All-In with Chamath, Jason, Sacks & Friedberg - E97: SPAC updates, public/private market overview, Putin's end game & more

Episode Date: September 23, 2022

0:00 Bestie intros! 1:03 SPAC updates, state of the public/private markets 20:26 US VCs have $290B in dry powder and raised a record amount in H1 2022, is the market nearing a bottom? 31:14 Risks of backing Putin into a corner, Russia's end game, conditions for conflict 50:45 Government-heavy climate plans, Dilbert/ESG backlash 1:01:20 Poker plans, chess cheating scandal 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://youtu.be/AODfsBMGzGQ https://twitter.com/chamath/status/1461453308623659010 https://marketbrief.edweek.org/marketplace-k-12/byjus-releases-delayed-audit-report-showing-large-losses-2021 https://pitchbook.com/news/reports/q2-2022-pitchbook-nvca-venture-monitor https://techcrunch.com/2022/05/10/tiger-global-hit-by-17b-hedge-fund-losses-has-nearly-depleted-its-latest-vc-fund https://www.nytimes.com/2022/09/10/world/europe/russia-ukraine-retreat-putin.html https://warfarehistorynetwork.com/douglas-macarthur-atomic-bombs-will-win-the-korean-war/ https://www.nytimes.com/2022/09/10/world/europe/russia-ukraine-retreat-putin.html https://sites.tufts.edu/css/mip-research/#:~:text=According%20to%20our%20data%2C%20the,these%20missions%20occurred%20after%201999 https://www.brown.edu/news/2021-09-01/costsofwar https://www.wsj.com/articles/gavin-newsoms-2024-climate-platform-california-40-climate-bills-energy-electricity-blackouts-11663702766 https://twitter.com/UncommonYield/status/1572743593508638722 https://twitter.com/Jason/status/1572399621389062145

I'm in a very Daniel plane view mood this week. The there will be I have a competition in me. I don't want to see other people succeed. That's right. Best scene ever. You are the furthest from that character. Like that is not your spirit animal.

Oh, there will be blood. That guy Daniel, they lose nothing to do with you. I've watched it 100 times. Incredible. You must be so stormy and royal on the inside. Oh my gosh. I mean like, I tapped up. Did you not see my roast at Texas birthday?

It's just a lie. Did I not see it? I lived it. It was the most off-color, disgusting, egregious, mean, diatribe, I've ever heard. My lord. I have a competition in me. I don't like to see other succeed.

I can't stand that J-Cow is a good motorway. Ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha I guess everybody wants to know, Chimoff, you've wound down two SPACs. Thank you for doing this for IPOF specifically because people are replying to me every day asking, what are you going to SPAC? But IPOD and F, the money has been returned to investors. No, it's going to be returned. Going to be returned to investors, thank you. And Bill Ackman, of course, he wound down his SPAC, returning $4 billion, it's going to be returned. Going to be returned to investors, thank you. And Bill Ackman, of course, he wound down his SPAC returning $4 billion. There's over 500 SPACs out there looking for deals.

Tell us why this decision. Well, I've raised 10 SPACs, six in technology and foreign biotechnology. And I've done six deals, two in tech and two in biotech. Four in tech. Sorry, four in tech. Four in tech, thank you, and to Inbiotek. Sorry, for Intek. So the reason to shut it down is pretty straightforward. It's like, you know, when we launched these things, the stock market was in a much different place than it is today. And so over the last two years at looking at deals, it's gotten harder and harder to

find a good risk reward. Now, why is that? Well, the thing with this back is you do a deal today, but it doesn't usually close for six or seven months in the future. And so, you have to do a deal where you have a really good sense that in six or seven months when the deal comes to close, that the price will be the same or even higher than what it is today. And if it isn't, all of the investors that you've brought along in this back have a right to redeem, which is to say they file a notice that says, you can complete the deal, but I want my money back.

And what they get back is the initial $10 that they used to buy the stock in the first place, because when we sold when we started this back, we sold stock at $10. And so from my perspective, I was looking at this and I'm like, you know, this is a super volatile, ugly point in the market. This last year has been really problematic. I and I kind of said this last November, and Nick, we can play the clip after and we can come back to it. But basically, my decision was that at this point to do a deal would probably put a lot of capital at risk. And in all of these deals, I'm typically investing $100 million at least in each of them.

And so I couldn't justify that. I couldn't see a good risk reward. And I thought the right thing to do, the responsible thing to do was just to wind these things down. I'll lose, I don't know, 10, 15, 20 million bucks for having set these things up. But we give everybody their money back, that $10. And I think that's actually better over the next five or six months than what it'll otherwise

do if you're invested in the market. Now that's a belief that I have. But hopefully when people get the $10 back in the next few weeks, if they want, they can go and put that money back in the market. Now that's a belief that I have, but hopefully when people get the $10 back in the next few weeks, if they want, they can go and put that money back in the market. And hopefully they'll do well, but from my perspective, the risk reward was not good. Is part of the issue, the inventory that's available of great companies as well? That's one of the things I heard speculated on CNBC. It's hard to convince a private company to go public. Here's my experience. When know, when I was talking to all of these CEOs of these Silicon Valley companies, initially there was a lot of misunderstanding about what SPACs were, and I think we were able to

dispel that because we had some really successful transactions. Then there was a lot of interest in being a part of it. In this phase, we were suffering from two very important things. One was that valuations were just completely up in the air. People had a huge question mark on late-stage valuations because we would come in, we would do the work, and we would say the companies were with X, and that number typically was 50 or 60 percent lower than their last private valuation. And so when it came time for us to negotiate, you know, doing the deal,

even if the founder was roughly on board, the rest of the board was not. Because a lot of them would have seen some pretty meaningful markdowns in their private assets. And when the company had enough money to kind of like, you know, at least stay private for another year or so without having to raise money. On balance, those investors felt it was more prudent for them to not take the mark and to not take the deal at such a lower discount. So that was a big issue that

we ran into because every time we would price a deal, again, we're trying to create a margin of safety for us and our investors, again, because it's gonna take six to nine months to close a deal. And so ideally, you want a valuation in digestion. And then sorry, the second thing was just volatility. So when you see volatility in the public markets, for a CEO, and I can understand this, it's much easier to go public in a point

where the markets are generally going in one direction because it gives them the confidence to be able to learn the ropes because it is a complicated process being public. And when you introduce tremendous market-based volatility independent of your company, I think a lot of CEOs and CFOs and IR people were a little nervous. You want to take the risk. And that was the second piece. But by and away, the first one was valuation.

We could not find market clearing prices. Makes sense. For assets. And by the way, and I'll talk about one company in specific, which just this week had a pretty public blow up around this whole issue. And look, I've been pretty clear about this since November. The marginal trade should have been to be trimming risk. And Nick, maybe you can play the clip because I really want to make sure that it's very clear

and on the record what I said, almost an entire year ago. Let me put crypto in the context of the markets and where we are today at the end of the week after Q3 earnings in November of 2021. We have the stock market at absolute all time highs. Ripping, we have crypto at absolute all time highs. Ripping, we have crypto at absolute all time highs. Ripping. We have the art markets. I don't know if you guys saw Phillips and Christie's

and Sotheby's this past week at absolute all time highs. Sold another beep for 25 million. We have inflation at a 30 year high. We have 10 year break evens at a 25 year high. We have, you know, one point somewhat trillion dollars that we just approved last weekend. We're still horse trading on another three, you know, one point eight trillion dollars of stimulus that we're going to put in. And I think the most important thing, which is the two most important founders of our generation,

the two smartest people who have really consistently won Elon Musk and Jeff Bezos, have collectively sold more than $11 billion of their holdings this year alone. And if you can't take all of that and decide for yourself what's right for you and your family, you're doing yourself a disservice. I think it's important for me to never sort of like, you know, be forced to tell folks whether I'm buying or selling, although I'm willing to do it in moments where I think it's important. But I think it's really important to understand the context. And so I think like these folks that like think derisively about individuals who are managing risk, I think it's really naive. And I think it's, it creates a lot of missed opportunity for them as well. If the smartest people in the world are now selling their core holdings

that they told you they would never sell, and you are not reconsidering your position on things, you're either much smarter than them or you're being really, really reckless. The reason I said all of those things was because I was getting really worried about where we were. And then I think on the heels of that, I published a tweet and I said, I'm starting to sell. And I sold like a hundred million dollars or so, but then I was a systematic seller through the end of last year and through this year to try to manage my own liquidity because it changed profoundly as I saw what was happening in the markets. So, you know, I think that it's just an

important thing to call out that things don't always go up and you have to pay attention to a mosaic of information and you have to do the work yourself because, you know, your situation is unique to you. Nobody else understands it. And so you can't outsource that decision to somebody else. Obviously you can use it as a guide. It's fair to say when the 13 apps of important hedge funds come out, do I read them? Of course, because I'm trying to figure out what don't I know?

What may I be missing? Maybe there's a great company in there that I that I should be taking a look at. So, you know, I'm not dissimilar to everybody else in that I use other people that I look up to or respect as a leading indicator of what to buy. But I still take responsibility for my own decisions and I manage my liquidity as best as I can based on my conditions and those are always changing. And so I think this is just a good reminder that everybody else has to do the same. So Chimoth, what do you think happens to the remaining 500? Every SPAC sponsor friend of mine that I know is not seeking targets anymore. They're all expecting to wind up in return capital. How many of the 500 do you think will actually find a target? And how many do you

think of remaining SPACs? How many of them will wind up and return capital? I mean, I think that there's still some really good deals to do. They're not necessarily in tech per se. So, I think you did a really great deal in Ag tech. I think that that's really interesting. So, time will tell how that does. I think there's some really interesting deals in energy. In fact, we spent a lot of time actually pivoting and spending time and energy, looking at everything from producers of Nat Gas and Oil to folks that were building terminals to LNG facilities. But it's just a very different return profile than what we were used to. So I think if you can understand some of these other markets and you can underwrite to a different rate of return. Some decent deals

will get done. The overwhelming majority of the tech specs, I think, probably will just wind up. Some folks will be really focused on trying to monetize their founder promote. So they'll do any kind of deal. The problem as you see is even whether you do a good deal or bad deal with the kind of volatility we're seeing in the market, the likelihood is that it's going to trade down pretty significantly. So I think most will not find a home. I think some will find some really interesting targets in areas like energy. I think are really interesting agriculture, like what you did freeberg. I think is really interesting deal.

And then you know what? It'll be an opportunity for us to retool the SPAC. I don't think it's going to go away. I think that it is a useful tool and a toolbox of many tools. So there's IPOs, there's direct listings, there's SPACs, there's obviously private fundraising, there's convertible, there's structure

deals, so it is a tool. And I think when used properly, it can be really helpful. For the companies that we worked with, it would have been impossible for them to raise the quantum of capital that they did. Primary capital from sophisticated hedge funds and mutual funds, we raised billions and billions of dollars for companies like SoFi and OpenDore. And I think that that's going to go a long way for them to achieve their goals. So I think it's going to be a good tool, but we're going to go through a washout

of most of these folks who are not going to be able to successfully find targets. Sax, when we look at private companies, especially the late stage ones, you and I are involved in a number of them. They're doing riffs, they've got headwinds and their valuations are underwater in many cases. How are they thinking about the public market windows, SPACs, direct listings, or just a traditional IPO? I don't know if they are thinking about it. I just think, I think like going public seems

like a fantasy at this point. I think the whole public market's exit idea is frozen for two years. Two years. I think that's probably market begs it, ideas frozen for two years. Two years. I think that's probably what people are thinking. What are these late-stage companies that raised mega-rounds doing to work out valuation issues? Because as Chimoff just pointed out, with SPACs, one of the problems was clearing market

the late-stage investors who came in. Maybe they don't want to accept the haircut in valuation. Probably not enough. Probably not enough. investors who came in, maybe they don't want to accept the hair cut in valuation, you give the half productive. Probably not enough. I mean, what they're doing is using their war chest to grow into their valuations, which is the smart strategy. And if they're really smart, they'll be slashing their burn while they do that. But yeah, it's no different than what we've talked about before.

I think the main significance of this past week is that you had the Fed meeting. It raised another 75 basis points. There's no surprise to that. That was predicted. What was new was the forecast. They're now saying that they expect to raise another one and a half percent. Just two months ago, at the last meeting, they were saying 75 at this meeting plus 50 after that. Now they're saying 150 after this. So in just two months, they've now revised their forecast for an extra 100 basis points of rate increases. Why? Because inflation is worse than they thought.

So, things are worse than we thought two months ago. The last inflation print didn't get better as fast as people wanted. We talked about that last week. Now the Fed is revising its forecast of trajectory is bad and getting worse. And you finally had Powell kind of throw in the towel on his rhetoric around soft landing. I mean, first it was, well, we can raise rates and we won't have a recession. Then it was, we might have like a mild recession. Now, he's basically saying hard landing. If you read these FOMC comments.

So I think this was a really bad week for the economy. And you're seeing it in the markets this week. I mean, we are retracing almost within 5% of the June lows with the growth stocks being the ones that are hardest at. By the way, speaking of growth stocks, have you guys been following this trials and tribulations with buy Jews, which is like one of the largest valued private companies, but it's a private Indian tech company? Essentially, I think like, there was this delayed audit and Deloitte couldn't certify a bunch of things.

And then finally, they were able to come up with a report that essentially showed, instead of breaking even or making money, they lost almost $600 million this year. And a lot of the revenue that they were booking were actually loans to millions of Indian families who had basically zero probability of paying them back. So a lot of the revenue was not real as well. And this is like a who's who of investors? It's everybody from Sequoia, Tiger, UBS, BlackRock, Chan Zuckerberg, it's incredible.

I think when the tide goes out, we find out, right? And this is what's happening, the tides out. And you're gonna find all the weakness in the system. It's all gonna get flushed. I think this is a bit of an outlier, obviously. I don't think that all these companies that are worth tens of billions of dollars are running so close to the sun. But it just goes to show you that how does this happen? How do you not get a date? It's all this on the seed stage in Series A.

We would ask for a data room. The person would say, you're the only investor asking for it. And you're putting in 10% of the round. These other people aren't even asking for it. We said, OK, can we still see the data room and turn out there wasn't one. People were just making bets. They were making blind bets. They were betting without even looking at their cards.

You're thinking about the other people's cards. This goes back to what Friedberg was saying before. You know, I think there's a sliver of the retail investor base that is not dissimilar to a sliver of the private equity and hedge fund and venture capital space, which is these folks are not willing to do the work. I think most people are, and most people wanna come to their own conclusions,

but some people wanna just take the easy, momentum-driven decision. And they typically always get punished. Over time, there's this concept of adverse selection, which is that the negative actors will find them, will seek them out and it will be a match. And so they'll ultimately get adversely selected into the deals that blow them up. So the bad deals, what you're saying saying is the bad deals would find the bad investors who don't do the work and then they spiral and crash together.

That's a really brilliant observation. Yeah, I think the other thing is like you have this situation where if it wasn't that, it's folks outsourcing their diligence to the person that did the round before it. Totally. Oh, silver lake did it, probably. Same problem with the third one. You know, Tiger did it. Okay. Oh, silver lake did it. It was a problem. Same problem with the third one. You know, Tiger did it.

Okay, these guys are very sophisticated investors. I don't need to do the work. It turned out you did because it was a very cavalier way of recognizing revenue. I think there was a specific playbook here too that I don't know if you saw this ax in the early stage where people would get their friends to invest in the company or some high net worth individuals. And then you look at the deal and the valuation didn't make sense. And then you say, well, we would always ask how much money is each person put again? And we like, well, there are normal bet size in the seed is 750 or 1.5 million.

But they're putting 50K into this or 100K. What's going on here? And it was, oh, they're friends with them. They worked at a previous company together. They went to the same college. And so people were using social proof, but manipulating it to get some other sucker at the table to pay full price and not do diligence. Really strange behavior.

I was in Singapore this week. There was a, I had this great meeting with this young investor, really dynamic guy, and he was telling me about a company in Indonesia that he didn't invest in. But it turned out that this founder was literally running two parallel sets of accounting systems. And so he was showing a business and fundraising from this set, but the real books were over here and it looked a completely different system and it was basically like a Ponzi scheme. And he was telling me, it's like impossible to root these things out. So what he said he relies on is like, you have to have a network when you're doing these

frontier country deals where he says, I need to find at least 10 people that know this person so that there is sort of like a moral social proof and moral diligence that happens because that person will never try to commit something that egregious in the face of all of their friends. And so that's a mechanism of filtering this stuff out but I thought that was a really interesting way of designing a diligence process

and at least in a frontier market. Here, I don't think you have that much time to do these really you know fast-paced deals. And the social proof matters less because you theoretically you know are looking for signals of traction, but there has to be a better systematic way of getting this diligence done because these things should be pretty obvious. Well, before it's a multi-decadekabillion dollar company. Sacks last year when people were moving really fast saying they don't have time for diligence, you're going to lose the deal, yada yada. How did you approach diligence during those peak periods and did you have those experiences where people were trying to push you to close without talking to customers or looking at

bank statements, yada yada. No, we wouldn't play that game because we always run SAS metrics that's always the starting point for us But you know most SAS companies They have SAS metrics. I mean they it's so standardized that it would be such a red flag if they didn't yeah I think it might be companies that are you know have unusual business models or maybe they would say something like that But no, we could never do a SaaS investor without SaaS metrics.

All right, well, this is a good segue because right now, US venture capitalists are sitting on $290 billion in dry powder. We had talked about this last year, how much dry powder was there. The market has obviously collapsed. But here's a chart from our friends over at pitch book. Just extraordinary. How much has built up and how much has been raised? USVC funds raised $121 billion during the first half of this year, 2022. So LPs still have

an appetite, which kind of makes sense, investing into the down market for private companies means you're going to get better deals. And you have a 10-year horizon. USVC's raised $139 billion in all of 2021. So if you put those two numbers together, yeah USVC's raised $139 billion in all of 2021. So if you put those two numbers together, yeah, you're looking at $260 billion in the last 18 months. And this is all record numbers being put up on the board. What does it say for private company, SAC? I dispute this analysis a little bit.

I think there's a couple of things going on that need to be taken into consideration. First of all, new funds don't get announced until after the process completes. And then, you know, it may even be some time after that when the VC firm feels like they want to make the announcement. You can't announce a fund until the process completely over or you get subject all sorts of additional SEC rules. So, you know, these funds might be announced in 2022, but they may have actually been raised in 2021. So that, I think, is a really important point. Moreover, a lot of the funds may have already deployed capital before the crash. So there was that, I think, remarkable story that we talked about months ago in TechCrunch on how the latest Tiger Fund,

which wasn't even announced till March or April of 2022, but it had already been two-thirds deployed by the time they even announced it. And so that was pretty stunning. So I think that we don't really have a great sense of how much of this so-called dry powder has already been deployed, how much of it was really raised before the crash. It is true that LP relationships with VC firms have done well are sticky and good LPs stick with their partners during a downturn. So look, I mean, the VC world's ongoing on a business or anything like that, but I would tend to think that this is an overly optimistic, overly rosy scenario.

Do VCs have new funds that they're going to be ready to employ in great companies? Yes, but does this mean it's going to be easy? No, I think that the bar has gone up, valuations have gone down. Founders looking at this tweet storm, I would not get lulled into a false census security. Yeah, I agree with just to explain that. There's probably a six-month lag on when these funds are announced. The reason is there's 506 B&C designations. Most people raise under 506 B, which means you cannot even say that you're fundraising. Therefore, Pitch Book can never have that data. So there's a lag and people were deploying at a very high velocity. Therefore, this number could be off 35%. Well, people were deploying at a pace where they thought they

had to go back for a new fund every year, which is what it was looking like in 2020-2021. You know, if that's six month period, it might mean you've deployed half the fund. So, but look, if you just go back to a two and a half or three year pace of deployment, and before in 2021, we're at a one year pace of deployment, divide the availability of capital by two thirds. I mean, only one third is much will be deployed in any given year. That's a significant reduction. So yeah, I think founders should just be aware that the market's going to be a lot tighter.

And I think given what we're seeing in the public markets this week, it doesn't look to me like it's going to get any better. It looks to me like we're headed for, I mean, I called a double dip recession, I think a couple of months ago. That's exactly what it's looking like. In fact, the fed basically said as much. The fed said that would be just marginally positive next quarter. So it would bounce back to slightly positive growth on a real basis. But then expect it to go negative again and recession once all these interest rates kick in. And by the way, I mean, Kudos to Jamath for basically calling that when the Fed just

a couple of months ago was saying that so-called neutral would be 3 to 3.5%. Jamath was saying, no, it's going to be 4.5%, 5%. Now the Fed just in two months is revised to saying that neutral is 4.6% or something like that. And they don't think there's going to be any rate reductions in 2023. So this is not looking good. How much Jamath of the issue here is, the data that we're seeing, the ground truth we're seeing,

as you would often say, might be very different than, like the reports that are coming out. People are talking about inflation from, you know, 60 days ago, job reports that are 30 days old, 60 days old, we don't really have live data. It seems like our government doesn't use live data when they make these decisions. Is that, they unfortunately don't have access to it really. They have empirical sampling, but to say that the US economy is automated in a way where

they can sit in front of some dashboard and see in real time what the true on the ground data is, is not really accurate. Unfortunately, maybe there's a Manhattan project type effort to do that at some point for the United States, but it's not now. I'll give you a bit of bad news and a bit of good news. And this is just me kind of, you know, again, looking at the mosaic and kind of judging where we are today. The bad news is I think that it's going to be a really tough, sticky time for the US consumer probably over the next 18 months. And so I tend to think that, you know, through the course of this year and through 2023, and possibly even a little bit of

24, it's going to be aggrined. Unemployment will go back up. Inflation will be sticky. Real earnings will shrink. Consumption will, uh, eb and earnings will not be that great. But the silver lining is, I think that we are starting a bottoming process for the equity markets. And I think that by the end of this year or the early part of next year, most of that will be done. And the reason is that, you know, the equity markets, I think, do a reasonable job of one, looking at the bond market, and then two, looking six and nine months into the future, and pricing in that future today. And so by the end of this year, beginning of next year, I think that we will have kind of bottomed and will start to build a base.

The thing to remind us though is that, you know, let's just say a stock goes down 20, 50 percent. Even if it rallies 50 percent from there, it's still 25 percent off from where it is. Yeah, people don't understand that. And people don't understand that. And people don't understand that. And people don't understand that. And people don't understand that.

They're already just applying back up so mountain. So, I would just think, you know, tell people that, you know, I think that David is right. I think that it's going to, we're going to feel this for a while. This inflation, as I've said for a long time, is going to be sticky and persistent. I think you're going to see Fed funds at or breaching 5%. But I think that in terms of risk assets, we'll bottom out by the end of this year, beginning of next year. Fribur, what are your thoughts?

You think we're in the process of botting man and it's gonna be a year of this kind of schlag through the muck. And what signs are you looking for that maybe we're getting out of it, a turning corner? I mean, Larry Summers had some good tweets this week. The weird thing is Larry Summers seems to be almost trying to make the case and make

certain points because he's not being listened to. It's so ironic and sad to watch because he's such a thoughtful economist and has such a great point of view and experience to leverage here. And clearly, you know, he was banging the drums last year and no one was listening and then he got public about it and now he's more repeatedly public about things. The point that he's made,

which I think plays into the political cycle question, which is where the tension arises, is in order to resolve ultimately the inflation problem, you're going to have to see a significant increment in unemployment. When you raise interest rates, generally purchasing goes down, demand goes down, revenue goes down, layoffs happen, some businesses go bankrupt, etc. So then there's this trickle in the economy of less people being employed. And when that happens, it ultimately drives a political response, which is, hey, we're losing our jobs. People start asking their representatives,

do something about this in Congress. And then these programs and these things get passed, which themselves are inflationary. And that's why it's very hard to predict ultimately when and how this all gets resolved because we seem to have an administration that is enacting and embracing inflationary policies to support what they consider to be economic growth and improved employment conditions in this country. inflationary policies to support what they consider to be economic growth and improved employment conditions in this country. And the unfortunate effect of many of those policies is inflation. And then it forces this difficult central bank decision-making cycle. And so there's

a tension right now that doesn't seem to have a clear path to resolution that is why it's very hard to have a clear prediction here. We also have a very significant question overhanging all of these markets related to the price of energy, which is a key input to so many industries and drives cost as well as food and also the military conflict in Eastern Europe. And then there's in the financial markets this big overhang question on what's going to happen with various countries that may default on their debt, as well as China's real estate bubble bursting. So I made this point, I think a few episodes ago, but there's no easy answer that I can just say

deterministically, here's my prediction of what's gonna happen. As Chimouth uses the term, I think it's a great term. There's this mosaic of things that are under consideration right now, and there's attention between them all. And that's attention between them all. And that's what makes it difficult. I'm sorry, I didn't really answer the question, but that's kind of how I think about it. There's a lot of geopolitical risks.

Yeah. I mean, we're kind of ignoring what happened this week where Putin basically is putting nukes back on the table. Now, I'm not saying that's likely to happen, but I don't know how, again, I don't know how this market gets a lot better with the risk of war three hand over our heads. I mean, who wants to enter the market with that on the table? And by the way, the new, just to be clear, you know, you can hear certain military commanders speaking publicly about this, but in the Russian military playbooks, there is specifically defined actions that can lead

to tactical nuclear weapon use in the field. There's no direct indication that these things are going to be used right away, but as SAC says, there's like this weird like turning up the volume happening on, hey, maybe we're getting closer to a point where if Putin is having tactical failure in this conflict, there's more weaponry he can use that has greater impact. And unfortunately, there are these tactical nukes in his arsenal.

And a guy that maybe has a certain psychology that has, as our friends have said, his back against the wall, he's not a person who in his career, or in his history has ever acquiesced to defeat. Alex Carp was on CNBC. He was really, really sharp and concise about this, which is that, you know, in the West,

when leaders fail in their objectives, they just get elected out and somebody else takes their place. Yeah. But for somebody like Putin, there is nobody to take his place because it's a very zero sum situation. And so his actions will, as a result, also be zero sum. And I think folks, he's never actually asked in his life. And yeah, we've never, we've never really kind of like, we don't understand, well, what zero sum decision making looks like when it comes to stuff like this.

It needs the golden bridge, right? You're going to do the golden bridge. He does. I'll just say two things. One is that I think it's been made pretty clear that both India and China will not stand beside Russia if they do something like this. And I think that that is important because they still are the two biggest purchasers of Russian oil.

And so I think that matters a lot because you're talking about a lot of revenue that would that would go away. And then the second is I mentioned this last week and this may sound dumb to some of you, but don't sleep on the Russian mothers. And what happened this week? Oh, you're 100% right on that. Well, what happened this week was really interesting, which is that he calls up all these reservists. These reservists are not coming from the major cities of Russia. You're starting to see protests. You're starting to see young people saying, I don't want to do this. And who's that really activating? It's activating the moms. Yep. And so don't lose their son. The Russian moms. 300 people are being drafted, you know, to basically go fight. And I actually think David's right. Oh, sorry, sorry, go ahead.

The question I have for you is, do you think that I know you don't agree with this, but do you think the strategy is to back him into a corner and then have this like rhetoric spike to then force a resolution? I know it's a danger strategy, it's a crazy chess move, but do you think that's actually what the West is thinking? I see no evidence that we have any intentions of seeking a diplomatic off-ramp. I see no evidence that they're looking for to give them a golden bridge like you said.

Then do you think they're trying to break him and have regime change? I think Biden stated the policy, which is this man cannot remain in power. I think he blurted out the truth of his policy. This is a regime change policy. That's what they're going for. They are backing me into a corner. Check out. I thought that you were right this whole time, which is a regime change policy, that's what they're going for. They are backing me into a corner. Jacob, I thought that you were right this whole time,

which is we're gonna build a golden bridge, we're gonna find a way to egress this guy. And I'm now sort of in the David camp, which is I think that the stated strategy of the Western Alliance is essentially to cause him to make such a categorically catastrophic mistake, so as to become a pariah, so as to either get pariah, so as to either

get the overthrowners or something. So I do think that on balance, the risk is now for things to escalate. Maybe not in quantity, and I'll use this word in the wrong way, but quote unquote, like the intensity of other. So I think David's right, it's a lot of pressure to the economy and to the high risk assets. It is a high risk strategy. We got a good thing going over here.

I don't see the need for all this risk. So look, and the risk would be the reward. What would you see the reward if Putin was removed? Oh my Lord. Well, it depends who replaces him. What if we get a hard liner? You got to remember, Putin's taken out all the liberal reformers,

all that's left are hard lines. So I know there's moms protesting in the streets, but he's also under intense pressure from his right wing. You know, he's got Hawks on his side who basically have been criticizing him for making this a special limited military operation instead of a war.

They're like, why did you try to do this with 200,000 troops? We should have gone into having with a million. Oh, is that right? There's military operation instead of a war. They're like, why did you try to do this with 200,000 troops? We should have gone into having with the milling. Oh, is that right? There's criticism in the journalism. There was a New York Times article about this. He has his own military hardliners in his security state. His hawk.

So he's not just under pressure from peace next who are protesting in the streets. He's also under pressure from hardliners in his own government who think he's been too soft. Yeah, it's a challenging situation. He's gonna be 70 years old. How many years has he left? We just need to contain him for a decade.

Time was on our side. I don't know. Yeah, contain him for more and more decade. That's my best idea. Contain him for a decade. The thing I have the most trouble with is if you look at the media portrayal of this. So I said last week when we had this successful counteroffensive that maybe we'll

get what we want, which is Russian morale claps as they just tuck their tail between their legs and go back to Moscow, or maybe, you know, the Russians really do see this war as existential for them. Putin sees it as existential for himself and he escalates. Well, what happened this week? We went up a wrong on the escalatory ladder, basically put in drew down 300,000 more troops, and he's basically indicated his willingness to use tackle nukes, and he's basically said, I'm not bluffing. So now, what is the reaction in the American press? He must be bluffing.

I mean, that basically is the reaction. And look, I don't know how you know that. know in poker what you in poker. What do we do when someone might be we put them on a range? It's called a hand range, right? Yes, you can't possibly know exactly what they're gonna do or what cards are holding So you put them on a range of possible hands and then you evaluate the story In light of their past actions. What do they do before the flop on the flop? And you basically come to an assessment of what is likely based on their story. Now, take Putin's story, like Friedrich said, he's never backed down in his life from anything. He has said this war is existential. You know, he basically threatened to invade and so he did.

I mean, like, I don't know how you can immediately jump to the conclusion this is just a bluff. Maybe it is, but... Well, it could still be a bluff but then to your point the range of outcomes does include uh... shoving on the river moving all in it can move all it i mean he's a k g b agent you want to play the program with a k g b agent with nukes it's right and so jason you said throughout the skies of madman well exactly i mean personally i think he's more like Ruthless Mafia boss than a madman, but let's say you're right that he is a madman. What is the story about what we're doing

that makes sense if he is a madman, why would we want to basically back him into a corner like that? Why wouldn't we give him the golden off ramp? And by the way, just on this idea that no one would ever use tactical nukes, let me just give you three data points. First of all, we use them. We dropped two atomic bombs on Japan to end war war two. We could have won that war without doing it, but we didn't want to lose the troops. Well, no wait, those were tactical nukes, those are just...

They were tactical nukes' size atomic bombs. Number two, MacArthur wanted to use 20 to 30 atomic bombs to end the Korean war. He had a whole plan. Truman fired him. He thought he basically had jumped the shark. But MacArthur was the most respected and admired American in 1950.

And the reason why Truman could not run for your elections because he fired MacArthur, MacArthur would have used basically the equivalent of tactical nukes to win the Korean war. And his plan to prevent China from reinvading from the north was to irradiate the border so completely that Chinese troops could not go through it. Keep in mind there wasn't as many nukes at the time so we weren't up against nine different nuclear-enabled countries.

I understand, but we had an American commander ahead of our military who was willing to use nukes to win a war. So this idea that he won, I mean we've been willing to do that and the third example is obviously the Cuban Missile Crisis. All of Kennedy's military advisor were willing to use nukes. I mean, and the best in Kennedy did was not listen to his military advisors. They were all super hawkish. And Kennedy, what did he do?

He looked for a way out. He looked for a compromise. He sent Bobby Kennedy to go kind of secret deal with the Russians, where Kennedy agreed to pull the R Jupiter missiles out of Turkey if the Russians would pull their missiles out of Cuba and they lied to the American public about it because he didn't want to be perceived as backing down but that's the kind of you know flexibility and mental acuity that I think you would need in a nuclear showdown to avoid a catastrophe if things do escalate to the point of a

nuclear showdown do we believe that we have leadership on the level of a Jack Kennedy or a Bobby Kennedy who can basically show the flexibility and adaptability to cut a deal to basically pull us back from the brink? Yeah, it doesn't seem like that. What was Biden's response? It was he gave this speech to the United Nations in response to Putin. And it's more of the same as more of this, is I call it the Abe Simpson speech, this old man yelling at the cloud. I mean, he's basically just yelling at a teleprompter. Now, I think the strategically smart play

would have been to say, listen, Putin, you said that you want the people of Ukraine to decide where these territories go. Okay, we can hold a referendum, but we want to administer by the United Nations, so it'll have some credibility behind it. I mean, why not throw that out there as a potential way to get diplomas, see started?

It felt like at the end of last year, you guys remember, I thought like conflict was likely this year. I don't think that the conditions that likely this year, I don't think that the conditions that I was referencing have really gotten better, I think they've gotten worse. And that's why I think we all talk about this in a rational way, meaning like how the conscious mind would, you know, debate the merits and challenges and risks of having a golden bridge or continuing conflict. But if you look historically, the US has often been in the middle of or at the tail end of some either recessionary cycle or inflationary cycle when conflict escalated externally. Wagged a dog you're referring to?

I don't know if I would call it that, but I think that there is an innate human anxiety. When things aren't going well, you feel like you have to do something about it and you're either gonna have internal conflict or external conflict as a result to try and resolve. When things are going great, the economy is booming. You don't enter a war. You don't start a conflict with the nation when people are happy at home,

when you're constituents, and the unemployment rate is low and job wage growth is high. The economy is growing. How are you referring to the United States or Russia in this case? I'm referring to the US. I'm just curious if you were coming out of COVID and coming out of the big question marks that loomed over our economy at the end of last year around inflation, economic growth, interest rates, and the effect. And now we're in the middle of the turmoil. Markets are down 30 percent. And in some cases 70 to 80% for high growth

markets. There's an inevitability now that unemployment is going to rise. There is an inevitability now that the economy is going to contract. Leadership is more likely in that scenario to find an outlet, to find a place of conflict. I don't explain why in this theory. Explain why. Why would the dog understand the concept? Is that what you're saying? Freeberg, why the dog?

I don't think it's a conscious decision. I don't think that it's like, hey, let's go start a war with Russia because the economy is bad. I think it's the same anxiety, the economy is bad, and there's not a lot we can do about it. And over here on the other hand, there's a problem and there's something we can do about it. We can build strength and we can build integrity and we can build support and we can get people to

get behind something together and we can get something to create a driving mechanism to achieve something big. Like a distraction you're saying. Yeah. And I don't think the psychology is as simple as a distraction or a wag the dog or hate it's not even as simple as the military industrial complex. We'll see revenue growth and wage growth and that'll drive the economy. But I think all those things together are true. And I think in whole, we are more likely to want to pursue conflict right now than we were even a year ago.

You buy any of that, Shema? I think he's more right than wrong. I think that when things aren't easy, you need to find sort of distractions essentially to get people to focus on other things so that the core problem is it is obvious. We have in the United States, I think. Yeah, let's go create another problem that's solvable.

Yeah, like the best, I think the best way that I can describe this as I see it is institutional rot. And the more that we're left to our own devices, that amount of institutional decay becomes more and more obvious. Our governments don't work the way that they should, you know, our state assemblies are basically co-opted by special interests. The federal institutions we rely on to make rules are not that great, enormous amounts of money get wasted every day. And as more and more people become aware of these things, it's just the trend is just so bad.

Civic engagement goes down. Everything just gets worse. And so when you take that, and then on of that you sit it on a on a poor economy That's is a real powder keg, I think and so folks like to I think if you're a politician It's easier to kind of go and point to Taiwan and say you know We're gonna go and defend these folks if there's a war point to Russia and say this point to all these other things. It's a Whether it's implicit as free-proccess or it's more explicit of a strategy, I don't know, but the underlying cause is the same, which is that if the foundation of the house is not strong and you're not sure what due to fix it or you don't

have the courage to fix it, the better strategic alternative is to distract and talk about your neighbor's house. Coming out of, coming out of the financial crisis in 2008, 2009, Obama recommitted to Afghanistan and sent 17,000 troops to Afghanistan in early 2009 when he took office. We entered the Persian Gulf with the Gulf War in 1991, coming out of the Great Recession, or the mild recession in 1990 to 1991.

2000, 2001.com crash, we obviously entered, entered Iraq. Yeah, well, that was post nine, post nine 11, but it was also in the midst of a recession and coming out of the, but that was clearly, that one was clearly a reaction. He sat you by this. You think this is a wag the dog or, and by the way, you can do the same, you can do the same analysis on the time we entered the Korean war and the time we entered the Korean War and the time we entered the Vietnam War, they were both tied to recessions. And so I don't know how explicit this action and behavior is, but I just think there's

some data to it. There was a study that just came out by Tufts University on American military interventions throughout American history. And what they found was that we had the least in the period before the Cold War, then the second most was during the Cold War, but actually the most hyperactive period of American military interventions was post-Cold War. So since the Unipolar moment,

even though it's been the safest period for America, right? We haven't. Explain Unipolar for people to know. Yeah, just that there's only one great power in the system. Before during the Cold War, it was a bipolar world, whereas basically America versus the Soviet Union, and you had basically had the, you know, NATO and the Western Alliance, the so-called free world, and then you had the... Proceed check and balance. Proceed check.

Yeah, you'd have the Warsaw Pact on the other side. And now we have unipolar moving to buy. Well, it was, yeah, we were unipolar for a couple of decades, but now we're moving towards multi-polar or at least bipolar with China. Yeah. Multi-polar would be maybe including India, maybe including India, Brazil, China. In the future. In the future, but so the irony is that the safer America has become the more we've gotten militarily

involved overseas. And part of that is because there's no great power in the system to oppose us. But it's also gotten us in a lot of trouble. I mean, all of these wars in the Middle East that cost us something like $8 trillion. Another survey, a cost of war study, the direct number of deaths from these wars from the war on terror was over a million lives lost, $8 trillion. That doesn't even include the excess mortality caused by the destruction of infrastructure, wastewater treatment, famine, all that kind of stuff, which could be as

high as five million. You know the crazy part about that sex? That $8 trillion, if we had deployed that in energy independence, solar, nuclear, whatever, the whole reason to be in the middle east was oil and energy. And we could have just deployed that to be energy independent in the West and not had all of this pain, not the whole, I mean, not the whole reason. The reason to be enough, Gannison was to kill some of the large. With the exception of 9-11 and made budget. We could have done that without taking over the whole country

and gone on this 20- or anything. Yeah, that could have been done very strategically. I mean, actually, that was really proven. Well, first of all, we did kill. We did kill bin Laden in Pakistan with just a raid by the seals, in infiltration. To help out that country. So we didn't even occupy that country.

And then more recently, we finally got somewhere here in Afghanistan, using a drone after we left the country. So what the hell do we need to be there for? We don't. 20 years when we could kill these guys using drones and a helicopter team. Yeah, this is where we needed to have an adversary who could check our power.

It would have been healthier, I guess, the premise to the tough study. Right, but look, I think to Freeberg's point, is it, do we become more militaristic when things aren't going well at home? I don't know, but it feels to me, like just in general over the last 30 years, we've become hyper-militaristic. The use of military force is typically the first option, and we resort to it too quickly

and we don't use diplomacy enough. You can see that in just the number of lives lost, the failure of these wars and the enormous deficit we're running. As you know, Saks, I can't stand Trump. The two things he got right, no wars, and he was the dictator whisperer. That guy knew how to talk to a dictator.

You know, whether it was North Korea, China, Russia, he just knew how to bond with them. It was like a superpower for him. Okay, we have three direct contegels. It keeps us out of wars, China, Russia, he just knew how to bond with them. It was like a superpower for him. Okay, we have three directives. It keeps us out of war, it's great. You know what I mean? It's literally his only saving grace. All right, gentlemen, we have to talk about

what's going on in Iran. We have to talk about the World Street editorial boards. California, maybe. Yeah, talk about, talk about Newsom because there's a bunch of energy stuff happening in the United States, really think is important. All right, So the Wall Street Journal editorial board, which obviously has a side, wrote an op-ed on California's grid issues. Some of the quotes from

the op-ed, California can barely keep the lights on as its climate policies bite the electric grid, but Gavin Newsom is undaunted on Friday. He signed no fewer than 40 new climate bills to amp up California's green energy stock shock experiment, even as gasoline prices nationwide have fallen to an average of 368 a gallon. California's are still paying 545. A gallon, California's electric rates are already more than double those in neighboring states. This is what happens when politicians try to eliminate fossil fuels with a Molotov cocktail of regulation taxes and renewable mandates and subsidies. The code out to this is, I'll send it to you, Nick, but can you please play the clip as

well of Rashida Gleib trying to skewer Jamie Diamond where he just destroys her? God, that's embarrassing. That was embarrassing. I mean, we should play it. I mean, it's, she made no sense. Nick, can you play that clip, please? You have all committed, as you all know, to transition the emissions from lending

and investment activity to line with pathways to net zero in 2050. Do you know what the international energy agency has said is required to meet our global 2015 that zero targets of limiting global temperature rise to 2.7 degrees Fahrenheit or 1.5 degrees celuses. So no new fossil fuel production starting today. So that's like zero. Well, I would like to ask all of you and go down the list because again you all have agreed to doing this. Please answer with a simple yes or no. Does your bank have a policy against funding new oil and gas products? Mr. Diamond? Absolutely not and that would be the

road to hell for America. Yeah that's fine that's fine sir. You know what everybody that got relief from student loans has a bank account with your bank should probably take out their account and close their account. The fact that you're not even there to help relieve many of the folks that are in debt, extreme debt because of student loan debt and you're out there criticizing it. My favorite was when she said, sell us this. That was the hour. It's like, okay. It's just so much the atrix.

The Brigitte-Colade represents the 13th district congressional district in Michigan. The median age in that district is 35.9 years old. The 2020 poverty rate is 28.2%. So more than almost one in three people. 28.2%. So more than almost one in three people. And the 2020 median household income is $37,601. So, you know, she represents a group of people that, you know, I think at best is lower middle class. And the idea that she doesn't even basically understand what would happen in her district, if you actually did not have cheap LNG, again, just kind of speaks to the institutional kind of decay in Washington. She is not the person that should be advocating for this. Like, you know, it's districts like this more than any other that don't have the money to spend on, you know, very expensive

solar installations that cost 30 and 40 thousand dollars. These are the districts that need coal, coal-fired plants, LNG, oil, to keep going, to sort of minimize the impacts of inflation. And so, you know, that was just like a grandstanding moment moving to California. Yeah. Because, because, Moth, these are important discussions and they've become theatrics and this is a chance to educate the public with some charts and data. She's either so hungry for power that she actually doesn't care about her constituents or she's scientifically and numerically illiterate. That's, I think, the latter is probably the issue here. And so this is what's such a shame.

On the other side, at the end of the coast in California, the cost of power generation, just so you guys know, has fallen by 90% when you look at renewables. And that is because of a good job that the federal government did in introducing subsidies that essentially gave the right sets of incentives for people to build this infrastructure. But while the cost of generating renewable power has fallen by 90%, virtually it's on power and it's cheaper than any other form of generation, your electricity costs have doubled and are probably going to double again in a state like California. So, you know, we're cagaring

our utility rates by, you know, 7 to 11 percent every year. That is unsustainable in California. And what do you have? You have, again, a different version of the same flu that Rashida Tulayb has, which is you run forward to kind of vertus signal and to try to do all of these things. You don't spend enough time to really understand what's happening on the ground and you make it impossible for people to make the decisions to actually be resilient for themselves. At the end of the day, there are tens of utilities in America, but there are a hundred million households. And the only path to energy independence is to get every single hundred million household to be resilient,

which means they need their own solar panels, they need battery storage, they need their own potable water, and all of these systems are now affordable and available. And now the federal government with the IRA has created the financial incentives to pull it forward. So I don't know. I just think like this is a huge start reminder about how poorly our energy policy has been managed and if you leave it to the hands of the progressive left, they will do things that don't map to what people on the ground actually need. People in California, most people in California, cannot pay utility rates that are

going to double every six and seven years. Just like people in the congressional 13th district of Michigan, cannot afford to pay for solar if Rashida Tlaib is able to get, you know, all these banks and not finance LNG, coal and and and other forms of hydrocarbons as a bridge fuel. coal and other forms of hydrocarbons as a bridge fuel. You have to look at all 40 of these bills independently and you have to think about it. Who do you bills? Who's reading these things? What is in these things? Each one has to be addressed individually.

One of them could be to help people put solar panels on top of schools and batteries. That could be a good bill. But there definitely needs to have that mechanism at the federal level. The IRA passed an incredible set of incentives, both for the producers of these things and for the end companies that actually deploy them. And so we've solved that problem. So I just think it just goes to show you

a ton of regulation does not actually add and get to the solution that we want. The government will not solve your problems. I hate to be the bearer of bad news, but they are going to make things more complicated and more expensive, and the resilience that you expect out of your utility infrastructure. By the way, we saw just what happened last week. There was a massive fire and a massive battery installation that California installed, a 180-Gigawatt system, a megawatt system.

Could you imagine if that had actually lit on fire two weeks earlier in the middle of this crazy heat wave that we had? So even utility-scale renewables are very complicated projects to undertake. Look at Texas. I mean, people are dying there because the grid keeps going down. It is much safer and more reliable if every homeowner in the United States took responsibility and use these incentives to basically become your own little virtual

power plant. And you will. The technology is there. I mean, the people are getting generators for natural gas as backups. We're going to have to figure out how to take the load off the grid and build resiliency into it. I don't know if you guys saw in a related story that all this ESG stuff is kind of coming

to a head, but Delbert got canceled this week in like 200 newspapers. Did you see this? What? Yeah. How's it possible? Well, because he's been going after ESG in his cartoon. And so I'm interested in your take on this, but here, I don't know the characters in Dilbert, except for Dilbert, but he says this person who's in charge says, our ESG Sura will drop

if we open a new factory that adds CO2 to the atmosphere. But we can balance that out by adding more diversity to our board. And I guess the cat says, how much CO2 do you plan to add? And he said, one non-binary board members work, showing the ES and the G being put together makes no sense. But that panel obviously got him canceled. What does it mean he's canceled? Like he was fired from national newspapers?

I think one of the 177 newspapers, because they're all part of chains now, and I guess some of the... Because of that cartoon. That cartoon plus, it's like a series going after the social governance part of, you know, environmental and pointing out he stated on his podcast that he wants to kill a ESG. So this whole ESG debate he's trying to further it, but I guess that yeah, well, I mean, the concept of ESG makes a ton of sets. I think the problem is that this version 1.0 implementation was financialized by people that have no care about ESG at all.

And so all it's done is create complexity and consultants and study. What you said makes sense or it doesn't make sense. No, the words, ES and G make a lot of sense. They have commas or periods between them, I guess, as a question. That's fine too, but my point is saying that you want diversity and you want sustainability and you want better governance.

All good. All of these things are really great ideas. It's just that in this first implementation, it got financially perverted. And so what you have are folks that are probably not the best positioned or should not really have an opinion about ESG, opining about things that they never were given the authority to opine on. And then as a result, what it's really created is the cottage industry of consultants that can basically make hundreds of millions of dollars writing all of these reports.

And I think that's why this implementation doesn't work. So ESG today is broken. And I think it's largely meaningless. The concept of what people want is is a very good idea. We just need a better way to implement. I agree with that. You can't connect these things. We're going to put social and governance with environment. It's all that's going to do is hold back the environment, right? Sacks, sacks, we're having all of Fed beef tonight. Oh, this is least kindness. You need to try it. I'll see what I can do. No, you have to do it.

You have to do it, Sacks. Once you have to say, Sacks, come in. No bullshit anymore. Sacks, you cannot imagine what does a beef look like that has been only Fed green olives. Pitted green olives at that. I can tell you, I can tell you how it looks delicious. Is it green? It's the most delicious steak you've had in your life.

It's the most delicious. All right, I'll come for that. It's incredible. So that's you're gonna drive me with your driver? Text me your address, so I know where to get you. Oh, I love it. Oh, this is gonna be great. Game on.

Listen to this line up. Me, J-Cal, Freedberg, Sacks, is flying it. This thing, this is gonna jump up, this game is gonna jump up. This game is gonna jump up. No more flips, the flips are ridiculous. Okay, you know what, now that Sacks is coming,

I'm gonna tell him to break out the early white truffles. Oh, what? What? I'm just kidding. You're stuck in the truffle pig zone. Not, not just walked to my office. She looked at me, what I said, white truffle. She's like,

**** Ha, ha, ha, ha. For Bestie Dinner, it's happening everybody. Oh, it's happening, it's happening. You, what I said, white trouble. She's like, four bestie dinner. It's happening, everybody. Oh, it's happening, it's happening. You know what I saw was Helmuth the other day on one of his heads up matches where he got in that huge fight with that guy?

Did you guys see that? And he called me that's every match. You just described every match he's ever got. This was like some heads up thing. And the guy had flopped some insane. I think it was like quads or something and Helmuth had like top hair except the board. Just like, yeah, yeah, yeah.

And Helmuth folded on this guy. It was incredible to watch the play. Like the read from Helmuth was unbelievable. He is incredible. He's a freaking scene on that guy. He's pretty great. He's got unbelievable ways. There's a reason he's the greatest poker player in the world.

He really, his reads are unbelievable. Do you think that what percentage of it is, obviously he is incredible player but there's another piece of this that we all see which is people play into him. They want to be in a hand with him. They want to bust him. So in those tournaments, what do you think? No, I think I think what's happening is at the highest level there's like all these people that have gone in this one direction and by the way this is probably a good we could talk about chess in the

same way, which is that you have these solvers, right? There's poker solvers, and now there are these chess solvers. And the young generation spends all this time training on the solvers, so that they know every permutation of every move, and what is, what people call game theory optimal, or GTO. The problem with GTO is that you can actually be very exploitative

against somebody that's actually playing perfectly because the AI is perfected around what is the rational set of decisions in every spot. And so you can set people up to make a lot of really bad mistakes. And I think Helmuth understands that. And so because he is one of like this dying breed of people that plays live, he's able to just be so exploitative. And these folks that are basically playing from rope memory, right?

What is the GTO move in every spot? They end up making a bunch of mistakes and feeding chips into him. And so I think it's probably the same as sort of this Magnus Carlson. He kind of knew what to expect from people. And the minute this get deviated into this realm where you were like, how could you make that decision? Probably because, you know, the computer AI is able to calculate, make a slightly losing move now, three moves later, you're going to actually be ahead. It caught him off guard where he was basically like, I think this guy's cheating. Really, really

crazy. But I think like, if you have a bunch of GTO kids, folks that are a little bit older that have been playing in a live situation can be hyper exploitative. By the way, this is a good point generally about this gaming is that computation has played and computers have played such an incredible role, it almost becomes questionable on how much can the human really differentiate anymore in these games and in these systems. You guys watch the chess players on YouTube and they'll have solvers live

and they'll be getting live scoring as they kind of walk through a match or walk through. By the way, free-burn areas. That's the same with poker. You have these heads up displays. And a lot of the poker sites have basically given up. They try to spot the cheating. And because you have this basically layer that's helping you, and it's effectively impossible.

Because these things run locally. They're screen scraping locally. And you just have no idea. Except when they make moves that are just so unpredictable from a human and could only come from a machine. They're able to get all games maybe become obsolete because there is no real way to qualify the performance of one human against another when the AI itself or the technology or the computing itself, you know, overshadows human potential and human capability.

You guys may not know this story, but when I met Demis, the founder of DeepMind, I got introduced by Teal, like in 2011 or 12, so like a decade ago, and I met him in London. I'll never forget this at the, we were having breakfast at the con at hotel, and he explained to me DeepMind in the context of a game because at that time, how they were building the first versions of the AI, was perfecting how to play certain video games.

And I can't remember the name of the video game, but it was one of the famous first-person shooter games. And the whole idea there was, like, you know, if you can perfect an AI that basically plays GTO and can win the game, what you've effectively solved for is a layer of AI that can then solve other generalized problems. I was blown away. I thought this is the craziest thing I've ever heard a decade ago. So it's pretty natural that they've taken this stuff and adapted it to meet every game. It's a little sad though too, no? Don't you think?

Yeah, but I mean, maybe there's a different model of performance for humans that really changes what the gaming is, right? Well, I don't know what it is. I mean, I think that these games themselves completely, you know, the intent of a game, which is to measure one's kind of decision-making abilities gets obsoleteed because the software ultimately is a better decision maker than the human.

So the question then is what is the human going to rise to that creates a new playing field? And I think there's probably elements of creativity and actually using the software to become part of the game. It opens up a whole new opportunity for what gaming is. I mean, we've been talking a little bit about video games, but you could see artificial constructs in gaming that arise from the human interacting with the computer and then creating a new sort of playing field in gaming.

Yeah. Tax, what do you think about all this? You're a big chess player. Yeah, I've been following it for the last couple of weeks. It's obviously been the big story in the chess world. What basically happened is that a couple of weeks ago, it might have crossed the loss that game to Hans, what's his last name? Neem on, I think. Neem on, yeah, exactly. He might have just crossed the loss that game to Hans. What's his last name?

Neem on, I think. Neem on, yeah, exactly. And the next day, he pulled out of the tournament. This is the sink field cup. And he's never pulled out of a tournament before everyone was sort of speculating as he's sick or have COVID or something like that. And then he tweeted out a video from some soccer coach saying, I can't even get in trouble. Yeah.

Yeah. From some soccer coach saying I can't get in trouble. Yeah, yeah, so Clearly he was in a passive aggressive way of making an accusation and then he doubled down a few days ago He was in another tournament and he had to play Hans I keep forgetting the guy's name Neeman yeah He had to play him and he resigned on move two. So basically he doubled down in his accusation. And he won't specifically say what leads him to believe

that the sky is cheating, but he thinks he is. He's a young player, he's something like 18. And he's had a pretty meteoric rise in the chess world. I think his ratings gone up a couple hundred points over the last two years. It's the fastest rise in chess rating that anyone's ever had before. It's been the case that players have, and young players especially have risen quickly, but this is, it's a pretty, it's the biggest rise. How is he cheating?

That's happened. Well, that's the thing. So the issue is that it's easy to cheat in online chess, but in over the board, you would either need to have a device or to be signaled by somebody in the crowd. You'd need human assistance or the assistance of a device. It'd almost be like, you know, a casino or something where they're using the contraption on the guy's leg to signal, you know, to information to him. So nobody really knows how he would have done it, and of course he wasn't caught doing it, so he can never prove that he wasn't. So there's just a real question here.

But they did make some changes after Magnus Carlson resigned. They put the feed on a 15-minute delay. I think at some point, you're going to have to start winding people and having them go through a metal detector. Yeah, they're going to have to toughen up all of the anti-cheating standards. One of the grandmasters was like, we should play naked in a locker room. Yeah, there was an online site that basically offered to pay Neem on a lot of money to play basically naked to prove that he could really do what he's been doing. The theory on why he's not cheating and the rise is justified is that in theory, this

is the argument is that he's grown up learning from all these neural nets, these not just chess engines. The first generation of chess engines were like stockfish. They were just computational machines that were programmed by humans with thousands of rules on how to play chess. And then they could just crunch the lines better than a human could. More recently, thanks to DeepMind, it's a whole different type of machine. It's basically these neural networks where all they're programmed with are the rules of

chess. And then it plays thousands of games, or millions of games against itself, and it learns the best way to play chess. And the neural nets play in a whole different way than the stockfish, than the pure engines. The engines play like a human that's able to calculate really well. Whereas the neural nets do things like... There's sacrifices, but a human would never make. Yeah, they'll make sacrifices for disrepish activity.

Normally, when a human makes a sacrifice, they'll recapture the material within a few moves whereas deep mind will sacrifice upon and you know just for the positional advantage or for the piece the increase in which doesn't show up for many many moves right exactly exactly yeah and so the ability to model like 12 moves out is is really but that you know that's where I think the people thought that Magnus picked up on something because it's like those sorts of moves are rare in the absence of some layer of intervention because typically it's like, you know, and sacks, you know, this much better than I, but it's like, you know, the opening think it was amplified that one of these positional sacrifices made no sense in the context of that game, unless you had the ability to think really conclusively about six, seven moves from now. By the way, it's the same thing in poker.

So there's a thing if you guys want to download it. It's called I think it's called poker snowy. It was like the first layer of a pretty basic AI, but it's gotten better and better and really what it allows you to do is in every situational spot. Whether it's heads up all the way to a six handed ring game. You can really understand. You know what to do now poker is meaningfully more complicated than chess as it turns up because again you have you're not playing against one player, you're playing against some umpteen number of players. We don't know when each of them is going to step into a pot or some hot. And there's all of those elements.

So it's a little bit more complicated to build a true neural net around it, but even still you can kind of get a sense of what you should be doing in different spots and what you see is that there's literally like trillions of actions. And so it really is impossible for a human being to really memorize in every single situation what the true, you know, probably, probably, probabilistically weighted GTO optimized move is going to be. And so this is why I think a lot of people, I guess, led by Magnus was saying, how could you have known this unless you were aided by something?

It's pretty clear that this guy cheated. It's pretty, I think what's profound is that mastery of the game may not be achievable by a human, but mastery of any one of these games may actually be achievable by neural nets. And I think that's what's really frustrating to Magnus and to other top tier players in the world that are the best humans at a particular game, is they're now realizing that they really aren't the true masters, that the true masters are the neural nets. And more than just the guy cheating, which may feel like bad sportsmanship or whatever,

fundamentally, one's ego being built entirely on one's mastery of the game and being the best at the game is fundamentally challenged because a computer is better at the game than you. It's a really profound moment. I think that ship sailed a long time ago. Yeah, I mean, I know the chest was very well, but it was, yeah. Well, no, it was, so it was way back when memory and cast broth played deep blue, which is the IBM. Yeah, that was the first, which wasn't even a sophisticated neural net. That was just a almost rhetorically modeled,

yeah, it was a terministically modeled system. It was like stock fish. It was just a number cruncher. And that was when computer intelligence and chess tip to be able to beat the world champion. Since then, there's no looking back. I think every human who plays in the chess world understands that computers are better

and there's no way for a human to be better than a computer. So, it's certainly not a neural net. I mean, Magnus certainly knows that. I don't think anyone's bothered by that. I think that everyone understands that humans play in a certain way and their goal is to be the best human. I think the concern is just obviously if a human gets aided during a game by computers. But the way that chess works now, the preparation is all about working with computers. These top players spend huge amounts of time researching openings and looking for novelties in openings using computers to help them do their research. So working with computers is now become an integral part of the game.

It's kind of like, you know, in many sports where the technology has enabled the athlete to get better, you know, and it's really technology becomes the key vector of competition. This actually happens in the NBA. This happened in the NBA where there's a special technology for three-point shooting and your form, etc. And the Nix actually and a couple of other teams implemented it a couple of years ago. And you saw the entire team became better at three-point shooting. So people who were 200% 300% moved up to 10%, 20% each. But this kid is clearly cheating because he's cheated in the past.

And people who cheat in the past, cheat in the future, is my basic belief. So this guy Neiman, publicly admitted that he'd use electronic devices to cheat when he was just a kid on online games When it was 12 to 16 years old So then the question is like no, but Jason it's worse than that I think because then chest.com came out and said actually The cheating was more rent than then just those two incidents their algorithm determined it. Yeah. Yeah He's definitely cheating so why are people playing with him? Well because he said yeah, he's definitely cheating so why are people playing with him? Well because he said Yeah, he said that was those games were not for money and

He was just purple is rating fast and he was like the poker guys who cheat you and well if you're a poker guy And you've cheated before you never play with those players again their their cheaters So obviously he just well the issue here is that this was an over the board tournament where the one that Magnus pulled out of in order to protest. So the question is, how could he have been cheating? Right. Now, I think what adds to the complexity of it is that you have to remember that when you're dealing with a player, look, if it was us playing Magnus, we'd each see on every single move.

But if you're a 26 or 2700 player and Magnus is a 28, 60 or something, the higher the rating the better and just called the elo. But any event, if you're like a 26, 2700 player like Neemon, you only need help with a few moves in the game. In other words, if you could get a tip at a critical moment of the game, that might be all you need to put you over the top. You wouldn't need to, in other words, to beat Magnus, you wouldn't need to cheat on every move.

If you just cheat on two or three moves at the right time, that could put you over the top. So something could vibrate on your leg four times and then two times over to tell you which piece to move. That's what they were saying, Jake. Like, you had a like a vibrator and is like, what the shit was that? Where was the vibrator? In a shoot.

There was a meme that became like a whole thing where it was like you had something in his butt or something. You know, it was a vibrator. In his chest computer? And an anal chest computer is what you're saying? Okay, no, look, that's not real. Somebody specially ran a red.

Someone made it, yeah, and then it became a big. Somebody did a reddit post saying that he was being communicated with through vibrating anal beads. And then that went viral. Someone made it, yeah, and then it became a big. Some identity posts saying that he was being communicated with through vibrating anal beads, and then that went viral. He long tweeted it, although I think he deleted it. Look, it's absurd, but the point is, there is a question of how would he have done it if he did it. And there have been cases before though.

They do think you're making a call. Yeah, if you're getting caught going in the bathroom and then checking their phones. Yeah, there's a grand Bulgarian grand you're getting caught going in the bathroom and then checking their phone. Yeah, there's a grand Bulgarian grandmaster. You got caught in the bathroom checking his phone and oh god. Metal detectors on the way in, and they have RF detectors in the room, right?

So they look for now that any sort of communication. I think you remember that going into this event, you just can have nobody watching live. No, they did it after half hour delay. The St. Phil Cup added a 15 minute delay after these accusations. So yeah, I think they're going to be more precautions, basically. But we still haven't heard from Magnus what made him think that there was foul play here in this particular game.

He's been very electent. He won't say anything. It's sort of passive aggressive. Now the full side of it is that Magnus Carlson has been the number one player in chess for over a decade. And he's a very classy player. I mean, I have, you know, everyone's, never heard a word said about him that, you know, was,

now he can be cocky. He can definitely be cocky, but he's a very classy player. So I just don't see him doing something like this lightly. So that's what's so hard to understand about it. Dramatic is, yeah, it's really hard to understand how Niemann could have cheated, but also Magnus doesn't seem like the kind of player to just make a wild impulsive allegation. So this is why the chess world has been really roiled by this. Is there like any kind of equivalent of like PD scandal here like people taking out of all the

Provisual or any other kind of nitropics to to get an edge? No, there's a good documentary. I think it was on vice on how a lot of the top chess players actually get ready for matches and they're incredibly diligent about their sleep their workout routine alcohol. They do take supplements. I forgot we made the documentary, but it's actually incredibly intense how physical these people are. Well, like one game of classical chess can burn

like over 2000 calories or something like that. Like the amount of calories that get burned just by using your brain so intensely. I don't know. I don't know. I don't know what it is. I don't know what it is. I don't know what it is. I don't know what it is. I don't know what it is. I don't know what it is. I don't know. I don't know. I don't know. I don't know. I don't know.

I don't know. I don't know. I don't know. I don't know. I don't know. I don't know. I don't know. I don't know.

I don't know. I don't know. I don't know. I don't know. I don't know. I don't know. I don't know. I don't know.

I don't know. I don't know. I don't know. I don't know. I don't know. I don decade ago. I just couldn't sit there for that long. It's just to fight the time stock of it too. It's just so physically and emotionally demanding to be able to play that well and make no mistakes over 10 hours.

And so, the only solution that all these kids would turn to was, was Adderall and I was like, this is not worth it for me. So I stopped playing in tournaments in which it was too bad because I thought like I could have a real chance of actually doing reasonably well in some of these things. And I just gave up. By the way, the other thing I wanted to mention is there's, there's been like cheating in all these other kind of sports and always gets exposed. Like whether it's, you know, the Tour de France, it turned out that everybody was using PEDs or, you know, the Russian Olympic

team, everybody was using PEDs or, you know, the Russian Olympic team, everybody was using PEDs. New England Patriots stealing signals. Yeah. All right, listen, let's just talk about the Iran protest for a moment. Iran has shut off internet access, internet access and parts of Tehran and blocked access to Instagram. And what's up to try to stop these protests? The protest started after the death of a 22-year-old, Kurdish woman, while in police custody, Masa Amini was detained on September 16th for allegedly wearing hijab, headscarf, in an improper way.

She later died in police custody and activists are saying she suffered a fatal blow to her head. And now you have 15 cities with very large crowds, women are burning their hijabs. And it seems to be escalating at a pretty fast pace. Iranian authorities are denying that they had any part in her death. Thoughts on this?

It's horrible. Yeah. I wish them well. If you look at the demographics of Iran, it's pretty amazing how many young people there are here. This feels like a country that could turn over. That'd be great. You want to know why it has a chance of working because we're not the ones behind it.

Absolutely. We cannot run the revolution. The revolution has to be done, but to the women and young people of Iran protesting, you have our support and we're rooting for you. And don't let the bastards grind you down. All right, everybody. For David, he's got her name. He's got her name. I was going to try to come up with a new name for Rageberg. Like, Frigberg was Rageberg.

Rageberg. Rage for Rageberg or Plainview. The David the Dove and the host with the most. Jamath Polly Hapatia. I'm the world's greatest moderator. I'm so excited to see all three of you. Big hop. Sacks don't flake. I love you guys. Don't flake. S you. I'll three of you. Honestly, big, sucks. Don't flake. I love you guys. I really want to see you.

Sacks. Don't throw up in a fall. We should roll down together. Let's roll, baby. Big game. All right. We'll tell you guys. We'll see you in the game.

Love you best of us. Bye. We'll let your winners ride. Rainman David Sack. I'm going home. And it said we open source it to the fans. And they've just gone crazy with it. I love you. I'm sweet of kin. I'm going home, yeah! And it said we open source it to the fans and they've just gone crazy with it. I'm going home, yeah!

I'm going home, yeah! What, what, what, what, what, what, what, what, what, what, what, what, what, what, what, what, what, what, what, what, what, what, what, what, what, what, what, what, what, what, what, what, what, what, what, what, what, what, what, what, what, what, what, what, what, what, what, what, what, what, what, what, what, what, what, what, what, what, what, what, what, what, what, what, what, what, what, what, what, what, what, what, what, what, what, what, what, what, what, what, what, what, what, what, what, what, what, what, what, what, what, what, what, what, what, what, what, what, what, what, what, what, what, what, what, what, what, what, what, what, what, what, what, what, what, what, what, what, what, what, what, what, what, what, what, what, what, what, what, what, what, what, what, what, what, what, what, what, what, what, what, what, what, what, what, what, what, what, what, what, what, what, what, what, what, what, what, what, what, what, what, what, what, what, what, what, what, what, what, what, what, what, what, what, what, what, what, what, what, what, what, what, what, what, what, what, what, what, what, what, what, what, what, what, what, what, what, what, We should all just get a room and just have one big hug or two because they're all just like this like sexual tension that we just need to release that out What you're that big what you're I'm going on lead!