E85: SBF's crypto bailout, Zendesk sells for ~$10B, buyout targets, US diplomacy, AlphaFold & more
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Let's go, Jason, start. Let's go. You have any interest. Let's go.

Let's go to go school if you want intros.

we're not going to pay form. So I will go there.

Sex is awake.

Well, start with new sex.

If you want to do your job, you'll do the in person if you want to, if you want to. So roll your effort because you think you're negotiating with us. Don't we don't give a shit.

Listen, i'm doing all the projects.

I think we care about your interests. Do a bad job. We don't care.

It's so waiting in the weeds.

all we I do, three sex and just around.

oh my god, it's, you do a couple of bad jobs so that we can boot you off the show.

Here we go.

We can give.

We open sources to the fans .

and just got.

All in summit, I packed the joint, but sax won't give me an extra point. His script holding, they can find the floor going to have him flying commercial for the first time since two thousand four. Welcome David sacks back to the program.

The raim man now freeburg.

i'd never wanted to see him go, but you got to show up for work. You can do every other show the saul t that of science. He's certainly not a fed. Then again, to see those ratings with brad. Welcome back to something of science.

By the way, I should be bad rating. So thank you very much.

Check out. Okay, drama here. We mao in italy ving .

a life so grand.

his next back, a little wine sweater brand, this market is leaving him in a days. So he's been tips ly in the mediterranean the past ten days. Welcome back the dictator.

Thank you. I just I put them on on stun. I didn't want to do any kill shots there, everybody. He's a little on edges, including the audience. The audience had a lot to say about whether recover for a lot of the controversial topics um roby way, january six and ukraine all I did a bunch of service fifty percent of people want us to talk about, fifty percent don't. So we'll see which one to get to say.

yeah do you think we should be serving the audience ask him what they want us to talk about because when we started the show, we just talked about stuff that we thought was interesting and people happen to like and listen and tune. If you end up asking the audience but they want, don't you end up becoming like a fox news or like any other kind of media company where you just ultimately use the feedback loop to drive?

Yeah, I wouldn't. Every week of the show, I will tweet like anything you want on a darker because sometimes people have good ideas. But yeah, certainly you shouldn't based IT on like a survey, I know and I was just like a way to get some feed back.

Yeah we yeah, that's how we started. We were just kind of being intellect on with each other. And here that we are interested in and IT worked. And if people don't like IT.

they don't like IT. I mean, I mean, which the big controllers .

doing like a like a vote for your people and that we follow?

Definitely not. We should always go on that. I think just there is an ongoing debate among the audience of what percentage of the show should be politics and when should we talk about politics, doing too much politics. And so I mean, that start with markets. Let me see more question.

Do you think our objectives should be to grow the audience? So you should our objective to be talking about the things we want to talk about. I think I do .

you didn't yeah I think it's good to .

have an audience of the wise what .

do we do that but yeah um bit look at what the audience showed. Is that half and one to talk about those topics roughly and half didn't. I suspect that most topics are going to be like that, you know unless was .

markets and people like eighty ninety percent of people want to here to talk about markets and startups, yes, like our course stuff, right?

I'm just saying if your objective function is to maximize your audience, you're going to be making a tiktok video of people talking or something.

You know it's not like the show to do to volunteer to work on .

the i'm not going to do that. No.

no, no. I think pretty tramadol. I have the video of freeport talking at all in summer. Anyway, hey, but let's get started with, I think, what's going on and cypher because people do want to hear about that, and it's been quite stunning.

A british version in island court ordered the liquidation of three hours capital three A C after critters sued the cypher to hedge fund for fAiling to repay its debt. They had three billion in assets under management. They had a huge position in the now defunct, stable going terror.

And it's token luna. And they were trading on some massive amount of margin, how much and what deposits they were using to do this. Uh, we will find out, uh, now they're being forced liquidated to be liquidated. Three I C old voyage or digital, six hundred fifty million could not pay IT, which sent voyage are stocked down sixty percent and cause them to need a ballot from sam bank men freed, which has LED to S B F S.

He's known in the industry, belling out a couple of other major folks in cyp to he provided a two hundred million doctrine to voyage digital is the canadian crypto lender, uh, theyll lend you money against your cypher to uh and H F T X provided a two hundred fifty million dollar credit line to block fy fx obviously sbf company and according to early block fire investors, F T X credit line would wipe out all existing shareholders so we're starting to see the really, uh, ownerless term sheet to keep these things alive. This is, of course, in the face of entire crypto collapse. But many crying to coin seeing what we saw in growth sucks.

Is this the end of crypt? Al, uh, is that going to rebound again? What are your thoughts to moths x freeburg?

Who wants to start? Did you guys see the chart that I posted into the group chat that showed bitcoin active, ready as a function of years and value? Put that up so we can look at that together. The crazy thing about this chart when you look at IT is and it's pretty obvious, is that we are collectively, in one way shape, perform basically trading up uh, ever since twenty eighteen really with all the stimulus because if you look at you know the mean Price of big point twenty eighteen, there was a nothing burger.

You know, what we were talking about was, you know, a Price that was sort of between a few thousand dollars, two, three thousand, ten, three thousand, you know, all of a sudden when all of the stimulus money hit the market. Look what happened to IT. But I think something unique also happened, which is that people really understood how to run these very complicated off chain bitcoin arms.

And I think we should explain what those are because those are what's behind the three arrows capital. It's behind you know I think sam had this kind of um a bleak tweet that said, you know some of these exchanges are actually already insult ment they're already the walking dead. So the first thing to keep in mind is that you know this is a completely unregulated market, right there are no middle ker uh mark makers, persae that actually have reporting requirements to regulate authority.

There aren't any clearing houses. There isn't a way for us to understand systemic risk as IT builds in the crypto market. So what happens starting in two thousand and nineteen is people realized the following things were true.

It's sort of what we talked about last week. You go and do some crazy around you, uh, you know mark up some fantome quality in a company. That company then issues tokens.

You then list the tokens not on, you know, a blockchain are we see, but uh, in a place where trades can happen off change, right? And there's a bunch of exchange where these things happen of change because it's one you know, uh, company and they have a bunch of segregated of accounts. And what happens is when these things initially get listed, retail goes crazy.

The Price up folks basically dumb on retail. Um and you know you spend that loop as fast as you can and you can extract an enormous amount of money along the way. All these things like defy, all a student popped out and nowhere.

And it's I K. You can learn fifteen and sixteen and seventeen and eighty percent just deposit the big point. And so folks with deposit bacon.

But then what would happen is like the places where those deposits were held, but they need to obviously find the places to make that seven to seven, thirteen percent. And so then they would go off change to some other random person who is offering to pay them even more than that. And they would try to are the difference. But IT all catches up with you.

Because when something like a terror goes to zero, all the bitcoin that was used to basically, you know, uh, run that defy process around terror vantis, you know and then all of the sudden use the lenders like, he can I have my a big point back and the brokers like, well, actually I don't have IT islands to somebody else, let me asked that someone else and they're like, i'm sorry, I don't have IT, but I have these terror coins because I was running some arb and now went to zero. And that's essentially what we're seeing right now. So we have two big problems.

And then I think we have a third, this kind of funny. The first big problem is like obviously, the absence of any regulatory oversight. This stuff is gna happen.

System mic risks are going to build up. That's what we're facing right now, is an enormous amount of systemic risk, largely around bitcoin. A bunch of this money, I think, has been essentially just vaporize. And so all these people that try to find their deposits, especially in custodial accounts, in off chain brokers, may be S O L at some point. And I think that is gonna be a huge chip show if that actually happens.

And to be clear to moth, they don't have the keys to their own because they gave money to a custodial account. They then did this lending, went out to get them to fifteen percent, and they don't have any recourse here. They can get there. Look at this why the owners to wallet and the keys.

Does anybody have record this three year old capital and all of the other interrelated parties that are now gone completely bankrupt because of the camp? The answer is absolutely not. Um so that that's the first problem. You have absolutely zero oversight, which means systemic risk has been built up in the system.

Um the second thing is that exactly what you just adjacent is that people don't even understand chain of custody here, which is that you thought that you own this bit, going to turns out you actually may not actually own the mall. You thought that you were probably lending them out. You have to do there is no enforceable contract to turn up up.

And so I think that's gonna an entire set of different legal issues that are now gone to come to the service because people who actually legitimately lend the stuff out, you, for example, like if you short the stock and you go and borrow stock for any one of us, are really tight garden. You know, if you want to, to go and put a credit driver to swap on against that, there's a central clearing house that make sure you're not you know you have to go and get ordered by a bank, even getting a the kind of account that allows you to put these drivers on. None of that was possible.

encrypt. And in the last thing, which I think is kind of funny, is that we've had to listen to every millennial and gene market observer and cricket how how this is not like boomers. And they turned out to be the same thing.

I mean, this is the first of all. It's like of all of the five times you've had to hear how is so different IT. Turns out that is entirely easy, entirely entire ism. In fact, worse.

that I started an issue is definitely a major one. sex. What do you think is happening in .

cypher right now? Prices of a lot. I don't really have new point of view on IT.

I mely posed off that S, B F has going to raise my taxes in california. Expect that the same bank run free. He runs F, T, X and his company.

He lives in the bahamas. okay. And there are probably reasons for that related to a liability or taxes. Just not me like that.

Can you tell us what what F, X.

they are like a coin base compete, but they obviously think it's beneficial to be offshore and not under U. S. jurisdiction.

And they're very profitable.

right? Super yeah supposedly they're super profitable. I think he's worth like ten or fifteen billion dollars. This is understanding. So he's been very successful at this. I don't know why there in the home as I think either they're in there for securities regulation reasons or for tax reasons.

But to one of those two, in any event, he doesn't live in california and yet he is sponsoring a ballot initiative here that would add a eur point seven five percent tax on incomes over five million to finance a pandemic prevention institute of his design. He's doing this, what dustin ask with another billionaire. E does not know what to do with his money.

He has may remember that dustin was the guy funding chase budi. In any event, this would be this endemic preventions to be governed by an unaccountable board as opposed to something like the university, california. This is like using the baLance intial system to fund their pet panthry pic projects. There's really .

no need for this one.

Yeah, exactly. It's well, first. So looking in the rear of your mirror in terms of like budgetary priority. But even if you believe this was a priority, I don't know why to be the responsibility of california taxpayers exclusively. And even if I was, you'd want to do IT underside.

The uc system, some sort of accountable board is opposed to having a report to, you know, sam and dustan. So IT makes no sense. And this is really onna hurt the california tax space because if you start raising taxes on california, millionaire more than are gona leave the state.

And then that taxes revenue leaves the state. And so that actually hurts the general budget. And that's why you know california teachers association, for example, of post this is because they know that this is going to a have a negative impact on core services.

What is but what's offensive to me is I am so for all this is just a stupid idea and like every possible way. But what is the guy who lives in the bahamas doing funding baLance initials in california to raise our taxes, thereby working the california fiscal situation to fund his patta throw pic projects? If you're work ten billion just funded on your own, you know, do IT through your family foundation. I don't know why you need to raise .

the taxes in all of us. Yeah.

that's very why he giving simple answers.

because I think IT helps create favor with politicians that needs proof IT. But this this is you would do IT that's why I would do IT.

This is currying negative favor because first, all every millionaire california should be up in arms over this. But even i'd say you liberal .

game plan.

yeah, I mean, but I have to even liberal politicians and interest groups in california like like the teacher association don't want this because the money he's not going to a cause they support and IT will probably IT will almost certainly drive down the state tax space, right? Because people on the margins are you going to leave? We ready have the highest taxes in the nation where at what like thirteen point three percent for the top.

We have one hundred billion surplus for original. All these IPO is all of these veta capital CEO and ranking file tech workers are just paying massive amounts of tax here and they're leaving.

right? But that's highly lever to capital gains, right? And so last year, we had a boom market. We now know in hindsight that I was inflated that was all driven by this liquidity bubble. So do you think that can be the case this year? I think, would you for a huge budget shortfall next year because .

there's got me no capital gains for the .

california tax spaces is highly leverage to this boom bus cycle and driving the top earners out of the state is only a worse than that impact. So you know but again, I question, why is a guy in the behind every one thing if I was just doesn't doing you, I guess but I don't know why sam is taking the lead. What he's not even a california .

taxpayer because I think he's a very sophisticated player in not just script but Frankly, uh, regulated and unregulated finance. And lucky, I think he spends a lot of money in D. C.

As well. And I think that he has a very thoughtful game plan. And then you know, when you look at his parents are his parents are really, really, really smart, thoughtful people as well to law professor at stanford.

And so I suspect not knowing and having spoken to him um that I think that there's a really specific strategy that these guys have around who they need to influence and what they care about and then willing to has a pass through fund those things in order to create the you know influence that he needs for the things that he cares about and I suspect that is that kind of a string, which is I think it's pretty typical in U. S. politics.

Um the question though is what will happen if F X um has to really talk about you know everything that's actually happening in cypher cypher. You know i'm sure that F T X could do a lot to help understand a lot of this off chain activity. Some of the you know especially the stuff that's really in the grey, especially the stuff that's going to come to light over the next few years. As I mean, you have to understand, guys like you know, we've forward two trillion dollars and it's not a institutional capital. You know this is overwhelmed ly .

retail company also. This is going to inspire a lot of uh district atterley and D O J activity. The discovery is going to be bonkers, and it's all going to be regulated to the point of in which IT kills a lot of the opportunity. I think this is going to become the most regulated .

space with I I mean, if the goal here was to curry favor, then I think sam must think there's not to be a red in november because I don't think republican politicians are going to look very favorably on a guy who's using his money to raise taxes in the state.

Is even like let's move back to the cypher piece.

back to the cypher piece here. That's good thing. A dollars at this point with .

this many retail investors. Well, actually, let me start with this free burn.

Is there a real technology here? And how much of what we just witness with the crypt to collapse and the crypto boom bust cycle? How much is based on what you would serve as real technology that is going to advance the human species forward? And how much of this was hype if you were to put a percentage on trillions of dollars in assets, you know, created and then wipe out? How much of this was actually real technology? How much of IT was a complete other waste of fucking time?

And a griff, i'm no cypher expert and i've not been an investor and cypher currencies. So already original bitcoin White paper makes sense that in itself to me makes sense as a potential uh, initially was kind of interesting as a potential alternative currency, but the transaction fees were very high.

And so IT never really seem to make sense as a replacement for traditional financial networks until those transaction feeds drop below those of the traditional financial networks. Um the biggest concern i've always had, which i've mentioned multiple times on the show, is that whenever anyone talks about a cyp to currency, they talk about the Price of IT in dollars. And if he really is meant to be an alternative to the us.

Dollar, why are you talking about IT in the Price of U. S. dollars? And it's up and it's down relative to dollars.

And that implies ultimately that the intention would be to transact back to us. Dollars, which implies that the intent is not to be a replacement for the U. S.

Dollar, which was a lot of early prognostication of bitcoin was IT was going to be a replacement for the U. S. Dollar, is going to be an alternative to traditional monetary systems.

But ultimately, if you're just measuring this in dollars and it's up and it's down, everyones freak out every day, cryptology crp tos down, that means IT really is more like a security except security definition ally. You're supposed to have a secured interest in some underlying set of assets and there is no underlying asset. It's not actually a security because IT doesn't provide you a security interest in anything.

So IT is effectively a bet on some systems of computers that are meant to facilitate some set of activities that you know ultimately, people really only seem to value in us dollars. So um so I I don't know I mean like where does that all go IT? Seems like I mentioned at our predictions, the episode last year that all of these smaller things are going to get blown out.

These could on call cyntia currency, even though many of them don't really act like a currency. And you know maybe bitcoin itself persist and IT seems to me like that always have good staying power as an observer. I'm not a participant. And um you know anytime someone telling you something and dollars and it's going up and it's going down and you're bedding on whether it's going to go up or go down and your intention is to transact back to dollars, you know and and there's .

no one these have been security .

the same time is the problem.

This is the problem I have with that. This has been, you know, a shadow security stack that was created in parallel to the existing one with a lot of, you know, oversight. And what did we think would happen if you created a global casino with no rules?

Securities have an underlying interest in something. This has an underlying sure interest in some line on the blockchain of that particular network.

That's exactly what he knows.

Yeah it's a security interest in a line .

of code in on a distributed IT seure A A bit coin has. A legitimate uh non fungible entry in a blockchain that says IT and only IT represents that thing. And I think that that you know is is I guess that the police some may call IT tenuous. But I I mean, I tend to think at this point, bitcoin probably has to be regulated like a security even, even if IT is not. And it's more of a commodity only because of the the volume and the sheer size of both the market and the the potential .

fall out is the way you're saying, alright, the potential fall out when things go off the rails is so great, you can need to have some rails.

Yeah I mean, I mean like like again, as I said, like look, if you are uh a market participant trying to trade you know very sophisticated, no derval tips of any kind. For example, the credit mark, we have to go and we create these things called I S D S are called visitors, you know, and this basically a kind of an account that allows us to go and you know, take risk in some of these various tyrer markets.

But the the underlying principles around that is a common set of parameters, a clearing house, the ability to monitor risk. None of those things exist here. And I think that's really what folks have to solve for now. Secondarily, is what we're all these kind of like shadow activities. You know I just in time, you know, if IT seem too good to be true when you would hear, wow, this D Y protocol will be iee, you twenty four percent and you're just like who is paying the twenty four IT never made sense really. But then none of us really questioned, you know, I you know.

I had people on this week serps. I questioned IT all the time, and they can never explain IT to me then. Now the installation was what we were giving you.

We were giving short term loans to other people who basically wanted a margin loan. You know they they want to hold all their background, but that was only four or five percent. But they were also doing was giving you tokens in some other crypto currencies that they were basically originating.

So they basically like give you four percent on your bitcoin loan, somebody else would pay that. You'll pay that. But then the other eleven percent is coming from some tokens. We're giving you that actually, you know you have to line miles. We have to ask you any miles.

We have to answer really important question. If you we we look the the markets had been cinerary many trillions of ballots. I just saw like for example, there is one point seven trillions, you know that was just torched in etf alone just in the the beginning this year, right? We've done that or more uh, in the cyp to side.

We've done that more on public equities, right? We're probably going to do that or more other markets, but every other market is regulated and there is a full accounting of the P N S. On the dollars that are one and the dollars that are lost.

And here some folks have just, you know, basically escaped with billions and billions and billions of dollars. And the back holder is just, you know, uh, a real vector. So the real question is our regulators going to actually care to try to do something because the the level of grief that happened in this market is and especially when especially when everybody was telling, you know, this time is different.

This market is completely different. It's transparent. It's on chain. You can see everything IT. Turns out actually most of IT was not on chain. IT was off .

chain and they we're using they we're using this, hey, half fun being poor, this like sops to get you to participate. Okay, mom, you don't get ancillary or was talking to cramp and cnbc, here's the quote, some like bitcoin in and that's the only one G M i'm going to say because i'm not going to talk about any of those these tokens that my predecessors and others have said our commodity um and then he said many of these crypt of financial assets have the key attributes of a security beside from bitcoin.

He believes, you know, that these things are securities, and that makes sense because ninety nine percent of people buying them sacks or buying them because I want to to see them appreciate they were never using these as utility tokens. They were buying them to you. I see them appreciate to flip them.

So what do you think taxis there is? We look back on this whole mass in ten years. Is that going to be like the doc m era where we're like, yeah, got overheated, but amazon and google came out of IT or we gonna look at and go well, that was two up season.

Well, I I think there is um a future technology platform here with cyp to but I mean, i've been saying this for the last year that just because there is a future technology platform doesn't tell you what the pricing should be and the Price action got decoupled from the level of progress in the space. Know you should always be looking at what is the real usage use cases, customers, revenue, things like that and people stopped doing that.

And I think part of the reason why the narrative was so powerful, if you go back to last year in the chart that trials showed about the the increased in Price of big point, which is really the root of everything, right, because you the first bit point appreciates. And then if you think about IT like a theory um is a theoria market cap is like a derivation of of the bitcoin market cap. It's spin roughly forty percent and then the all coins sort of get the market cap.

The all coins is sort of off off a theorist market cap. So the whole thing kind of moved up in in sink. And the reason why biton moved up so much is that as the fed can printing more and more money, you had fans, a bitcoin saying, look, the fed is debasing the U.

S. dollar. We're get indeed an alternative currency. That was a powerful narrative that the fed seems to be vindicating, and there was a positive feedback p, which is the more the fed debase the currency, the more that the Price of be going went up. Now the reason the Price went up was not because they were debasing the currency IT was because they were creating so much liquidity that that they create a liquidity effect that then drove up the Price.

So customers had money that they could buy bitcoin because there was more money in the system. Yeah.

more fires a bit. Exactly what happened date. I mean, all of this idio, sorry, is yeah you are increase .

in specular investments across the board, including bit on limit to script. So again, you when the fed prints too much money, he creates asset bubbles. But there is a powerful reinforcement because as the food was printing bitcoin and supports a bitcoin, had a really great explanation for why bitcoin was going up, which is they're destroyed.

The U. S. dollar. We're going to need alternative soon. Now I think in the very, very long term, could bitcoin be a non fiat currency? Yes, I mean, I actually think the technology works.

You could create A A new kind of currency that's book by math and by cpt graphs is supposed to see our government, but that could take a really long time. I mean, that could be decades in the future. And but what happened is the market started thinking, well, that's going to happen soon, and that's where IT has got ahead of itself.

That was the tulip part of IT. Yeah, I think that I think that they found all of these words written in these economic textbooks that allowed them, Frankly, to justify what a lot of people were doing and a lot of other markets, which is just straight up speculation, because the money printer was going burr. And you know if the if you look at this ninety two percent correlation to the equity markets, I suspect in bitcoin, encrypt u was probably closer to the even one hundred percent um because he really was the first the south on the risk curve and IT just made the most sense when you thought money was you know effectively infinitely going to be available to just buy the riskiest risk assets.

Think about the friction taken out of the trough. You could buy these, you know, a crypto currency so easily. You could trade them so easily. You could create one so easily. People were popping up forks of these things.

So in a way, what technology has done over the last three or four years, from cloud computing to software to open source, has made IT very easy to pop up a startup. Well, you could pop up a currency and then you could get an incredible reward. And yet this incredible reward before you can make a .

product for consumers and and absolutely zero rules and no other side. Yeah the feature that was touted was actually the first one to get thrown away, which was transparency. Yeah, when all of this activity was actually happening off chain, this is why you have this systemic risk issue.

Now when sand is saying some of these exchanges are actually involvement, what he saying is, well, that exchange has one master wallet address. Every time you open an account and transaction on such exchange, you are actually just transferring between a database century inside of that company. And so IT may look like IT is fine, but IT is actually not fine.

That's what he's claiming. This is the problem of all of us. So all of this activity, you know, built on these principles of openness and you know defensive ability and you know you you can't inflate IT and you know evaluate and debate turned out tonight even matter because the fundamental principal that would allow us to verify all of that was violated right from the get go, which was transparency.

All of IT is happening in the dark. Most of this stuff is happening off chain. And if you think that, you know it's OK to torto trillion dollars of equities, well, at least there's rules on the equity side. But the torch two and a half trillion dollars in crypto where there are no rules, it'll be really you know it'll be a very telling sign to see if these folks get their act together and but meaning regulators and politicians and do something well.

then we made this crazy hybrid where we had the venture community and i'm not onna, talk about any specific firm here. And to be clear, you know nobody knows exactly what's happening.

but you had coins. You can't know, by the way, you can't know, because I was happening of change exactly.

So somebody would originate a coin, and I was offered these deals. And you would, as a venture capital, be buying some equity in the company. And then some amount of tokens would be created before the tokens released to the public, or before anybody had insights into these.

These tokens were swapping around. Everybody had different, right? Some people could sell early. Some people could never sell. And IT was as if, you know, you took the process of going public and you gave that to a seed stage or serious a company before they launched their product. So you're taking a company public essentially before they got you been launched the product.

if you supine of the exchanges, all of this gets turned over because the exchanges are the honey part of of train activity.

Yeah so and that's what's gonna en, I think in all of this and it's going to be really funny, this is and what's terrible about this is this is why the accreditation laws exist, is like only sophisticated people. Top six percent of americans are allowed to participate, private companies. And what did we do? We allowed a hundred percent of people .

on the globe to participate, that less than a thousand people in the world actually understand .

that what could go wrong?

What could go wrong? You get up by stock, but you can buy this script graph ics with scared you're .

not allowed to buy a share of linked in or uber or arb b even though you stated in airbnb, we an airbnb host, your too stupid to buy B, B shares is private, but you can buy this crypto currency that doesn't even have a product in market.

And here's this White paper that has, you know, university level pure math as the explanation of why is nothing can go wrong. And you try to turns out again, because nobody actually understand the first place. This is gonna a decade of, look at, look at that Price shirt.

What IT really means is, like, again, we talked about this, if the equity markets have to rebate and get all this Q T Q E A A bit, yeah right. And then you have to rebate for earnings if you believe you're in a recession, and then you have to reboot for margins if you believe that there's rampant inflation. Those three things have to happen in the equity markets were in the mist of that yeah, but that also has to happen on the crypt al markets in crypto markets. And if you look at that chart, what IT really tells you is that the baseline Price of bitcoin, where things seemed, you know, where rational supply demand, we're beating each other before all these in a five ten thousand thirty five hundred to five thousand.

yeah I would say .

about five thousand seventy five percent from yeah.

twenty thousand now. So yeah, we get could be have ways to go. One thing that I thought was an interesting sign of potentially bouncing along the bottom, and this has agreed to be acquired by an investor group in all cash transaction that basically going private here, uh, for about ten point two billion.

If you don't nose and desk, it's a helped software company is a sas software company. They turned down a similar acquisition of seventeen billion earlier this year. Their market cap is nine point one billion. The public markets it's gone up of sisters announced this was announced, but um they have A A billion three and revenue there are thirty percent year over year. So this is a strong company, but the acquisition Price is seven point seven times there, twenty, twenty one multiple.

Sorry, did you say they're up thirty percent year? The revenues up thirty revenues .

up thirty percent every year. They have one point five billion dollars in cash securities that are the markets are, they are cash rich, small loss, two hundred twenty three million for the year in two thousand twenty one. So they have six years of runway. If nothing where to change, you have really make of the sex is, why would they do this? They don't have do so. And is this to you like the sign of a bottom? If we started seeing a bunch of these companies that went public that are seemingly strong start to go private and to go maybe clean up their baLanced and go public again in three years.

what's going on here? Well, I mean, this is an orrible outcome. And by the way, and I remember we shared when I was doing amor a decade ago, we shared a floor and an office building at four ten thousand with wisden desk. And they launch the tech on shifting yeah.

exactly. So we had.

I think, five thousand graphed and the other five thousand graphed, and we were in a stand off with thus for expanding. And we needed the other half of the floor. And I was like, who had moved for spaceless anyway? They ended up moving and we took over their space.

But so I mean, like this is a company that was worth one hundred million six, ten years ago. So whatever IT was, I mean, they were still here. They were very early stage.

So this is still a great outcome. Should they have taken the seventeen billion? Sure, with twenty, twenty five side, that would be Better.

But look that you're seeing the valuations here being roughly reflected. The sass index is now down to about five and a half times revenue. I think next twelve months, revenue for the for the medium SaaS company and the medium SaaS company is growing about twenty percent. If you're are a high growth company, which starts at forty percent, you're trading about eight times next twelve months of revenue. So then as the sorted in there, I mean, that is what they're trading for and that founders.

why I got why would the founders, the board want to go private is the question on people's mind .

is not that they want article private. I think that they wanted to stay public and they wanted to build a large business. But this is where the law of large numbers catches up with every company.

That's why it's so rare to have an apple or a google or a microsoft or facebook or netflix where you can grow for twenty years and twenty five plus percent because at some point, twenty five percent growth over last year just becomes too hard of a mouth is a big night. And so what's then that suffer from is what most of these sas companies not and i'm not trying to disperse them, just calling IT out. We'll have to go through, which is the following. The easy is kind of sas company to start. And the one that folks, you know, really talented investors like sacks, will fund overwhelmingly over others, or what's called bottoms up, set right, things that sell to the low end of the market, things that sell end to as .

individuals can buy them in a corporation as supposed to the C I O.

Yeah the the unfortunate part of that growth curve is that it's pretty terminal within seven to ten years and after that, you're forced to go to the mid market and that eventually you're forced to go enterprise.

But when you go to the mid market and you're selling to five hundred, you know, one thousand, two thousand percent companies and then eventually have an enterprise, you're talking about massive investments of objects, people, engineers, product manager, sales people and all of that stuff cost money. And it's not clear that your product is any good. So in the then that's examples, it's not to say their products for bad, but all of a sudden they were going up and selling A C R N tool, sales force automation tool.

And now you're going head to head against companies like sales force were going down market and all of a sudden, sales force and microsoft and all these companies can play very aggressive pricing games with their products. They can bundle all kinds of other things in for free. They can give you discounts, and it's very hard to compete as a single individual company to your growth starts to stall.

So I suspect what happens in desk is they said we can make IT and we believe in ourselves. And they found that IT was hard. Then instead of organically growing, that's when they turned down the seventeen million dollar offer, they try to grow in organic. They looked at survey monkey, right, which are friends and runs and said, we're going to try to buy that before point one billion dollars and the market said, uh, uh, no.

And then the market basically contracts and now they're like, well, if we go and now torch are ebata goals and tell the market we're going na go and spend all that billion dollars, we have to try to go up against sales force and microsoft with the product that we don't know is going to work our socks gonna at a dollar. And so I think that, that sort of the the parade of terribles and habit them, but it's a little bit of a warning sign for how difficult that is to get big, like what sales force pulled off, right? And what work day is starting to pull off, what service now has pull off? I mean, if you can't unrested mate, the quality .

google faced .

companies service now probably being the last one that's really did IT. incredible.

So difficult. Polo alta network is organically .

and organically doesn't matter. The point is, is very hard where most C. E S. Failed nobody.

So this going, but okay is so my original question is this the bouncing along the bottom moment, we have so many.

this is a warning sign.

okay? There's why yet the time?

Well, this is a warning sign that says you cannot go into a massive investment cycle for all companies unless you can prove that you can sustain margins, sustain growth and minimize apex.

But isn't this a very sophisticated buyer taking a private? They must have a thesis of how they're going to get their money back, right? So that's my point. Is sexy. You think like that this is like if if the companies already public and somebody thinky, you know, if I take this private, I can do Better than if it's public and i'll reintroduced to the public .

Marks to get liquidity later isn't it's .

gona happen here and given almost so. So what about what about .

the the billions of dollars of death they're going to take out and slap out in this company, right? What about the number of people they.

me.

you post going private? At the end of the day, the private equity firms are not trying to make, you know this ten billion dollars go to twenty five. They're trying to make the two billion evaluation they put in go to three. And there's a lot of ways that you can go to three before ten goes to twenty minutes.

So they want a modest return and fifty percent return.

And so what it's like making a billion dollars, it's hard.

Yeah but but compared to the manage of team in the boards view of being a public company and growing twenty percent a year, which actually the case thirty, would that be a Better opportunity for those shareholder that's end up your .

what if I had to guess, i've haven't talked to Michael about why they're doing IT. I think that they're Operating at a new stage of the business. I don't think it's as fun to be growing a company at called twenty to thirty percent a year and all the sun you have to generate low and you're being valued on that. I mean.

there S I don't know. I mean.

IT seems this is I think that's .

basically .

why people sell good businesses like I actually don't think there's a problem in their business. I think. Growing thirty percent a year with one point three billion in revenue, plenty of cash in the bank.

I think they have a good product. I don't think there's anything wrong with the business. Ah I think that that I do think founders get burned out and this isn't exit. And I do think that the face of their business in right now is not going be as fun as a high growth face.

Look, when you're growing one hundred, two hundred percent a year and investors are willing to fun that growth and then really care if you're profitable, that is just more fun than growing a business twenty or thirty percent a year and investors are breathing your nexi when you're going to deliver cash low. And what the private equity guys do is they're going to go in there and they're onna restructure the business to deliver cash flow. Now I think ultimately, these types of businesses, they are great.

These often business is there are great business zone because they are high growth margin. And you know, they've got a suggestion base that this keeps growing organically, ally, they've got positive net dollar attention. So you've got a let's call IT at one point three billion dollars description base that will grow to two billion over the next, whatever, half dozen years. And quite Frankly, I bet you the private equity guys, as you're going to take out a half the cost structure, this is a reason this thing, can we be generating five hundred million a year and free cash low.

but the manage team would be unwilling to do that because this would suck, the kind of suck to do that every day to come in, inspire half the team that you hired and take that hard medicine IT. Just as a bummer for that. I think type I think that is .

a different of management chAllenge. And yeah, I don't think fun. And but look, the thesis behind software companies, the justification for them burning money was, look, we're we're going to spend every dollar in revenue that we make.

And then some because we're building a subscription revenue base that IT again has positive that dollar attention. So one day, okay, one day, we won't have to keep investing so much in sales and marketing. We won't have to keep investing so much in R N D, will still keep investing to some degree, will make the product Better, but it's going be a bit more maintenance.

But we will get to maturity and we can .

lay off a third of and be super profitable. And the fact matter is, is that they never came because the markets never demanded.

Now that here .

no IT never came because the markets kept demanding more growth. If you look at their long term Operating margins, you know, when they first when they first came out public, this i'd like had like a negative thirty percent margin. Two years later that a negative fifty percent margin.

And over the last seven years, so that was twenty fifteen up to now, they crawled their way back to negative thirteen percent. So at some point I think investors said, oh my gosh, this company has never made money. IT needs to keep investing more in order to grow. And I think, David, your point, maybe the decision that he didn't want to make was to flip the to a cash cow.

I don't think that's true. I looked at um these guys have been generated in cash. The reported gap earnings are negative because of the stock based complex and meaning that they're issuing there a big and I think actually worth highlighting.

This is an important one because people have been talking about this considerably lately. So this companies been making money every quarter. They generate cash. But in the last quarter, they issued sixty million dollars in stock to employees to compensate them for the work that they do.

So that's two hundred and fifty million, roughly of dollars per year of stocks base comb, which is two and a half percent of the total shares outstanding in the company, are issued as employee comp every year. That number results in a delude effect of shareholders over time, even though the business is generating cash. Your relative otherness as a shareholder, a business of generating cash is going down by two and a half percent every year because of all the new shares are being issued to compensate employees for the work that they're doing.

And I think that's part of the issue that a lot of folks kind of have taken for grain of this was well rooted in. Um I would say probably google who became very generous very early on with issuing R S use and stock in their publicly traded securities to employees as part of their compensation package. But google has a thirty forty percent eba margin in terms of incremental contribution of new, new revenue.

And um they can afford to take A A point or two of delusion. Google, by the way, is actually not delude of they buy back shares with their extra cash. So um as a shareholder, you actually benefit from this considerable catch generation. But a lot of a software businesses and tech companies in general have had to rely on issuing shares to compensate employees for the work that they do. So even though the core fundamental of the business is generating cash and cash is going up every year, the business doesn't know how to get out of the cycle of how do you pay these engineers four and a thousand dollars a year without deluding shareholders by issuing all these new shares every year. And you'd have to do that more likely as a private company, to figure out how to consolidate earnings, how to trim headcount is to get the generate because a free break.

Isn't that a real like you're pretending like it's some fake costs?

Yes, not it's it's a real cost. It's a cost .

to for why why the astros s well.

no, there's A A specific reason because the business itself .

running on a cash is not burning cash. The business is growing its cash baLance. But in order to compensate employees for their cash baLance, they're dealt ting you .

the shareholder, right? Hi, look, when you own a share of the company, okay. Let's see.

The way is another way of saying that the company is effectively issuing two and a half percent new here to fund its Operations. I mean, that's another way to think about IT.

Look, i'll give you the warm about school, and you can tell me that it's stupid, but I kind of make sense, which is you take the number of shares you on, you divided by the total, the number of shares outstanding, you look at the total profits and you say my look through earnings equals that percentage times the total profits yeah.

your percentage is going down every year.

And so the and so the question is, is also going down because you're buying real estate, you're hiring people, you're paying them more like it's going down for whole host of reasons that a strict is an irrelevant astra ts in something like yeah and of the day you spend money to grow, how you spend the money .

is not that important to me let me two quick things on the topic is yeah I told ta legree it's an expense on enterprise software and sex you're the master of the art but um you know as an observer IT seems to me that many of these companies once you have an enterprise account, you benefit from being able to cross sell new products into that account and you can grow this net revenue attention number over time and ultimately generate cash.

Many of the big enter Price software companies that we've talked about from sales force to work day and others have succeeded in doing that. Auto desk is another good example in carl bus, I thinks, on the board of the desk. They've done they've done this successfully by bulking up their product categories.

And we've done acquisitions or they've done build out. And so over time, your incremental cost to uh to to to sell A A new product and generate um incremental gross profit is down and the business performs Better with scale. This seems to be one of those businesses were ultimately, they couldn't bulk up the requisition and they couldn't organically products and they tried. And so the chAllenges is they're kind of A, I don't want to say, a one track pony, but the portfolio things that a business like this can sell into an ultimately increase across profit is very limited and that business becomes chAllenging to Operate as a public company because you really do have to show that momentum as as a scale enter Price of our business that you're actually generating real cash over time.

Everything I just want to say in stock based comp and and starts, I look come back and once like but you and you guys I don't know if you realize this, but the standard in silicon valley today um when a company goes public in an IPO is to have what's called an every Green stocks grant proposal um and every Green um basically means that every year the company is authorized, the board automatically authorizes the issuance of some percentage of new shares per year. This is typically in the range of four percent and iss and other you know kind of institutional shareholder visor services actually vote against these shareholder proposals and push back against them. But most of the companies in silicon valley that go public automatically include every Greens as part of their kind of I P.

O. They can delete shareholders by four percent. And you know of how the business Operated that year, which is effectively the same as doing a four percent secondary cash offering every year because it's you're issuing those shares into the public market and the instead of getting cash, you're paying your employees with them.

So IT avoid you having to use your own cash baLance to pay your employees, so you're effectively raising money every year and you're allowed to raise up to four percent elude effect shareholder to do that every year. And it's become a real topic. And IT seems to me that a lot of the big portfolio managers of big institutional funds, we're starting to pay really close attention to this court on court standard and silicon valley that stockings complex.

Pense has become so high and every have become kind of a standard as almost like an ordinary course of business. And it's become um you know a really contentious topic. And I don't think that would be too surprising. Number one, to see cash salaries go up. A number two as a result of that, to see salaries become rationalized and looking valley where engineers may start to get chAllenged on the standard four caper year that everyone to become used to um you know in terms of a high .

tear you know mote work, maybe there is a compromise that could be. But this compensation, you have to remember, has been outrageous in some cases, especially for senior management. And so IT makes the core business look broken.

But what you actually have is maybe people who are on these boards. Are also in on this compensation. And it's just bad hygiene and it's not related to the performance of the company, right?

I I don't think the bored people are quote in on and I think that it's just you have to pay an an engineer for R K year to compete effectively in the little valley today.

More about the management, the management stock comp, the management stock cop is different than the engineers. You would agree very.

very like there .

been some if you want to run the company as a high growth startup with employing these hype ID engineers and executives, including stock compensation, that is a certain kind of way running the business. But again, if you're trying to run the business for profitability, that's a different way running the business.

And just add a layer to what happened here that sendest was under intense pressure from an activist investor called jena, who is trying to replace the boarded directors, are running a proxy battle against them. So jane has been pressuring them to replace the board to make all these changes, to take the seventeen billion dollar offer. I guess, back in march, they didn't do IT.

Now they did a lower offer a tembile. And why I think because the market has clarified, we now it's it's clear that we're in this regime change what the market is valuing history, free cash flow as opposed to profit tss growth. And my guess is, again, without him, talk to michele.

My guess is they tried to strip their arms, said, listen, you know, like it's not going be fun to run the company this way. But you also have you have to ask a question, why are these highly sophisticated private equity firms buying IT for ten billion? I think they're going to make a lot of money.

And the way they are going .

to make a lot of money.

they're gna slash the out the cost structure. They're gna run IT to be highly proffering. They're probably bring the growth down from thirty percent year at twenty percent or fifteen percent.

But the benefit offsetting benefit to reducing the growth little bit will be they could probably generate three, four, five hundred million a free castle on that business if is doing one point three billion. And they stop investing in R N D. And they stop and they bring down the cells of marketing that be that could be a cash cow, like you said. So I think that's ably what what's going on here .

um is I you guys know not the best bubble, but when people talk about free cash for they toured in a lot to companies, told him a lot because you're allowed to add back in stock base comp as if IT didn't exist. The problem is that stock base compass non cash. So when when you're only source. So if you see a company that has negatives but net everything all of a suddenly like quote on quote, free cash for positive, it's because they were able to add back in stock based cop, but that money is not real. So when the only source of free cash stock based comp, that free cash flow doesn't reflect the company's true profit ability. This is what I mean by people play these shell games with these numbers to allow, you know o let's know, value you something based on you, but actually know, because you know, our stock based compass of the charge, let's actually go to something else, you know, will do a non gap, but to measure, you know, you know, adjust the but and then, oh actually wait, sorry, look at free cash flow because you can add back in this garden to an amount of art base comp. I mean, it's crazy how just a the code from warm buffet .

but we work the .

code from warn buffs summarizes the best if compensation isn't an expense, what is IT? And if real and recurring expenses don't belong in the calculation of earnings, where in the world do they belong? I think right.

my point is, is not that compass in an expense IT is but rather that it's an expensive you can control by reducing them on the staff that I think these five equity guys organic basically wax the cost structure.

saying you can distort free cash. Los had back in stock with compute a joke.

It's a little bit of shell game going on. It's like the dirty secrets.

Let me ask you and like an important investing accounting question, let's say that a business like um zen desk is generating a hundred million dollars of free cash a year. No, no. What does that mean? hold.

So every year, the cash baLance goes up by one hundred million dollars. They have a business that generates one hundred million times of incremental cash. Every year, the cash baLances goes out.

So you was a shareholder own shares at a company that is creating a hundred million dollars of cap of incremental capital per year. However, your shares that you own are going down because they're getting deluded. Every year by roughly two and a half, three percent. And that is two and half percent is indexed ual number. So every year, you're getting deluded by two and a half percent.

Would you rather have a business that you are getting deluded by two and a half percent, but it's incremental, its overall baLanced by one hundred million dollars? Or would you rather own shares in a company that's burning cash chair? And I think that's where this ended up from a market perspective, getting rationalized. Its shareholder said, I want to have the sixty and security of cash generation and i'm willing to take on the delusion for IT and that's how this became. You know.

as standard as IT is when I think about funding a new sort up and I look at the competitive landscape, when I see that the competitors have all been acquired by private equity companies, I generally think, okay, there is room for innovation here because I know that the first thing that P E firms are going to do when they acquire company is like a zero out R N D, or just put the product on maintenance mode. There's no innovation that happens with the product once A P, E first buy, buy a right. So the real dies.

I think so there is a good targets .

for short of acquisitions.

right? Sex, I mean, they'd you rolled ups, right? Because they will do financial innovation. They will innovate the structure, the business.

wilful spending and all the answers.

And lunch is exactly.

say, once cut out all the kind bars.

the wild thin.

the vegan st trip this stock with compensation to .

go away because are going to get .

rid of the high Price engineers. They're going to get rid of the allow the high Price executives. They're going to probably they are going to have to keep customer support.

They are going to use this cash salaries.

Probably they're bonus people there is do bonuses for hitting targets instead of giving people's much equity in the business. And we'll run IT like a you know private equity type type play.

I see the sex.

It's not fun. It's not interesting to right.

Yeah, I mean that I mean, the other I wouldn't .

be fun is like it's it's a level of financial engineering, which is highly sophisticated. I think for some people, IT is fun. I think for us, it's less fun because creating company for a product, product.

But I would .

say that .

IT is highly sophisticated and the folks that do IT at these places that these private equity firms are incredibly the saying they do. And it's it's all the twist in terms of how you, you know lever this up and use that and blood and use a margin loan and prefers D I an. And it's not the stuff that necessarily we want to be thinking about, but those that you'd have to do as well.

I totally agree that. And look, i'm i'm happy they exist in the ecosystem because we need firms. We need more exists, right? And we know that right now, washington, the the regulation regime is very difficult, very hard to get deals through. So at least you have private tec reforms are providing some exerts and we .

need the ecosystem needs and those exit or things x don't trigger like competitive concerns with lan and private took private OK sales. Frost didn't buy IT. So we don't need to get through regulars.

You're going to see a lot. We need exits in order to justify the risk capital that goes in at the earliest stages, which in most cases going to be a zero.

And interesting, give you some other numbers out there. Landscaped, which is a capital raisers for guys. Uh, they had three hundred fifteen million in net lock in twenty twenty one, three hundred ten million in stock base com.

By the way, that number can also be distorted. Just to be clear, if you give a one time big grand executive like a CEO the way that the accounting works on stock based comp, it's not the kind of thing you can have a very simple kind of description on, but you can have these very significant short term costs associated with a big granp that could best over a long period of time that has very high strike Prices. I mean, when you on got that massive grand a tesla, the stock come expense was significant, interesting. But that was there were .

twenty targets or something crazy like that, and all of them were based or a lot of them were based on the stock Price and the delivery of cars. So that's one of the things that I think is broken. yeah. So this is one of things that's broken and slow and value is that the cop in the stock base comp is not tied to performance. It's like just giving people guaranteed salaries.

People there is more sophistication, to be clear, in executive cop in public technology.

I think that a trickle down to the junior people too, I think everybody should rise and follow the company's performance. That's my personal feeling. I mean, this is the problem with entitlements and people being entitled to start to be like red pill tier.

But we should have like performance should be loaded and compensated for not just showing up and hanging out. There's a going to be a bunch of companies in this position. So look for this as a trend.

paton. Nine hundred sixty four million last quarter in revenue lost hundred seven million in the quarter. They have a three point one billion dollar market cap.

We've only got eight hundred, seven, nine million dollars with a cash. And just looking at these numbers of the there, they're tight um and they have a billion foreign inventory. That company is going to be a taken out uh bus feed.

I don't know why that even went public. They are down eighty four percent, ninety one million media company, ninety one million dollars in q 1 revenue。 They forty five million.

Their market up is down to two hundred and ten million and they've only got seventy four million in cash o so hundred years after. So there's a bunch of companies right now that public that are about to hit in a couple of quarters running out of cash going into a recession. Are we going to see some big flame mouse, you think? And are you watching specific companies? Because the private equity folks must be salivating watching this.

Well, I may look how you asked what the takeaway was around this. And I think the takeaway is there's been a regime change in the public markets. The way that investors look at these companies is changing. It's not about growth at all cost anymore. They're not just looking at revenues, is also about margins and cash flow.

And know we talked about in the last pod how I think a lot of founders understand instructions that we're headed for a downturn, uh, if not a recession, but they weren't taking the medicine of basically reducing their burn. Well, this is an indication of what investors are valuing if the only way for them, us, to create value as a public company is to sell to a private equity firm. Who's going to matt? Staff is going to cut off or some huge numerous staff to run up for free cash low.

That is an indication of the regime change. So you know, we need founders to start internalizing this information so they can run their businesses more efficiently. You know what investors want right now? They still want growth, but they want IT with low burn. High burn Operations are going .

to get punished at transition. Most of my public markets time to focus on dead. Um and i've been looking at these companies because now because there is a lot of these really interesting tech companies with a lot of people because what David said, I think is one hundred thousand percent right but extra said there is a massive, massive regime change here and shopping .

if you don't take the medicine and and what .

what's funny is like so many of these companies have been left for dead. But what has really juicy is the few companies that you think will survive and specifically making sure you're protected in the capital structure, which means to own the debt because the debt is always senior to the equity. And there's some really, really interesting companies out there that are in that situation.

And it's just like it's a much Better risk reward in a moment. We are again, you know we talked about this, but why would you give up your liquidity today? I don't know the answer.

Why what you use this term, Jason, before like skipping along the bottom, I just think it's like psychological wishful thinking and opposed to sort of like a rational semaine of the actual drone power. He said I will take the economy in order to beat inflation. He just said IT in the last street journal oh.

but people believe inflation might be turning over you by that or not?

No, as i've said, I think you're going to see eight and nine percent inflation prints for at least the next three or four months minimum. I think that things could get um marginally Better after that, but I think the thing we don't know and again in this touches and I don't care with the fuck in audience thinks touches russia and ukraine. So sorry, bring politics are interacted. And if people want to go in venture and gamble in the stock market, you might as well understand this because I think you many of the scenarios will trade because of what's onna happen with putin.

Let me ask a question here. How many quarters will this recession be if we had to pick, arrange, pick a two quarter range? I'm taking three to five.

what? What do you think? I have no idea. Okay, freeburg, you got a, this is the second.

How many quarters plus or minus two, let's say, uh, is this recession going to be so? Five plus, R, R, minus two, four plus or minus two, plus or minus one? What what are you thinking will be the bottom point if I .

don't like the term I told you guys, I don't like the term great recession as if it's some absolute negative thing. I mean, negative GDP growth coming off of inflated GDP doesn't feel to me as systemically chAllenging .

to be .

economy as you know. But some other circumstances, for example, there was a global financial crisis or uh, nine eleven or some other are kind of factor that that that drove things uh, that that really affect in the core economy. We're certainly we had we had something that that effect of the core economy and covered than we had massive stimulus.

So I I know I think there's unfortunate general characterization ation of quote and code recession being an absolute negative. And I think that there is relative growth. And if you're w if your relative growth is negative off of an inflated number, but over up, so let me go let let me just finish IT.

Over a historic two or three year period, you're still growing the economy considerably because jobs uh jobs are growing and production is growing. Ah it's not as negative as it's being made out to be. So I I am not na OK.

I get you. Let me see this way. How many more quarters will we have of stocks and real estate and assets declining in value or being flat?

That's a financial markets question, which I different one. And one thing i've realized is that financial markets in the short term, uh you, the old warn buffet, quoter, whoever is that over the long term, equities are awaiting ing machine. In the short term, the voting machine, as we've seen with crypto IT was a voting machine that everyone voted on.

The the hard thing is your and now everyone's voting against that, I don't know weight IT. Now yes. Well, yeah I mean, it's something you hold the cypher currency long enough, you will find out how much fundamental productive value it's and the same is true owning businesses or other real assets, you'll find out over the log run how much productive value you're creating. So, so.

so the question of when we hit a floor, okay, sex, when do you think we hit? Are we hitting a floor? Now we have a lot more to go down.

Tell your point of you, I am looking at buying high quality of business is buying shares of high quality business right now. So I think that there are things that, that are cheaply Priced. I own them for a long enough period of time. The underlying productive value of that business will return my capital to me.

You have one that you might want to mention here that you're looking.

I share some tips at the summit with our friend Sunny, who is his trades are up. But like I told him, these are longer term trains.

That's what do you think in terms of and they will go to some of the political stuff that affects markets after this.

Well, I mean, I think it's all related. So there are three things going on here right now economic. There are three underlying causes.

One is rate expectations have changed massively, interest strates have gone up and great expectations are go enough, even more fuel by inflation. And until we see where we're at on inflation, whether that gets controlled, that issue is not going away. The second big issue is economic slowdown, the recession.

So the first one, wall street, this is main street, and these two things are related because companies are laming on the brakes because they're seeing that the couple availability is greatly getting reduced by this rerating, the regime change in market. So we're seeing economic slowdown. The threat to turn into a recession in consumer confidence is part of that, right?

When your wages don't buy you as much because food and gas Prices are through the roof, that reduces consumer confidence and that also places into that. So that's the second big issue. And I don't think we're gone to know about recession.

It's going to take, you know potentially through the rest the year before we figure out what's happened there. And then the third part of this is the overhang of this war in europe, the ukraine war, which is now threatened to become a forever war. There was a pretty stunning article in the washington post this week in which the administration officials were quoted as saying that they would effectively prefer accountants was their word, a global recession and fairy over letting russia keep the damask region.

So they are committed now to basically trying russia out. The downside, even if IT means global recession. Not to me.

They say specifically, the domes are specifically standing up to putin. That's minims know we're talking .

about is is the domain region. What's happened is, look, the russians lost the first few weeks of the war in which they tried to start. They basically went for a knock up blow to take over cave topples linski. I think we accomplish something in preventing that.

But since then, they have achieved their objective of taking over the eastern portion of the country, this dombes region in which this is where most of the ethnic russians live, and these ukrainian separatists, who are ethnically russian, they've been fighting alongside the russian troops, and the russians are basically won that part of the war. And so the question is, what do we do now? And what you had is you had administration officials saying that they would not accept this as quote, that they are willing to fight on for years.

Know the same genius who gave us the forever war of the middle east are now giving us the forever war in eastern europe. And they are saying that they are willing to basically continue this fight, even if IT means global recession. Now, I don't think the american people ever voted for this, but this is what the administration is pursuing.

And you gotta a remember that there is always the rest of that. This word spends out of control, that we get a nuclear escalation. So I think that this is a huge overhang on market, is a third big problem that we have.

So I don't see how we get out of this bear market until you get clarity and resolution of inflation and rates. Number one, slow down a recession. Number two, and basically this war in europe.

Number three, and it's reflective because, uh, these next three months, as I as I kind of indicated last week, I think we're going to see inflation, uh, prints that are really high in part because things like rents, which haven't you know which are on the leg, will get folded back. And so we're gna be printing eighty nine percent. And then guess what, Jason, is the fall IT starts to get older, you know uh russia depriving europe of nt gas.

Um where's the oil gna come from? Oak is basically still stiffing the united states with respective expanded production capacity. why? Because they didn't like the way that we were strong arming them in a home. Bunch of other topics in, you know.

And so where where do we stand? You could have one hundred eighty dollar barl loyal by november, december, when it's cold, not just here, but in kind of europe now of a sudden, inflation gets kicks right back up again. IT could be seven, eight, nine percent again.

I saw. I just think all of these things are now. So an extra ban or time. I think David is right. We need to put this war to bed. And the unfortunate consequence is that right now, if we want to fight a proxy war, there is no elegant of friend that I see. So the prediction markets .

to have people know are are predicting point eight, point nine percent. A additional inflation in june over, and I think that's over last month and last month was eight point six.

So again, be nine and a half years. And could you imagine what the markets do if we print a double dig inflation, print ten and a hf ten point one? Just the psychology .

of that well, consumer psychology .

is really low right now.

No, not consumer jinking. No, we put those two things together. And if ending and the famine that um and the impact on forty million people or something like that that freeze g predicted is actually going to happen in the next six months ah this is going to feel quite chaotic to people around the world. So we do need to put this word to that for sure.

There no o on the table right now, but the deal that we've talked about on previous shows there is always the broad construct here. Even before the war began was there were three pieces to IT. Number one was that that ukraine had to remain a neutral state, as opposed to being brought in to nato and having american troops, weapons based on russia's border.

That was always a red line to them. And in exchange for neutrality, ukraine would get security, guarantees peace. Number two was that in the eastern region, when you have these russians, these russian speakers, that their rights would be respected and that they would have some autonomy.

And again, that was something that ukraine agree to under the minsk cords, but I was never properly implemented. And the third piece was that russia got to keep crimea, which again was a fata company that happened in two thousand fourteen. Smart service in this conflict have been outlining that three point plan for over a year, and that is what we're going to end up with.

The only difference is that can be implemented by force and ukraine will be destroyed. The process that is basically where we're out right now. Russia has they've taken over the domains theyve, taken over the eastern twenty percent of the country.

They have crimea and ukraine. Basically the rest of bit will not be part of nato. That is basically what the russians have done is implement by force a plan that, Frankly, we could have agreed to through negotiation a year ago and avoided all this death destruction my.

my.

me maybe I mean, don't know putin intent and that's that's the wild card. Here he is a bit of amendment. I mean, he's pretty a much of a wall car here. He's addict who invaded another country .

yeah my my calculus is slightly different. I think I see two things in order to get us back to a state of relatively predictable growth and Price stability. Number one is we need to reset supply and demand by taking thirty trillion dollars out of global markets.

And in the second is we need an off frame to this ukraine russia war so that there is predictable energy and food supply to the world so that folks can just get back to what they do best. And if those two things can happen, then the markets will have found the bottom um but until those two things happen, in my opinion and by the way, the first thing doesn't actually have to happen entirely. You just need to see a path for IT.

And you know where the only one that's doing quantitative tightening right now, the E C B, hasn't even started taking all these crazy money out. You know, I don't know when the bank of england is going to do IT. When is, you know, the bank of japan going to do IT? So this has to be a global corporate effort before we find the bottom, and this war has to stop.

Go back to this unpractical madman narrative. Jason IT, look, if what you're trying to her.

yes.

if what you're trying to say here is that putin bears moral capability, moral possibility, the blood is war, I go with you on that. OK. Ver.

you're not and he's person .

bed just like. But the idea that this war was unpredictable or could not have been predicted is simply false, because many experts did predicted, and they did tell us exactly was gonna happen.

And the reason they know was gonna en is because russia has been saying since at least two thousand eight when there was this books summit and declared intent to bring ukrainian nato, the russian has been saying that is a red line and russia expert buyers own CIA director, a guy named bill burns. He was then, or uh emotionally to russian, he wrote a memo then sectors say counties are rise. And what he said is that the idea of bringing expanding nato to ukraine was a red line for the entire russia lead, not just putin.

So h and if you go back and look about what other russian leaders said about nature expansion, gorbachev said that was humiliation to russia. Yelling was against IT. They've all been against IT.

And so biller nes warned in two thousand eight this was a red line. And the russians been saying this is two thousand eight, and they were saying at all of last year, if you go look at contemporaneous headlines describing the tensions between the U. S.

And russia, this is the headlines of articles I can provide. A nick put on the screen. They were saying this was an absolute line for them. So the idea that this conflict was unpredictable.

because who is a madman, listen, you can call me dict t is that china considers, you know, taiwan to relegate province like, yes, dictators. You know, we'll tell us what they are going to do. The question is, does the free world want to stay end up to dictators and so wow you know um it's messy to stand up to a dictator. The west, you know kind of doesn't have a choice to stand up to dictor or else they will roll into other country's history has shown that so as messy as this is and as terrible that is for the economy, I do think that we have to stand up to dc.

There are plenty dicers we work with.

They are not invading other countries. They're not invading other countries.

That the difference here, sex.

you giving a bit of a pass here. He invaded the country. We must stand up to dictators who invade .

other countries.

Well, I mean just america. I mean the free world.

Yeah, well, look, look where you've got us them with this policy, you and the people who we could have avoided. Yeah, because you are basically spouting this this nonsense that, look, the question, stand up to .

dictor to invade other countries, I think .

would agree that a good .

idea and talk.

let us discuss OK free. Listen, there's no question that russia has been the aggressor. But the question is, why do they do this? You don't really have a theory on that, Jason, except that you believe that on february twenty four, putin woke up and went nuts.

That's basically your explanation. What's happening in the world if you're on the part, many types, every.

every president from billon to obama who has dealt with putin has written largely the same account of him in their memories, which is, look, they know that he's a thought. They know that he's a dictator. However, they always said, they always said he's very business like he's very direct.

He told them what their issues were. Okay, putin was very direct. He and biden had a summit in june of last year.

The russians been very direct. Your attempt to bring ukrainy tanna o is a red line for us. Why is a violation of our security interest?

The idea of bringing a country tonnato IT has huge security externalities for them. By the way, we understand this. Another context we understood in the context of missile crisis. We didn't say that cuba had the right to join any military alliance that IT shows to because we wouldn't be able to sleep as well as at night .

if cuba had nukes pointed at us with a first rike of building.

I would table addition until the war. So I don't know why we need to basically deal with that right now. But listen, we do even have to go back to the cuban missile crisis right now.

Okay, there's a country called the Solomon on islands about three thousand miles off the australian coast. They entered into a deal with china's security deal, and the U. S.

Been up in arms about that. So, you know, and the reason is we don't want china extending its footprint in asia. okay? So we treat that deal as having a security externality for us.

And yet we refused last year to recognize that there be any security externality for russia. If we brought ukraine tonnato, the russians were abundantly clear about what they needed. So my point .

is this party.

yes, my point is this, that this war was easily avoidable through the use of diplomacy. The administration .

shows you never know that. You believe that. You don't .

know that.

If you don't know that like that.

it's worse than that, Jason, because here's what happened after the june sixteenth summit engineered between putting in biden last year. Okay, putin tells by into his face this is a red line, as they've always said.

So what does administration do? knowledge? Do they not negotiate with the russians? They invites the linScott, the White house on september first of last year, and then, honest, then on november tenth, they published a massive ten year charter agreement.

This was a huge finger in the eye of the russians. And on the heels of that, november to change agreement that russian basically delivered an automated into the us, demanding a writing guarantee that ukraine not join nato. And then in january, blinkin was tasked with negotiating with love oh, and blinkin said, there has been no changed.

There will be no changed nature. Door is open and water main open. This administration was incredibly stubbing. They were absolutely fused to use diploma to defuse the crisis. Now you say, well, we can't know what what i've done well, but the point is they never tried.

Is the ukrainian sovereign country? Yeah, they are to pick what they do in their fate.

Look this, to pick .

their fade as a summer country and think you would agree.

Yes, I well, here's the question is what you're trying to do and is create a doctrine, okay ay, you're trying to create a new doctrine that a country gets a join whatever security alliance they want, whatever military alliance they want. That is not a doctor we believe in when IT comes to som in islands is not a doctor we believe in with respect to cuban, the cube missile crisis.

And the fact the matter is, is that the nations, the world are engaged in security competition. And the if if a country like ukraine joins a new military liance that has huge external alist. And so we do not believe in that doctor. And Jason, this is a doctor that did not exist until february.

We don't believe more people should be able to join nato. While sweden, we clearly believe that.

but this doctrine that the countries of all people to join whatever military alliance they want, that is not a, that is not we do not practice that doctoring.

That is not a doctor we believe in.

Cuba and the more recently the form and islands.

Okay, yeah, I mean, listen, I i'm not saying this war is not a mess or words tend to be a mess. I'm not saying we didn't try to resolve IT with everything we have. I do think the people of the ukraine, you know, get to pick their fate and and .

I am in support of their fate.

and I am in support of the of nato being stronger and stronger and a favor of isolated putin using diplomacy as the primary tactic to do that and maybe of control because you want to stop at one. I think that's the the big question, I think is really stop at one. Do you think you'll stop at one country?

He has proven he .

won't you want to stop him?

Then you just say that you want to use diplomacy is the primary tactic of we agree on that. The question is what you're willing to give up because the administration was not willing to engage on the key russian concern, which is the admission.

Let me ask you, do you think russia will stop with ukraine or domus? Do you think that's actually a soap point for putin?

Listen, I think there's a few ways to come out that question. One is to ask, what is the motivation, which is very hard to know, exit inside points head. okay.

So the second is one of their interest and the third is one of their capabilities. The capabilities of question is pretty easy to answer. I mean, they've had a very hard time winning the swar. They've won this eastern region of the downtown because I think why?

So why did they have a hard time?

Well, because their military capabilities are obviously not .

as greatest people thought. And ukraine got .

a lot of weapons from the world. Exactly, sten. I've said that before the e use GDP is ten times greater than russia.

And you know, economic strength is the foundation for military ary strength. Moreover, we've ve see that these nata weapons are incredible. The U. S. web. I mean.

it's so you're in support to provide a weapons to ukraine, nato, the eu, that the european country .

is favorite of creating a forever war in eastern europe that is missing what's in the cards. But the question is, Jason, you just said that we have to essay putin. We have to deprive him of any of any positive outcome .

from this war. No, I have to stop from invading countries. That's, well, we stop and from .

invading more countries that a lot of .

countries that are not need. So I think I think that's the thing. But I mean, we discuss this a million times.

I think we both agree. We out the word end. I think we might .

just question is what are willing to do to end the war and you my point is this that that is what is putin .

willing to do to in terms of starting wars, innovating of the countries, and what does the west have to to react to that? You know, I think that's what we're talking me about here. We didn't start this war, you know, but anyway, let's move on.

I think we have started this war, but we failed to prevent IT through the use of diplomacy. That's always in my point.

I think this I I think this was .

easily preventable if we had listened and action to see easily. yes.

OK, yes, i'm sure I just tell you right now.

the deal that would end this war is the same deal that was on the table last year with zero blood shed, which is ukrainy, remains in neutral state. There's autonomy for the russian speakers in the dog bath, and mia basically remains part of russia. That was the deal.

That is the deal. That will be the deal. The only question is this, the whole country, if we destroyed .

in the coming months and is the .

world have to go through global recession and famine?

These are big questions. Ah yeah it's not the sacrifice that takes the standard. Dictators is very significant and especially once with nuclear bob s and IT will be even worse with taiwan. I mean that if we think that this is difficult, can you imagine this kind of escalation tion with a capable adversary of russia is not super capable and their weapons turned out to not be a strong my god, what would taiwan look like?

Did you guys read the story where um IT was the deputy foreign minister got demoted and there was all this um speculation, like why did he get demoted? And one of the things that came out was that you know he was very, very pro russia and and SHE is .

not and he is not and .

he was is much more hedged and moderate and yeah you know wanted to have more optionality and felt that he was cornered because I think there was a quote, I mean, you can pull, but there was something about like, you know the the strength between basically china, russia, infinite. But that was that was a quote that he said that was a little bit out of the reservation and teams. And so yeah ah important .

story as well. I mean, you know one of the things that we can look at what's happening in these political situations, I think we probably have fifty, sixty.

seventy percent of the information .

even really quick tell us what's going on in alcohol world.

Salt of signs, there was a paper published about two weeks ago in the journal science. It's actually um an important paper because IT used alphaville uh to do some really important work. And the work is to actually create a 3d structure， three model of the nuclear poor complex.

And that nuclear poor complex is really the scaffolding that makes up the nucleus of a cell. So all you Carry ots, you know, all plants and animals have a nucleus in ourselves, and the nucleus holds the DNA. And the big question, internet .

connection is getting bored.

Good .

to let you .

know you.

So what does this mean in terms of hold on?

So um so what this team did, and this is the the problem that kind of been around for decades, is we've never really understood what the physical structure of the nucleus in a cell looks like. And this is important because the physical structure regulates how molecules get into and out of the nucleus and how DNA is expressed and how the R N A that comes out of the DNA goes into the rest of sale. And this regulate so much of human health. In fact, it's been shown and demonstrated that this function in the nuclear pores, the nuclear poor complex in the cell, can lead to things like viral infection, brain injury, cancer, cardiovascular disease, many diseases. Their underlying driver may result from this function in the transmission of molecules into and out of the nucleus of the cell.

And so scientists have always tried to figure out what is that transport mechanism m look like? What does that infrastructure look like? And um so for the first time, and scientists have published theories on this and they've shown using x ray imaging, you know some theory around what these complexes is look like um and what this team at harvard did that they published two weeks ago is a really ground breaking, extremely detailed view of the entire nuclear nuclear poor complex around the nuclear as of the cell by combining both X A imaging and alphabet. And so what they did, they took the predicted physical structure of those proteins from alph fold and use that to construct a sample of what the the nuclear poor complex was how do .

they know it's accurate?

And so using this extra imaging, they've been able to kind of verify some of the assumptions on alphago ld yields. And now they've created this three d model. And the three d model now gives. And by the way, just to think about this physically, what IT means, like for a second, the nuclear poor complex, think about IT, is like a sense, like A A spiral fence that search around the nucleus. And some parts of that fence open and closed, some parts are static, and the way that certain things open and close, and what can fit through them and how they fit through and house of gets stuck is really important to understand as a way to both um understand the underline cause of diseases like cancer, but also how we can create their appetites and how we can target specific things that we can fix and how we can get molecules into the nucleus of the cell to regulate DNA expression and edit the DNA inside.

So wait, if I would, to translate this from nerd. You basically alphago ld predicted, no, i'm being sincere. There's a map or that we were not able to see through x rays and through physics, but alcohol predicted some of that and filled in the gap. So now we have the market has been filled.

That's a that's a great way to describe IT. And so now we have this incredibly detailed three, the image and and they can share the images on our youtube string here of what the nuclear poor complex looks like, and how each of those poor work. How do they open and close? What's the structure of them? This isn't simply like a circle. This is like all these weird denticles and little things sticking out, and that can help us predict what molecules gets stuck and how one error in one of those proteins can .

cause things to get cancer.

or that can cause certain d be over expressed or under expressed.

causing things like cancer.

We have the whole new area of research in medicine, gene therapy and new things that we can pick about targeting to fix a lot of these underline diseases. And so this was a ground breaking paper. What's the name of the paper?

Can I just get the name of the papers of people? Can google it'll put IT in the show note as well .

this is an amazing up is yes, it's a team out of harvard. I'll send the link in the in the shown of structure of supplies, make a ring of nuclear poor complex by integrative rio e and alphabet. Terrible naming, not for the general audience.

No, not okay. Sax is printing IT out right now and he's going to use IT for his .

his new t talked about A I think last year, the year before. How was going to open up all these new areas of here are a year credible example of how alpha's been used to solve this really misunderstood or never really well understood aspect of biology, that is, that the root cause of so much of disease and creates all opportunity for medical and therapeutic research and discovery. This is, this is great to see this breakstone .

ts going to get to generate six or robi weight will get to those the next episode.

And you know I think robi weight, i'm not sure there's uh, I much do something about the reactions, but we did a pretty throw episodes of folks really want us to double click, double check with two of the most politic constitutional experts in the space when I first got league. So please go and watch up or listen to that.

Put IT in the nuts. It'll be the everybody i'll see you .

all next time. Bye ye .

love your.

Best man.

We open sources to the fans and they .

just got .

crazy with.

We should all just get a room and just have one big, huge org, because they like, like sexual attention. And we just need to release somehow what your B.

B, your fear be.

what we do to get much.

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