All-In with Chamath, Jason, Sacks & Friedberg - E85: SBF's crypto bailout, Zendesk sells for ~$10B, buyout targets, US diplomacy, AlphaFold & more

Starting point is 00:00:00 Let's go Jason start. Let's go. Do you have any intros? Let's go. Let's go. Let's go. All right. If you want intros We're not willing to pay for him so don't go there Sacks is awake. All right. Well, then we'll start with you sax if you want to do your job You'll do the intros and if you want to If you want to slow roll your effort because you think you're negotiating with us Don't we don't give a shit. Listen. I'm doing all the projects outside of care about your intros do a bad job. We don't care Waiting in the wings all we do. Well, that I'll just do three saxophone rows in a row. Oh my god It's so true. Do do a couple bad jobs so that we can boot you off the show. Oh, that'll be so good. All right here Here we go. And I said we open sources to the fans and they just go crazy with me.

Starting point is 00:00:53 I'll be west. I'll be in the corner. All in summit, I packed the join, but Saks won't give me an extra point. His crypto holdings, they can't find a floor. I'm gonna have him fly in commercial for the first time since 2004. Welcome, David Sax back to the program, the Rainman. It's a beer.

Starting point is 00:01:12 Now, Freeberg, I never wanted to see him go, but you gotta show up for work. You can't do every other show. The salted of science, he's certainly not a fad. But again, did you see those ratings with Brad? Welcome back, the something of science. By the way, our show beat Brad's ratings. So thank you very much, Jake.

Starting point is 00:01:30 Okay, well, little drama always builds a little audience. Okay, here we go. Chimath. Well, Chimath is in Italy living a life so grand. His next back, a luxury wine and sweater brand. This market is leaving him in a days. So he's been tipsy in the Mediterranean for the past 10 days. Welcome back to the dictator. Thank you. Thank you to God.

Starting point is 00:01:49 I just I put them on stun. I didn't want to do any kill shots there. It's everybody's a little on edge, including the audience. The audience had a lot to say about whether we cover a lot of the controversial topics, uh, Roe v. Wade, January 6th, and Ukraine, all I did a bunch of surveys, 50% of people want us to talk about it, 50% don't. So we'll see what we get to say. Yeah.

Starting point is 00:02:14 Do you think we should be serving the audience to ask them what they want us to talk about? Because when we started the show, we just talked about stuff that we thought was interesting. And people happen to like it and listen and tune in for it. If you end up asking the audience what they want, don't you end up becoming like a Fox News or like any other kind of media company

Starting point is 00:02:31 where you just ultimately use the feedback loop to drive? Yeah, I mean, every week of the show, I will tweet like, hey, anything you want on the docket because sometimes people have good ideas. But yeah, certainly you shouldn't base it on like a survey. No, it was just like a way to get some feedback. Yeah, that's how we started was we were just kind of being intellectually honest with each other and curious about stuff we were interested in and it worked.

Starting point is 00:02:54 And if people don't like it, they don't like it. I mean, I mean, we should, the big controversial thing, like a vote for your topics and that's what we follow. Definitely not. We should, I think we'll agree on that. I think just, there is an ongoing debate amongst the audience of what percentage of this show should be politics and when should we talk about politics and are we doing too much politics? And so, let's start with markets. Let me ask you one more question.

Starting point is 00:03:14 Do you think our objective should be to grow the audience or should our objective to be talking about the things we want to talk about? What do you think? I mean, what do you think, sex? Yeah, I don't think it's a good idea to pull the audience about what we want to talk about. I mean, what's the pull, Sacks? Yeah, I don't think it's a good idea to pull the audience about what we want to talk about. I mean, what the whole show?

Starting point is 00:03:26 What the whole show? Yeah. Well, I think it's good to have an audience, otherwise, what are we doing? Yeah. But look, what the audience showed is that half of them wanted to talk about those topics roughly and half didn't. I suspect that most topics are going to be like that, you know? Unless it's just...

Starting point is 00:03:41 Well, not markets. And people, like, I think 80, 90% of people want to hear us talk about markets and startups. Yes. Like our course stuff, right David? I'm just saying if your objective function is to maximize your audience, you're going to end up making a TikTok video of people twerking or something. You know, it's not like the show-

Starting point is 00:03:57 Did you just volunteer to twerk on the show? I'm not going to do that now. No, okay. I think I'm pretty sure it's from off well. I have the video of Freeberg twerking at all in Summit anyway. Yo. Hey, who?

Starting point is 00:04:09 All right, let's get started with, I think what's going on in crypto, because people do wanna hear about that, and it's been quite stunning. A British Virgin Island court ordered the liquidation of three arrows capital, three AC, after creditors sued the crypto hedge fund for failing to repay its debt.

Starting point is 00:04:25 They had 3 billion in assets under management. They had a huge position in the now defunct stablecoin tarot and it's token Luna and they were trading on some massive amount of margin, how much and what deposits they were using to do this. We will find out now they're being forced to liquidated, to be liquidated. Three, I see owed Voyager digital 650 million, could not pay it, which sent Voyager stock down 60% and cost them to need a ballot from Sam Bankman-Freet, which has led to SPF as he's known in the industry, bailing out a couple of other major folks

Starting point is 00:05:03 in crypto. He provided a 200 million dollar credit line to Voyager. Digital, this is a Canadian crypto lender. They'll lend you money against your crypto. And FTX provided a $250 million credit line to BlockFi, FTX is obviously SPF's company. And according to early BlockFi investors, the FTX credit line would

Starting point is 00:05:26 wipe out all existing shareholders. So we're starting to see the really onerous term sheets to keep these things alive. This is of course in the face of an entire crypto collapse with many crypto coins seeing what we saw in growth stocks. Is this the end of crypto? Is it going to rebound again? What are your thoughts? Jamal, Zach, Sreberg, who wants to start on crypto? Did you guys see the chart that I posted into the group chat that showed Bitcoin activity as a function of year and value? Can you just put that up just so that we can look at that

Starting point is 00:06:01 together? The crazy thing about this chart when you look at it, and it's pretty obvious, is that we are collectively in one way, shape, or form basically trading up ever since 2018, really, with all the stimulus. Because if you look at the mean price of Bitcoin about 2018, it was a nothing burger. What we were talking about was a price that was sort of between a few thousand dollars to three thousand ten thousand, you know, and then all of a sudden when all of this stimulus money hit the market, look what happened to it. But I think something unique also happened, which is that people really understood how to run these very complicated off-chain Bitcoin arms. And I think we should explain what those are because those are what's behind the three arrows capital. It's behind, I think Sam had this kind of oblique tweet

Starting point is 00:06:54 that said some of these exchanges are actually already in saltment. They're already the walking dead. So the first thing to keep in mind is that this is a completely unregulated market. There are no middle maker, market makers per se that actually have reporting requirements to any regulatory authority.

Starting point is 00:07:11 There aren't any clearing houses. There isn't a way for us to understand systemic risk as it builds in the crypto market. So what happened starting in 2018 and 19 is people realized the following things were true. It's sort of what we talked about last week. You go and do some crazy round. You mark up some phantom equity in a company.

Starting point is 00:07:33 That company then issues tokens. You then list the tokens, not on a blockchain per se, obviously, but in a place where trades can happen off-chain, right? And there's a bunch of exchanges where these things happen off-chain because it's one, you know, company and then they have a bunch of segregated sub accounts. And what happens is when these things initially get listed, retail goes crazy, the price goes up, folks basically dump on retail. And you know, you spin that loop as fast as you can and you can

Starting point is 00:08:07 extract an enormous amount of money. Along the way all these things like defy all of a sudden popped out of nowhere and it's like hey you can earn 15, 16, 17, 18% just deposit the Bitcoin and so folks would deposit Bitcoin. But then what would happen is like the places where those deposits were held would then need to obviously find places to make that 1112 or 13% and so then they would go off-chain to some other random person who was offering to pay them even more than that and they would try to arb the difference But it all catches up with you because when something like a terror ghost is zero all the Bitcoin that was used to basically, you know like a Terra ghost is zero, all the Bitcoin that was used to basically run that DeFi process around Terra vatishes. And then all of a sudden you, the lender, are like, hey, can I have my Bitcoin back? And the broker is like, well, actually, I don't have it. I lent it to somebody else.

Starting point is 00:09:00 Let me ask that someone else. And they're like, I'm sorry, I don't have it, but I have these terror coins, you know, because I was running some arb and now it went to zero. And that's essentially what we're seeing right now. So we have two big problems. And then I think we have a third that's kind of funny. The first big problem is like, obviously in the absence of any regulatory oversight, this stuff is going to happen. Systemic risks are going to build up. That's what we're facing right now.

Starting point is 00:09:24 Is an enormous amount of systemic risk, largely around Bitcoin, a bunch of this money I think has been essentially just vaporized. And so all these people that try to find their deposits, especially in custodial accounts in off-chain brokers, may be SOL at some point. And I think that's just gonna be a huge shit show if that actually happens.

Starting point is 00:09:48 And to be clear, Tremoth, they don't have the keys to their own Bitcoin. They gave money to a custodial account. They then did this lending, went out to get them to 15%. And they don't have any recourse here. They can't get there. Well, look at this.-to-line order.

Starting point is 00:10:05 Is anybody put in a wallet and on the keys? Does anybody have recourse to this three-year-old's capital and all of this other interrelated parties that are now gone completely bankrupt because of this scam? The answer is absolutely not. So that's the first problem. You have absolutely zero oversight, which means systemic risk has been built up in the system. The second thing is that exactly what you just said, Jason, is that people don't even understand chain of custody here, which is that you thought that you own this bit going to turns out you actually may not actually own them at all. You thought that you were properly lending them out. You actually don't. There is no enforceable contract

Starting point is 00:10:43 to turns out. And so I think that's going to be an entire set of different legal issues that are now going to come to the service because people who actually legitimately lent this stuff out, for example, like if you short a stock, and you go on borrow stock from any one of us, they're really tight guardrails. If you wanted to go and put a credit derivative swap on against that, there's a central clearing house that makes sure you're not over levered. You have to go and get audited by a bank to even get in the kind of account that allows you to put these derivatives on. None of that was possible in crypto. And then the last thing, which I think is kind of funny, is that we've had

Starting point is 00:11:18 to listen to every millennial and Gen Z market observer in crypto, tout how this is not like boomers and they turned out to be the same, same, same, same. I mean, this is the fun thing of all. It's like, of all of the times you've had to hear how it's so different, it turns out it is entirely the same, entirely entirely. In fact, worse. The custodian issue is definitely a major one. Sacks, what do you think is happening in crypto right now? If I saw obviously going down a lot. I don't really have a new point of view on it. I mainly pissed off that SBF is trying to raise my taxes in California. Explain that. Sam Bankman-Fried, he runs FTX and his company, he lives in the Bahamas. Okay. And there

Starting point is 00:12:03 are probably reasons for that related to liability or taxes, just something like that. Can you tell us what FDX does? They're like a coin-based competitor, but they obviously think it's beneficial to be offshore and not under US jurisdiction. And they're very profitable, right? Yeah. Supposedly, they're super profitable.

Starting point is 00:12:18 I mean, he's worth like $10 or $15 billion. This is my understanding. So he's been very successful at this. I don't know why they're in the Bahamas. I think either they're in there for securities regulation reasons or for tax reasons, but it's one of those two. And any event, he doesn't live in California. And yet he is sponsoring a ballot initiative here that would add a 0.75% tax on incomes

Starting point is 00:12:43 over 5 million to finance a pandemic prevention institute of his design. He's doing this with Dustin Moskowitz, another billionaire doesn't know what to do with his money. He was, may remember, that Dustin was the guy funding Chase Abu Dine. In any event, this would be, this pandemic prevention, too, would be governed by an unaccountable board as opposed to something like the University of California. This is like them using the ballot initiative system to fund their pet philanthropic projects. There's really no need for this. I mean, first of all, this is... Sussex summit should be done federally. Yeah, exactly. It's well, first of all, it's looking

Starting point is 00:13:19 in the rearview mirror in terms of like a budgetary priority, but even if you believe this was a priority, I don't know why it'd be the responsibility of Californiaary priority, but even if you believe this was a priority, I don't know why it would be the responsibility of California taxpayers exclusively. And even if it was, you'd want to do it under, say, the UC system, some sort of accountable board as opposed to having a report to, you know, Sam and Dustin. So it makes no sense. And this is really going to hurt the California tax base because if you start raising taxes on California millionaires, more of them are going to leave the state. And then that tax revenue leaves the state. And so it actually hurts the general budget.

Starting point is 00:13:56 And that's why California Teachers Association, for example, opposes this, is because they know that this is going to have a negative impact on core services. What is, but what's offensive to me is, I mean, so first of all, this is because they know that this is going to have a negative impact on core services. What is... What's offensive to me is, I mean, so first of all, this is just a stupid idea in like every possible way. But what is a guy who lives in the Bahamas doing funding ballot initiatives in California to raise our taxes, thereby worsening the California fiscal situation, to fund his Pat Philanthropic projects?

Starting point is 00:14:23 If you're worth $10 billion, just fund it on your own. Do it through your family foundation. I don't know why you need to raise the taxes on all of us. Yeah, that's very bizarre. Why is he giving, well, the simple answer is because I think it helps curry favor with politicians that he needs for all the six.

Starting point is 00:14:41 But this is why you would do it. That's why I would do it. This is curing negative favor because first of all, every millionaire in California should be up in arms over this. But even I'd say you're living in a game plan. Yeah, I mean, but I'd say even liberal politicians and interest groups in California like the teachers association don't want this because the money is not going to a cause they support. And it will probably, it will almost certainly drive down the state's tax base, right?

Starting point is 00:15:14 Because people on the margins are going to leave. We already have the highest taxes in the nation where at what like 13.3% for the top end. We have $100 billion surplus for a reason. All these IPOs, all of these venture capitalists, CEOs, and rank and file tech workers are just paying massive amounts of tax here. And they're leaving. Right. But that's highly lever to capital gains, right?

Starting point is 00:15:35 And so last year we had a boom market. We now know in hindsight that it was inflated. That was all driven by this liquidity bubble. So do you think that's going to be the case this year? I think we're due for a huge budget short So do you think that's going to be the case this year? I think you're going to do for a huge budget shortfall next year, because there's going to be no capital gains. They've been a hold on to that 100 billion for sure. The California tax base is highly leveraged to this boom bus cycle. And driving the top earners out of the state is only going to worsen that impact.

Starting point is 00:16:00 So, you know, but again, I question, why is a guy in the... It'd be one thing if it was just dust and doing it, I guess, but I don't understand why Sam's taking the lead. But he's not even a California taxpayer. Because I think he's a very sophisticated player in not just crypto, but frankly, regulated and unregulated finance. And look, he, I think he spends a lot of money in DC as well. And I think that he has a very thoughtful game plan. And then, you know, when you look at

Starting point is 00:16:31 who his parents are, his parents are really, really smart thoughtful people as well to law professors at Stanford. And so I suspect not knowing and having spoken to them, that I think that there's a really specific strategy that these guys have around who they need to influence and what they care about and then willing to, as a past through fund those things in order to create the, you know, influence that he needs for the things that he cares about. And I suspect that it's that kind of worse trading, which is, I think it's pretty typical in US politics. The question though is what will happen if FTX has to really talk about, you know, everything that's actually happening in crypto crypto, you know, I'm

Starting point is 00:17:15 sure that FTX could do a lot to help understand a lot of this off chain activity, some of the, you know, especially the stuff that's really in the gray, especially the stuff that's going to come to light over the next few years is, I mean, you have to understand, guys, like, you know, we've torched $2 trillion and it's not a institutional capital, you know, this is overwhelmingly retail capital. All of this is going to inspire a lot of district attorneys and DOJ activity. The discovery is going to be bonkers and it's all going to be regulated to the point in which it kills a lot of the opportunity, I think. This is going to become

Starting point is 00:17:51 the most regulated space we've ever seen. Well, I don't know. I mean, if the goal here was to curry favor, then I think Sam must think there's not going to be a red wave in November because I don't think Republican politicians are going to look very favorably on a guy who's using his money to raise taxes in a state he doesn't even live. All right, well, let's move back to the crypto piece. Let's move back to crypto piece. Yeah, let's move back to the crypto piece here. That's the big thing. That's the big thing.

Starting point is 00:18:16 Not a few million dollars of lobbyists. At this point, with this many retail investors, well, actually, let me start with this freeberg. Is there a real technology here and how much of what we just witnessed with this many retail investors. Well, actually, let me start with this free, bro. Is there a real technology here and how much of what we just witnessed with this crypto collapse and the crypto boom bus cycle? How much is this based on what you would perceive as real technology that is going to advance the human

Starting point is 00:18:36 species forward and how much of this was hype if you were to put a percentage on it, trillions of dollars in assets created and know, created and then wiped out. How much of this was actually real technology? How much of it was complete utter waste of fucking time and a grift? I'm no crypto expert and I've not been an investor in cryptocurrencies. I read the original Bitcoin white paper. Makes sense. Bitcoin itself, to me, makes sense as a potential, initially, was kind of interesting as a potential alternative currency, but the transaction fees were very high. And so it

Starting point is 00:19:13 never really seemed to make sense as a replacement for traditional financial networks until those transaction fees drop below those of the traditional financial networks. And the biggest concern I've always had, which I've mentioned multiple times on the show, is that whenever anyone talks about a quote, cryptocurrency, they talk about the price of it in dollars. And if it really is meant to be an alternative to the US dollar, why are you talking about it in the price of US dollars and it's up and it's down relative to dollars. And that implies ultimately that the intention would be to transact back to US dollars, which implies that the intent is not to be a replacement for the US dollar,

Starting point is 00:19:58 which was a lot of the early prognostication of Bitcoin was it was going to be a replacement for the US dollar. It's going to be an alternative to traditional monetary systems. But ultimately, if you're just measuring this in dollars and it's up and it's down, everyone's freaking out every day about crypto's up, crypto's down. That means it really is more like a security, except securities definitionally are supposed to have a secured interest in some underlying set of assets. And there's no underlying asset. It's not actually a security because it doesn't provide you a secured interest in some underlying set of assets. And there's no underlying asset. It's not actually a security because it doesn't provide you a secured interest in anything.

Starting point is 00:20:28 So it is effectively a bet on some systems of computers that are meant to facilitate some set of activities that ultimately people really only seem to value in US dollars. So I don't know. I mean, where does it all go? It seems like I mentioned at our predictions episode last year that all of these smaller things are going to get blown out. These quote-unquote cryptocurrencies, even though many of them don't really act like a currency. And, you know, maybe

Starting point is 00:20:56 Bitcoin itself persists and it seems to me like that's always going to have good staying power as an observer. I'm not a participant. And, you know, anytime someone telling you something's in dollars and it's going up and it's going down and you're betting on whether it's going to go up or go down and your intention is to transact back to dollars. You know, and there's no one. These have been securities the whole time. And it's the problem.

Starting point is 00:21:18 This is the problem I have with it. This has been, you know, a shadow securities stack that was created in parallel to the existing one with a lot of oversight. What did we think would happen if you created a global casino with no rules? Other securities have an underlying interest in something. This has an underlying interest in some line on the blockchain of that particular network. That's exactly what it has.

Starting point is 00:21:46 Yeah, it's a secured interest in a line of code on a distributed. No, it has a secured, a Bitcoin has a legitimate non-fungible entry in a blockchain that says, it and only it represents that thing. And I think that that is, I guess, the link. The security interest. Some may call it tenuous, but I mean, I tend to think at this point, Bitcoin probably has to be regulated like a security, even if it is not, and it's more of a commodity only because of the volume and the sheer size of both the market and the

Starting point is 00:22:23 potential fallout. The potential fallout when things go you're saying it, right? The potential fall out when things go off the rails is so great, you kind of need to have some rails. Yeah, I mean, like, like, again, as I've said, like, look, if you're a market participant trying to trade, you know, very sophisticated, you know, derivatives of any kind, for example, in the credit markets, we have to go and we create these things called ISDAs, they're called ISDAs, you know, and it's basically a kind of an account that allows us to go and take risk in some of these various sort of tech or tech or tech markets, but the underlying principle around that is a common set of parameters, a clearinghouse, the ability to monitor risk,

Starting point is 00:23:01 none of those things exist here, and I think that's really what folks have to solve for now. Secondarily is what were all these kind of like shadow activities, it just, it seemed too good to be true when you would hear, wow, this DeFi protocol will yield you 24% and you're just like, who was paying the 24%? How was it? It never made sense really, but then none of us really questioned it. I had people on this week and started, I questioned it all the time and they could never explain it to me. And then now the explanation was,

Starting point is 00:23:31 well, we were giving short-term loans to other people who basically wanted a margin loan. They want to hold all their Bitcoin, but that was only four or five percent. What they were also doing was giving you tokens in some other cryptocurrencies that they were basically originating. So they basically were like,

Starting point is 00:23:49 we'll give you four percent on your Bitcoin loan. Somebody else will pay that. You'll pay that. But then the other 11% is coming from some tokens we're giving you that actually. You have to- Well, you have to- We have to answer you.

Starting point is 00:24:02 We have to answer your- We have to answer a really important question if you We've we you know look the markets have incinerated Many trillions of dollars. I just saw like for example. There was 1.7 trillion You know that was just Torched in ETFs alone just in the since the beginning of this year, right? We've done that or more in the crypto side.

Starting point is 00:24:27 We've done that or more on public equities, right? We're probably gonna do that or more in other markets, but every other market is regulated and there's a full accounting of the PNLs, of the dollars that are one and the dollars that are lost. And here, some folks have just, you know, basically escaped with billions and billions and billions of dollars. And the back holder is just, you know, a reach on investor. So the real question is,

Starting point is 00:24:52 are regulators going to actually care to try to do something? Because the level of griff that's happened in this market is extreme. And especially when everybody was telling you, no, this time is different, this market is completely different, it's transparent, it's on chain, you can see every, and it turns out actually most of it was not on chain, it was off chain. And they were using, they were using this, hey, half-unbeing poor, this like,

Starting point is 00:25:19 siops to get you to participate, okay, boomer, you don't get it. Gensler, I was talking to Kramer on CNBC. Here's the quote, some like Bitcoin, and that's the only one gym I'm gonna say because I'm not going to talk about any of those, these tokens that my predecessors and others have said are a commodity.

Starting point is 00:25:38 And then he said, many of these crypto financial assets have the key attributes of a security. Aside from Bitcoin, he believes, like these things are securities. And that makes sense because 99% of people buying them sacks were buying them because they wanted to see them appreciate. They were never using these as utility tokens. They were buying them to, you know, I see them appreciate and to flip them. So what do you think, sacks?

Starting point is 00:26:00 Is there, is there, when we look back on this whole mess in 10 years, is it going to be like the dot com era where we're like, yeah, I got overheated, but Amazon and Google came out of it, or are we going to look at it and go, well, that was two-lub season. Well, I think there is a future technology platform here with crypto, but I mean, I've been saying this for the last year that just because there's a future technology platform doesn't tell you what the pricing should be. And the price action got decoupled from the level of progress in the space.

Starting point is 00:26:30 You know, you should always be looking at what is the real usage, use cases, customers, revenue, things like that. And people stopped doing that. And I think part of the reason why the narrative was so powerful, if you go back to last year, and the chart that Shema showed about the increase in the price of Bitcoin, which is really the root of everything, right? Because, you know, first Bitcoin appreciates, and then if you think about it, like Ethereum is, Ethereum's market cap is like a derivative of the Bitcoin market cap. It's been roughly 40% and then the all coins sort of get, the market cap, the all coins is sort of derivative off

Starting point is 00:27:10 Ethereum is market cap. So the whole thing kind of moved up in sync and the reason why Bitcoin moved up so much is that as the Fed kept printing more and more money, you had fans of Bitcoin saying, look, the Fed is debasing the US dollar. We're getting to need an alternative currency. That was a powerful narrative that the Fed seemed to be vindicating.

Starting point is 00:27:31 There was a positive feedback loop, which is the more the Fed debased the currency, the more that the price of Bitcoin went up. The reason the price went up was not because they were debasing the currency, it was because they were creating so much liquidity that that created a liquidity effect that then drove up the price. So, could you just have money that they could buy Bitcoin because there was more money in the system? Yeah, you created more buyers of Bitcoin.

Starting point is 00:27:57 That's exactly what happened. I mean, all of this idiotic narrative, sorry, go ahead, Sucks. You saw an increase in speculative investments across the board, including the not limited crypto. So again, when the Fed prints too much money, it creates asset bubbles. But there's a powerful reinforcement because as the Fed was printing Bitcoin and supports the Bitcoin had a really great explanation for why Bitcoin was going up, which is they're destroying the US dollar, we're going to need an alternative soon. Now, I think in the very, very long term, could Bitcoin be a non-fiat currency? Yes.

Starting point is 00:28:31 I actually think the technology works. You could create a new kind of currency that's backed by math and by cryptography, as opposed to fiat government. But that could take a really long time. I mean, that could be decades in the future. And but what happened is the market started thinking, well, that's gonna happen soon. And that's where it has got ahead of itself. That was the tulip part of it. Yeah, I think that they found all of these words, you know, written in these economic textbooks

Starting point is 00:29:01 that allowed them frankly to justify what a lot of people were doing and a lot of other markets, which is just straight up speculation because the money printer was going, and if you look at this 92% correlation to the equity markets, I suspect in Bitcoin and crypto is probably closer to even 100%. Because it really was the furthest out on the risk curve, and it just made the most sense when you thought money was, effectively, infinitely going to be available to just buy the riskiest risk assets.

Starting point is 00:29:31 Think about the friction taken out of this, Tremoth. You could buy these, you know, cryptocurrency so easily. You could trade them so easily. You could create one so easily. People were popping up forks of these things. So in a way, what technology has done over the last 30 or 40 years from cloud computing to software to open source has made it very easy to pop up a startup. Well, you could pop up a currency and then you

Starting point is 00:29:54 could get an incredible reward. And you get this incredible reward before you actually make a product for consumers. And absolutely zero rules and oversight. No oversight. Yeah. The feature that was touted was actually the first one to get thrown away, which was transparency. Yeah. When all of this activity was actually happening off chain, this is why you have this systemic risk issue now. When Sand is saying, some of these exchanges are actually in solvent. What he's saying is, well, that exchange has one master wallet address. Every time you open an account and transact on such exchange, you're actually just

Starting point is 00:30:37 transferring between a database entry inside of that company. And so it may look like it is fine, but it is actually not fun. That's what he's claiming. This is the problem with all of this. So all of this activity, you know, built on these principles of openness and, you know, defensibility and, you know, you can't inflate it and, you know, devalue it and debase it, turned out to not even matter because the fundamental principle that would allow us to verify all of that was violated right from the get go which was transparency. All of it is happening in the dark. Most of this stuff is happening off-chain.

Starting point is 00:31:13 If you think that it's okay to torch a trillion dollars of equities, well, at least there's rules on the equity side. But to torch two and a half trillion dollars in crypto where there are no rules, it'll be really, you know, it'll be a very telling sign to see if these folks get their act together and but meaning regulators and politicians and do something. Well, then we made this crazy hybrid where we had the venture community and I'm not going to talk about any specific firm here and to be clear, you know, nobody knows exactly what's happening, but you had coins.

Starting point is 00:31:43 You can't know, by the way, you can't know because it was happening off-chain. Exactly. So somebody would originate a coin and I was offered these deals and you would, as if Enter Cap was be buying some equity in a company. And then some amount of tokens would be created.

Starting point is 00:31:57 Before the token was released to the public or before anybody had insights into this, these tokens were swapping around. Everybody had different rights. Some people could sell early. Some people could sell early. Some people could never sell. And it was as if you took the process of going public and you gave that to a seed stage or a series A company

Starting point is 00:32:15 before they launched their product. So you're taking a company public essentially before they go, if you subpoena, they launch their product. If you subpoena the exchanges, all of this gets turned over. Yeah. Because the exchanges are the honey pot of off-chain activity.

Starting point is 00:32:32 Yeah. And that's what's gonna happen, I think, in all of this. And it's gonna be really funky. This is, and what's terrible about this is, this is why the accreditation laws exist, is like, only sophisticated people, top six percent of Americans are allowed to participate in private companies

Starting point is 00:32:46 And what did we do? We allowed a hundred percent of people on the globe to participate back in private Back that less than a thousand people in the world actually understand that makes no wrong What could go wrong? You cannot buy a stock But you can buy this cryptographically secure You're not allowed to buy a share of LinkedIn or Uber or Airbnb, even though you stayed in an Airbnb, we were an Airbnb host. You're too stupid to buy Airbnb shares when it's private, but you can buy this cryptocurrency that doesn't even have a product in market.

Starting point is 00:33:18 And here's this white paper that has university level pure math as the explanation of why it nothing can go wrong. And you turn turns out again, because nobody actually understood the first place. This is going to be a decade of discovery. If you look at that, if you look at that price chart, what it really means is like, again, you know, we talked about this. If the equity markets have to rebase and get all this QT, a QE out of it. Yeah. Right. And then you have to rebase for earnings if you believe you're in a recession. And then you have to rebase for margins if you believe that there's rampant inflation.

Starting point is 00:33:50 Those three things have to happen in the equity markets. We're in the midst of that. Yeah. But that also has to happen on the crypto markets, in the crypto markets. And if you look at that chart, what it really tells you is that the baseline price of Bitcoin were things that seemed, you know, were rational supply and demand. We're meeting each other. Before all these, you know, 5,000, 3,500 to 5,000.

Starting point is 00:34:10 Yeah, I was saying about 5,000. Still 75% for me. Yeah, it's 20,000 now. So yeah, we could be able to have ways to go. One thing that I thought was an interesting sign of potentially bouncing along the bottom, Zendesk has agreed to be acquired by an investor group in an all cash transaction that's basically going private here. For around 10.2 billion, if you don't know Zendesk,

Starting point is 00:34:32 it's a help desk software company. It's a SaaS software company. They turned out a similar acquisition of 17 billion earlier this year. Their market cap is 9.1 billion in the public markets. It's gone up, obviously since this announced. This was announced, but they have a billion three in revenue. They're up 30% year over year, so this is a strong company.

Starting point is 00:34:52 But the acquisition price is 7.7 times, they're 2021 multiple. Sorry, did you say they're up 30% of the revenue? The revenue is up 30% year over year. They have 1.55 billion in cash and securities that are marketable securities. So they're cash rich, small loss, 223 million for the year in 2021. So they have six years of runway

Starting point is 00:35:15 if nothing were to change. Yeah, what do you make of this, SACS? Why would they do this? They don't have to. So, and is this to you like the sign of a bottom if we start seeing a bunch of these companies that went public that are seemingly strong start to go private and to go maybe clean up their balance sheet and go public again in three years? What's going on here?

Starting point is 00:35:36 Well, I mean, this isn't a horrible outcome. By the way, I remember we shared, when I was doing Amher a decade ago, we shared a floor in an office building at 410 Townsend with ZenDesk. They launched a TechCrunch 50. Yeah, exactly. So we had I think 5,000 square feet and the other 5,000 square feet. And we were in a standoff, both of us were expanding. And we needed the other half of the floor.

Starting point is 00:36:00 And it was like who would move first, basically. And anyway, they ended up moving and we took over their space. But so, I mean, look, this is a company that was worth a hundred million bucks, 10 years ago. So, whenever it was, I mean, they were still, they were very early stage. So, this is still a great outcome. So, they've taken the 17 billion,

Starting point is 00:36:18 sure with 2020 hindsight, that would have been better. But look, you're seeing the valuations here being roughly reflected. The SaaS index is now down to about five and a half times revenue. I think next 12 months revenue for the median SaaS company. And the median SaaS company is growing about 20%. If you're a high growth company, which starts at 40%, you're trading in about eight times the next 12 months revenue. So Zenus Kisorde in there, I mean, that is what they're trading in about eight times next 12 months revenue. So, Dennis, is there any sort of in there? I mean, that is what they're trading for.

Starting point is 00:36:48 And SaaS founders. Why would the founders, the board, want to go private, is the question on people's minds? It's not that they wanted to go private. I think that they wanted to stay public and they wanted to build a large business, but this is where the law of large numbers catches up with every company. That's why it's so rare to have an app or a Google or a Microsoft or a Facebook or Netflix where you can grow for 20 years at 25 plus percent because at some point, 25 percent growth over last year just becomes too hard of a amount.

Starting point is 00:37:20 It's a big knife. And so what Zendez suffered from is what most of the SaaS companies, and I'm not trying to disperse them, just calling it out, we'll have to go through, which is the following. The easiest kind of SaaS company to start, and the one that folks really talented investors like SACs will fund overwhelmingly over others are what's called bottoms-up SaaS, right? Things that sell to the low end of the market, things that sell end to, you know, as individuals can buy them in a corporation,

Starting point is 00:37:50 as opposed to the CIO. Yeah, the unfortunate part of that growth curve is that it's pretty terminal within seven to 10 years. And after that, you're forced to go to the mid market and that eventually you're forced to go enterprise. But when you go to the mid market and that eventually you're forced to go enterprise. But when you go to the mid market and you're selling to 500 and 1,000, 2,000 person companies and then eventually even enterprise, you're talking about massive investments of OPEX, people, engineers, product managers, salespeople, and all of that stuff costs money and it's not

Starting point is 00:38:21 clear that your product is any good. So in the Xendk example, it's not to say their products were bad, but all of a sudden they were going up and selling a CRM tool, a Salesforce automation tool, and now you're going head to head against companies like Salesforce who are going down market. And all of a sudden Salesforce and Microsoft and all these companies can play very aggressive pricing games with their products. They can bundle all kinds of other things in for free. They can give you discounts. And it's very hard to compete as a single individual company. So your growth starts to stall. So I suspect what happened at Zendos is they said, we can make it

Starting point is 00:38:56 and we believe in ourselves. And they found that it was hard. Then instead of organically growing, that's when they turned down the $17 billion offer. They tried to grow inorganically. They looked at SurveyMonkey, right, which our friend Zander runs, and said, we're gonna try to buy that for $4.1 billion, and the market said, uh-uh, no. And then the market basically contracts,

Starting point is 00:39:17 and now they're like, well, if we go and now torch our EBITDA goals and tell the market we're gonna go and spend all that billion dollars we have to try to go up against Salesforce and Microsoft with a product that we don't know is going to work. Our stock is going to be at a dollar. And so I think that that's sort of the parade of terrible that happened for them.

Starting point is 00:39:36 But it's a little bit of a warning sign for how difficult it is to get big. Like what Salesforce pulled off, right? And what workday is starting to pull off, what service now has pulled off? You can't underestimate the quality of the team's Google app all over Facebook. I'm saying specifically enterprise. Yes, yes. Those companies, service now probably being the last one that's really did it. Incredible. So difficult. Palo Alto Networks is probably the next closest one now.

Starting point is 00:40:05 Sales force, cashier acquisition. It's amazing to be clear, right? Sales force, cashier. It doesn't matter how you get there. Organically and organically, it doesn't matter. The point is, it's very hard. Most CEOs fail. Nobody actually fails. So is this going, but okay, so my original question is, is this the bouncing along the

Starting point is 00:40:19 bottom moment? No. Because we have Peloton, but we have so many of these companies. This is a warning sign. Okay. There's this stuff yet the problem. Well, this is a warning sign that says you cannot go into a massive investment cycle for all companies unless you can prove that you can sustain margins, sustain growth and

Starting point is 00:40:43 minimize abacks. But isn't this a very sophisticated buyer taking it private? They must have a thesis of how they're gonna get their money back. Right, so that's my point is, Sacksie, you think that this is like, if the company's already public, and somebody thinks, hey, if I take this private, I can do better than if it's public, and I'll reintroduce it to do better than if it's public.

Starting point is 00:41:05 And I'll reintroduce it to the public market to get liquidity later. Isn't that what's going to happen here in all likelihood? You're making that statement in the absence of understanding how these things are financed. Well, it's got a billion five and it's break even almost. So what about the billions of dollars of debt they're going to take out and slab off in this company? Right. What about the number of people they may talk about post going private?

Starting point is 00:41:24 At the end of the day, the private equity firms are not trying to make, you know, this $10 billion go to 25. They're trying to make the two billion of equity they put in go to three. And there's a lot of ways that two can go to three before 10 goes to 25. So they want a modest return. 50% return. It's a lot. It's making a billion dollars. It's hard. But compared to the management team in the board's view of being a public company and growing

Starting point is 00:41:53 20% a year, or actually, in their case, 30, would that be a better opportunity for those shareholders? That's what doesn't add up here. So, what do you think? If I had to guess, I mean, I haven't talked to Michael about why they're doing it. I think that they're operating at a new stage of the business. I don't think it's as fun to be growing a company at, call it 20 to 30% a year, and now all of a sudden, you have to generate cash flow and you're being valued on that.

Starting point is 00:42:15 I mean, they're past the hydrophoresis. So, now let me turn out to sure thesis. I don't know. It seems. Well, potential thesis. I think that's basically why people sell good businesses. Like, I actually don't think there's a problem in their business. I think that growing 30% a year with 1.3 billion in revenue, plenty of cash in the bank,

Starting point is 00:42:32 I think they have a good product. I don't think there's anything wrong with the business. I think that I do think founders get burned out and this isn't exit. I do think that the phase of their business they're in right now is not going to be as fun as a high growth phase. Look, when you're growing 100, 200% a year and investors are willing to fund that growth and they don't really care if you're profitable, that is just more fun than growing a business 20 to 30% a year and investors are breathing down your neck saying, when are you going to

Starting point is 00:43:01 deliver cash flow? And what the private equity guys do is they're going to go in there and they're going to restructure the business to deliver cash flow. Now I think ultimately these types of businesses, they're great, these software businesses, they're great businesses to them because they're high gross margin. And you know, they've got a subscription base that just keeps growing organically if they've got positive net dollar retention. So you've got a, let's call it a 1.3 billion dollar subscription base that will grow to 2 billion

Starting point is 00:43:30 over the next whatever half does in years. And quite frankly, I bet you the private equity guys are going to take out half the cost structure. This is no reason the sink can be generating 500 million a year in free cash flow. But the management team would be unwilling to do that because it's a different kind of sucks to you that every day to come in and fire half the team that you hired and take that hard medicine. It's just as a bummer for that personality type. I think it is a different kind of management challenge and yeah, I don't think that's

Starting point is 00:44:00 fun. But look, the thesis behind software companies, the justification for them burning money was, look, we're going to spend every dollar in revenue that we make and then some, because we're building a subscription revenue base that again has positive net dollar attention. So one day, okay, one day, we won't have to keep investing so much in sales and marketing. We won't have to keep investing so much in R and marketing. We won't have to keep investing so much in R&D. We'll still keep investing to some degree. We'll make the product better,

Starting point is 00:44:29 but it's going to be a little bit more maintenance mode. We will get to maturity. And then you can lay off a third of the staff and all of a sudden. And then all of a sudden the company is going to be super profitable. And the fact of the matter is, is that day never came because the markets never demanded it. And now that day is here. I don't know, hold on. It never came because the markets kept demanding more growth. If

Starting point is 00:44:48 you look at their long-term operating margins, you know, when they first came out public, it like had like a negative 30% margin. Two years later, they had a negative 50% margin. And over the last seven years, so that was 2015, up to now, they've crawled their way back to negative 13%. So at some point, I think investors said, oh my gosh, this company has never made money. It needs to keep investing more in order to grow. And I think David to your point, maybe the decision that he didn't want to make was to flip it to a cash cow.

Starting point is 00:45:21 I don't think that's true. I looked at, these guys have been generating cash. They're reported gap earnings are negative because of the stock-based comp expense, meaning that they're issuing huge copies to discuss here. I think that that's actually worth highlighting because this is an important one because people have been talking about this considerably lately. So this company's been making money every quarter. They generate cash. But in the last quarter, they issued $60 million in stock to employees to compensate them for the work that they do.

Starting point is 00:45:51 So that's $250 million roughly of dollars per year of stock-based comp, which is 2.5% of the total shares outstanding in the company are issued as employee comp every year. That number results in a delutive effect to shareholders over time, even though the business is generating cash, your relative ownership as a shareholder in a business that's generating cash is going down by 2.5% every year because of all the new shares that are being issued to compensate employees for

Starting point is 00:46:21 the work that they're doing. And I think that's part of the issue that a lot of folks have taken for granted. This was well rooted in, I would say, probably Google who became very generous very early on with issuing RSUs and stock in their publicly traded securities to employees as part of their compensation package. But Google has a 30, 40% EBITDA margin in terms of incremental contribution of new revenue. And they can afford to take a point or two of delusion percent EBITDA margin in terms of incremental contribution of new revenue.

Starting point is 00:46:45 And they can afford to take a point or two of delusion. Google, by the way, is actually not delutive. They buy back shares with their extra cash. So as a shareholder, you actually benefit from this considerable cash generation. But a lot of software businesses and tech companies in general have had to rely on issuing shares to compensate employees for the work that they do. So even though the core fundamental of the business is generating cash and cash is going up every year, the business doesn't know how to get out of this cycle of how do you pay

Starting point is 00:47:14 these engineers for $400,000 a year without deluding shareholders by issuing all these new shares every year. And you'd have to do that more likely as a private company to figure out how to consolidate earnings, how to trim headcount. And actually get the thing to generate the cash in Eastern Generate. But, freeberg, isn't that a real, like, you're pretending like it's some fake costs? Yeah, it's not. It's a real cost.

Starting point is 00:47:34 It's a cost to shareholder, for sure. But why the, why the asterix? Well, no, there's a specific reason. Because the business itself operates. The business is running out of cash. It's not burning cash. The business is growing its cash balance. But in order to compensate employees for that cash balance, they're deluding you, the

Starting point is 00:47:50 shareholder, right? Right. Look, when you own a share of a company, okay, let's just say, let's just say, let's share it. Which is another way of saying that the company is effectively issuing 2.5% new stock every year to fund its operations. I mean, that's another way to think about it. Look, I'll give you the warm buffet school. You can tell me that it's stupid, but it kind of

Starting point is 00:48:07 makes sense, which is you take the number of shares you own. You divide it by the total and number of shares outstanding. You look at the total profits and you say, my look through earnings equals that percentage times the total profits. Yeah, your percentage is going down every year with stock base comp. That's a problem. And so the question is, it's also going down because you're buying real estate, you're hiring people, you're paying them more. Like, it's going down for a whole host of reasons. That asterisk is an irrelevant asterisk in my opinion. Like, the end of the day, you spend money to grow.

Starting point is 00:48:36 How you spend the money is not that important to me. Let me say two quick things on the topic. One is, yeah, I totally agree. It's an expense. On enterprise software and sex, you're the master of the art. But as an observer, it seems to me that many of these companies, once you have an Enterprise account, you benefit from being able to cross sell new products into that account.

Starting point is 00:48:58 And you can grow this net revenue retention number over time and ultimately generate cash. Many of the big Enterprise Software companies that we've talked about from Salesforce to Workday and others have succeeded in doing that. AutoDesk is another good example in Karl Bass, I think it's on the board of Zendesk. They've done this successfully

Starting point is 00:49:15 by bulking up their product categories. And they've done acquisitions or they've done buildouts. And so over time, your incremental cost to sell a new product and generate incremental gross profit goes down and the business performs better with scale. This seems to be one of those businesses where ultimately they couldn't bulk up through acquisition and they couldn't organic produce. And they tried. And so the challenge is they're kind of a, I don't want to say one trick pony, but the portfolio of things that a business like this

Starting point is 00:49:46 can sell into an ultimately increment gross profit is very limited, and that business becomes challenging to operate as a public company. Because you really do have to show that momentum as a scaled enterprise software business that you're actually generating real cash over time. Yeah, I just wanna say it's stock based comp, and sorry, it's actually come back to one sec.

Starting point is 00:50:03 But, Chimoth, and you guys, I don't know if you realize this, but the standard in Silicon Valley today, when a company goes public in an IPO, is to have what's called an evergreen stock grant proposal. And evergreen basically means that every year, the company is authorized, the board automatically authorizes the issuance of some percentage of new shares per year. This is typically in the range of 4%.

Starting point is 00:50:29 And ISS and other kind of institutional shareholder advisory services actually vote against these shareholder proposals and push back against them. But most of the companies in Silicon Valley that go public automatically include evergreens as part of their, you know, kind of IPO perspectives. I mean, can we agree in central, like it's we've been going every year, they can dilute

Starting point is 00:50:50 shareholders by 4% and use those shares. You depended on how the business operated that year. Which is effectively the same as doing a 4% secondary cash offering every year, because it's the, you're issuing those shares into the public market and the instead of getting cash, you're paying your employees with them. And so it avoids you having to use your own cash balance to pay your employees, so you're effectively raising money every year, and you're allowed to raise up to 4% delutive effect to shareholders

Starting point is 00:51:16 to do that every year. And it's become a real topic, and it seems to me that a lot of the big portfolio managers of big institutional farms are starting to pay really close attention to this quote unquote standard in Silicon Valley that stock based, compact, spends has become so high and evergreens have become kind of a standard as almost like an ordinary course of business. And it's become, you know, a really contentious topic and I don't think it would be too

Starting point is 00:51:39 surprising. Number one, to see cash salaries go up. And number two, as a result of that, to see salaries become rationalized in Silicon Valley, where engineers may start to get challenged on the standard 400 K per year that everyone's become used to. In terms of, you know, high tier Silicon Valley. That only was for remote work.

Starting point is 00:51:57 Maybe there is a compromise that could be had, but this compensation, you have to remember, has been outrageous in some cases, especially for senior management. And so it makes the core business look broken, but we actually have as maybe people who are on these boards are also in on this compensation, and it's just bad hygiene, and it's not related to the performance of the company, right?

Starting point is 00:52:19 I don't think the board people are quote in on it. I think that's, you have to pay an engineer, a four-year care year to compete effectively in Silicon Valley today. I was talking more about the management, the management stock comp. The management stock comp is different than the engineers you would agree for, you're probably like, there have been some enormous stock grants. I thought it was important, yeah, certainly. If you want to run the company as a high growth startup with employing these high paid engineers

Starting point is 00:52:43 and executives, including stock compensation, that is a certain kind of way of running the business. But again, if you're trying to run the business for profitability, that's a different way of running the business. And just to add a layer to what happened here, that Zendes was under intense pressure from an activist investor called Janna, who was basically trying to replace the board of directors who were running a proxy battle against them. So, Jan has been pressuring them to replace the board, to make all these changes, to take the $17 billion offer, I guess back in March, they didn't do it.

Starting point is 00:53:15 Now they did a lower offer at $10 billion. Why? I think because the market has clarified, we now, it's clearer that we're in this regime change. We now it's it's clearer that we're in this regime change what the market is valuing history is free cash flow as opposed to profitless growth and My guess is again without having talked to Michael my guess is they probably just threw up their arms said listen You know like it's not gonna be fun to run the company this way, but you also have to You have to ask the question why are these highly sophisticated private equity firms buying it for 10 billion?

Starting point is 00:53:45 I think they're going to make a lot of money. And the way they're going to make a lot of money, they are going to slash the hell out of the cost structure. They're going to run it to be highly profitable. They'll probably bring the growth down from 30% a year to 20% or 15%. But the offsetting benefit to reducing the growth a little bit will be, they could probably generate 3, 4, 500 million of free cash flow on that business. If it's doing one point three billion and they stop investing in R&D and they stop,

Starting point is 00:54:13 and they bring down the sales and marketing, that could be a cash cow, like you said. So I think that's probably what's going on here is the... I just want you guys to know not the versus bubble but when people talk about free cash flow they touted a lot tech companies touted a lot because you're allowed to add back in stock based comp as if it didn't exist the problem is that stock based comp is non-cash so when when you're only source so if you see a company that has negative EBITDA negative everything When you're only sourced, so if you see a company that has negative EBITDA, negative everything, all of a sudden are like, quote unquote, free cash flow positive. It's because they were able to add back in stock based comp, but that money is not real.

Starting point is 00:54:53 So when the only source of free cash is stock based comp, that free cash flow doesn't reflect the company's true profitability. This is what I mean by people play these shell games with these numbers to allow, you know, oh, let's value something based on EBITDA. Actually, no, because our stock base comp is off the charge. Let's actually go to something else. We'll do a non-gap EBITDA measure, adjusted EBITDA. And then, oh, actually, wait, sorry, look at free cash flow because you can add back in this gargantuan amount of stock base comp. I mean, it's crazy. I'll just the quote from the community, but we work. The quote from Warren Buffet summarizes the best.

Starting point is 00:55:31 If compensation isn't an expense, what is it? And if real and recurring expenses don't belong in the calculation of earnings, we're in the world that they belong. I think what we're seeing, right? My point is, is not that comp isn't an expense it is, but rather that it's an expense that you can control by reducing the amount of staff. I guess is, I think these private equity guys are going to basically whack the cost structure. I'm just saying you can distort free cash flow as well because you can get back and stock based comp at the joke. It's a little bit of a

Starting point is 00:56:03 shell game going on. It's like the dirty secrets. Let me ask you an important investing accounting question. Let's say that a business like Zendesk is generating $100 million of free cash a year. I don't know, what does that mean? Hold on. So every year their cash balance goes up by $100 million. They have a business that generates $100 million

Starting point is 00:56:24 of incremental cash every year the cash balance goes up by $100 million. They have a business that generates $100 million of incremental cash. Every year the cash balance goes up. So you as a shareholder own shares in a company that is creating $100 million of incremental capital per year. However, your shares that you own are going down because they're getting diluted every year by roughly 2.5% and that's 2.5% is end-usks actual number. So every year you're getting and a half, three percent. And that's two and a half percent is end-to-saxial number. So every year you're getting deluded by two and a half percent. Would you rather have a business that you are getting deluded by two and a half percent,

Starting point is 00:56:53 but it's incrementing its overall balance by $100 million, or would you rather own shares in a company that's burning cash each year? And I think that's where this ended up from a market perspective, getting rationalized. Is shareholders said, I want to have the safety and security of cash generation, and I'm willing to take on the delusion for it. And that's how this became, you know, as standard as it is. When I think about funding a new startup,

Starting point is 00:57:15 and I look at the competitive landscape, when I see that the competitors have all been acquired by private equity companies, I generally think, okay, there's room for innovation here, because I know that the first thing the PE firms are gonna do when they acquire a company is like zero out R&D, or just put the product on maintenance mode. There's no innovation that happens with the product once the PE firms buy it, right?

Starting point is 00:57:41 So the reality is, I think. So those are good targets for startups. So they'll do acquisitions, right, SACs? I mean, they'll find solutions. They'll do roll ups, right? So the reality is, I think. So those are good targets for startups. They'll do acquisitions, right, Zach? I mean, they'll find something on. They'll do roll ups, right? Roll ups, yeah. They will do financial innovation. They will innovate the structure of the business.

Starting point is 00:57:54 They'll cut all the wasteful spending and all the nonsense. They're lunches. Yeah, exactly. They'll finish them off, say once, like cut out all the kindbars. Yeah, the kindbars. Yeah, the exposed brick walls, like all these nonsense. Yeah, yeah. So who do you think is, the exposed brick walls, like all these nuts, yeah, yeah.

Starting point is 00:58:06 So who do you think is the Vegas trip? Yeah. This stock-based compensation is going to go away because they're going to get rid of all the high price engineers. They're going to get rid of a lot of the high price executives. They're going to probably, they're going to have to keep customer support.

Starting point is 00:58:17 They're going to increase cash salaries probably. They'll bonus people. They'll just do bonuses for hitting targets instead of giving people as much equity in the business And they'll run it like a you know private equity type type play It's not fun. It's not interesting to me. Yeah, I mean I think David the other reason why wouldn't be fun is like it's a level of financial engineering which is highly sophisticated I think for some people it is fun. I think for us it's less fun because you're not creating a company per se.

Starting point is 00:58:48 Not an innovator. You're not being a product person. But I would say that it is highly sophisticated and the folks that do it at these places that these private equity firms are incredibly savvy at how they do it. And it's all the twists and turns of how you lever this up and use debt and use a margin loan and pre-fund the, I mean, it's not the stuff that necessarily we want to be thinking about. But that's what you'd have to do as well. I totally agree with that. Look, I'm happy they exist in the ecosystem because we need

Starting point is 00:59:19 firms, we need more exits, right? And we know that right now in Washington, the regulatory regime is very difficult. It's very hard to get deals through. So at least you have private equity firms that are providing some exits. And the ecosystem needs exit. And those exit you're saying, SACs don't trigger like competitive concerns with Lena Conn and her group, right?

Starting point is 00:59:42 Like, oh, some private equity firm took this private. Okay, Salesforce didn't buy it, so we don't need to get through regulators. You're gonna see a lot. competitive concerns with Lena Khan and her group, right? Like, some private equity firm took this private, okay, Salesforce didn't buy it, so we don't need to get through regulators. You're going to see a lot. We need exits in order to justify the risk capital that goes in at the earliest stages, which in most cases is going to be a zero. And just to give you some other numbers out there, Manscaped, which is a company sells rares for guys, they had

Starting point is 01:00:03 315 million in net loss in 2021, with 310 million in stock base comp. By the way, that number can also be distorted, just to be clear, if you give a one-time big grant to an executive like a CEO, the way that the accounting works on stock base comp, it's not the kind of thing you can have a very simple kind of descriptor on,

Starting point is 01:00:23 but you can have these very significant short term costs associated with a big grant that could vest over a long period of time. Sure. That has very high strike prices. I mean, when Elon got that massive grant at Tesla, the stock-based comp expense was significant. But you know what the interesting way into it? It was, there were 20 targets or something crazy like that, and a lot of them were based on the stock price and the delivery of cars. So that's one of the things that I think is broken.

Starting point is 01:00:49 Yeah. Yeah. So this is one of the things that's broken in Silicon Valley is that the stock-based comp is not tied to performance. It's like just giving people guaranteed salaries. And in fact, I was gonna say Jason, I could be wrong.

Starting point is 01:01:01 Like there is more sophistication to be clear in executive comp in public technology companies. I think that should trickle down to For junior people, there is more sophistication to be clear in executive comp and public technology companies. I think that should trickle down to the junior people too. I think everybody should rise and fall with the company's performance. That's my personal feeling. I mean, this is the problem with entitlements and people being entitled. It's a story to be like a red peltier, but we should have performance should be lauded

Starting point is 01:01:21 and compensated for not just showing up and hanging out. There's going to be a bunch of companies in this position. So look for this as a trend. Peloton, $964 million last quarter in revenue, lost $757 million in the quarter. They have a $3.1 billion market cap. They've only got $879 million with a cash. I'm just looking at these numbers hopefully there. They're tight and they have a billion for an inventory.

Starting point is 01:01:44 That company is gonna get taken out. Buzzfeed, I don't know why that even went public. They're down 84%. They had 91 million media company, 91 million dollars in Q1 revenue. They lost 45 million. Their market cap is down to 210 million. And they've only got 74 million in cash or so. It's about 100 million in accounts receivable.

Starting point is 01:02:04 So there's a bunch of companies right now that are public that are about to hit in a couple of quarters running out of cash going into a recession. Are we going to see some big flame out, do you think, and are you watching specific companies because the private equity folks must be salivating watching this? Well, I mean, look, you asked what the takeaway was around this. And I think the takeaway is there's been a regime change in the public markets, the way that investors look at these companies is changing. It's not about growth at all costs anymore. They're not just looking at revenues. It's also about margins and cash flow. And, you know, we talked

Starting point is 01:02:39 about in the last pod, how I think a lot of founders understand intellectually that we're headed for a downturn, if not a recession, but they weren't taking the medicine of basically reducing their burn. Well, this is an indication of what investors are valuing. If the only way for Zendes to create value as a public company is to sell to a private equity firm who's going to have the staff. Is going to cut off some huge number of staff to run it for free cash flow That's just an indication of the regime change. So you know, we need founders to start

Starting point is 01:03:13 Internalizing this information so they can run their businesses more efficiently You know what investors want right now. They still want growth But they want it with low burn high burn operations are gonna get punished. I've transitioned most of my public markets time to focus on debt. I've been looking at these companies because there is a lot of these really interesting tech companies with a lot of... What David said, I think, is 100,000% right. What Saks just said. There is a massive, massive regime change here.

Starting point is 01:03:44 When you... Shocking you if you don't take the medicine. And what's funny is like so many of these companies have been left for dead, but what has really juicy is the few companies that you think will survive and specifically making sure you're protected in the capital structure, which means to own the debt because the debt is always senior to the equity. And there's some really, really interesting companies out there that are in that situation. And it's just like, it's a much better risk or war

Starting point is 01:04:15 in a moment where again, we talked about this, but why would you give up your liquidity today? I don't know the answer. Why? Why? Why do you use this term, Jason, before? Like skipping know the answer. Why? What's going on the forum? Yeah. I used this term, Jason, before like skipping along the bottom. I just think it's like psychological, wishful thinking as opposed to sort of like a rational summation of the actual Jerome Powell just said, I will tank the economy in order to beat

Starting point is 01:04:37 inflation. He just said it in the Wall Street Journal. But people believe inflation might be turning over to you by that or not. No. As I've said, I think you're going to see eight and nine percent inflation prints for at least the next three or four months minimum. I think that things could get marginally better after that. But I think the thing we don't know, and again, it just touches, and I don't care what the

Starting point is 01:05:00 fucking audience thinks, touches Russia and Ukraine. So sorry to bring up politics, but not only are things in next yearably intertwined. And if people want to go in venture and gamble in the stock market, you might as well understand this because I think many of the scenarios

Starting point is 01:05:16 will trade because of what's going to happen with Putin. Let me ask the question here. How many quarters will this recession be? If we had to pick a range, pick a two quarter range, I'm thinking three to five, what do you think? I have no idea. Okay. Freeberg, you gotta,

Starting point is 01:05:33 if this is the second, how many quarters, plus or minus two, let's say, is this recession gonna be? So five plus or minus two, four plus or minus two, plus or minus one, what are you thinking will be the bottom out point? I don't like the term, I've told you guys, I don't like the term quote recession as if it's some absolute negative thing. I mean, negative GDP growth coming off of inflated GDP doesn't feel to me as systemically challenging to the economy as, you know, some other circumstance where, for example, there was a global financial

Starting point is 01:06:07 crisis or 9-11 or some other kind of factor that drove things that really affected the core economy. We're certainly, we had something that affected the core economy in COVID and we had massive stimulus. So I think there's this unfortunate general characterization of quote unquote recession being an absolute negative. And I think that there's relative growth. And if your, if your relative growth is negative off of an inflated number, but over, okay, let me give you a story. Let me, let me just finish.

Starting point is 01:06:43 But over a historic two or three-year period, you're still growing the economy considerably because jobs are growing and production is growing. It's not as negative as it's being made out to be. So I'm not going to get you into that. Let me ask you this way then. How many more quarters will we have of stocks and real estate and assets declining in value or being flat.

Starting point is 01:07:05 That's a financial markets question, which I think that's a different one. And one thing I've realized is that financial markets in the short term, the the old Warren Buffett quote, or whomever it is, that over the long term, equities are a weighing machine in the short term, they're a voting machine. As we've seen with crypto, it was a voting machine

Starting point is 01:07:23 that everyone voted on the hot thing, the viewer, and now everyone's voting against it. So I don't know. They're weighing it now, yeah. Well, yeah, I mean, it's not going to happen. It's going to happen. You hold the cryptocurrency long enough, you'll find out how much fundamental productive value

Starting point is 01:07:37 it's creating. And the same is true for owning businesses or other real assets. You'll find out over the log run how much productive value they're creating. So, you know, the question of when we hit a floor. Okay, Saks, when do you think we hit? Are we hitting a floor now?

Starting point is 01:07:51 We have a lot more to go down. So, I'll tell you one point of view, I am looking at buying high quality businesses, buying shares of high quality businesses right now. Okay. I think that there are things that are cheaply priced. If I own them for a long enough period of time, the underlying productive value of that business will return my capital to me. And so you have one that you might want to mention here that you're looking at.

Starting point is 01:08:11 I don't want to share some stock tips at the summit with our friend, Sonny, who his trades are up, but like I told him, these are longer term trades. So what do you think in terms of, and then we'll go to some of the political stuff that affects markets after this? Well, I mean, I think it's all related. So there's three things going on here right now economically or three underlying causes. One is rate expectations have changed massively. Interest rates have gone up and rate expectations are going up even more. Fueled by inflation and until we see where we're at on inflation, whether that gets controlled,

Starting point is 01:08:45 that issue is not going away. The second big issue is economic slowdown, the recession. So the first one is Wall Street, this is Main Street. And these two things are related because companies are slamming on the brakes because they're seeing that the capital availability is greatly getting reduced by this re-rating this regime change in markets. So we're seeing an economic slowdown that threatens to turn into a recession and consumer confidence is part of that, right? When your wages don't buy you as much because food and gas prices are through the roof, that reduces consumer confidence and that also plays into that. So that's the second big issue.

Starting point is 01:09:20 And I don't think we're going to know about recession. It's going to take potentially through the rest of the year before we figure out what's happening there. And then the third part of this is the overhang of this war in Europe, the Ukraine war, which is now threatening to become a forever war. There was a pretty stunning article in the Washington Post this week in which the administration officials were quoted as saying that they would effectively prefer or countenance was their word a global recession and famine over letting Russia keep

Starting point is 01:09:53 the Donbass region. So they are committed now to basically prying Russia out of the Donbass, even if it means global recession. Not to mention. They say specifically the Donbass are specifically standing up to Putin. Well, that's kind of minimizing. Well, we're talking about is the Donbass region. What's happened is, look, the Russians lost the first few weeks of the war in which they tried to strike, they basically went for a knockout blow to take over Kiev, topple Zelensky.

Starting point is 01:10:22 I think we accomplished something in preventing that. But since then, they have achieved their objective of taking over this eastern portion of the country, this Donbass region, in which this is where most of the ethnic Russians live, and these Ukrainian separatists who are ethnically Russian, they've been fighting alongside the Russian troops, and the Russians have basically won that part of the war. And so the question is, what do we do now? And what you had is you had administration officials saying that they would not accept this status quo, that they are willing to fight on for years, the same geniuses who gave

Starting point is 01:10:56 us the forever wars of the Middle Eastern, now giving us a forever war in Eastern Europe. And they are saying that they are willing to basically continue this fight even if it means global recession. Now, I don't think the American people ever voted for this, but this is what the administration is pursuing. And, you know, you got to remember that there's always the risk that this war spends out of control that we get a nuclear escalation. So, I think that this is a huge overhang on markets. It's a third big problem that we have. So I don't see how we get out of this bear market until you get clarity and resolution of inflation and rates. Number one, slow down a recession number two and basically this war in Europe number three. And it's reflexive because these next three months as I

Starting point is 01:11:44 indicated last week, I think we're going to see inflation prints that are really high. In part, because things like rents, which are on the lag, we'll get folded back in. So we're going to be printing eight and nine percent. And then guess what, Jason, it's the fall. It starts to get colder. You know, Russia's depriving Europe of Nat gas. Where is the oil going to come from? OPEC is basically still stiff-farming the United States with respect to expanded production

Starting point is 01:12:11 capacity. Why? Because they didn't like the way that we were strong-arming them in a whole bunch of other topics. Where do we stand? You could have $180 barrel oil by November December when it's cold, not just here, but in continental Europe. Now all of a sudden inflation gets kicks right back up again. It could be 7, 8, 9 percent again. So I just think all of these things are now so inexorably intertwined. I think David's right. We need to put this war to bed. And the unfortunate consequence is that right now, if we want to fight a proxy war, there is no elegant off-front that I see. So the prediction markets, just so people know, are predicting 0.8, 0.9% additional inflation in June over, and I think that's over last month, and last month was 8.6.

Starting point is 01:13:03 So we're going to be at 9.5. Jason, could you imagine what the markets do if we print a double digit inflation print? 10.5%, 10.1. Just the psychology of that? Well consumer psychology is really low right now. No, not consumer psychology. I'm thinking market psychology. No market too.

Starting point is 01:13:20 Yeah, so we put those two things together. And then if this war is never ending and the famine that, and the impact on 40 million people or something like that, that freeberg predicted is actually going to happen in the next six months. This is gonna feel quite chaotic to people around the world. So we do need to put this work to bed for sure. There's no deal on the table right now,

Starting point is 01:13:39 but the deal that we've talked about on previous shows, there was always the broad construct here, even before the war began, was there were three pieces to it. Number one was that Ukraine had to remain a neutral state, as opposed to being brought into NATO and having American troops weapons and bases on Russia's border. That was always a red line to them. And in exchange for neutrality, Ukraine would get security guarantees. Peace number two was that in the eastern region

Starting point is 01:14:09 where you had these Russians, these Russian speakers, that their rights would be respected and that they would have some autonomy. And again, that was something that Ukraine agreed to under the Minsk Accords, but it was never properly implemented. And the third piece was that Russia got to keep Crimea, which, again, was a fate of conflict that happened in 2014. Smart observers of this conflict have been outlining that three-point plan for over a year. And that is what we're going to end up with. The only difference is that it's going to be implemented by force, and Ukraine will be destroying the process. That is basically where we're at right now.

Starting point is 01:14:46 Russia has, they've taken over the Donbass, they've taken over this eastern 20% of the country, they have Crimea and Ukraine basically, the rest of it, will not be part of NATO. That is basically what the Russians have done is implement by force a plan that frankly we could have agreed to through negotiation a year ago and avoided all this death and destruction. My my calculus may be I mean we don't know Putin's intent and that's that that's the wild card here he is a bit of a man man I mean he's pretty much of a wild card here he's a dictator who invaded another country. Yeah my my calculus is slightly different I think I see two things in order to get us back to a state of

Starting point is 01:15:26 relatively predictable growth and price stability. Number one is we need to reset supply and demand by taking 30 trillion dollars out of global markets. And then the second is we need an off ramp to this Ukraine Russia war so that there is predictable energy and food supply to the world so that folks can just get back to what they do best. And if those two things can happen, then the markets will have found the bottom. But until those two things happen, in my opinion, and by the way, the first thing doesn't actually have to happen entirely, you just need to see a path for it.

Starting point is 01:16:02 And you know, we're the only one that's doing quantitative tightening right right now the ECB hasn't even started taking all this crazy money out you know i don't know when the bank of england is going to do it when is the you know the bank of japan going to do it so this has to be a global coordinated effort before we find the bottom and this war has to stop which is can i go back to this uh unprickable madman narrative, Jason? Yeah, look, if we're the dictator, yes. If what you're trying to say here is that Putin bears moral culpability and moral responsibility, the blood is on his hands for the swore, I agree with you on that. Okay. However, this, you know, you're not, I mean, he's the person who invaded, yes, right, but, but, just locked it there. But. Right. But the idea that this war was unpredictable or could not have been predicted is simply

Starting point is 01:16:47 false because many experts did predict it. And they did tell us exactly what's going to happen. And the reason they knew what's going to happen is because Russia's been saying since at least 2008, when there was this Bucharest summit, a NATO declared its intent to bring Ukraine into NATO, the Russians been saying that is a red line. And Russia experts, Biden's own CIA director, a guy named Bill Burns, he was then our emissary to Russia and he wrote a memo to then Secretary of State Connolly's arise. And what he said is that the idea of bringing expanding NATO to Ukraine was a red line for

Starting point is 01:17:22 the entire Russian elite, not just Putin. So, and if you go back and look about what other Russian leaders said about NATO expansion, Gorbachev said it was a humiliation to Russia, Yeltsin was against it, they've all been against it, and so Bill Burns warned in 2008, this was a red line, and the Russians have been saying this since 2008, and they were saying it all of last year. If you go look at contemporaneous headlines, describing the tensions between the US and Russia, this is the headlines of articles that can provide to Nick, put on the screen.

Starting point is 01:17:55 They were saying this was an absolute red line for them. So the idea that this conflict was unpredictable because Putin's a madman, listen, you can call him a dictator, you can almost talk, but this was predictable. Highly predictable. Yeah, you can call him a dictator. You can call him a dog, but this is pretty predictable. Yeah, okay, and you know, it's also highly predictable, is that China considers Taiwan a renegade province. Like, yes, dictators will tell us what they're gonna do. The question is, does the free world

Starting point is 01:18:20 want to stand up to dictators? And so while it's messy to stand up to a dictator, so while, you know, it's messy to stand up to a dictator, the West, you know, kind of doesn't have a choice to stand up to dictators or else they will roll into other country's history has shown that. So as messy as this is and as terrible as it is for the economy, I do think that we have to stand up to dictators. There are plenty of dictators we work with by invading other countries. They're not invading other countries. That's not invading other countries. That's the difference here, Sacks. You have to avoid it.

Starting point is 01:18:48 We couldn't have been a bit of a pass here. He invaded the country. We must stand up to dictators who invade other countries. Well, look, look what you're standing up as, just America. I mean the free world. Yeah. Well, look, look where you've got us then with this policy. You and the people who we could have avoided. Yeah, because you are basically spouting this, this nonsense that, look, the question is, I'm sorry, stand up to dictators who invade other countries. I think you would agree that's a good idea. Jake, let him talk.

Starting point is 01:19:14 Let us discuss. Okay, Freiber. Okay, listen, there's no question that Russia has been the aggressor, but the question is, why do they do this? You don't really have a theory on that, Jason, except that you believe that on February 24th, Putin woke up and went nuts. That's basically your explanation.

Starting point is 01:19:30 No, that's not your explanation. For what's happening in the world. You just said that. We know it's a debated region. We know that they've had this conflict for a long time. Okay, so we could have used... You're on the pod many times. Every president from Bill Clinton to Obama

Starting point is 01:19:44 who has dealt with poutine has written largely the same account of him in their memoirs which is look they know that he's a thug they know that he's addicted or however my i said they always said he's very business like he's very direct he told them what their issues were okay poutine was very direct he and biden had a summit in June of last year. The Russians have been very direct. Your attempt to bring Ukraine into NATO is a red line for us. Why? It's a violation of our security interests. The idea of bringing a country into NATO, it has huge security externalities for them. By the way, we understand this in other contexts. We understood that

Starting point is 01:20:23 in the context of Cuban Missile Crisis, we didn't say that Cuba had the right to join any military alliance that it chose to, because we wouldn't be able to sleep as well as at night if Cuba had Nuke's pointed at us with a first-track capability. No, we've had this conversation. Do you think, even though she didn't find it sweet and Finland being invited in Tuneo? I would table that issue until the war is over. I don't know why we need to basically deal with that right now.

Starting point is 01:20:48 But listen, we don't even have to go back to the Cuban missile crisis right now. Okay, there's a country called the Solomon Islands, about 3000 miles off the Australian coast. They entered into a deal with China security deal. And the US have been up in arms about that. So, you know, and the reason is we don't want China extending its footprint in Asia, okay?

Starting point is 01:21:08 So we treat that deal as having a security externality for us. And yet we were refused last year to recognize that there'd be any security externality for Russia if we brought Ukraine into NATO. Mm-hmm. The Russians were abundantly clear about what they needed. So my point is- Yes, I have this conversation on the party. into NATO. The Russians were abundantly clear about what they needed. So my point is that my point is this, that this war was easily avoidable through the use of diplomacy. The

Starting point is 01:21:31 administration chose not to. You believe that, you don't know that. You believe that, you don't know that. You don't even try it. We never even tried. We actually don't know that. It's worse than that, Jason, because here's what happened after the June 16th summit in Geneva between Putin and Biden last year, okay? Putin tells Biden to his face, this is a red line, as they've always said. So what does the administration do? Not only do they not negotiate with the Russians, they invite Zelensky to the White House on September 1st of last year. And then on November 10th, they publish a massive 10-year charter agreement. This was a huge finger in the eye to the Russians.

Starting point is 01:22:09 And on the heels of that November 10th charter agreement, the Russians basically delivered an ultimatum to the U.S. demanding a written guarantee that Ukraine not join NATO. And then in January, Blinken was tasked with negotiating with Lavrov, and Blinken said there has been no change. There will be no change. NATO's door is open and will remain open. This administration was incredibly stubborn. They were absolutely refused to use diplomacy to diffuse the crisis.

Starting point is 01:22:32 Now you say, well, we can't know what have done. Well, but the point is they never tried. Is it Ukraine, a sovereign country? Yeah, they are, but the point is... Do they get to pick what they do in their fate? Look, this idea that there's a... Do they get to pick their fate as a sovereign country. I think you would agree yes Okay, well here's the question is you're what you're trying to do and is is create a doctrine? Okay, you're trying to create a new doctrine

Starting point is 01:22:57 that a country gets a join whatever security alliance they want whatever military alliance they want that is not a doctrine We believe in when it comes to the Solomon Islands. It's not a doctrine we believe in with respect to Cuba and the Cuban Missile Crisis. And the fact of the matter is that the nations of the world are engaged in a security competition. And if a country like Ukraine joins a new military alliance that has huge externalities, and so we do not believe in that doctrine, Jason. This is a doctrine that did not exist until February. Wait, we don't believe more people

Starting point is 01:23:31 should be able to join NATO while Sweden is in Finland. No, we clearly believe that, but this doctrine that the countries of the world should be able to join whatever military alliance they want, that is not, we do not practice that doctrine. That is not a doctrine we believe in. And your example is Cuba. Cuba and then more recently the Solomon Islands.

Starting point is 01:23:48 Okay. Yeah. I mean, listen, I, I, I'm not saying this war is not a mess. All wars tend to be a mess. I'm not saying we shouldn't try to resolve it with everything we have. I do think the people of the Ukraine, you know, get to pick their fate. And I am in support of the NATO being stronger and stronger.

Starting point is 01:24:05 And I'm in favor of isolating Putin and using diplomacy as the primary tactic to do that. And maybe you're in a different country because you won't stop at one. I think that's the big question I think is, will he stop at one? Do you think he'll stop at one country? Listen, he has proven he won't. You just said you want to, you're okay with stopping him. Listen, you just said that you want to use diplomacy as the primary tactic.

Starting point is 01:24:30 Okay, so we agree on that. The question is what you're going to give up because the administration was not willing to engage on the key Russian concern, which is the admission of Ukraine, it's a native. Do you think Russia will stop with Ukraine or Donbass? Do you think that's actually the stopping point for Putin? Listen, I think there's a few ways to come out that question.

Starting point is 01:24:48 One is to ask, what is the motivation, which is very hard to know because it's inside Putin's head. Okay, so the second is what are their interests, and the third is what are their capabilities? The capabilities question is pretty easy to answer. I mean, they have had a very hard time winning this war. They've won this Eastern region of the Donbass because I think this is what. Why is that? Why did they a very hard time winning this war they've won this eastern region of the dawn bastard because i think

Starting point is 01:25:08 what it have a hard time well because the military capabilities are obviously not as great as people thought and and you crane got a lot of weapons from the west from from NATO exactly so this idea listen i've said it before the e-use gdp is 10 times greater than Russia's. And economic strength is the foundation for military strength. Moreover, we've seen that these NATO weapons are incredible.

Starting point is 01:25:33 The US's weaponry, I mean, it's- So you're in support of providing weapons to Ukraine. NATO, the EU, the European country is- I'm not in favor of creating a forever war in Eastern Europe. That is what's in the cards. No, wait, what's that? The question is, Jason, you just said that we have to isolate Putin. We have to deprive him of any positive outcome from this war.

Starting point is 01:25:55 No, no, no, I think we have to stop him from evading countries. That's what we stop him from evading more countries. He's not going to evade NATO countries because he's so out-match. Well, not NATO, but I mean, there's a lot of countries that are not in NATO. So, I mean, I think that's the thing. But I mean, listen, we discussed this a million times here, rule. I think we both agree we want the word end. I think we might just let it go.

Starting point is 01:26:14 Question is, what are you willing to do to end the war? And, you know, my point is this, that the question is, what is Putin willing to do in terms of starting wars, innovating other countries, and what does the West have to do to react to that? I think that's what we're talking about here. We didn't start this war, you know. But anyway, let's move on. I think that...

Starting point is 01:26:31 Well, I'll say, we, we, and I started this war, but we failed to prevent it through the use of diplomacy. That's always been my point. Yeah. I think this war, I think this war was... It may be out of control. I think this war was easily preventable if we had listened and engaged in diplomacy. Easily?

Starting point is 01:26:43 Easily, yes. Okay. Yes. I'm not sure that's what... We just tell you right now, the policy. Easily. Easily. Yes. Okay. Yes. I'm not sure that's what we just tell you right now. The deal that would end this war is the same deal that was on the table last year was zero bloodshed, which is Ukraine remains a neutral state. There's autonomy for the Russian speakers in the Donbass and Crimea basically remains part of Russia. That was the deal. That is the deal, that will be the deal. The only question is, does the whole country have free destroyed? All right, well, we're gonna find out in the coming months.

Starting point is 01:27:12 And does the world have to go through a global recession in famine? These are big questions. Yeah, it's not, the sacrifice it takes to stand up to dictators is very significant. And especially once with nuclear bombs. And it will be even worse with Taiwan. I mean, if we think that this is difficult, can you imagine this kind of escalation with a capable adversary if Russia is not super capable and their weapons turned out to not be as strong?

Starting point is 01:27:36 My God, what would Taiwan look like? Did you guys read this story where it was the deputy foreign minister got demoted and there was all this Speculation like why did he get demoted and one of the things that came out was that you know, he was very very pro-Russia and And she is not and she is not and she is is much more hedged and moderate and yeah You know wanted to have more optionality and felt that he was cornered because I think there was some, what was the quote, I mean, Nick, you can pull it, but it was something about like, you know, the, the strength between basically China and Russia's infinite. But that was, that was a quote that he said that was a little bit off the reservation

Starting point is 01:28:18 it seems. And so, yeah, there's no defense. Yeah. Yeah. Yeah. Yeah. Yeah. There's an important story as well. I mean, you know, it's one of the things that we can look at what's happening in these political situations. I think we probably have 50, 60, 70% of the information.

Starting point is 01:28:31 Not even, not even. Really quick. Tell us what's going on in Alpha Fold world. Salt and Up Science. There was a paper published about two weeks ago in the journal Science. And it's actually an important paper because it used Alpha Fold to do some really important

Starting point is 01:28:46 work. And the work is to actually create a 3D structure, 3D model of the nuclear pore complex. And that nuclear pore complex is really the scaffolding that makes up the nucleus of a cell. So all eukaryotes, all plants and animals have a nucleus in our cells, and the nucleus holds the DNA. And the big question,

Starting point is 01:29:11 Frieberg's internet connection is getting bored. It's so good. It's so good. What happened? It's such a chance. Just let him finish his sentence. It'll break up. Yeah, you're fine, keep going.

Starting point is 01:29:22 Keep going. Your internet connection, have your breakfast. You're still boring while you're talking're in an action. You're in an action. You're in an action. You're in an action. You're in an action. So what does this mean in terms of? Hold on.

Starting point is 01:29:31 So what this team did, and this is the problem that's kind of been around for decades, is we've never really understood what the physical structure of the nucleus in a cell looks like. And this is important because the physical structure regulates how molecules get into and out of the nucleus and how DNA is expressed and how the RNA that comes out of the DNA goes into the rest of the cell. And this regulates so much of human health. In fact, it's been shown and demonstrated that dysfunction in the nuclear pore complex in the cell can lead to things like viral infection, brain injury, cancers, cardiovascular disease, many diseases, their underlying driver may result

Starting point is 01:30:16 from dysfunction in the transmission of molecules into and out of the nucleus of the cell. And so scientists have always tried to figure out what does that transport mechanism look like? What does that infrastructure look like? And so for the first time, and scientists have published theories on this and they've shown using X-ray, imaging, some theory around what these complexes look like.

Starting point is 01:30:41 And what this team at Harvard did that they published two weeks ago is a really groundbreaking, extremely detailed view of the entire nuclear, nuclear, poor complex around the nucleus of the cell by combining both x-ray imaging and alpha-fold. And so what they did is they took the predicted physical structure of those proteins from alpha fold and used that to construct a sample of what the nuclear pore complex looks like. How do they know it's accurate?

Starting point is 01:31:12 And so using this x-ray imaging, they've been able to kind of verify some of the assumptions on alpha-fold yields. And now they've created this 3D model. And this 3D model now gives, and by the way, just to think about this physically, what it means like for a second, the nuclear pore complex, think about it as like a fence, like a spherical fence that sits around the nucleus.

Starting point is 01:31:31 And some parts of that fence open and close, some parts are static, and the way that certain things open and close and what can fit through them and how they fit through and how stuff gets stuck is really important to understand as a way to both understand the underlying cause of diseases like cancer, but also how we can create therapeutics and how we can target specific things that we can fix and how we can get molecules into the nucleus of the cell to regulate DNA expression

Starting point is 01:31:58 and edit the DNA inside of the cells. That's my mind blowing. So wait, if I were to translate this from nerd, you basically, alpha fold predicted, no, I'm being sincere, there's a map here that we were not able to see through x-rays and through physics, but alpha fold predicted some of that and filled in the gaps, so now we have the map

Starting point is 01:32:17 has been filled. That's a great way to describe it. And so now we have this incredibly detailed 3D image and Nick can share the images on our YouTube screen here of what the nuclear-poor complex looks like, and how each of those pores work. How do they open and close? What's the structure of them? This isn't simply like a circle.

Starting point is 01:32:35 This is like all these weird tentacles and little things sticking out, and that can help us predict what molecules get stuck, and how one error in one of those proteins can cause things to get stuck. I like a cancer or something like that. Yeah, how this can cause certain DNA to be overexpressed or under-expressed, causing things like cancer. So we're going to lift her up. The whole new area of research in medicine, gene therapy, and new things that we can think

Starting point is 01:32:59 about targeting to fix a lot of these underlying diseases. And so this was a groundbreaking paper. Incredible. What's the name of the paper? Can we just get the name of the paper so people can Google it? We'll put it in the show notes as well. There's been an amazing episode.

Starting point is 01:33:11 Yeah, so it's a team out of Harvard. We'll send the link in the show notes structure of cytoplasmic ring of nuclear pork complex by integrative cryo EM and alpha fold. Terrible naming, not for the general audience. No, no, it's okay. Sax is printing it out right now, and he's gonna use it for his new kittens in the box.

Starting point is 01:33:29 But I just wanna highlight, because we talked about alpha fold, I think last year or the year before, and how it was gonna open up all these new areas of range. And here we are, are you saying the incredible example of how alpha fold's been used to solve this really misunderstood or never really well understood aspect of biology.

Starting point is 01:33:45 That is that the root cause of so much of disease and creates all this opportunity for medicine and therapeutics research and discovery. This is great to see this breakthrough. Sorry, we didn't get to January 6th or Roe v Wade, we'll get to those the next episode. No, no, no, listen, I think Roe v Wade, I'm not sure there's, I mean, much to do something about the reactions, but we did a pretty thorough episode. So folks really want us to double click. We double clicked with two of the most bulletproof constitutional experts in the space

Starting point is 01:34:12 when it first got leaked. So please go and watch. Yeah, we're listening to that. All right. Do you see it? Which episode is that number? I don't know which one. We'll put it in the show notes.

Starting point is 01:34:20 It'll be in the show notes for everybody. And we'll see you all next time. Bye-bye. Bye-bye. Bye-bye. Love you, Seth. I'm going on a leave What, what, what, what, what, what, what, what, what, what, what, what, what, what, what, what, what, what, what, what, what, what, what, what, what, what, what, what, what, what, what, what, what, what, what, what, what, what, what, what, what, what, what, what, what, what, what, what, what, what, what, what, what, what, what, what, what, what, what, what, what, what, what, what, what, what, what, what, what, what, what, what, what, what, what, what, what, what, what, what, what, what, what, what, what, what, what, what, what, what, what, what, what, what, what, what, what, what, what, what, what, what, what, what, what, what, what, what, what, what, what, what, what, what, what, what, what, what, what, what, what, what, what, what, what, what, what, what, what, what, what, what, what, what, what, what, what, what, what, what, what, what, what, what, what, what, what, what, what, what, what, what, what, what, what, what, what, what, what, what, what, what, what, what, what, what, what, what, what, what, what, what, what, what, what, what, what, what, what, what, what, what, what, what, what, what, what, what, what, what, what, what, what, what, what, what, what, what, what, what, what, what, what, what, what, what, what, what, what, what, what, what, what, what, what, what, what, what, big hugures because they're all just like this like sexual tension but you just need to release that I'm doing all the work

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