of booking.com, I was only diluted by about 5%.
If I was an owner of Salesforce or Expedia, I was deluded by about 25%, that's 25 of them. Percent of my ups were given away, right? But yet those things were adjusted out when they reported earnings. And so you know, what's become in Vogue today is CFOs get on their calls and they say, no no, no, don't worry, we're gonna buy back a lot of shares, so we won't have much dilution, okay but if you take my two billion of
Profits that shamash has talked about and it goes right out the door, just to buy back the shares. You just issued, you're effectively round-tripping that money, then it just proves the point, it's cash. It's an expense to shareholders and my biggest problem with it is. It's led to the bloat because if companies actually had to account for this as cash, right? As a bear wouldn't do it to be able to do it him. They wouldn't hire as many people they wouldn't.
Is much in stock Cam. And I'll end with this because I want to end with this solution.
Every comp committee on every board. Frankly, their head spin. When you start talking about this subject, they bring in a comp consultant and the comp consultant, they is really the cya for the comp committee because they want to approve a comp plan that's been recommended by the management team. And they just want to know, is this what everybody else is doing? Okay, so everybody's doing it. So the comp consultant looks around and says, yeah, all your peers are doing this this is why Charlie Munger said, I'd rather throw
Throw a pit viper down the front of my shirt. Then hire a comp consult. Right? What is going on on these comp committees? If you give bonuses to anybody in your business that are that is based on an adjusted ebitda metric, rather than free cash flow per share per, share is the key here. It's negligence, it's negligence. So if comp committees just walk in and they say the gold standard, as a public company is 50 basis.
Points annual dilution, that's Apple, that's booking.com Visa Mastercard, or even below that. That's the gold standard. Once you're in the public market and we will never incentivize our employees, our employees, on the basis of anything that excludes stock calm, and it has to be on a per share basis, that would be a massive Leap Forward for public Company. Accounting is reasonable. Anybody have any other thoughts on that? Start base
camp.
All right. Sacks, where do you want to go? You want to go
Fox? I'm gonna do.
If our caste pasta
Fox I mean Fox is kind of crazy. Okay, so Rupert Murdoch had been deposed here with this Dominion voting system lawsuit, they're suing Fox for 1.6 billion in Damages over claims made on air that we all know around technology-enabled, election fraud. We remember this wild period at the end of the last election cycle, with this, incredibly false claim that the election was stolen. Something, you know, both sides of the
aisle said did not happen. However,
It seems that the host on Fox knew it wasn't happening. Knew it wasn't true, but were engaging in entertainment of allowing these people to come on air and say the election was stolen. So Murdoch said,
I would have liked us to be stronger in denouncing, it in hindsight.
And when asked if he could have stopped the hose from highlighting these on alligator, these false allegations on are that were obvious to everybody. He said I could have but I didn't, he said the truth. He's not allowed to lie in court. Yeah, just on air, but not in court. I mean ice axe, to be fair. Like you really care about freedom of speech, you really care about the libel laws. You really care about the GOP. Obviously, you bring it up every week here. So when you looked at and but you were very clear, you were not happy.
P about the election denial, all that like false claims that Trump made and these insane people who put around himself. So how do you look at these Fox hose? And listen, you've been on Tucker and other things. Knowingly, spreading lies about something as important as the election and then doing it in the most cynical way as we sit here. And every week we roast the media, the mainstream media, you particularly go after the dams and the left and the media Elites, how do you feel about these media Elites who are
Of the GOP machine lying incessantly about something as important as the election Integrity. The United States of
America. First of all, you're trying to tear this up as some giant dong call me. Jake, Al I know I'm not. You said from the beginning, I need to remind the audience.
You didn't believe in this.
Exactly. Let's go back. I just remember of 2020 on this show because there may be a lot of parts of the audience that weren't watching back then. I was really clear that I said, Sydney, Powell & Lowe 100%.
And Rudy Giuliani. I thought they were wackos and this whole idea that the Dominion voting machines had somehow been rigged and somehow involve Hugo Chavez was a wild conspiracy theory, so I said at the time, hundred percent that I also said that, I thought that once the Supreme Court
Denied certiorari of trump. Guy said that he had his right to have his day in court and to challenge the election in court. But once that the court threw out his claims and the Supreme Court denied certiorari, that, that whole thing needs to stop and it didn't stop. And that's why the Republicans lost that Purdue runoff seat in Georgia, on January 5th and you had January 6. So you know, I've been warning against this for a long time. Jake out now, with respect to the fox
I think you need to basically get a little bit more nuanced and what you're saying there because I think within Fox there were actually two groups of host. So there is one group of hosts that I think you could say. We're Trump Loyalists and they basically no lie. Plot formed the Sydney Powell lies, but also endorse them and Rupert Murdoch admitted that they went too far and actually endorsed. And so you had Hannity and a couple other hosts do that even though Hannity had some text messages, that indicated, he didn't believe it. So I think he
Came across the worse. However, there were within Fox Skeptics of the Sydney, pal Theory. And so I'd put Tucker Carlson that camp. I put Laura Ingraham in that camp and Tucker had Sidney Powell on his show on. I think it was November 19th. I think this was 16 days after the election. It was a 20-minute interview in which he grilled her and he kept coming back to. What is your evidence? What is your proof? And if you're paying attention, he demolished her. I mean, I remember that notable. Yeah, exactly. So I mean,
Lee no one looks great. When all of your text messages come out and you can nitpick about this through that text, but the bottom line is I think Tucker did his job, you know? Yes, he platform, Sydney pal, buddy platform to her in order to dismantle her and you kind of have to be pretty Dopey not just to see that she was dismantled after the apparent tell Tucker
rocks, be liable, for knowingly platforming. These people and endorsing them in some way or is it their freedom of speech in your mind as an attorney
here, or
Somebody with that, you know legal degree, where does this stand by put aside? If this was, if this was CNN, doing it, MSNBC, which what? Publication? If this was the New York Times and they knowingly, lied knowingly, platformed some coops a conspiracy theory, what should the price they pay for and then how does that affect the freedom of speech? That we all think? I think universally on this podcast? Especially and in Silicon Valley, or at least, we used to that freedom of speech is really important. Do you have the freedom to lie in platform?
Couch like
this, let me answer you directly Jason. I think this would be a better world of fox reliable, but I don't think they're going to be because that's not the legal standard. I believe that if a television network knowingly, spreads and endorses baseless accusations against somebody, which they know where should know is basically untrue. I think they shops Lee be liable for libel or defamation, but that is not what the law requires under New York Times versus Sullivan. You're required to show that that they knowingly spread misinformation.
Action. But in addition you have to show that they had actual malice which is that their intent was malicious and I think you know Rupert Murdoch is a Wily old dog because he admitted on the stand everything. But the thing that was most important for the plaintiffs approve which is actual malice, he admitted that they platform things that they you know, knew or should have known were false. He admitted that he should have put a lid on it sooner. He admitted that he knew it wasn't true but he said the reason they did it is there
They're afraid of Their audience or a portion of Their audience, going to some rival Network. So, basically, what he said is in not so many words is that his motivation was greed and in our system of law that is a complete defense against claims of defamation now. I think what we need here is to rewrite the defamation laws. I think the Supreme Court needs to overturn New York versus Sullivan Clarence. Thomas is basically intimated that he would support that. I think that would be a great thing to do. I think actual malice should not be the requirement.
Reliable. I think if a television network or a publication pulls out information, they know as false. They should obviously be liable for it and that is enough to show. And if we did that, by the way, it wouldn't just be fox. In this particular case it be CNN and MSNBC, we have to completely revised their coverage. And all of these Tech reporters who do nothing but defame, the tech industry, the entire Tech press just about is a slow-moving defamation lawsuit, Elon Musk. Who probably the richest, man in the world. Just based on the defamation.
Suits. He could bring if we were to overturn New York Times versus
Richard. The richest richer
guy. Yeah. Because all they do, register, Fame, Elon Musk every week.
Yes, four times that are
written. It was so David David. Let's revise the whole
thing. Yeah, but did okay. So hold on. There you go. Folks, very, very intellectually honest. I like it David. So, what you're saying is you expect the Dominion lawsuit to fail,
Can it be appealed all the way to the Supreme Court? Can this be the case that rewrites New York versus Sullivan good question?
That's the question. I'm not sure. I mean, I think that'd be great if it did just to be clear. Listen, I think that if fox or somehow found guilty, I think one and a half billion is a kind of a ridiculous amount of Damages. I don't think Dominion was damaged to 1/2 billion but I do I think that it would be a good thing. If this lawsuit were challenged always from court and they overruled New York Times versus Sullivan that's fun to watch
something that's fun. The lawsuit I would find that loss.
You
just want to tell you is not is Sue, MSNBC and CNN for all the nonsense they spread every night.
Yeah, I have a couple things that I would want to go and get correct clean up. I just want to be clear here though. Brad David's guy Tucker. He did the right thing. That's the most important part of the story. Isn't it?
David that you're still in shock? You're not being new. A Nuance. You want to throw tuck under the bus? I think
dr. Did is Josh I think Tucker did is
talking paradoxically job. I
It's job. Yes, yeah, I think the guy who looks a little worse is Hannity because they entity in the text admitted, he didn't believe the story, but as a trump loyalist, he endorsed the bullshit Theory. That's not good.
Brad you, you know, you come on the show every couple of episodes. And pitch in here, is our fifth Beatle, would you like to touch the third rail? What are your thoughts? And, would you like to get some incoming email from were all your LPS, about your position on Fox News, and trying
I just feel like I said through University of Chicago Law School class, it was awesome and great. I think we have some good issues here to we. Still got to take off on Jake, Al? Yes. Okay, well we got a taco just for a second about China as it relates to tick tock because because this right here we go, this Holly hearing that's coming up. So we've got a hearing in Congress. Let's start with. You are a shareholder, a significant shareholder and B dance. The parent company of time. We have to say that a correct? Correct. Correct.
And you see you and you started that petition Jews, Tick-Tock and my kids use rails and everybody you and I had a spirited debate on yes, you're a shareholder. Okay, so what about this? So I have a new community it up. You want to hold on a second here like because just like Sachs had to defend himself before he even got started. Otherwise you undermine my credibility. Like the way I have to do the same thing. I'm a shareholder of meta who stands to do incredibly. Well if Tick-Tock in the u.s. is banned
So you had a great trip way you win. Either way, I've got a hedge on good. Okay. You know, it had tick-tocking you guys gets banned but you know the content the context here is the tick. Tock band debate is heating up, right? And it's all in a March up to the Hawley hearing, I think it's on March 23rd and there's real like we spent a lot of time at the start of this pod on inflation. I think a much bigger issue right now, I was just with all these investors than main issue on their
mind was Global decoupling between China and the United States. We're going to see a level of Chinese hate leveled out of out of Congress, both sides. I mean we heard it jamaat at dinner at your place. Not so long ago. This hearing is drawing more demand for speakers from both sides of the aisle than any such conference in a long time. But there's a lot of there's a lot of heat now around Tick-Tock. Should it be banned?
And when I when I look at the situation if you frame it for bike dance because Shema talked about this a couple weeks ago it's been reported by dances revenue is about 120 billion dollars. It's been reported their profits are about twenty five billion dollars. That is almost identical in size, demenna Meadows worth about 450 billion. So 120 billion Top Line. It's also been leaked that in that Tick Tock is about 14 billion of that.
And that us Tick-Tock is three to four billion.
U.s. Tick Tock three to four billion of 120 and it loses money. So there's a lot of debate should we ban it? Should we not ban it? Is it going to go public and watch it happen. What do you think? What do you want to ask a nice? A shareholder. Listen, I think it's a part of American. I think this is a puppet debate over a much bigger conversation that's going on. One of the things I've urged the company to do over the course of the last several years is parental controls my kids, use Tick-Tock. They use reels. And what
One is to be able to set effective time limits. And I also want Tick Tock has Incredible video content in math and science and history. I want to be able to set a slider and say 20% of the videos that gets shown over this one-hour period. Have to include some of these math and science videos for my twelve-year-old. Then he can elect a not watch it all or watch it. They announce those product changes yesterday. So they're teeing up those product changes. I don't happen to think there's a nefarious.
Lat. But I also understand that people might not want this. And so like, listen, I think we should have a debate. I think that the CEO of tick-tock should show up, he should speak the truth at the Hawley airing. And if the US Congress wants to band Tick-Tock in the US or forces spin, or a sale, I think we should do it and stop debating at the much. Larger conversation is whether we have a hard or a soft decoupling with China. And I think this is just Canary in the coal, mine. All right, so let me just T up. Also
And tomorrow, I'll get your reaction on Monday. The White House gave government agencies. 30 days to remove tick tock from all federal devices. All federal agencies. Must delete tick, tock from phones and systems and prohibit internet traffic from reaching the company. This is following moves by Canada and the EU and Taiwan. And obviously, there is a bigger house committee focused on China, that held its first meeting this week. So there is the bigger picture but let's start with the smaller picture number one jamaat. Do you think it's a security?
30 risk to have a Chinese company have this kind of access and influence with Tick-Tock specifically. And what do you think the remedy should be for that and then we'll get big picture online. Get snacks involved in this as well. Should it be banned? Should they have this kind of access to Americans and influence? Should it be bent? No, because I believe in a free market. Will it be banned? Yes. Because it's
the most obvious.
Cultural way to pick a fight with China without actually picking a fight with China. So yeah, I think it's going to be the most obvious victim of all of this. And so I don't know. My advice to my friends who are shareholders.
Not just Brad but others is sell, sell it, move on police and it's in the Warren Buffett, what Warren Buffett calls, the too hard bucket sacks. Do you think that this is a national security issue? Do you personally believe Tick-Tock should be bad or do you like me believe that we should just do a reciprocation test in order for tick tock to be allowed here in the United States. Then Twitter, Facebook meta, Instagram, LinkedIn etcetera.
Need to be allowed in China, and you have this many days to reciprocate or
else, it's been another analysis, right? The tick tocks going to be GPC roadkill, and GP C stands for great power competition. You're going to start hearing that term or more. It's going to become the organizing principle of American foreign policy. And I just think that take top is Tick-Tock is all caught up in that. And, you know, personally, I like to, to understand what it is exactly that they're doing with tech talk and said, of just having these vague accusations, I actually really like to understand
Surveillance they had actually yeah. I like to know a lot more about that, but in any event, I just think you're going to get caught up in this. This again, GPC that's going to be the dominant organizing principle of our foreign policy. I think that people are coming around to realizing that it's China. Not Russia. That is the central Global competitor and adversary the United States. It's the only country in the world that's potential. Peer competitor to the US. Economy is
roughly the same size as the US has got four times population. It's the one that we really need to watch out for. I think there's growing realization in Washington, that the Ukraine war is a little bit of a misdirect and that we need to basically get back to doing what we were doing before the war, which is pivoting to
Asia. And by the way, thinking about that just for a second in I think David you're totally right because the game theory now to me makes a lot more sense in my
In the framing of GPC. So, for example, if you think about what the chips act does, right? The chips act basically says, we are going to near shore or on Shore every capability, we need so that we can make and manufacture all the critical semiconductors for all of our interests, technological business, military, Etc. But what is that? Really? What that is is an option to not have to defend Taiwan
And why is that important? It's because today, if Taiwan were invaded by China, we get pulled into a complication that we don't know how it ends. We don't know what the beginning middle of end of. It looks like it's extremely dangerous and precarious. So spend a couple trillion dollars create Financial incentives, build the bridge to Korea and Japan so that they bring on Shore and into Mexico. All the capabilities we need with Western Europe or already our allies already along with Japan and Korea.
And now all of a sudden we have complete optionality and now we can deal with the greater Chinese hegemony in a much more balanced way. So I think the G PC framing
It's shared by the way, between the Democrats and the Republicans. So this is why it's so much bigger than one single company, that's why I think, I think Todd's road kill Brad, if we frame it as a competition were not framing it as a war. We're in competition. And part of that is going to be, this decoupling, is this the coupling helpful to America? Is it helpful to humanity? Is it better that we decouple a bit? This interdependence e, maybe got a little too deep as we saw during covid with supplies.
Chains. Well, I mean, it's a great in a great power struggle. It is what the words, imply, right? So I don't, you know, part of the reason you want to have trade with China and part of the reason we don't want to hard hard decoupling is you know a long-standing theory that company countries that trade together less likely to go to war. So, you know, I think if you listen to what's coming out of this, you know, these select committee this week that held its first hearing is
On the extreme she hear people saying hard to coupling, right? And in the middle you have people saying listen we need to define a circumference around National Security and we need to decouple as to all things that are within that circumference. Now I will tell you that the debate is about how large is that Circle. So it starts off as, for example, sophisticated computer chips out of Nvidia. So China, you know, can't compete with us in the AI arms race but it's quickly emerged.
Into you know, battery's energy food, supply chains, their circumference has now become almost as large as the economy itself. I would argue that, it's not just the chips act, it's also II ra, which is another trillion dollars of funding for basically on Shore and Supply chains.
Vital materials to build batteries Etc. You know, so I think it's a very reasonable policy by both parties to pursue. It's clear that we're going to have some decoupling. I think it's a it's a it's going to lead to an interesting question on the part of China. You know, she was out last week saying, you know, I'm going to make a speech about peace with Russia.
You know, this is more David's territory, but my hunch is that there may be, you know of China. China thinks there's going to be a hard to coupling from an economic perspective. This is bad for global economic growth. This is bad for China's growth. I don't think it's bad for growth. I think it's bad for inflation explain. Well, because I think that will have many versions of everything everywhere. So we will more redundancy. Yeah, more redundancy. We're going to rely on Central and
South America in a meaningfully bigger way and what that'll mean is that there will be more jobs and economic prosperity for those countries. They'll feed the United States, China will feed it less and as a result, they will be more inflation because you won't have the cost advantages. By the way, China is not just going to sit there and take this lying down. They've already punched back a few times. So, for example, on the middle of the summer, China, introduced a tariff, and slowing the export of certain materials and Technology to make solar Wafers. Now, why is that
The gold. Well again, talked about this before, but we are going to take the marginal cost of energy to 0 in this country and the levelized cost of energy, particularly via solar is the cheapest it's ever been. And so what China Seas is, oh my gosh. If the United States has abundant free energy now loss on a huge component of what drives costs is gone. Yep. So now the United States could partner with El Salvador, Mexico, Honduras, you know.
Tina, Brazil, in a Commons happening here to ya know, but I'm just saying it's close by. We are right? And if you can deliver zero cost energy to those places. Now the manufacturing capability could exist there. My point is it's such a complicated chess piece. Of china is not taking any of this line down, but I think that what David's framing is totally accurate. This is the beginning of a GPC and it's an economic tit-for-tat that we're going to play out. We tax chips. They tax solar panels. We go after Tick-Tock just as a
Confusion maker, right? Yeah, it really erotic Carly's back interest of here. I can tell you the the there's a very easy test. For if China Seas Tick-Tock as a strategic asset and that's it's going to create more shareholder value, Brad, if they were to spin it out and make it a publicly-traded American company with American chair. Hold, it would create more shareholder value for bike dance. Therefore, if they don't spit it out, that means they're not acting in the interest of shareholders and shareholder value.
They're acting the interest of their National Security. Pretty clear, reciprocation and collaboration would be
a much better model. I think for for working with the Chinese and hopefully we can
find some things and we just celebrate on red raised, the, the Chinese peace proposal in Ukraine, which I think is an interesting topic. Can we, you guys want to go there for a minute?
Sure. Yeah. All right. Can I take a shot? Explain what the Chinese were doing? I think it was a clever diplomatic maneuver by the Chinese to try and grab the moral High Ground here. They're basically saying, listen, we're interested in peace, we're going to put forward a proposal. The Americans fell into the Trap of basically dismissing it right away throwing cold water on it. The US state department has done this twice before remember back in March of last year enough, tolly Bennett from Israel. Try to negotiate, a peace deal and he himself said that it was the West, the Americans who rejected it, he thought it had
A 50-50 chance of succeeding. You then had the peace process in Istanbul Turkey with erdogan presiding over it. You had the the Istanbul communique which again they were very close to having a peace deal and blink in the u.s. threw cold water on it. So what's happening here? Is that the u.s. is not playing, its traditional role as Peacemaker where we try to go in and mediate. These conflicts, we're doing the opposite. That were throwing cold water than peace process. Now, why are we not acting as the mediator? I'll tell you why. Because
As we are a co-belligerent, this is an American proxy war that we're finding. It's Russia. So we have no interest in mediating, a peace process. And moreover, we're not trusted to mediate a peace process because we're one of the
Affinity one of the capacity, Bai Shi Jing pass to take the global moral High Ground. I agree with no, no, we're now set it on Twitter a couple weeks ago like this. This is amazing that he's starting the peace process. We want regime change. We wanted to pleat and we want to ankle Putin. They want to keep him in the game. The more despots
Are are the the worse the better it is for them. They would like to keep the Legion of Doom going. They don't want to see regime change and democracy in Russia, eventually. I don't think that's how they do it. But listen
Jake how your Jacobs very close to getting it. But here's where I would disagree with you a little bit more. Let Me Explain. Okay good, go ahead. So from the Chinese point of view the war in Ukraine is like Mana from heaven. We kissed. Okay they love this war number one, okay? Because
It's interfering with the US pivot to Asia. We were basically in the process of redeploying, all of our force all of our military to containing them in East Asia and now we're bogged down in Europe. Okay? So that's number one. Number two, we are massively depleting our stockpiles of weapons, we've used something like nine years of stingers and five years of javelins and we're running out of ammunition. I can't believe it. We're running out of artillery. The Russians actually have a 621 artillery Advantage, which is why they're
be doing much better in this war than people are acknowledging. We should come back to that. The last thing is that the Chinese now are benefiting from the economic sanctions on Russia, because Russia is now selling them oil and gas and all of their minerals at a discount subsidy. So it's been this has been a wonderful thing from the Chinese standpoint. So this is the problem with us thinking in this Marvel movie Way of the World in which were the Super Friends and we're against the Legion of Doom. Okay? Is because
Is no natural Alliance in the real world between China, Russia and Iran. These are three very different regimes with different types of governments who naturally would not get along. They would be adversaries. Naturally they'd be suspicious of each other as China and Russia were during the Cold War, but we have push them closer together. This is the problem with having this overly moralistic view of foreign
policy over to you. Jason, what do you think?
Tell us your question their question what's the question? Yeah I mean you frame it as the Legion of Doom so just explain well it's the axis of Evil, the the percent
And and China work together on nuclear technology. So they do when it's convenient for them, work on things like nuclear bombs so there is an affiliation but you're correct there there. The 50% of the planet of humans on this planet who live under authoritarians and so they their authoritarians, they're always going to think in their own interest. They're always going to think in their own interest above their own people's, let alone, the people of another country. They don't care, they don't care about human rights. They
Care about the rights of humans and then certainly don't care about the rights of humans in another country and the West is on a noble mission to spread democracy in the world. And that is a noble Thing Worth Fighting For and is worth defending free countries from despots. I know that you are a fan of these folks sacks, apparently. And you think they should be able to run amuck. I will take the other side of it. I think the West should act in unison. The only criticism I have is that we're not there acting in unison. I would like to see the West will stop sending bite into Ukraine,
hold on.
On, where do I say? We talked enough. You just accuse me of somehow being fans of these people. Where did I ever say that? I was a fan of G and China or Putin or the Ayatollah has in our on, hold on.
We provoke Putin, Putin invaded another country. Hold on. You said we caused it.
I said, shows a second. Hold on a second. I am arguing for a geopolitical strategy that benefits the United States. I'm on Team America and your policy of driving these people into an axis of Evil.
V is foolish for the reason I said which is we are going to power up the Chinese economy. So they are a much more formidable enemy to the United States. That is the last thing we need to do now with respect stated. Hold on a second we finished you had a chance with respect to Ukraine and Putin. There there's no question that Putin invaded. Okay. He is the aggressor. However the question you have to ask is why and the fact the matter is that first of all we fermented a coup in Ukraine.
In 2014. This is your democracy spreading that you like is all of a sudden we got these ngos and we got Victoria nuland from the state department in there. Basically, fermenting these Coos it doesn't work out quite the way you think. Jake Al that's problem. Number one. Okay, then we try to run NATO right up to Russia's border, okay? And you expect them just to accept that because we're a benevolent superpower, that's not the way the real world Works. Putin was tremendously threatened by that and it wasn't just him. It was all Russian. Elites read the bill Birds member from 2008 yet.
Internet, he explains that even the liberal elements within Russia were tremendously threatened by NATO expansion. That is what basically, poisoned diplomatic relations between the United States and Russia and it was a major cause of this war. Now listen, just because you don't think it's provocative, doesn't mean that the Russians, don't think it's provocative. You have feel to put yourself in the other guys shoes for just one second. And the fact that matter is there a diplomatic steps that we could have taken to diffuse this crisis in
This war and we didn't do it. And now look, what's happened. Hundreds of thousands of people make guilt and Ukraine's been destroyed as been absolutely destroyed. And let me tell you right now, it looks like they're losing this war. So I don't see where your superhero policy has gotten us except to make China richer. I will powerful and to destroy Ukraine. That is where your naive idealism has gotten us.
Yeah. And I would say, if you if left to your devices and you're not engaging, and not presenting a united front,
Putin. He will invade country after country, the West must fight for democracy, we must fight for human rights, even if it's uncomfortable, and you seem to think we provoked him to invade this country, he's a murdering Decatur authoritarian, who has been murdering
his own personal. I'm saying their
people for his entire career and
he will continue to do. So let me clarify because you're putting words in my mouth. Okay, when you say that, I think that we do what I said, I believe, what I believe is that we took actions that in Russian aah.
Sighs were provocative. Yeah, he's a little kid. I'm saying that from their subjective point of view. They saw these actions as provocative they said. So listen, the Russian,
which is what I said - we provoked it is your
position. No, I just explain this, I don't know
what he's doing on his position. Is that in their eyes? They were proposed Jason
talking about for soccer. Talking about an know why what you're doing right now is like dishonest. I just explained the language that I would use
Yes, we provoke them. We
took actions that in Russian eyes were provocative. There's a
difference provocative provoked. Yes, the act of
provoking applying. Okay, it's getting too
much. Okay, let's move on. We're gonna we're never going to agree on this sacks. Okay. And I mean that nobody on this podcast is an expert on foreign policy Sachs is not Henry Kissinger. You know I'm not Obama.
So my point of view you said this war
And now you're
should present a united front and we should hold the line with Russia, invading other countries. That's my belief. I do not think we should be doing this solo. I think we should not be sending Biden. We should be sending 15 liters of countries to Ukraine. We should be sending people in and we should be doing a peace process and I think the military industrial complex
Largely driven by the GOP, is what's at fault here? They want to use these weapons. They want to replenish the supply and they want to regime change. I don't think we should be going for regime change. I think we should be building bridges. So do you point is using? Our son is a little more
subtle. You're doing it right there. You're basically engaging in this ridiculous rhetoric that we've seen in the media which is if you simply want a more realistic American strategy because you believe it benefits America that you're automatically, accuses somehow being a Putin sympathizer. Now you're doing what the
Through media has don't know I'm not welcome to this
point said to you, it should be the entire West as a group as a block negotiating with Putin. What do you think is your piece and I do you think Jason went to Xi Jinping to be part of that I welcomes using paying Germany and the United States and France and the UK all getting together and trying to get these two parties to settle? What do you that is my doing? What do you think we're doing right or wrong with China right now?
Right or wrong. What do you think we're doing right and wrong or right? Wrong or I think we should be in discussions with them consistently. I don't believe we should be isolating them. I think we should be looking for areas. We can collaborate on the environment technology. You agree with the chips act you agree with basically on Shoring and you're showing all the critical infrastructure we need is I think we should not be dependent on any foreign we should. We should have energy security, we should have met on.
Ecology security knowledge to, of course, yes. But I think every country should I think China should have that. We should have it. Every country should aspire to be resilient and not be dependent on another country and being dependent on a dictator. Like, Germany was on Putin or we were with a China for medicines or for, you know, medical equipment or tips. We do not want to be in that position
ever one question just on Ukraine, just for a second Jake, Al would you be willing in order to achieve a peace deal for Ukraine? Would you be willing to agree to two things? Number
That Ukraine would be a neutral country instead of part of NATO and number two, that we would recognize for me as being part of Russia, would you be willing to give those two
things? I think that's up, not up to me. I think it's up to the people of Ukraine and Russia to sort this out and it's up for the West to set the table for them to do it. And part of setting the table for them to do, it is to make it more painful for them to stay at this war. So if they are told if you keep fighting over these things and you don't come to a resolution between those two parties who have to live with that resolution,
That is the uncomfortable thing that will force them and I'm among China us and India all working together, all of us, working together to force those two parties into a solution that works for them, we have Brad for 10 minutes. I want to move on. I want to show you guys a tweet about Harvard students. And I want you guys to reacted Raymond's comments because there are just fucking incredible. I don't know if you guys saw this, but isn't that unbelievable?
It says, there was a study at Harvard that found that 43 percent of white students. There are Legacy athletes or related to donors or staff.
That's unbelievable. Is that public knowledge? Or is that like kind of leaked information? I wonder this is from Dolores handy. I don't know who that is. Maybe we could click on who the source of that is legacies, gotta go, right? That concept should I just go away?
Yes, sir. Milan reason to have Legacy is there a valid reason to have Legacy? It feels unfair. It feels unamerican that these important institutions give preference to people who are stupider and Achieve less. If this is an achievement based system, it just feels unfair.
Yeah, I mean while we know we know that the first class had 0% and so we know what the trend line looks like. So at some point we're approaching 100%, I think we're just debating on what question, right. One of the things I would like to see to Martha's. What's the relative performance 10 years after graduation between the legacies, that the kids who had to fucking scratch and fight to get into the place? Oh my God. Yeah, I mean, I think we know the answer. Well, you would think they would be higher performers, the latter group, but you would also think,
Think that if Legacy got you into Harvard, then the Legacy and which is your grip is gonna get you into other things, right? You'll have the in another places, they're the ones who are miserable and walking around, you know, rich and having achieved anything. Yeah, listen sacks. Didn't get into Stanford based on his dad's
buying a building, right? That's for sure.
Okay, so here is a video from Draymond Green.
Well, I do want to go back to is
Black History Month. This is actually the first time you see me in a Black History Month shirt, all black history month, and it's very intentional. And I really just threw this shirt on because I didn't have another shirt to throw on but Black History Month as some point, can we get rid of it?
Right.
At some point.
Why we got to keep getting the shortest month to celebrate our history. You got Governors want to take our history out of schools.
And I'm not going to be the food. It go say yeah, we get celebrated for 28 days.
So, at some point, I'd like to get rid of it. It's, you know, we're making all these changes in the world can't talk about. These people can't talk about those. People can't say this, can't say that at some point, it's time to get rid of black history month. I get rid of black history like they're trying to do but Black History Month. Nah, teach teach teach my history from January 1st to December 31st and then do it again. And then again, and then again,
And then again that's what I like to see.
So good luck exactly. He's the fucking best our strong, the best. You need to clip the last 10 seconds of that that we all need to tweet that. Yeah you're Relentless shimoff. There was a correction. We needed to make about the striped shirt last week ahead. Yeah, so you have the floor. We talked about some Stripes stuff last week and my analyst came to me after the show is published and there's a couple of missed.
Calcs in the spreadsheet that generated the graphic, which big up to him for calling it out very quickly. Anyways, I just wanted to show you the updated one, just so that we could make sure we get that on the record. I guess this would be a purple color. Is that purple? Yeah, that's actually when you calculate net revenue and I think, what did was calculated gross revenue? Which is in the red. So we showed this but it actually should be purple. So that's the updated accurate version of the analysis. So there you have it folks, what does that mean for stripe versus a gen in terms?
Of just, which is a better business just to summarize it. No, I mean, is I mean, to be honest with you doesn't it, it says, what we said before which is that the previous valuation was very expectation heavy. And the new valuation is definitely more in line, but still very rich relative to other companies who have large profitability and large growth rates. And I think that's the key takeaway, which is it's very hard to both have huge.
Engines and grow at medium Lehigh, double-digit rates and the few that can Visa Mastercard. And Aegean tend to trade a very different valuation set then everything else. And so I think that's the challenge for stripe. If they can do it, they'll be in that class, okay? For the Sultan of science doing his SPAC in New York, having an incredible dinner in. Carbone right now, I say, can I say I enjoyed the vegetarian type retail to them, he attacks he
To our group called, don't do it. Don't do that. And he said, let me know if you want me to dial in and save the episode. My instant reply kirchner's on fire were awesome. He has to go find a safe place. Sybil he's Irreplaceable, except yeah, this episode pretty good, pretty good. Pretty good person.
Okay, who did you vote for in 2016, 2020? Be honesty like a dream right now. Look at this. Oh God. Did you vote for?
Combined Legion of Doom there. The Legion of
Doom.
You know, there's actually a meme, there's a meme on Twitter that anyone who disagrees with me is Russian, disinformation or
pro-putin. I haven't seen that one. Yeah, that's pretty funny, that's basically. Yeah, I don't think you're, I don't think your pro-putin. Nice. I
love final correction. There
soon during this entire year of Ukraine, UK Ukraine. I say every time to be clear, you're not saying Putin is right for invading Ukraine and you like do our dogs are just
Stop know if you know, thank you for saying that. No, thank you for saying that, I appreciate
that. I always try to say that right here. Corrections, a very nuanced discussion. It's a very nuanced discussion like we could nobody's in favor of this war. Nobody, nobody's in favor of it, everybody's trying to resolve it. I think we just have different views of what resolution looks like. Do you guys read this crazy article in Bloomberg businessweek, about Pras Michel, the founder of the co-founder of the Fugees and his entanglement with the 1mdb Scandal. Did you read this article? No, I have not.
Idea is critical Stars, I like the culture at the end. Let's put the tinfoil hats on and do culture at the end his phone rings. And it's a Chinese woman that says something like you know, your cousin wants to meet you, he goes to the Four Seasons where he gets to note that says, walk around the building twice to make sure you're not. Followed, goes back into the Four Seasons gets a key card goes upstairs into a room where they then escort him to a different room in a penthouse. Take all of his phones and he meets with the vice chairman of sick.
Security for China where that guy is asking for an introduction to trump. It is that's how the article starts. It is. Incredible reading, did you credible, incredible reading? I encourage all of you to read it, it's so Spike. What is it called? You see. It's so juicy spicy. If you want to read some crazy story, there is a company called wire card in Germany. And there's a Yorker article about the biggest fraud in German history. I highly recommend reading.
This one, we didn't get to it today, but oh my God, if we had like a long reads, post-show would be incredible.
I personally don't think we should promote any stories by the mainstream media. We have no idea whether true or not. I'm a
serious chatter, see you soon. Thank you so much. Filling in love you guys. Thanks bro. Yeah, pretty, very pretty, good. Love you guys for the Rainman. David Sachs the pacifist apiece. The Sultan of science Brad gerstner the dictator chamath. I'm the world's greatest moderator
speaker at the corporate event for fifty to seventy five dimes Jake. I'll talk to my speakers Bureau. Let's get this grip dog. People will see you next week.
Rain Man gave its eyes open source, it to the fans and they've just gone crazy with love you. A nice. Clean up.
Besties are back.
