All-In with Chamath, Jason, Sacks & Friedberg - E87: Emerging markets, Sri Lanka, 9.1% CPI, market sentiment, NASA's Webb telescope & more

Episode Date: July 14, 2022

0:00 Bestie intros! 1:41 Emerging markets, Sri Lanka break down 36:01 9.1% CPI print 48:15 Current market sentiments from retail and institutional investors 1:05:00 NASA's Webb telescope images 1:15:57 Beagle rescue, Biden admin's lack of private sector experience, Russia's new energy play BEAGLE RESCUE INFO: https://www.cnn.com/2022/07/12/us/beagles-virginia-facility-rescue/index.html https://www.nytimes.com/2022/07/12/us/envigo-beagles-breeder-adoption.html https://www.humanesociety.org/beaglerescue Follow the besties: https://twitter.com/chamath https://linktr.ee/calacanis https://twitter.com/DavidSacks https://twitter.com/friedberg Follow the pod: https://twitter.com/theallinpod https://linktr.ee/allinpodcast Intro Music Credit: https://rb.gy/tppkzl https://twitter.com/yung_spielburg Intro Video Credit: https://twitter.com/TheZachEffect Referenced in the show: https://data.worldbank.org/indicator/NY.GDP.MKTP.KD.ZG?end=2021&locations=VN-US-CN&start=1984&view=chart https://www.wsj.com/articles/rising-inflation-and-interest-rates-heap-pressure-on-emerging-markets-11655544600 https://www.cnn.com/asia/live-news/sri-lanka-protests-07-13-22-intl/index.html https://www.reuters.com/markets/europe/emerging-markets-drive-global-debt-record-303-trillion-iif-2022-02-23/ https://worldpopulationreview.com/countries/countries-by-gdp https://www.reuters.com/markets/commodities/fertiliser-ban-decimates-sri-lankan-crops-government-popularity-ebbs-2022-03-03 https://www.weforum.org/agenda/2016/02/what-next-for-sri-lanka/ https://www.nytimes.com/2021/12/07/world/asia/sri-lanka-organic-farming-fertilizer.html https://www.bloomberg.com/news/articles/2022-07-05/sri-lanka-aims-to-stop-money-printing-as-inflation-nears-60 https://twitter.com/chamath/status/561467714485514240 https://datareportal.com/reports/digital-2022-sri-lanka https://michaelshellenberger.substack.com/p/green-dogma-behind-fall-of-sri-lanka https://www.scmp.com/news/china/diplomacy/article/3134224/why-china-building-gleaming-new-government-facilities-africa https://www.scmp.com/news/china/diplomacy/article/2186970/how-presidential-palace-burundi-fits-chinas-plans-africa https://www.forbes.com/sites/rufaskamau/2022/07/11/inflation-protests-span-sri-lanka-albania-argentina-panama-kenya-ghanahow-long-before-they-hit-the-united-states/ https://tradingeconomics.com/united-states/inflation-cpi https://www.redfin.com/news/data-center/ https://fredblog.stlouisfed.org/2014/04/the-taylor-rule/ https://fred.stlouisfed.org/series/DGS10 https://www.nbcnews.com/data-graphics/compare-photos-nasas-james-webb-space-telescope-hubble-space-telescope-rcna37875 https://www.wsj.com/articles/nasa-james-webb-space-telescope-greg-robinson-images-11657137487 https://www.google.com/finance/quote/NOTV:NASDAQ https://www.wsj.com/articles/no-business-experience-needed-joe-biden-white-house-officials-committee-to-unleash-prosperity-report-11657661328

Wait, that's not even a sweater, that's a sweatshirt. No, I'm not even casual. It looks like polyester or something. Okay, quick, free brick. Come on the video where you're wearing the same thing as J.C. also we can make a quick joke and make more runs. I mean, you guys are so predictably dumb to give you. It's so itchy.

Do you ever rash? Jason made me buy this outfit and I put it on and I'm like, itching, I'm about to take this thing off. Polyester, wool, polyurethane. What's that made out of? What? What? What?

What? What? What's that made out of? What? What? What? What? What?

What? What? What? What? What? What? What? What? What? Okay, everybody, welcome back to the All In Pod episode 87. Here we go. Tons of news going on. Thanks for all the great feedback on episode 86.

We're going to start with emerging markets. Oh, and yeah, welcome to the program, David Freiburg, Sultan of Science. The dictator himself from his palace in Sri Lanka, his new palace in Sri Lanka, he'll be taking over over there. We'll get into that. And Saks is in a in witness protection right now, apparently. Where are you, Saks, in this white and nondescript room? Can you say where you are? This is my soundproof padded room. Yeah. Oh, is that what if Dr. Biden's done? You're by the arrangement. They put you in a silent. What do you do? You rock back and forth and say inflation, Ukraine, inflation, Ukraine? No, we just had the That's what Biden's done. You're Biden's arrangements. They put you in a silent. What do you do?

You rock back and forth and say inflation, Ukraine, inflation, Ukraine. No, we just had the room soundproof for better podcasting. Oh, look at you taking the job seriously. I don't think it looks bad. I think it looks good. Yeah, you could put a little art behind you or something. Just put one of your monies behind you, the ones you have in storage downstairs. Okay, emerging markets are facing some huge challenges right now.

Quick primer on three types of markets developed emerging and the frontier market, if you don't know, developed markets are considered US-Japan Europe. Their GDP growth is lower, single digits, typically. In the emerging market, it's roughly defined as developing but not fully developed. That includes countries like the BRICS, which is Brazil, Russia, India, China, and recently, I did South Africa. Many other markets are included in that. They were previously called the Third World in the 80s. People didn't like that term. Investors will bet on them having higher GDP growth, typically two times or three times what the developed world has. China, for example 2019 6% growth US in 2019 2.1% growth and of course there's frontier markets these are viewed as small unstable liquid generally risky if you look at something like

Kenya Vietnam those would fall into that category Vietnam 7% GDP growth in 2019 to the US is 2% sometimes people like to make bets on them here's a nice little chart for you all to look at, and you can just see China versus Vietnam in the United States since the 80s. And so why is this all important? Well, the Wall Street Journal reported last week that EMs, the emerging markets, have been feeling massive pressure, we'll get to Sri Lanka in a moment. That's a frontier market to be clear. But three things, well, we've got probably a half dozen things going on. Let me just highlight maybe the top five and then I'll hand it off to the besties. You have high bond and loan yields.

The debt rates are increasing in the emerging markets and frontier markets. Think what happens when you got a variable mortgage or you try to get a new market, a new mortgage. In the developing markets, the developing market investors have stopped investing in emerging markets and frontier markets as you might suspect during a downturn. And they're even pulling money out. Then you have surging inflation.

We all know about that. We're going to talk about inflation here in the US because we got the print this morning. And slowing growth. We've also talked about this for the last six months on the program. All these problems get exacerbated when economic growth slows and it's slowing growth. We've also talked about this for the last six months on the program. All these problems get exacerbated when economic growth slows and it's slowing globally. And then finally, we have the potential issue of contagion. We don't know exactly what's going to happen

when various countries are facing these challenges. All we did tell you here, what would happen with the Ukraine, shout out to Saks and Freebird, fertilizer, wheat, oil, all that good stuff. And it's becoming very acute. Perhaps the Canadian, Canadian in the coal mine is Sri Lanka, breaking news president,

Roger Paksha, fled for the Maldives, and it's a state of emergency. Curfews were declared. I think that's been canceled as of the taping of this. We can get into the state of Sri Lanka. Your thoughts? Friedberg, I know you've been shopping at the bit

to discuss this. Yeah, that was a good long intro. I think the high level for me, if you look kind of at debt markets around the world, there's about $300 trillion of global debt. And I put this chart in the chat here, Nick, you can put it on the video. And about $100 trillion of that debt globally is in emerging markets. And so these countries generally have much more kind of variable GDP growth as well as challenges ultimately with their currencies.

Most of this debt recently, and this has been a trend for a number of years lately, has been issued in their local currency rather than in US dollars. And so as the currency devalues, it becomes more challenging for an investor to make a return if they're investing from a US dollar denominated base or some other dollar denominated base. So look, the emerging markets are heavily saddled. I mean, some of these countries have over 300% or 250% debt to GDP. And what's really gone on recently is that many of them, as net importers of energy and food,

are going to struggle to make the stuff they need to make at home or to feed their people at home because of the rising inflation that's been happening around the world from the producers of those goods and those goods. And so to import those goods is more expensive. That makes it's more challenging for people to be able to afford food, to be able to afford energy.

This is part of what we're seeing happening in Sri Lanka. What's compounding this is we have rising inflation in the US. So as we've been talking about a lot, the Fed's been raising interest rates here in the US, which means that you can now buy treasuries that yield 3%. If you're an investor around the world, where else are you going to put your money except

US treasuries in a market like this? You want to buy 3% yield in US dollars versus getting 10% yield in some currency-denominated account, some currency-denominated bond in a country you don't really know well or trust as much as the United States. So as a result, a lot of dollars are moving out of emerging market debt into US debt and the price of that debt has collapsed. And so we've seen in the last couple of months a decline of emerging market debt of about 20%.

This makes it harder for those countries to issue new debt to fund things and it's creating this really challenging spiral that may ultimately lead to defaults. Those defaults absolutely have a trickling effect because if one country starts to default and you're an investor in emerging market debt, you're gonna say, hey, wait a second, this I just took a huge loss in this position, you're gonna start to sell off other emerging market debt.

And then it becomes harder for those countries to raise more debt and fund themselves and it can cause a cataclysmic spiral. So it's a really scary scenario we're waiting into now. And I think we really hope that the US starts to taper interest rates and we find some stability in these markets over the next couple of months, because it's not just a food and energy crisis, it's also a humanitarian crisis, and ultimately could read to a global financial crisis.

And in fact, it's something that is huge. It's highly complex, but it's something that folks are tracking very closely here. What's happening also is the companies that were already at risk are going to start filling this impact. We could jump into Sri Lanka if we want. Sri Lanka has, I think, a bunch of short-term issues and a couple of very long-term issues.

Let me set the backdrop, because I think this is really interesting. Let's take, let's study Sri Lanka through the lens of two other countries, Jamaica and Singapore. If you go all the way back to 1960, so roughly when Singapore became a nation, the Jamaican population in 1960 was 1.6 million people. The Singaporean population was 1.6 million people.

Sri Lanka's population was 9.8 million. Jamaica's GDP was 700 million. Singapore's GDP was 700 million. Sri Lanka's was 1.4 billion. Now you fast forward to 2022. Jamaica's GDP is about 13 billion. Singapore's GDP has grown to about 360 billion. And Sri Lanka's GDP is 80 billion. So like, what did Singapore do right? What did Jamaica get right? Because one of the things that they kept in check was their population, even though their GDP didn't expand that much, their per capita income was still quite healthy.

And then what did Sri Lanka get right? What did Sri Lanka get wrong? Well, some of the things when you look at Singapore is that they found a way to embrace, despite a very heterogeneous culture and sets of religions inside that city state, they found a way to promote multiculturalism yet also promote English as the lingua-francoa. Why was that small thing so important?

Because it allowed them to be a hub for the rest of the world in a way that many, many other countries couldn't do. The second thing that they had was a very low level of corruption because they had a leader, in that case, Lee Kuan Yu. And again, some people in the West will paint it as slightly authoritarian, you know, he would paint it as Asian values. But the net result of it was very low levels of corruption, a small but highly effective public service, and meaningful investments in education and healthcare to make that country grow over decades. And within a generation, that country completely exceeded all expectations. Sri Lanka struggled through a civil war. I was a byproduct of that civil war. It was partly religious. It was partly

ethnic and it was 20 plus years in the making and in the happening. And it took a very right-wing autocratic leader, the brother of the current deposed president, to basically root it out. Now, in order to root it out, there were enormous amounts of war crimes and all kinds of things that I don't think anybody would support accepted brought some amount of stability. And so then you would have thought, okay, maybe this is the point at which you can now really start to grow. But these guys yet again found a way to naval gaze and just to infuse so much corruption and graft inside of how the government was run.

By the way, and it wasn't just the right, it was also the left. They spent two and a half times more on defense as of last year than they did when they were in wartime. It doesn't make much sense. The public service grew to the largest it ever did in a moment where you really should have prioritized private enterprise. So all of these things sort of created a situation where they fundamentally didn't know what they were doing.

So the other two issues there, I think, and that's a great summary of really those frontier countries and what made them emerge. Singapore also has a great strategic location, which Sri Lanka kind of shares. They're both island countries strategically located for trade. And then I guess the policies, right? Singapore went on a very, very aggressive tax and business policy effort. Did Sri Lanka do that as well? And then maybe you could speak to just how important those are as islands, you know,

and their geography, because Jamaica doesn't obviously have that. I mean, Sri Lanka has this massive growing importance as China has emerged. The problem in these last few years is that they did everything possible to not just alienate China, but to alienate everybody on every dimension possible. You know, the alienated China, the coup de gras was that there was an enormous ship into fertilizer, chemical fertilizer that was sent to the ports. And it was summarily rejected and turned around because somewhere along the way, the leadership in Sri Lanka decided that they were woke.

And so they enforced every farmer to go organic. The problem with going organic and organic fertilizer was all the small farms shut down all of the large farms had 20 to 30% crop yield reductions the prices of food went crazy They reversed policies two or three times and really what they found as they you know they tried to go woke instead they went broke and All of a sudden all these other countries who were there are trying to help said wait what is going on here? So they offended China. They offended the Middle Easterners.

They offended the Japanese by cutting a light rail project that Japan wanted to fund. I mean, in every step of the way, they de-industrialized. This country found a, they didn't de-industrialize. They tried to follow this woke agenda. That is de-industrialization. I mean, reversing from like the modern techniques

of industrial production, like fertilizer and modern systems of farming production, fertilizer and modern systems of farming is the industrialization. It's going to be a curse, ultimately. Sachs, to your point, we just discussed this last week with the farmers. If you're in a frontier market, trying to adopt the regulations and the strategic goals for the environment of the emerging market is like two giant hops it's it's it's probably insurmountable. Well look there's a strong analogy between the

populist uprising that's happening in the Netherlands with the Dutch farmers and the populist uprising that's happening in Sri Lanka. Basically they're implementing the same policies. This is that Sri Lanka is a further down the road and a support country to begin with. So, you know, like Timoth mentioned, in April of last year, the Sri Lankan government banned the importation of chemical fertilizers and pesticides using farming. They again went with this idea, they thought they could encourage organic farming. So, the result of that was that overall production, agricultural production fell by a third and rice production fell by 43%. And rice is the biggest staple in the country.

So now you got people there starving or going hungry. You've got massive food insecurity as well as the whole economy. Basically, it's been crippled. And the result of that is society has essentially collapsed. So, you know, now, the question is, why did the Sri Lankan government feel compelled to adopt these policies? A lot of it has to do with the fact they're getting these massive loans from the World Bank and the IMF, and the World Bank and so forth are imposing these ESG requirements.

So, Sri Lank has something like a 98% ESG rating, even as their economy and society is collapsing. How is that possible? Well, they're doing a great job following the prescriptions of the global elites of Davos. I mean, this sort of global elite flies into Davos from Brussels and Washington on their private planes that have panels on ESG,

and then they prescribe these policies for countries like Sri Lanka, and this is the result. I mean, it's crazy. They've been telling us for years that somehow there's no trade-off between their environmentalist policies and creating a healthy growing economy. And this is an example of, that's not true. There are real trade-offs here. And the crazy thing is that the elites expect poor people in Sri Lanka to make up for

their environmental emissions. It's not really fair at all. Here's another example. In March of 2020 Sri Lanka enforced one of the world's strictest China Esk COVID-9 lockdowns COVID-19 lockdowns. Despite one of the lowest death rates and infection rates in the world. And so for nearly three months it literally crippled the economy and the livelihood of citizens there. But here's where it gets crazy. Then they actually go against global best practice and they banned the burial of COVID-19 victims, claiming that it could lead to groundwater contamination. I don't even know how they came up with this. But you know what this did was it significantly undermined the small minority of the country

that is Muslim because a religious practice there, you know, is you bury your dead. And then that caused great pain to them. And then it, as in turn, it hurt all these international relationships with all these Gulf nations. So then you come all the way around and then you go back to those same Gulf nations a few months later and you're like, can I have subsidized oil? And they're like, no, not so much. And just to give Panda picture what's happening there right now, as I mentioned before, it's

pretty much a state of emergency. You can see various videos trending on social media and you always take those with some caution because sometimes people will take clips at a context or label them incorrectly or use clips from other moments in time. But what's really happening there right now and you shared a video in our group chat is everything is now being old out in very small amounts. So there are lines for basic goods and inflation is crippling there. And as Freeberg mentioned, they started to pin their exchange rate and their currency to, I guess, the world's exchange rate. And now everything is super expensive and essential imports like food and medicine and fuel.

They don't have the money to pay for it. So this is going to be a complete societal collapse. It seems. And they're going to need to get bailed out. There was a bill that was introduced in the government that said the central bank would be forced to have a discipline on money printing. Sound familiar? In March of 2020, the central bank of Sri Lanka began printing money in order to finance a growing budget deficit. Again, happens in many countries. And they did that in part to fulfill an election promise that they made that they would maintain single digit interest rates. Again, sounds really familiar. So they printed about 100 billion rupees in March. In the next two years, the central bank printed 1.65 trillion rupees.

Right? So 16 and a half times that first number. And then as a result, what they saw was the highest inflation in post-independence history. So time after time, what you're actually seeing in Sri Lanka is not a microcosm of something that's endemic to whatever you want to call it, Jason, a developing country, a third world country, frontier, a frontier country, a Southeast Asian country. In fact, it actually resembles many of the policies that exist in so many countries all around the world. And what's really important here is that as goes Sri Lanka, Sago's Ghana, Sago's Pakistan, Sago's a whole bunch

of countries where you're already starting to see food riots, food insecurity, energy insecurity, rampant inflation, sovereign defaults. And you have to ask yourself, like, how are we going to really turn a kid this whole thing and prevent a much bigger contagion like Fieber just talked about? I think it's a, we might be really foolish. Because you mentioned COVID, it turns out a lot of these frontier countries were already on debt relief and being given a more torium on making their debt payments since they got so wall up during COVID. And then now the other shoe drops. And here we are, there's no relief you can give them if they're already not paying their loans in some cases.

By the way, here's another thing that happens in a lot of these developing countries. So in the middle of all of this chaos, what do you think happened? The parliament got together. They passed an amendment to the Constitution and it enforced and it gave incremental power to one individual, the president. And typically in most of these countries that run by a parliamentary system, the president is a figurehead, right? The person shows up, you know, shake hands, kiss his babies, that's it, right? Maybe convenes a Senate, but that is it. Now, all of a sudden, the person

has control over defense, control over budget, control over the central bank, and this person cannot be, you know, voted out in a no confidence vote the same way that a prime minister can. That happened here as well. So yet another example of if you start to see a bunch of autocrats in some of these developing markets feel like the answer is more power, it's been tried here, it didn't work. So I think that there's a lot of lessons.

I am a little concerned and skeptical that many of these other developing countries that are teetering on insolvency will actually learn. Well, I mean, what they need to hear. We are the definition of the developed world reportedly, and we have a president who tried to stay in power and still in election. So it literally is happening here in the United States as well. The parallels are truly terrifying.

All right, the CPI, I'm sorry, it's actually something. This is really my eyes. That's not noise. That's what I heard. That's what I heard'm sorry, it's actually says something. This is really my eyes. That's not noise. That's what I have. That's what I have. Noise from an eye roll. Ah, that's what it was. It's not like a boulder going down the hill.

Wait, sorry, can I ask Timothy question? Yep. Timothy, by the way, if people don't know, Timothy is of Sri Lankan descent just to make that clear if you didn't hear his little mention of it. When did you go? There were a couple years ago. I mean, here's another great example of, in this case,

this was the left who managed to fuck things up. So it's not just the right that screws things up in that country, it's the left as well. So in this example, I went there and I offered to bring Google loon, myself and Google, we offered to bring internet access to the entire country, like guaranteed internet access. This was like five years ago. And we set up an entity and the government tried to do the right thing in grants and spectrum. And instead of sort of like fast tracking this and allowing, you know, this project to become a reality, there was an enormous amount of infighting that

essentially said that, you know, we were trying to steal the license or we stole the license or we were trying to monetize the license. And both me and Google were just like, forget this, this is not worth it. And we abandoned the project and walked away. Instead, Google ends up servicing a whole bunch of other countries. And the reason why Sri Lanka was part of it was because the balloons follow a certain orbit, and it would go over Sri Lanka no matter what. So it's kind of like, we can light it up for free. All we need is spectrum in this country. Google's already doing that work. So I've gone there a few times. I found it very difficult to try to do the right thing. I think people, there's a level of infighting that I hope this crisis changes. I also think that it's an

opportunity for people to reset writ large. The gerontocracy that runs many of these countries, including the United States, quite honestly. There is an opportunity, there are some, you know, of my friends who I think may emerge in the next few weeks, who are very well-known people in that country who literally want to step one, remove most of the executive power from the presidency, make it a true, you know, parliamentary style system with an empowered prime minister and empowered elected officials and let the country run and fix itself, you know, deprioritize some defense spending, deprioritize the growth of the public sector, reprioritize the growth of the private sector. if given the opportunity under those kinds of market conditions. And I would love to go back at some point. But my history with the country has been very fraught because as I've gone to try to do the work, Friedberg, people are just haters. And they just, they will cut their nose off despite the, they'll just do the worst things

possible. Shema, there's a, I think you have a second swing at bat here, only 50% or so of people in Sri Lanka have internet access, and maybe we could talk to our friend over at Starlink, and that could be an incredible Mitzvah and changing thing there. If you get 100% of the country on internet, my God, that could change everything, and it seems completely doable. You have to. By the way, and this is the most literate country in the world.

You have to understand, like, the people in that country, the human potential like country is incredible, okay? There are not developing countries like this that have this type of literacy, and the kindness of the people. These are incredible hardworking people. But the elected class is some of the most inward, naval gazing corrupt people. And this is the opportunity for the young

people of that country to wipe the slate clean with all of them and start over with some. I think the literacy rate is 92% or something crazy there. It's very high. It's a highly educated, literate group of people. The truth is the number of people living in extreme poverty has plummeted thanks to globalization. We went from almost, yeah, two billion people living in extreme poverty. Now it's going to be, that's going to end in our lifetimes. We have maybe 500, 600 million people living in extreme poverty. That's because of globalization. That's the great thing that's happened.

Now what's also happened at the same time is people have gotten out of sync. We have elites to Sax is point who think they know better and they're trying to enforce on in a merging market or a frontier market got forbid the things that we have the luxury of doing in the devout we don't even do wait hold on well we don't have a green we don't even ban chemical fertilizers in the western world well we do have in europe has standards for gas mileage as but one example we have emission standards

We have the accords that we've been working on all of these things are starting in the developed world and now exactly to what Dave We're just saying is we're taking them from the developed world We are imposing them and Sri Lanka apparently embraced it digesting a point when they're at Davos Sri Lanka is not rich enough to resist. That's the issue So the US has an ESG rating of 51 percent Sri Lanka is not rich enough to resist. That's the issue. So the US has an ESG rating of 51%, Sri Lanka has 98%. Why is that? Because in our country,

we're not gonna impose these crazy mandates. There's enough resistance to it. But if you're in Sri Lanka and you have these massive loans and debt service, you have to do what the IMF and the World Bank and all these internationalists. What are your creditors? Tell you to do. the IMF and the World Bank and all these internationalists. What you're trying to do. You're trying to do.

Yes, exactly. They're the ones who imposed all this stuff. So great. So Sri Lanka ends up with a 98% near perfect ESG rating, even as the country is completely collapsing. Read the Shalamburger article here. He says, then our line reason for the fall Sri Lanka is as leaders fell under the spell of Western Green elites peddling organic agriculture in ESG.

And then he mentions that Sri Lanka is a near-perfect score of 98, higher than Sweden, which is 96 in the US at 51. What is having such a high ESG score mean? It shorted it means that Sri Lanka's 2 million farmers were forced to stop using fertilizers and pesticides, laying waste to its critical agricultural sector. And then it goes on from there. So it was the imposition of, it's not that Sri Lanka's politicians implemented

Sri Lanka ideas that caused the collapse of their country. They implemented Western ideas, they implemented the ideas. Well, they were also corrupt. So it was a combination of the corruption, they implemented the ideas, they learned Adavos Well, they were also corrupt. So, there's a combination of the corruption. Sure, enough. They implemented the ideas. They learned adavos. It's almost perverse.

You've got all these, you know, western elites, like John Kerry and so forth. They fly in their private jets to Davos. They come up with these ESG rules. They coerce countries like Sri Lanka to obey them. And it's the people of Sri Lanka end up paying the price. I mean, this doesn't make any sense. Yeah. What's your reaction to that, J.

Kel? You somehow going to believe this on Trump? No. I don't know how Trump has anything to do with this. You're the one with that. Well, I mean, I'm just thinking about it from first principles. You know, we should as a species, humanity, should be trying to trend towards taking care of the planet

and lowering emissions and being in renewables. And then how we go about doing it, perhaps there was good intent here, but obviously if the country is corrupt and they're teetering already and they don't have the bank role to do it, forcing them to do it can lead to collapse. Nobody forced anybody, but what did the score give you?

It's not as if it's all of a sudden. They've got some by nature of you get your loans if you do these ESG requirements. So that is forcing them to facto. Okay, fair enough, but I'm saying like, you know, now that you have the scores, not as if you issued green bonds and you could stave off this default.

No, I mean, they do anything. They do what you said before. It's like, look at the Sri Lanka should be looking at what Singapore did and just copy the playbook, right? I mean, it's so obvious that, you know, country, it requires a level of long-term leadership and a lack of corruption. And I think those two things are very hard to come by.

And I think a third, which is a very controversial statement to make is it required Singapore to adopt English as a lingua franca. Now in fairness to Singapore, they also embrace multiculturalism, right? So you had forced, you know, not forced, but you had bilingualism in the school. So Hindi, Malay, or sorry, Tamil, Malay, Chinese, right?

You could, you would learn all of those. And so, you know, you kept an ethnocentricity to where you came from, but they allowed you to understand a Linguafranca that allowed you to merchandise your skills to the rest of the world in a really Are you saying they adopted the melting pot playbook and they allowed everybody from around the world to have their culture but yet participate in a common Goal. Oh my god. Literally if you say melting pot to young people today and everybody should try to adopt You know a new culture, but keep some of their own, people find great offense to that.

And that's what we were all taught. The melting pot is what made this country great. I think Lee Kwan you just called it multiculturalism. But my point is that, I think the English decision by Singapore was important. I think steady, predictable leadership by Lee Kwan you was really critical. And the lack of corruption, the way know, the way in which they they promoted their public sector, meaning, you know, some of the best paying jobs in Singapore was the public sector job, right? Like you would aspire to work for the government of Singapore. And so as a result, you had policies and movements and the movement of capital and progress

and rules that were just, it's an example for for so many countries. And you look where they are today for such a small population. They have the same GDP, by the way, you show Vietnam. They have a larger GDP in the Vietnam, which is an incredible state to me. You know, I test them at the Singapore's ingenuity. So could that have been Sri Lanka? I think so, knowing that the levels of literacy

and intelligence and frankly, like, look, the religious stability that can come from Buddhism? Yet, we're not there. We're where we are today, which is the shame. And this is the Canary and the Columine. I think we're going to see Freeberg. I don't know what you think is going to happen over the next six months, but there's going to be other dominoes, certainly, yes.

I mean, I watch for Arab spring type behavior, right? I mean, you saw the protests and people storming the presidential palace in Sri Lanka. You know, if I would imagine if we had a report from the intelligence advisors to the president of the United States, there's probably a long list and a growing list of these nations you want to keep an eye on right now, where there is food insecurity, energy insecurity, declining currency, rising debt burden, and there's a breaking point for all of these.

As you hit that breaking point, you start to see more of what happened in Sri Lanka. Now, when destabilization like this happens, it's scary. Because what happens is there's a new power that emerges and those powers may or may not be aligned with the interests of the United States, with the interests of allies, with the interests of the world, with the interests of Western democracy. And so there are kind of scary moments

that can emerge over the next couple of quarters and years as these camels back start to break as one straw after another is put on the back of these camels. So, and who's the white knight who's going to come in and save? Yeah, and then these frontier markets are going to be China, India, Russia or the United States. We're plowing $40 billion into supporting the Ukraine conflict. We're busy protecting our energy interests and our interest with NATO as the United States. And as you point out, China will likely end up becoming the savior and supporter, particularly where they have infrastructure, investments, and interests.

I don't know if you guys have followed this. China has been building presidential palaces for African leaders throughout the continent. And these palaces, they're incredible. You guys should put photos of them on the video. Oh, sorry, wait, that's the wrong one. That's Saxus House. Sorry. Sorry. The next one, believe it or not, they might put Saxus House to shame some of these things, but they're really really brought the president. Oh, sorry. That's a schema. So anyway, but yeah, this is a, you know, a moment to watch because there's a very, you

know, unfortunate confluence of circumstances that may lead to destabilization that may lead to influence and power being gained by folks that aren't direct allies of the United States. And this is why you want to build up, a great cash reserve and have a really stable economy. So that when these moments do happen, the good actors of the world can take advantage of them as opposed to the bad ones. And the United States is not in great position

for this, every society as they say is, three meals, three missed meals away from chaos. There are now a record 19 developing countries with sovereign debt trading at distress levels 19 and two that have already started. Yeah, just a story. Pakistan has nukes, right? I mean, if the side of that's problematic. Well, and Pakistan, because it was famous for enabling other countries

Iran, North Korea reportedly, they look at their nukes as an export. And they are more than willing to sell you out technology. I just said you guys a link from four. There are currently as of today inflation protests going on across Sri Lanka, Albania, Argentina, Panama, Kenya, Ghana. And if you look at the videos and you look at the images of some of these protests, and again, there's like, you know, in the African continent, there are, you know, very radical

militant groups that will try and seize power if there's destabilization at the top. And you know, there are risks in South America. I mean, all over the world, you know, these sorts of moments can catalyze a real shift in power and influence, and there's a lot of it going on. So you better believe that folks in the US State Department and the CIA are very busy right now. If you look at bond prices, the three countries that are the next closest to defaulting.

So Russia is defaulted, but that was more of a agree of foreign currency controls that didn't allow them to pay, but Sri Lanka has officially defaulted in the next three or else Salvador Ghana and Pakistan. Yeah. And by the way, Argentina, I just see you guys know the Argentinian print on inflation. Oh, yeah. These things are at 61%. 61%. Yeah, yeah.

If we think our 9.1, they had a structural default a few years ago, renegotiations, they've been back at the table over and over negotiating for years. And now they're facing this inflationary crisis yet again. It's a scary moment in Argentina. But yeah, this is exactly like the European crisis with the Portugal, Italy, Greece, and Spain. We're going to see a lot of negotiations occurring. I really believe in this country,

and I think the people are incredible. And I hope that whoever's the president basically has much power away from that role and puts it in the end of the prime minister and gets out of the way. All right, we're hoping for the best. Okay, CPI, as everybody who listens to this show knows is a basket of goods and services

and how it changes over time. You get sliced and dice the CPI based on food, energy, shelter, your house, et cetera. Last two months have been just extraordinary to watch driven obviously by energy, which has been driven by the Russia Ukrainian conflict, the Sax rant on Biden's administration. The core index does include energy.

And so if you were to look at the core index, it, and here's the chart, 5.9% in June. And it peaked actually with 6.5% in March. So that's been trending down, if you take energy out of it. We have an experience for- Energy and food, I think, are excluded from core. Yeah. And if we haven't, we have an experience core inflation like this since the 70s or 80s. Here's another chart just to zoom out and you'll see exactly how jarring this has been for

basically our generation. We haven't experienced this since if you were born in the 70s or so That's when it was higher than it is today And we've had obviously goods and services plummet in our lifetime Because of globalization and low interest rates energy hasn't seen inflation like this Since the center is the CPI what is that that is the core so that's What is the story? What is the CPI? What is that? That is the core.

That's core. That's core. And then here is the energy one coming up next. So when you look at energy, obviously, energy has been volatile in our lifetime because a lot of the oil in the world is controlled by dictators, Middle East, Russia, and as well as Yadiyada. But the 40% year of a year increase in cost of gas and oil and energy has put us back to the mid-70s, 80s in terms of paying.

That's this chart. So you see it's spiking all over the place, but generally it was under 20% and now we're back above 20%. It's all about the oil. Shamaathe, we were talking in the group chat before. You were kind of satisfied with 9.1. Do you think the 9.1 we're seeing in the inflation print today, which was higher than expectations? What is that going to lead to in terms of the interest rate hike? 75 basis points,

or do you think they just go right to one? You know, we talked about this, that this was going to be a big print. I think we all expected this to be a big print. I actually also kind of put myself on a limb there, and I said, I wouldn't be surprised if at some point, we print a mid to high nines, maybe even a 10 handle at some point. We've got there. And the reason is because Rents are a little,

they lag in how they're reported inside of CPI. So we have a couple more months to go of rents and rents start moving or budging a bit. That's number one. We do see a little bit of fall off in energy prices, but I'm not so sure that it's enough, frankly, to move the needle. So I think that we could be in a sustained period for a while.

The more interesting thing I thought today was that Canada surprised everybody and raised their benchmark interest rate by 100 basis points. Okay, so they just came to one full point, 100 bips. And they just said, we're going for it. We need to tame this. We need to break the back of inflation. They ripped the bandaid off.

Yeah. Yeah, and I think if you read the Fed minutes, more carefully, I think Jerome Powell is basically ready to do the same thing. Yeah, after this inflation print, the expectation for July went to 80 basis points from 75, which means a small percentage of people actually think is going to be a hundred. And September, I think, moved to 75. So the question is, is that enough? I just don't know. I, I don't know. And to be clear, this is for June, the data we got on today, July 13th, is for June, what we did see in July, because we can track oil prices. That's down 20% month over month.

And the CPI has been driven largely by oil. So speak to that, Shamaaf. What do you think it's going to be in July when we get it in August? No, but yes and no, because again, the owner equivalent rents are up so much that they may actually break even, right? Meaning rents go up by so much, oil goes down by so much they cancel and we're still at nine. Okay.

That's still prediction for July, which we'll get in August. You think nine? I'm worried that we're in a sustained inflationary environment. I'm worried about that. I hope that we're not. But then the question, Jason, secondarily is then, what do the markets do? And what's so interesting today is like, the markets shook it all off. I mean, like, you could not have had a worse inflation print.

Everything was up. Well, 10. Meaning, meaning like it was beyond the number that was expected. Every component of it was up. Everything looked horrible. And people were like, man, is that because the market is future-looking, SACs? The market is basically pricing will get through this in six to 12 months. Is that what you're saying? The markets are down right now to be clear. The print was definitely worse than expected. They were expecting 8.8% it was 9.1. Last month's number was 8.6.

I remember us talking about inflation a couple of months ago, saying that we thought it had peaked maybe in April or may at the latest, simply because inflation is measured on a year over your basis, and we were starting to lap much bigger at COMS last year, remember this conversation? Yes.

Well, the lapping effect turned out not to be enough, and inflation is still rising, so we have not yet peaked on CPI. I understand that core we have peaked, but I'm deciding to exclude energy and food. I mean, that's a pretty arbitrary decision. Those are two really important variables that matter to the ordinary American, for sure. So we solve this problem, and from our point, we don't know when it's going to be, when

it's going to subside. And I think the big question now is when does inflation finally peak and start going down back to where it should be. And then how much, how severe a recession do we have to have in order for the fed to solve this problem? It feels like things are turning over. In real estate, we talked about that last week, the number of homes being listed is skyrocketing. The number of mortgages being originated is plummeting while the rate goes up. So we're going to see mortgage rates probably go 67% towards the end of the year.

That's gonna put a huge cabosh. The high end real estate is also starting to get hit massively. The number of listings is going up in the high end and the number of sales is plummeting. So that was one of the cards we wanted to see turnover and it looks like that's turning over. Just one small clarification is you look, we obsess over CPI right now because we're all kind of these fake macro wannabe traders. But I just want to remind you because the Fed has been pretty

clear about this. They don't focus on CPI. They focus on something else instead called PCE, which is the personal consumption expenditure price index. And I don't know what the flow through from CPI to PCEPI is exactly, but that is the broadest measure of goods and services, which does include food and energy. So it stands to reason that PCE may stay elevated for a while, which may give the Fed enough of the motivation they need to go 100, to go another 100, or maybe go 175. And then a 75, I think that David's point is right, like all this taming that we've been expecting to see, we haven't seen it. And so every month, it's like, oh, it's coming next month. Every month, it's been all happening next month. At some point, you may just have to say, maybe

we're in like a sustained period for a while and I have to believe it's going up before I believe it's going to stay stable. Look what now. Well, we did see energy go down, housing we are seeing now starting to contract. The number of price cuts has been surging according to Redfin.

So I think we're starting, and the layoffs obviously happened two months ago. So don't we think that we're starting to see the headwinds and then we were talking to a buddy of ours who's big in the airline space, he said, God, and I think you were pointing out this statistic that Heathrow is now capping the number of... People could fly because it's been so crazy.

So overloaded with traffic of passengers. That they today came out and said, we are capping the number of passengers to 100,000 a day. No more. And this is after the cost of those flights was skyrocketing, you know, six, seven thousand hours. I really go back to what sacks.

I really want to go back to what sacks said before. This, the nugget for me of this entire summer was what he said about his take away from the co-2 conference, just to remind people that the person said something to the effect of, oh, well, look, all these other people will be saving money and cutting jobs. I intend to hire, and nothing has changed for me. And the comment that I made in our group chat is, well, maybe that's the psychology of everybody.

It's not just a CEO of a company. Yeah, just to be clear, what Co2 did is they pulled all the founders in the audience. The poll results showed that on the one hand, everyone in the audience understood that we were headed for a big downturn in economic conditions and fundraising would be much tougher.

On the other hand, all the founders or two-thirds of them said that they were gonna use this downturn to accelerate their business as opposed to cut. My 101 conversation with the various founders basically are in line with that, which is, it's all not me. I know everybody else is going to be impacted, it's going to have to cut,

but I'm going to be the one exception. And there will be exceptions, absolutely, but everybody can't be the exception. So I hear consumers are saying, I'm going to still buy my car, I'm still going on my summer vacation, everybody else has to make cuts. Well, it doesn't matter what they say, consumers are saying, I'm going to still buy my car. I'm still going on my summer vacation. Everybody else has to make cuts. Well, it doesn't matter what they say.

Consumers are behaving that way. You know, American Airlines basically put out what they where they thought they were going to be. Their stock was up 10%. You know, Heathrow says we have too much traffic. We're going to cap it out 100K. There was an article about, you know, US home prices and rents. And there were these two housing companies in the Wall Street Journal that were profiled.

And both of them served middle-income neighborhoods in Houston and these other places, they're like, we've never done better business. And there are fewer and fewer people buying homes because of mortgage rates, they all want to rent. We, you know, are a complete, we have complete ball control. And so where is the stopping and the slowing down of spending? It just may be reflexively this thing where everybody feels like to have the polite dinner conversation, they have to talk about how they're pulling back. It doesn't seem like anybody's pulling back.

Our starting measures have not hit yet. Well, I think they are in the process of working, but it just takes a while. I mean, what I would say is, look, we are 100% gonna solve this inflation problem. Why do I say that? Because price levels are fully within the power of the Fed. They just have to raise interest rates high enough. Paul Volkl proved that in the early 1980s. He had to raise interest rates as high as 20%,

but he crushed the inflation 1970s, but that's what it took. So I have no doubt that the Fed can stop inflation. I think the question is, how much pain are they going to have to inflict? How high do rates have to go? And how long do we live through this sort of stagnationary period? And that's the unsettling thing is where it doesn't seem like we're anywhere near the end of this yet. I wrote this last week in a little note, but this is why if you look at the Taylor rate,

again, and people have abandoned the Taylor rate, it's not what it used to be, I guess, but it's still pretty directionally accurate, which is what is the true equilibrium interest rate that allows us to basically manage and meet supply and demand together so that we have a calm stable economy. And that stable equilibrium rate is approaching 5%. You know, our target, the collective wisdom of the market believes that 3% is enough to get the job done. We're right now at 1.5 to 1.75. So if there's any number between three and five that is the true price, we have a lot

of work to do to get there. Yeah, I think that's a really good point because the tenured T bill has been kind of floating around 3%. So that is the long term expectation of the interest rates that's required to have sort of normal inflation. But what if it's 4% or if it's 5%, if that ends up being the case, it'd be a huge downside surprise to the stock market. Well, how would you define that 10% pullback, 20% pullback from here? Well, you have a bunch of things. We talked about this other issue before as well, which is,

if you believe the stock market is fairly valid, you have to believe that prices are right and that the earnings are right, right? So because it's, it's, it's, it's actually, it all boils down to the price earnings ratio of the S&P 500. And I'm going to still maintain that the E is wrong. The earnings are wrong for most of these companies. So let, let, why? Well, one is that when these companies start to report their quarterly earnings starting in the next few days, the year over year comparison

is going to be to the numbers that they posted in Q2 of 2021, which by all accounts was a blowout number. Why? Because the number before that was 2020, where their business was zero. Right. So you have these incredibly tough cops in terms of growth percentages that you have to reach, which I don't think are achievable. Second is everybody's costs of making and selling things is going up, which stands to reason that unless you raise prices quickly and up, your profits will go down. Third, if you actually do business outside of the United States, the US dollar has rallied so much that you actually have less income that you're making in these other countries when you convert them and bring them back to the United States. Now, most people look through that last issue, but the point is, if

you add this all up, there is a reasonable probability that all the E's are wrong. In which case, we have to reassess what the right E should be, in which case, what is the right PE? Yes. And earnings are a function of what you spend and what you make. So that's why we see so many companies doing layoffs, cutting people, Microsoft, Google, everybody is now putting people on notice. They're firing white collar labor, but they're hiring

blue collar labor faster. And so, you know, we were actually going to see a down-to-can productivity, right? You're replacing a person that may sit down at a desk and use a computer eight to ten hours a day to do something, but you were hiring a lot of people that may get paid by the hour or may get paid a fix salary if you do the right kind of work, but that qualifies as more contractual blue collar labor. The difference in that is a

productivity difference, ultimately. And just so everybody knows, for PE's price-earning ratios over time, here's a quick chart for you currently, and this is for the S&P 500. We are currently at 20 or so. And we have twice in our lifetime kind of hit that, you know, 13, 14, 15 level. So we could have a 25% correction from here in the stock market. If you look at the highs, our recent high in December of 2020, we're at 38 price earnings ratio. So, we've fallen from 38 down to 20, almost in half, and we could still go down 25% from here. And that would basically not even set a new record. That would just hit the last two crises we had. The thing that I think will work against this happening, Jason, so yeah, you're right.

Maybe it goes to 3,000 or 3,200. But if you look again today, and what I mean by the market is roughly shaking this off, the fact that the markets right now, as we talk, are essentially down half a point, the S&P is down 12 points. It means that they are looking for any and all reasons to say, this is a solved problem, move on, nothing to see here. Now, that is a psychological reaction. Most of that, if you actually, I called a friend today and I said, where are the flows? And he said, retail right now is where all the flows are,

meaning it's retail that's buying. They're in the 30th, 35 right now is where all the flows are, meaning it's retail that's buying. They're in the 30th, 35th percentile of where they normally buy, which is a pretty healthy signal. Wait, explain what you mean. Who is buying? So the way the market works basically is you have buyers and sellers. And to make it really, really simple, you have hedge funds as one class of buyer.

You have ETFs, but they're not really because they have fixed strategies. And so, you know, they're hedging, they're moving, but whatever. And then you have retail. Okay, so it's retail and hedge funds. Those are the two main pockets of where the flows come into the stock market from. And you can get a real sense of what's happening, what the psychology of the market is, if you see what those flows are. And right now, what we see is that hedge funds are largely on the sidelines. The right means is they are, well, they've been so battered

and bruised in some ways. I think they're licking their wounds, but they're mostly waiting. They do not find a compelling reason to buy Right, but they have to buy at some point right? Tremoth. This is their business. No Their business is to make money relative to their index and so if their index gets torched They've doing nothing makes them look like geniuses So they don't necessarily have to buy at any point. They just need to make money at in the end So right now we're in a situation where the markets are looking for a direction So they don't necessarily have to buy at any point. They just need to make money in the end. So right now we're in a situation where the markets

are looking for a direction. Retail seems to think that direction should be up. Hedge funds don't have an opinion or saying, we're just gonna wait this thing out. Okay. Meanwhile, the data, that's just a question mark. And I think that's the, that's the tension we have right now in the stock market

is the psychological desire is for this thing to be over. Meaning I think people want to hear inflation is done. We're starting the recession. Give us three or four quarters. We'll be out. Here's a steady state interest rate. Let's go tech. People want to accept the reality. Freeberg does that mean that we're bouncing along the bottom for the next year. And then this is the time or the opportunity to buy it. I want to get financial advice, but what are your thoughts if hedge funds in retail are kind of waiting in the way asking me if the stock market is at a bottom? Are we bouncing along the bottom?

Yes. Or how would you describe the next year if you were to look at it? What do you think? I'll tell you guys some stories. I went to a conference in March with a lot of fund managers, probably managed several trillion dollars in total. People were like in shock and awe at that conference because they had taken such significant write downs and they were still getting written down.

So all their investments were off. They were all 40% from the peak. They were freaking out. Things were collapsing, no one was doing anything, they were all sitting on the sidelines, hanging out waiting. I went to a conference last week and so the tone and the demeanor was just like morose. Last week I went to a conference with a lot of managers, also probably managing trillions of dollars across the pool and people were kind of, they had accepted this new reality. And they were

kind of willing to look at new things. And, you know, they were no longer engaged in trying to shore up just their portfolio. And a lot of the stuff we talk about, which I think is tactical on the ground, how do we deal with our businesses and our portfolio of investments that we actively work with in the private markets, they were much more interested in kind of starting to explore and think about new things. And I hadn't seen that three months ago. So that's a positive. So from a market participant point of view, I think that folks have kind of called it

accepted a new normal, an inflationary normal, a high volatility normal, a normal of uncertainty, a normal of uncertainty, a normal of recession. As people have started to internalize that new normal, I think they're now starting to say, okay, what should my action plan be? That action plan is, I've got trillions of dollars in capital sitting on the sidelines, what should I start to do with it? My very, very, very anecdotal experience has been that significant market participants, I think, are going to start to perk their head up this quarter and start to think about

doing new things. What that translates into in terms of stock price movements and indices, I don't know. I've always said that there's going to be a huge variation in outcome during this big this year. And some industries, some sectors, some types of businesses will outperform others. And so I don't want to create generalized statements about indices. But I do think that capital activity is going to start to come back this quarter, where people are going to start to think about what to do rather than pull everything out

because of the massive shift that's happened in the past couple of quarters. Sax, what are you as a market participant thinking? You're looking at series A's, maybe doing some opportunistic flat rounds. Are you looking at the startup market, mid stage market, and saying, hey, this is an opportunity. Maybe I should start looking to put some money to work in the next six to 12 months. Or are you— We're still investing. You're still investing.

Yes, of course. So as a market participant, you're investing. What do you see? But we see that the pace of deal making a slowed way down because founders know the valuations have gone down. The fundraising environment is tougher. So last year they're raising every nine months. Now they know they should probably be raising it once every two years.

So the pace has slowed way down. That's a good thing. Yeah, it's healthier. It's healthier. Yeah, it's more normalized. You know, last year, the companies that could raise did raise. They have big war chests. So I think there's going to be a delay.

It's definitely a store period. We've done a couple of growth deals recently. I think the fact that Tiger and the other kind of crossover investors, the fact they've pulled back, way back from venture markets, gives smaller firms like us an opportunity to do growth deals. How did you make the decision to invest in those companies? They're both companies we've known for a long time have wanted to invest for a while. You know, the opportunity arose to invest and it was way less competitive than it would

have been last month. So this is what you call opportunistic. You knew the firm, you had high confidence in them and opportunistic. We've basically done two deals in the last like four months. What was your pace, let's say 18 months ago? There's a little faster than that for sure. There's more deals happening. Interesting. If you want to think about tail risk, where there's some event that can massively shift the market, the indices south, right, make them go negative and everyone pulls money out

of equities or out of bonds further. There are some of those events brewing, right? We've talked about the consumer credit risk. We talked maybe Taiwan, maybe this emerging market crisis that may kind of be emerging. These are like little turtles putting their heads out. They may not come out, but there's enough of these turtles now, you know, kind of circling you, that you know, there's still reason to be wary. Where it's known a black swan event, which would be undefined.

These aren't even black swans. These are just like significant, known risks, and known, but significant risks, right? And if any of them do kind of take off, we're already in a very shaky kind of period right now where we're trying to manage inflation and recession and businesses are trying to raise capital. And again, this is why a lot of biotech companies are trading below cash because the expectation

is they're not gonna be able to raise capital. I mean, anyone can go out of business. It's basically what they're gonna say. They're gonna pop capital. I mean, anyone go out of business. It's basically what it's like to pop up. Boom, you start to see things go. So I think that's the reason people, investors, portfolio managers are not going to kind of rush back into putting more money into equities, is just sitting around waiting to see

how a few of these things resolve before kind of taking action. But there are companies that do not face the risk of ruin. They just start sitting on so much cash. They have so much revenue that there's no chance of that. Yeah, I've always said it doesn't matter. If you find a great business and you believe in that business over the very long run, you don't need to worry about timing the markets.

You put money in that business, as long as you get a fair valuation for it today relative to what it should be priced at, if someone markets are telling you today. Well, a 20 PE would be more than fair history. Maybe who knows? But like whatever that is. But if you find a great business

that you think's gonna compound value for you over the very long run, market cycles don't matter. And long run you mean a decade. Yeah, call it a decade. You know, Saxx is business, he's invested. And these are tech companies that I don't think they're planning to go public next year. He's making an investment in a business

that he considers to be a great business that can compound value, not compound valuation, but compound business value, meaning they can do something more valuable next year than they were doing this year and continue to accrue an advantage in their business that allows them to accumulate earnings over time or accumulate revenue that ultimately translates

into earnings over time. And there are many businesses that are public, that operate like that, that regardless them to accumulate earnings over time or accumulate revenue that ultimately translates into earnings over time. And there are many businesses that are public that operate like that, that regardless of any of these turtles popping their head out, those businesses will perform well over the next decade. And I think, you know, that's always a great place to invest. So we basically went from D-Day, saving private Ryan and seeing, you know, in the first quarter to now people have accepted we're more time and we're not shell shocked,

and some people are looking for opportunities. Shabbat, you found an opportunity. Maybe you could talk about the deal you did this week. I tend to agree with Friedberg. I mean, you find these businesses that you like, and if they appeal to you and you do your work, that's the most important thing. You shouldn't be afraid to write a check.

Can you stop right there and just say, and define what you mean by do the work? Because everybody here should say that. What does that mean for an investor for somebody like yourself? What is doing the work, man? It really depends on the sector. So for example, when we were,

when I was trying to underwrite open door, what I really wanted to understand was, what do take rates look like in all these various markets? Well, how do I think take rates will evolve here? How do value added services work? What margins can you sustain? What is the sensitivity of different parts of the real estate economy to interest rates? That's an example of work when I was underwriting SoFi.

What you're trying to understand is how do banks generate net income, Nim, how does that change over time? How does bank charters change that? How do loss rates change in times of economic expansion versus recessions? How do you price all of that into a fair value of a business? It's just a lot of really detailed diligence to understand all the facets or as many

of the facets as possible of a business that allow you to have a clear, high sense of what's possible. Then there are others which are pure technology bets where you try to understand either the biology or the technology. So in the case of the deal that I did today or this past week, myself, a bunch of family offices around the world led by a great chairman, Pablo LaGoretta, who started a phenomenal business called Roltefarma, which is public, Carlos Slim, a bunch of folks. We put in about half a billion dollars to help advance into clinical trials, this business that's

trying to provide a solution to chronic kidney disease. So in that example, it was a lot of scientific diligence on what are the existing solutions, how do they work, what is the mechanism of action inside the body, how is this the same or different, what is the early day to say? How are the clinical trials structured? And then you come to an answer. In this case, I decided the bet was worth taking. And you know, like for example, a name of the company and what they do, the company is called pro kidney. And basically the idea is that it uses your own body to help heal your kidneys if you are on the verge of chronic kidney disease

or you are getting dialysis, et cetera, and essentially how it works is it removes cells from your body, from your kidney actually. And then it does basically put it into a centrifuge, does some specific things to it, grows and amplifies certain cell lines from your kidney and then re-injects those back into your kidney and tries to improve what's called your EGFR, which is your estimated

glomular filtration rate, which is essentially a number that we can use to estimate how efficient your kidneys are. And essentially, when you are a type 2 diabetic or you have chronic kidney disease or kidney failure or you're on dialysis, it's because that filtration capability has failed and so all these toxins are getting pushed back into your body. And so, yeah, we took a half a billion dollar shot. I wrote a hundred and twenty-five million dollar check. I hope it works. That's amazing. Freeberg, we saw some satellite images this week, but I guess they announced them. They looked pretty trippy, explained to us what the downstream effect of what is, I think,

the most clear picture we're seeing of the cosmos ever created and what that could actually do for humanity. Well, this is not going to do with Biden, but. Okay. No, I just, that Biden showed it on Monday. I just, that's all those. He made it, they specifically had him share it, which I think maybe they were looking for a mini win or something.

Good for him. Has nothing to do with this program. I don't mean, I just mean that like the scientists and the engineers that worked on this for many years deserve all the freaking credit. The James Webb telescope is a space telescope, just like the Hubble, remember the Hubble Space Telescope, and this is a massive improvement over the Hubble.

So imagine you're in a boat and you're trying to look at the bottom of the ocean, you take a bunch of parabenoculars, you look into the ocean and you try and see what's at the bottom of the ocean, how hard that would be, right? There's all this murky stuff in the water, it's gonna be really hard to see it.

The reason that we create a space telescope is so that the same problem that we would have looking at a telescope through the Earth's atmosphere doesn't impact the light coming into the telescope. And so there's so much stuff in the atmosphere, right? There's miles of molecules and dirt and dust moving around. So by putting a telescope in space, we get rid of all that murkiness. And now we can really capture the light that is coming from far, far away, concentrate that light onto really sensitive photo detectors. These are photo detectors that operate at nearly the coldest point in the universe, negative

263 Kelvin. And that photo detector makes it extremely sensitive. And using a 20 foot wide mirror, we can capture all the light that's coming in, concentrate onto the photo detector, and read that light. And so why is this important, why is this interesting? Well, people get really excited by and flip out over the cool imagery that they see,

these images, these colorful images of galaxies and stars far, far away. What we're really doing is we're not just looking far away. We're looking back in time. So these images come to us from galaxies that are 4.6 billion light years away. So it took 4.6 billion years for that light to reach our planet. And we're actually seeing what happened in the earlier part of the universe. And we're seeing how these galaxies formed, how they're moving, how they interact with one another, how they're moving, how they interact with one another, how the planets interact with one another. But what a lot of people miss,

that's, I think, the most important thing to highlight, as an astrophysicist, when you're looking through telescopes and gathering telescope data, you're not looking for imagery like we looked at today. That's really good to sell the story and get Biden to do a press conference. What they're really looking at is spectrographs. And a spectrograph is, you know, it shows for every wavelength of light across some spectrum, what the intensity is of that amount of light, that wavelength of light.

And particularly, the James Webb telescope has incredible micro-shutter arrays, an incredible sensitivity that allows us to go from near infrared to infrared and some visible light, and look at that spectrograph. Why is that important? Because if you can capture the spectrograph in a very high resolution way for a sun or for a planet far away, it can tell you very specifically what the movement is and what the chemical composition is of that object. And from that, we can start to do incredible

research and infer very important things about how planet form, how stars form, how many places like Earth might be out there, how things are moving, how much mass or matter there is in the universe, and there are two very, very big questionable phenomena in astrophysics right now. One is called dark energy, one is called dark matter. Turns out the majority of matter in the universe is undetectable. And there also is this really weird energy force pushing on everything in the universe, causing the universe to accelerate its expansion.

So the universe is expanding everything's moving away from itself, but it's not just expanding and slowing down, it's expanding and speeding up. And so having this sort of instrument in space that allows us to capture in a very high resolution way using spectroscopy and other tools and ask our physicists to use, and better map out how this is happening in different parts of the universe, starts to give us a better sense

and allows us to kind of inquire and start to develop theories around what's really going on. And I want to say one more thing, because a lot of people think that this stuff is just so esoteric and it's like super interesting. Why are we spending $10 billion in this?

Most applied engineering and the technologies that we've developed as a species started out initially as pure research with no frigging clue where it was going to go to. Imaging DNA, penicillin, electronics, MRI machines, so many of these capabilities evolved from scientists just querying the universe and asking questions and gathering data.

And all of a sudden they came across something, developed a theory, built an application of that theory and a technology emerged that changed the course of our history as a species. And that's the reason to do pure research. And that's the reason it's so important for us to put $10 billion into a program like this. We're gonna discover amazing things with this tool

and it will ultimately hopefully yield advances for humankind that we cannot even contemplate today. So it could be energy, right? I mean, understanding dark matter, and understanding dark energy. Totally, and then maybe we changed everything in energy, right? Jake, I'll think about it. One day there might be a capability

where we say there's a new class of matter and a new understanding of energy that we can then apply in some form of physics on Earth that we can do something interesting with. And we have to be able to query and understand the universe to do that. Could we measure it there? Could we measure the matter from Uranus?

Okay, do it, it's coming. I mean, the Hubble telescope, actually, correct me if I'm wrong here, it actually told us to eat of these universe. How much rock matter is in your area in his shaman? The lot. A lot. You're full of it.

But we now know, I mean, Hubble told us the rate of expansion of the universe, and it also told us the age of the universe, and we found all these other planets totally to Freeberg's point about, you know, looking, you know, through the muddy water. Here's a great visualization on the left. You have Hubble on the right. You have Lab. Beautiful. And if you slide this, you can just see like, just how crystal clear and these images are.

And from my understanding, we found some number of universes already that we did know just from the first images. By the way, I want to just give everyone a heads up. This imagery looks beautiful. And I'm going to print that a big one. I'll put it behind my friggin desk here because I think it's so fantastic. Astro photography is one of my kind of all-time

favorite forms of art. But remember, this is imagery that was actually captured in near infrared and infrared spectra. And then they converted it to visible light to make it look cool. So remember that. These images, these clouds, if you were actually there, don't actually look at like that color, but it's a very cool way to visualize the density and

the spectral changes. Where does this sit for you in terms of your excitement between the new season of Dr. Ho and the foundation series? Let me give you, let me just give you guys one more kind of, really interesting. If you started our son and you look at the sun, it's super bright. If you go at the speed of light for four minutes, you reach the earth or a couple minutes, you reach the earth. Look back, where it's six minutes or seven minutes, whatever it is.

Look back, and now the sun looks like it does in our sky. If you go for another couple of minutes, you end up looking back from Saturn and the sun starts to look like a star. I mean, that's how dim it gets. Now imagine continuing to go at the speed of light for another hour, you look back, you'll hardly be able to differentiate the sun from the rest of the universe. Now do that for 4.6 billion years. And you're shooting away for 4.6 billion years.

Now look back. How friggin hard would it be to see anything? That's the technical capability we just put into space. We've built a 20 foot wide mirror to concentrate the light, the photons that traveled for 4.6 billion years, lost all of their dead city, lost all of the, you know, completely dimmed out, completely diffused, and we're capturing a few of them, run that concentrated way onto a detector for minutes at a time and generate this image. It's really profound how technically complex this is.

And again, that technical complexity can ultimately yield other technological tools that we could use in all sorts of industry. So I just want to highlight that. I posted it for you guys. It's an incredible story, but basically this program was riddled with delays and things that weren't working. And then they put this quiet, very assuming engineer in charge of it. And he completely turned the whole thing around. And it's one of the most incredible quotes. What's his name? Let's give him a shout out. His name is Greg Robinson. And he turned a $10 billion debacle into a groundbreaking

scientific mission. This is the quote from the Wall Street journal. The quote from the NASA, the head of NASA's Science Mission Directorate, Thomas Zurborkin says it all, there's a huge distance between success and failure and only a few actions that move you from one to the other. He said, Greg Robinson worked such wonders that his boss calls him, quote, the most effective leader of a mission I have ever seen in the history of NASA, unquote. Really incredible.

This project, yeah, the 11 billion- Big challenge of Greg Robinson. Yeah, and this has been going on for, I guess, 20 years now, this process of getting this built in 10 years of really intense building. What would the next, then we'll switch over to politics real quick second as we wrap up here?

Freeberg, what's the next telescope? Obviously, if we've gone Hubble to web, what would the next one conceivably look like? What would the timeline for that? Is there another one that's going to come? What would that enable? Because it does feel like like if we accelerate this, we're gonna really get a deep understanding of the universe that this seems to be accelerating our understanding correct.

And our technology's obviously accelerating. So it feels like we could send another one of these out in the next 10 years that would dwarf this one's capabilities. Yeah, so a lot of telescopes operate a different wavelengths and they're meant to kind of pursue different missions. So, you know, there are some telescopes that are already operational and kind of the gamma-ray spectra. But really, there's a, I don't know if we ever talked

about this on the show, but one of the really interesting areas of inquiry is these gravitational wave detectors. And there are new, more advanced versions of those systems these gravitational wave detectors. And there are new, more advanced versions of those systems starting to come online. Those are not space-based telescopes. And we can talk about that another time. But they're creating new methods of inquiry where we're not capturing photons, light coming from far away.

We're actually capturing the waves of gravity coming from interactions of matter around the universe. And it's a new way to kind of observe the universe. Those telescopes represent a new class of inquiry that was just kind of discovered a few years ago and proven out. And now there's a lot of work going on into that area. And Freeberg, you had something you wanted to give a shout out to. Yeah, I just sent you guys a photo of a new dog I adopted last week. Her name is Daisy. I just sent you guys a photo of a new dog I adopted last week. Her name is Daisy. We flew her out from Virginia. Daisy is one of 4,000 beagles that were rescued from a facility in Virginia that was

shut down by the DOJ. This facility was investigated by PETA and the Humane Society. And they basically shut this facility down. This is, in the United States, we only do animal testing on beagles. They're the only dogs that we do animal testing on because they can put up with pain and they have a high tolerance and a high threshold for pain.

It's a really awful fact. We need to change that in the United States. The FDA does not provide good guidance on this. So pharma companies, pesticide companies, makeup companies, very often test on beagles. So this company that was operating this Beagle facility in Virginia was shut down for ethical issues at their facility. And the Humane Society took control. The company's called in Vego, their parent company is

publicly traded. I think that the fact that we test on these beagles in this country's awful, we adopted Daisy. There are 4,000 Beagles like Daisy available for adoption. I'll put some links in the show notes here. People feel free to go and grab them. I'm sure there's long list. The dog is absolutely incredible. I think that it's awful. We test on dogs in this country. And I think I urge anyone that has influence with the FDA to get them to provide better guidance. This is not the law. It's not required and they don't provide good guidance. And so a lot of companies de facto and default to testing on beagles when they really don't need to and shouldn't. So. Preberg, let me ask you. Let me ask you a question. I think it's incredible that you adopted the dog. I hope all 4,000 get adopted. How should we do testing?

Totally. I look, I think that there's a really important ethical lines here and we can debate those. This is a good nuanced conversation. We use mouse models and biology to explore solutions for human disease. We use primate models, which means we use primates, we use dogs, we use cats, we use mammals. There are certain things that are obviously not necessary. We don't need to take beagles and poor tons of Kim Kardashians newest makeup line in their eyes to see what happens. It's not required by law, and it's not about getting some pharmaceutical drug approved. This is in an area that I'm not going to get into the debate

on exploring and resolving kind of pharmaceutical solutions and things that can actually treat human disease, where I'm particularly sensitive to is when it's not needed. And when we're taking these animals and just doing awful things to them, when there's no law that requires it, we're not putting stuff in our bodies, and this isn't about protecting humans,

it's really about cover your ass behavior for makeup companies and pesticide companies that they don't need to be doing. And that's really what I'm addressing. 3,999 beagles to go. If you adopt one of these beagles, send us a photo and we'll share it at the end of next week's program. Thanks for letting me say that guys. It's really important to me. No, I think it's super important and how we treat dogs who are connected to humans in

a very special way. I think speaks volumes to us as individuals. Sacks, would you like to well on the Biden administration talk about 2022 or give us an update on Ukraine, I give you the choices. I mean, it's like elder abuse at this point. I know you're trying to. Can I ask you a question? I know you're trying to team me up here, but like all I can say is 9.1%. I don't want to beat a dead horse at this point. Can I read you guys something and you can tell me there were these, there's a, there's a group called committee to unleash prosperity, but two researchers, Stephen Moore and John Decker, this is in the Wall Street Journal article I post in the group chat. The pair studied the resumes of 68 top executive branch officials whose work shapes the economy from President

Biden and Treasury Secretary Janet Ellen to White House Special Assistance on Economic Policy. Quote, average business experience of Biden appointees is only 2.4 years. What? Any fresh face 25 year old on Wall Street has clocked more private business hours. Again, I'm reading from the journal article, then most of Washington's top officials 62% have quote, virtually no business experience. I'm quote, and we could have the average Donald Trump cabinet official had 13 years of experience in the private economy. The other say what a disaster. Well, it's like 60, so any percent of Democrats want to get rid of Biden. They don't want him to run again. I've never seen a president been

Democrats want to get rid of Biden. They don't want him to run again. I've never seen a president been defected on, been turned on by his own party so quickly into an administration. He needs to take back ownership of the Democratic party, which means he has to pivot back to the center and he needs to have a wholesale replacement of the team that he works with on domestic policy. It's not working. And Chimoff, that was his pitch.

We're going to go back to normalcy. He was gonna be a more of a centrist, and that's not what we've gotten. But of course, he was handed the disastrous economy that Trump created. Why do you say he was handed a disastrous economy, percent? Well, because of COVID and because of the massive stimulus that we spent, those two things.

That was like a setup. I mean, if Trump won a second, do you think it would be much different? If Trump was running the economy, what the setup was second, do you think it would be much different if Trump was running the economy with a setup was there? Trump probably would have spent more money, right? Trump wanted to spend more money. That's a really good question, actually.

I have to think through that. It's a really good question. Let's move on. What's the update on Ukraine? There's a really interesting chess game going on right now where the Russians are slowing the flow of gas. No, no, no, no, no, no, no, no, no, no, no. They shut down Nord Stream 1 for their annual maintenance. slowing the flow of gas. No, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, and extra day or two to get that thing back up and going. It's a... I'm going to get prediction right. I think the Western Alliance is going to fracture come this winter.

Yeah, Germany is going to be freezing. The Germans are not going to take this well when they can't put their heat on. Listen, a foreign policy based on virtue singling is one thing. When your economy is good and you're not worried about your energy security and you can heat your homes. It's another thing to have a foreign policy based on virtue singling when your economy is in worried about your energy security and you can heat your homes. It's another thing to have a foreign policy based on virtue signaling when your economy is in recession.

You got runaway inflation and you're in winter and you can't heat your homes. You're more on change real quick, don't they? Three or four months ago, the liberal interventionists were triumphant about this Ukraine war. There are three big predictions. One that Ukraine was going to win. It looked like Ukraine was winning the first couple of weeks, but now it looks like Russia

has won this Donbass region. Number two, they predicted that we would collapse the Russian economy with all these sanctions. The opposites happen. We've collapsed our own economy. And number three, they predicted this would strengthen the Western Alliance. That's the only card that hasn't basically turned know, basically turned yet. And I think it will, this, this winner. I think you're going to see serious opposition to the way that the Biden administration has led the Western response. I think it's well said that if Germany has the gas lines that Sri Lanka had,

you would see a definite fracturing of how people look at it. Just like they flipped last week and they made natural gas and nukes, nuclear power, a green energy. So yeah, there are morals and ethics and their furcher signaling go as far as their wallets and their heat and meals go, as we all know. This has been another amazing episode of the All in Podcast for the Baron of Beagles,

the dictator himself, and the rainman Beagles, the Dictator himself, and the Rainman Gats, definitely Biden's fault. Now, there is no chance for any of us to pass free-brook on the popularity. He just sealed the deal with this fucking Beagle thing. You can get a Beagle! I know, I know, I know. What do we do? I'm going to save a whale next week.

I am going to bring a dolphin that I killed myself. How about that? Oh, you're going to prepare dolphins. That's Jimmy. Okay, great. That'll secure your part as the most hated bestie. We'll see you all next time on Episode 88. Good luck. 88 of the All in Pog. Yes. Bye. Bye. Love you, bestie.

Bye. Bye. Well, let your winners ride. Bring man David. And it said we open source it to the fans and they've just gone crazy with it. I'm the to go to the beach. That's my dog taking a wish. You're driving so fast. Get it off. Oh, man. My house is actually a movie. We should all just get a room and just have one big hug.

Because they're all just like this like sexual tension. But we just need to release it. What? That beat. What? You're a beer of beef. Beer of beef. What?

We need to get merch. I'm going. I'm merch. I'm doing all this! I'm doing all this!