E85: SBF’s crypto bailout, Zendesk sells for ~$10B, buyout targets, US diplomacy, AlphaFold & more

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00:00:00 Speaker 1 

Uh, so Jason, start let’s. 

00:00:01 Speaker 1 

Say you have any insurance coverage. 

00:00:03 Speaker 1 

Alright, if you want intros. 

00:00:05 Speaker 2 

We’re not going to pay for him, so draining over. 

00:00:09 Speaker 1 

That is awake. 

00:00:10 Speaker 1 

All right. 

00:00:11 Speaker 1 

Well then, we’ll start with you. 

00:00:13 Speaker 2 

If you’re doing your job, you’ll do the inversion. 

00:00:15 Speaker 2 

If you want to. 

00:00:16 Speaker 2 

You want to slow roll your effort because you think you’re negotiating with us, so we don’t give. 

00:00:21 Speaker 1 

A **** Listen, I’m doing all the. 

00:00:23 Speaker 1 

Projects outside. 

00:00:23 Speaker 2 

You think we? 

00:00:24 Speaker 2 

Care about your intros. 

00:00:25 Speaker 2 

Still bad job. 

00:00:26 Speaker 2 

We don’t care. 

00:00:28 Speaker 1 

Surface waiting in the wings always wants to read the reaction frozen around. 

00:00:31 Speaker 2 

Sorry, well then I’ll. 

00:00:32 Speaker 3 

Just meet up for. 

00:00:34 Speaker 1 

Oh my God, it’s so. 

00:00:35 Speaker 1 

So do do. 

00:00:36 Speaker 1 

A couple bad jobs, so. 

00:00:37 Speaker 1 

That we can boot you off the show. 

00:00:39 Speaker 1 

Here we go. 

00:00:42 Speaker 2 

Letterwinners lied. 

00:00:45 Speaker 3 

Every second. 

00:00:57 Speaker 1 

All in summit impact to join, but sacks? 

00:01:00 Speaker 1 

Won’t give me. 

00:01:01 Speaker 1 

An extra point. 

00:01:02 Speaker 1 

His crypto holdings? 

00:01:03 Speaker 1 

They can’t find the floor. 

00:01:04 Speaker 1 

Gonna have him. 

00:01:05 Speaker 1 

Flying commercial for the. 

00:01:06 Speaker 1 

First time since 2004. Welcome. 

00:01:09 Speaker 1 

David Sacks, back to the programmer in there. 

00:01:11 Speaker 1 

We’re now freeberg. 

00:01:13 Speaker 1 

I never wanted to see him go, but you gotta show up for work. 

00:01:16 Speaker 1 

He can’t do every other show. 

00:01:17 Speaker 1 

The Sultan of Science he’s certainly not a. 

00:01:19 Speaker 1 

Fad but dad? 

00:01:21 Speaker 1 

Did you see those ratings with Brad? 

00:01:23 Speaker 1 

Welcome back. 

00:01:23 Speaker 1 

The Sultan of science. 

00:01:26 Speaker 1 

By the way, our Shelby brads rating. 

00:01:28 Speaker 1 

So thank you very much. 

00:01:29 Speaker 1 

Out OK, well, the little drama always builds a little audience. 

00:01:33 Speaker 1 

OK, here we go to model healthy competition. 

00:01:35 Speaker 1 

Welcome monkeys in Italy living a life so grand. 

00:01:38 Speaker 1 

His next. 

00:01:38 Speaker 3 

Back a luxury. 

00:01:39 Speaker 1 

Wine and sweater brands this market is leaving him in a daze, so he’s been testing in the Mediterranean. 

00:01:45 Speaker 1 

For the past 10 days, welcome back to the dictator. 

00:01:48 Speaker 1 

Ready to go? 

00:01:49 Speaker 1 

I just. 

00:01:49 Speaker 1 

I put them on sun. 

00:01:51 Speaker 1 

I didn’t want to do any kill shots there. 

00:01:53 Speaker 1 

Since everybody is a little sister. 

00:01:55 Speaker 1 

On edge, including. 

00:01:57 Speaker 1 

The audience. 

00:01:57 Speaker 1 

The audience had a lot. 

00:01:58 Speaker 1 

To say about whether we could. 

00:02:00 Speaker 1 

For a lot of the controversial topics will be way January 6th and Ukraine all. 

00:02:06 Speaker 1 

I did a bunch of surveys. 

00:02:08 Speaker 1 

50% of people want us to talk about. 

00:02:09 Speaker 1 

50% don’t so. 

00:02:12 Speaker 1 

Ask you a question. 

00:02:13 Speaker 1 

Do you think we should be serving the audience to ask them what they want us to talk about? 

00:02:17 Speaker 1 

Because when we started this year, we just talked about stuff that we thought was interesting and people happen to look like it and listen and TuneIn for it. 

00:02:25 Speaker 1 

If you end up asking the audience what they want. 

00:02:26 Speaker 1 

So if you end up becoming like a Fox News or like any other media company where you just. 

00:02:30 Speaker 3 

Yeah, I mean. 

00:02:32 Speaker 1 

Ultimately, use the feedback loop to drive. 

00:02:34 Speaker 1 

Yeah, yeah, I wouldn’t. 

00:02:35 

You know. 

00:02:36 Speaker 1 

Every week of the show. 

00:02:37 Speaker 1 

I will tweet like, hey, anything you. 

00:02:38 Speaker 1 

Want on the docket ’cause. 

00:02:39 Speaker 1 

Sometimes people have good ideas, but yeah, certainly you shouldn’t base it on like a survey. 

00:02:44 Speaker 1 

No, it was just like a way to get some. 

00:02:47 Speaker 1 

And we’re just, yeah, that’s how we started with. 

00:02:49 Speaker 1 

We’re just kind of being intellectually honest with each other and curious about something we were interested in and and it works. 

00:02:54 Speaker 1 

And if people don’t like it. 

00:02:55 Speaker 1 

They don’t like it. 

00:02:56 Speaker 1 

I mean we the. 

00:02:57 Speaker 2 

This would be very much. 

00:02:57 Speaker 1 

Big controversial thing like a like a vote for your topics. 

00:03:00 Speaker 1 

And that’s what we follow. 

00:03:01 Speaker 1 

Definitely not. 

00:03:02 Speaker 1 

We should. 

00:03:02 Speaker 1 

I think we all agree on that. 

00:03:03 Speaker 1 

I think there is an ongoing debate amongst the audience of what percentage of this show should be politics and when should we talk about politics and are we doing? 

00:03:11 Speaker 1 

Too much politics and. 

00:03:12 Speaker 1 

I mean, let me ask you one more question. 

00:03:12 Speaker 1 

Start with markets. 

00:03:14 Speaker 1 

Do you think your objective should be to grow the audience or should our objectives should be talking about the things we want to talk? 

00:03:19 Speaker 1 

About it with you then, I mean, what do you think? 

00:03:20 Speaker 1 

Says yeah. 

00:03:21 Speaker 2 

I don’t think it’s a good idea that we want to talk about. 

00:03:25 Speaker 1 

Is it? 

00:03:25 Speaker 2 

What’s the whole program? 

00:03:27 Speaker 2 

Yeah, well, I think. 

00:03:28 Speaker 2 

It’s good to have an audience or was what are we doing? 

00:03:31 Speaker 2 

But yeah. 

00:03:32 Speaker 2 

But look at what the audience showed. 

00:03:33 Speaker 2 

Is that half and want to talk about those topics? 

00:03:35 Speaker 2 

Roughly half didn’t. 

00:03:36 Speaker 2 

I suspect that most topics are going to be like that. 

00:03:40 Speaker 2 

You know, I love. 

00:03:40 Speaker 1 

Well, not markets and then people like, I think. 

00:03:41 Speaker 3 

This with fun. 

00:03:43 Speaker 1 

8090% good one here is talk about. 

00:03:45 Speaker 2 

Markets and Starbucks, yes. 

00:03:47 Speaker 1 

Like our core stuff, right? 

00:03:49 Speaker 1 

I’m just saying, if your objective function is to maximize your audience, you’re gonna end up making a tik T.O.K video of people twerking or something. 

00:03:55 Speaker 1 

You know it’s not like. 

00:03:56 Speaker 1 

The show could you just volunteer just? 

00:03:58 Speaker 1 

Work on. 

00:03:59 Speaker 1 

I’m not going to do that. 

00:04:02 Speaker 1 

I’m pretty sure it’s from. 

00:04:03 Speaker 1 

Awesome, I have the video of. 

00:04:05 Speaker 1 

Freeport working at all in summit anyway? 

00:04:07 Speaker 1 

Hey, hello, right? 

00:04:10 Speaker 1 

Let’s get started with some I think. 

00:04:12 Speaker 1 

What’s going? 

00:04:12 Speaker 1 

On in crypto because. 

00:04:14 Speaker 1 

People do want to hear about that and it’s been quite stunning. 

00:04:16 Speaker 1 

A British Virgin. 

00:04:17 Speaker 1 

Island Court ordered. 

00:04:18 Speaker 1 

The liquidation of three Arrows capital three AC after creditors to the crypto hedge funds for failing to repay its debt. 

00:04:25 Speaker 1 

They had 3 billion in assets under management. 

00:04:28 Speaker 1 

They had a huge position in the now defunct stable coin Terra and its token Luna, and they were trading on some massive amount of margin. 

00:04:38 Speaker 1 

How much and what deposits they were using to do this, we will find out now. 

00:04:44 Speaker 1 

They’re being forceful. 

00:04:45 Speaker 1 

Liquidated to be liquidated 3 IC owed Voyager. 

00:04:48 Speaker 1 

Exit all 650 million could not pay it. They sent Voyager stocks down 60% across them to Nita Bella from Sam Bankman free. 

00:04:58 Speaker 1 

Which has led to SPF, as he’s known in the industry, bailing out a couple of other major folks in crypto. 

00:05:05 Speaker 1 

He provided a $200 million credit line to Voyager Digital with the Canadian crypto lender. They’ll lend you money against your crypto and FTX provided a $250 million credit line to block by FC Axis, obviously. 

00:05:21 Speaker 1 

Company and according to. 

00:05:23 Speaker 1 

Rolling block by investors, yes. 

00:05:25 Speaker 1 

TX credit line. 

00:05:26 Speaker 1 

Would wipe out all existing. 

00:05:27 Speaker 1 

Shareholders so referring to see the really onerous term sheets to keep these things alive. 

00:05:33 Speaker 1 

This is of course in the face of the entire crypto collapse. 

00:05:37 Speaker 1 

The many cryptocoins seeing what we saw. 

00:05:39 Speaker 1 

In both socks. 

00:05:43 Speaker 1 

Is this the end of? 

00:05:44 Speaker 1 

Crypto is it going to rebound again? 

00:05:47 Speaker 1 

What are your thoughts, Jamal? 

00:05:48 Speaker 1 

Slash reversal once they start on crypto. 

00:05:50 Speaker 1 

You guys. 

00:05:51 Speaker 1 

See the chart that I posted into the group chat function Bitcoin activity as a function of the year and values that. 

00:05:59 Speaker 1 

Can be put. 

00:06:00 Speaker 1 

Back up just so we can look at that together. 

00:06:02 Speaker 1 

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 or form basically. 

00:06:12 Speaker 1 

Ever since 2018, really with all the stimulus, because if you look at the mean price at this point. 

00:06:19 Speaker 1 

Even though there’s nothing further, you know, what we were talking about was, you know, a price set was certification that $2000 to 3100 thousand, you know, and then all of a sudden when all of this stimulus money hits. 

00:06:32 Speaker 1 

Along that, look what happened. 

00:06:34 Speaker 1 

But I think something unique also happens, which is that people really understood how to run these very complicated off chaining Bitcoin arts. 

00:06:44 Speaker 1 

And I think we should explain what those are because those are what’s behind the three-year old capital. It’s behind you know I think stand had this kind of oblique tweet that says you know. 

00:06:55 Speaker 1 

Some of these exchanges are actually already in Parliament. 

00:06:58 Speaker 1 

They’re already the law. 

00:07:00 Speaker 1 

So the first thing to keep in mind is that, you know this is a completely unregulated market, right? 

00:07:05 Speaker 1 

There are no middle major market makers for saying that actually have reporting requirements or any regulatory authority. 

00:07:11 Speaker 1 

There aren’t any clearing houses. 

00:07:13 Speaker 1 

There isn’t a way for us to understand systemic risks as in fields in the critical market. 

00:07:18 Speaker 1 

So what happened started in 2018, and 19 people realized the following things were true. That’s sort of what we talked about last week. 

00:07:26 Speaker 1 

You go and do some crazy rounds. 

00:07:29 Speaker 1 

You know, mark up some phantom equity in a company. 

00:07:33 Speaker 1 

That company then issued soaking. 

00:07:36 Speaker 1 

You then lift the tokens not on you. 

00:07:39 Speaker 1 

Know uh blockchain per. 

00:07:40 Speaker 1 

Say or PC, but, uh, in a place where trades from happens off chain, right and. 

00:07:46 Speaker 1 

There’s a bunch of exchanges. 

00:07:47 Speaker 1 

Working thing happens often because it’s one you know company or they have a bunch of segregated sub accounts. 

00:07:55 Speaker 1 

And what happens is when these things initially get listed, retail goes crazy. 

00:07:59 Speaker 1 

That breaks, goes on. 

00:08:00 Speaker 1 

So basically down long retail. 

00:08:03 Speaker 1 

And you know. 

00:08:04 Speaker 1 

You spin that loop as fast as you can and you can extract an enormous amount of money. 

00:08:10 Speaker 1 

Along the way, all these things like defying all those doesn’t popped out, isn’t aware, and it’s like, hey, you can earn 15 and 16, seventeen, 18% shift deposit the bitcoins. And so folks are Pontifical. 

00:08:21 Speaker 1 

But then what would happen is like the places where those. 

00:08:23 Speaker 1 

Deposits were held. 

00:08:24 Speaker 1 

But then need to. 

00:08:25 Speaker 1 

Obviously find the places to make that 1112 or 13%. 

00:08:29 Speaker 1 

And so then they would go off to me, to some other random person who was offering to pay him. 

00:08:34 Speaker 1 

Even more than. 

00:08:34 Speaker 1 

That and they would try to arm the difference. 

00:08:37 Speaker 1 

But it all catches up with you because when something like a terror goes to 0, all the Bitcoin that was used to basically, you know, run that deprive process around Terra, Ventus, you know, and then all of a sudden view the lender like hey can I have my Bitcoin back and the brokers. 

00:08:57 Speaker 1 

Well, actually I don’t have it. 

00:08:59 Speaker 1 

I went to somebody else. 

00:09:00 Speaker 1 

Let me ask us something else and they’re like, I’m sorry I don’t have it, but I have these terror. 

00:09:04 Speaker 1 

Points still ’cause. 

00:09:06 Speaker 1 

I was running some arm and now it went to zero and that’s essentially what we’re seeing right now. 

00:09:11 Speaker 1 

So we have two big problems and then I think we have appeared this kind of funny. 

00:09:15 Speaker 1 

The first big problem is like obviously in the absence of any regulatory oversight. 

00:09:19 Speaker 1 

Stuff is going to happen. 

00:09:20 Speaker 1 

Systemic risks are going to build up. 

00:09:22 Speaker 1 

That’s what we’re facing right now is an enormous amount of systemic risk, largely around Bitcoin. 

00:09:28 Speaker 1 

A bunch of this money, I think, has been essentially just vaporized. 

00:09:34 Speaker 1 

And so all these people that try to find their deposits, especially in custodial accounts, in auctioning brokers, maybe after well at some point. 

00:09:45 Speaker 1 

And I think that that’s going to be a huge shitshow if that actually happens. 

00:09:48 Speaker 1 

To be clear, trim off, they don’t have the key to their own becklean they gave money to a custodial account, they’ve ended this lending went out to get into 15. 

00:10:00 Speaker 1 

And they don’t have any recourse here. 

00:10:02 Speaker 1 

They can’t get there. 

00:10:03 Speaker 1 

Look at their hearts and. 

00:10:05 Speaker 1 

They’re all Bitcoin owners. 

00:10:06 Speaker 1 

Put them in. 

00:10:06 Speaker 1 

A wallet and on the keys. 

00:10:08 Speaker 1 

Does anybody have reported this three-year old capital and all this other interrelated parties that are now, you know, gone completely bankrupt because of this camp? The answer is absolutely not. 

00:10:18 Speaker 1 

So so that’s that’s the first problem you have absolutely 0 oversight, which means systemic risk has been built up in the system. 

00:10:26 Speaker 1 

The second thing is that exactly what user situation is that people don’t even understand chain of custody here, which is that you thought that you own this Bitcoin. 

00:10:35 Speaker 1 

It turns out you actually may. 

00:10:36 Speaker 1 

Not actually own them at all. 

00:10:38 Speaker 1 

You thought that you were properly lending them. 

00:10:40 Speaker 1 

Out do I see them. 

00:10:41 Speaker 1 

There is no enforceable contract, it turns out. 

00:10:44 Speaker 1 

And so I think that’s. 

00:10:45 Speaker 1 

Could be an entire set of different legal issues that are now going to come for the service because people who actually digitally lenses stuff out but for example like 2 short of stock in Google and borrow stock from any. 

00:10:56 Speaker 1 

One of us. 

00:10:57 Speaker 1 

They’re really tight, Gardner. 

00:10:59 Speaker 1 

You know, if you wanted to go and put a credit toward this swap off against dead, there’s a central clearinghouse that paid sure you’re not over others. 

00:11:06 Speaker 1 

You know you have to go and. 

00:11:07 Speaker 1 

Get audited by a. 

00:11:08 Speaker 1 

Bank even getting the kind of account that allows you to put these triggers on? 

00:11:12 Speaker 1 

None of. 

00:11:12 Speaker 1 

That was possible encrypted. 

00:11:14 Speaker 1 

And then the last thing which I think is kind of funny is that we’ve actually listen. 

00:11:19 Speaker 1 

To every millennial and Gen Z market observer in crypto how? 

00:11:23 Speaker 1 

This is not. 

00:11:24 Speaker 1 

Like rumors and they turn out to be. 

00:11:26 Speaker 1 

The same thing. 

00:11:28 Speaker 1 

This is the pickle ball. 

00:11:29 Speaker 3 

Think of all. 

00:11:30 Speaker 1 

It’s like of all of the times you’ve had to. 

00:11:32 Speaker 1 

Hear how it’s. 

00:11:33 Speaker 1 

So different it turns out it is entirely. 

00:11:36 Speaker 1 

Entirely in terms, in fact. 

00:11:38 Speaker 1 

Worse, the concert issue is definitely a major. 

00:11:41 Speaker 1 

One facts what? 

00:11:41 Speaker 1 

Do you think is happening in crypto right now? 

00:11:44 Speaker 2 

Personality can come. 

00:11:46 Speaker 3 

A lot. 

00:11:47 Speaker 3 

I don’t really have a. 

00:11:49 Speaker 2 

New point of view on it. 

00:11:51 Speaker 2 

I mainly switched off that SPF. 

00:11:52 Speaker 2 

It’s why raised my taxes in California. 

00:11:55 Speaker 1 

Explain that. 

00:11:56 Speaker 2 

Statement free. 

00:11:57 Speaker 2 

He runs FTX and his company. 

00:12:00 Speaker 2 

He lives in the Bahamas. 

00:12:02 Speaker 2 

OK. 

00:12:03 Speaker 2 

And there are probably reasons for that related to liability or taxes or something like that? 

00:12:07 Speaker 1 

Can you tell us what SPSS? 

00:12:08 Speaker 2 

They’re like a 20 based competitor device. They obviously think it’s beneficial to be offshore, not under US jurisdiction. 

00:12:14 Speaker 1 

And they’re very profitable. 

00:12:15 Speaker 1 

There should be output. 

00:12:16 Speaker 2 

Yeah, I suppose it is super possible. 

00:12:19 Speaker 2 

Mean he’s worth like 10 or $15 billion? This is my understanding. 

00:12:23 Speaker 2 

So he’s been very successful stuff. 

00:12:25 Speaker 2 

I don’t know why they’re in the Bahamas. 

00:12:27 Speaker 2 

I think either they’re in there for securities regulation reasons or for tax reasons, but it’s one. 

00:12:32 Speaker 2 

Of those two. 

00:12:32 Speaker 2 

In any event, he doesn’t live in California, and yet he is sponsoring a ballot initiative here that would add a 0.75% tax on incomes over 5,000,000. 

00:12:44 Speaker 2 

To finance a pandemic Prevention institute of his design. 

00:12:49 Speaker 2 

He’s doing this with Dustin Moskovitz, another. 

00:12:51 Speaker 2 

Billionaire doesn’t know what to. 

00:12:52 Speaker 2 

Do with his money, he. 

00:12:53 Speaker 2 

Was may remember that Dustin was the guy funding chase blue Jean? 

00:12:57 Speaker 2 

In any event, this would be this pandemic prevention to be governed by an unaccountable board. 

00:13:03 Speaker 2 

As opposed to something like the university California. 

00:13:07 Speaker 2 

This is like development using the battle initial system to fund their pet for profit projects and there’s really no need for this. 

00:13:14 Speaker 2 

I mean, first of all, this is. 

00:13:15 Speaker 1 

Probably something should be done federalist. 

00:13:17 Speaker 2 

Yeah, exactly. 

00:13:18 Speaker 2 

It’s, well, first of all, it’s looking in the rearview mirror in terms of like a budgetary priority. 

00:13:22 Speaker 2 

But even if you believe this was a priority, I don’t know why it being the responsibility of California taxpayers exclusively. 

00:13:29 Speaker 2 

And even if it was, you’d want to do it under, say, the UC system, some sort of accountable board as opposed to having a report to, you know? 

00:13:37 Speaker 2 

Sam and Dustin. 

00:13:39 Speaker 2 

So it makes no sense and. 

00:13:41 Speaker 2 

This is really going to hurt the California tax base because if you start raising taxes on, you know, California millionaires, more of them are going to leave the state and then that tax revenue release the state. 

00:13:53 Speaker 2 

And so it actually hurts the general budget and that’s why, you know, California Teachers Association, for example. 

00:13:59 Speaker 2 

Those with this? 

00:14:00 Speaker 2 

Is because they know that this is gonna have a negative impact. 

00:14:04 Speaker 2 

On poor services. 

00:14:05 Speaker 2 

What is, well, what’s offensive to me is. 

00:14:08 Speaker 2 

I mean so so. 

00:14:08 Speaker 2 

This is just a stupid idea in like every possible. 

00:14:12 Speaker 3 

Wait, So what? 

00:14:13 Speaker 2 

Is the guy who lives in the Bahamas doing funding ballot initiatives in California to raise our taxes, thereby worsening the California fiscal situation to fund his passport slaughter projects? 

00:14:23 Speaker 2 

If you’re worth 10 billion, just plunger. 

00:14:25 Speaker 2 

On your own, you know. 

00:14:26 Speaker 2 

Do it to your Family Foundation. 

00:14:28 Speaker 2 

I don’t know why you need to raise taxes on all of us. 

00:14:32 Speaker 1 

Yeah, that’s very bizarre. 

00:14:34 Speaker 1 

Why is he? 

00:14:35 Speaker 1 

The simple answer is because I think it helps very favor with. 

00:14:38 Speaker 1 

Politicians that useful. 

00:14:41 Speaker 2 

I would necessarily. 

00:14:41 Speaker 1 

That’s why. 

00:14:42 Speaker 1 

That’s why you would do it. 

00:14:43 Speaker 1 

Why I would do it? 

00:14:44 Speaker 2 

This is turning negative favor because, first of all, every millionaire in California should be up in arms over this. 

00:14:51 Speaker 2 

But even I’d say you liberal hall. 

00:14:53 Speaker 3 

Well, I don’t think we know his game plan. 

00:14:55 Speaker 2 

Yeah, I mean there, I say even liberal politicians and interest groups in California. 

00:15:01 Speaker 1 

Like the the. 

00:15:01 Speaker 2 

Strike teaching association. 

00:15:03 Speaker 2 

Don’t want this because the money is not going to a college they support, and it will probably. 

00:15:09 Speaker 2 

It will almost certainly drive down the state tax base price because. 

00:15:14 Speaker 2 

People on the margins are going to lease. We already have the highest taxes in the nation, where it went like 13.3% for the top edge in cell phones. 

00:15:21 Speaker 1 

We have $100 billion surplus for a reason. All these IPO’s, all of these venture capitalists, CEOs, and rank and file tech workers are just paying massive amounts of tax here, and they’re leaving. 

00:15:22 Speaker 3 

It will not. 

00:15:32 Speaker 2 

Right. 

00:15:32 Speaker 2 

But that’s highly levered to capital gains, right. 

00:15:35 Speaker 2 

And so last year we had a boom market. 

00:15:37 Speaker 2 

We now know in hindsight that it was inflated. 

00:15:40 Speaker 2 

That was all driven by this liquidity bubble. 

00:15:42 Speaker 2 

So do you think that’s been the case this year? 

00:15:45 Speaker 2 

I think we’re due for a huge budget shortfall next year because there’s simply no capital gains this year. 

00:15:49 Speaker 1 

They better hold on to that 100 billion. 

00:15:51 Speaker 2 

For sure, the California tax base is highly leveraged to this boom bust cycle, and driving the top earners out of the state is only gonna worsen that impact. 

00:16:01 Speaker 2 

So you know but. 

00:16:02 Speaker 2 

Again, my question why is that guy in the IT is one thing. 

00:16:05 Speaker 2 

If it was just dust. 

00:16:06 Speaker 2 

I’m doing it, I guess, but I don’t understand why Sam taking the lead. 

00:16:09 Speaker 1 

I mean. 

00:16:10 Speaker 2 

But he’s not even a California taxpayer. 

00:16:12 Speaker 1 

Because I think he was very sophisticated. 

00:16:16 Speaker 1 

Player seeing not just crypto, but frankly regulated and unregulated finance. 

00:16:23 Speaker 1 

And look, he I think he spends a lot of money in DC as well. 

00:16:27 Speaker 1 

And I think that he has a very thoughtful game plan. 

00:16:30 Speaker 1 

And then, you know, when you look at who his parents are, his parents are really, really smart, thoughtful people as well. 

00:16:36 Speaker 1 

Meanwhile, professors at Stanford and so I suspect not knowing and having so concerned that I think that there’s a really. 

00:16:44 Speaker 1 

The specific strategy that these guys have around who they need to influence and what they care about and then willing to as a. 

00:16:54 Speaker 1 

Pass through fund. 

00:16:55 Speaker 1 

Those things in order to create the, you know, influence that he needs for the things that he cares about. 

00:17:00 Speaker 1 

And I suspect that. 

00:17:01 Speaker 1 

It’s that kind. 

00:17:01 Speaker 1 

Of worst rating, which is I think it’s pretty typical. 

00:17:04 Speaker 1 

In US politics. 

00:17:06 Speaker 1 

The question, though, is level. 

00:17:09 Speaker 1 

But after we talked about, you know everything is actually happening in Crystal, crystal, you know I’m sure the tasks could do a lot to help understand a lot of this off training activity, some of the you know expensive and stuff. 

00:17:23 Speaker 1 

That’s living in. 

00:17:24 Speaker 1 

The Gray, especially the stuff that’s gonna come to right over the next few years. 

00:17:27 Speaker 1 

I mean, you hear from his hand, right? 

00:17:29 Speaker 1 

In a week, $42 trillion inside of institutional capital, you know this is overwhelming disease, so that all of this is going to inspire a lot of district attorneys and DOJ activity. 

00:17:43 Speaker 1 

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. 

00:17:49 Speaker 1 

The opportunity, I think this is going to become the most regulated space investments. 

00:17:53 Speaker 2 

Well, I don’t know. 

00:17:53 Speaker 2 

I mean, I I if the goal here was to Curry favor, then I think Sam must think there’s not gonna be a red wave in November. 

00:18:00 Speaker 2 

Because I don’t think Republican politicians are going to look very favorably on a guy who’s using his. 

00:18:07 Speaker 2 

Money to raise taxes in the state. 

00:18:09 Speaker 2 

Hasn’t been delivered. 

00:18:10 Speaker 1 

Alright, let’s move back to the crypto. 

00:18:12 Speaker 1 

Move back in France, yeah, let’s move. I think that’s important in lots of different plus the bigger thing, not a few $1,000,000 of clubs lobbying. 

00:18:19 Speaker 1 

At this point with this many retail. 

00:18:20 Speaker 1 

Investors, well, actually let. 

00:18:21 Speaker 1 

Me, let me start with this free bird. 

00:18:24 Speaker 1 

Is there a real technology here and how much of what we’ve just witnessed? 

00:18:28 Speaker 1 

With the script or collapse in the crypto boom bust cycle. 

00:18:30 Speaker 1 

How much is this based on what you would perceive as real technology that is going to advance the human species forward? 

00:18:37 Speaker 1 

And how much of this was hype if you were to put a percentage on it, you know, trillions of dollars in assets you know, created. 

00:18:44 Speaker 1 

Right. 

00:18:45 Speaker 1 

How much of this was actually real technology? 

00:18:48 Speaker 1 

How much of it was complete, utter waste of ******* time and a grift? 

00:18:52 Speaker 1 

No crystal experts and I’ve not been an investor in crypto currencies. 

00:18:57 Speaker 1 

So I read the original Bitcoin White paper. 

00:19:01 Speaker 1 

Makes sense. 

00:19:03 Speaker 1 

Bitcoin itself to me makes sense as a potential initially was kind of interesting as a potential alternative currency, but the transaction fees were very high and so it never really seems to make sense as a replacement for traditional financial networks until those transaction fees dropped below those of the traditional financial networks. 

00:19:24 Speaker 1 

The biggest concern I’ve always had, which I’ve mentioned multiple times on this show, is that whenever anyone talks about a quote cryptocurrency. 

00:19:34 Speaker 1 

They talk about the price of it in dollars and if it really is meant to be an alternative to the US dollar, why are you talking about it in the price of U.S. dollars? 

00:19:45 Speaker 1 

And it’s up and it’s down relative to dollars and that implies ultimately that the intention would be to transact staff in USA. 

00:19:53 Speaker 1 

Which implies that the intent is not to be a replacement for the US dollars, which was a lot of the early prognostication of bitcoins was it was going to be a replacement for the US dollar, to be an alternative to traditional monetary systems. But ultimately, if you’re just measuring this in dollars and it’s up and it’s down, everyone freaking out. 

00:20:12 Speaker 1 

Every day about crystals outputs are down. 

00:20:15 Speaker 1 

That means it really is more like a security, except securities definitionally are supposed to have a secured interest in some underlying set of assets, and there’s no underlying assets. 

00:20:24 Speaker 1 

It’s not actually a security because it doesn’t provide you a secured interest in anything. 

00:20:28 Speaker 1 

So it is effectively a bet on some systems of computers that are meant to facilitate some set of. 

00:20:35 Speaker 1 

That, you know, ultimately people really only seem to value in U.S. dollars. So. 

00:20:42 Speaker 1 

So I don’t know. I mean, like, where does it all go? It seems like I mentioned at our predictions episode last year that all of these smaller things are going to get blown out. These quote UN quote cryptocurrencies, even though many of them don’t really act like a currency. 

00:20:55 Speaker 1 

And, you know, maybe Bitcoin itself persists, and it seems to me like that’s always going to have this staying power. 

00:21:01 Speaker 1 

As an observer. 

00:21:02 Speaker 1 

I’m not a participant. 

00:21:04 Speaker 1 

And you know, anytime someone telling you something’s in dollars and it’s going up and it’s going down and you’re betting on whether it’s going to go up or go down and your intention is to transact factor dollars, you know? 

00:21:14 Speaker 1 

And and there’s no one sister. 

00:21:16 Speaker 1 

People being security solves the problem. 

00:21:19 Speaker 1 

This is the problem. 

00:21:20 Speaker 1 

I have with it. 

00:21:20 Speaker 1 

This has been, you know, a shadow security. 

00:21:23 Speaker 1 

Staff that was. 

00:21:24 Speaker 1 

Created in parallel to the existing one. 

00:21:27 Speaker 1 

With a lot of. 

00:21:28 Speaker 1 

You know, oversight and what did we think would happen if you created a global casino with no rules other securities have an underlying interest in something. 

00:21:38 Speaker 1 

This has an underlying short interest in some line on the blocking of that particular network. 

00:21:44 Speaker 1 

That’s exactly what it does. 

00:21:46 Speaker 1 

It’s a security interest in a line of code in on a distribution. 

00:21:50 

If it, if. 

00:21:50 Speaker 1 

It is secure. 

00:21:52 Speaker 1 

A Bitcoin has a legitimate non fungible entry in the blockchain that says it and only it represents that thing and I think that. 

00:22:01 Speaker 1 

But you know it is, I guess. 

00:22:04 Speaker 1 

But for some may call it anyways but. 

00:22:07 Speaker 1 

I I mean I. 

00:22:08 Speaker 1 

Tend to think it’s this point, Bitcoin. 

00:22:11 Speaker 1 

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 volume and the sheer size of social market and the secondary block. 

00:22:23 Speaker 1 

The way you’re saying it right, the potential fallout when things go off the rails is so great. 

00:22:28 Speaker 1 

You kind of need. 

00:22:29 Speaker 1 

To have some rails, yeah, I mean. 

00:22:31 Speaker 1 

I mean. 

00:22:31 Speaker 1 

Like like again as I. 

00:22:33 Speaker 1 

Said like, look, if we’re a. 

00:22:34 Speaker 1 

Market participant trying to trade. 

00:22:37 Speaker 1 

You know, very sophisticated, you know, derivatives of any kind, for example, in the credit markets we have to go and we create these things called ISDN circle business, you know, in this space that they have signed in account that allows us to go and you know, take risk in some of these very esoteric markets, but the underlying principle around that. 

00:22:57 Speaker 1 

Is the common set of parameters the clearinghouse, the ability to launder their risk? 

00:23:01 Speaker 1 

None of those things exist here, and I think that’s really what folks have to solve for now. 

00:23:06 Speaker 1 

Secondarily, is. 

00:23:08 Speaker 1 

What world is kind of like shadow activities, you know, it’s just it’s turning out if it seems too good to be true in here, while this C5 protocol will be healed, you 24% in Union, who is? 

00:23:20 Speaker 1 

Paying this one. 

00:23:21 Speaker 1 

How is it never made sense really but. 

00:23:23 Speaker 1 

Then none of. 

00:23:24 Speaker 1 

Us believe question just. 

00:23:26 Speaker 1 

You know, I had people on the sweetheart. 

00:23:27 Speaker 1 

I questioned it all the time and they could never explain it to me. 

00:23:30 Speaker 1 

And then now the explanation was while we were giving you, we were getting short term loans to other people who basically wanted a. 

00:23:36 Speaker 1 

Margin loan, you know they want to. 

00:23:37 Speaker 1 

They don’t want they want to hold all their big. 

00:23:39 Speaker 1 

Point, but that was only four or 5%. What they were also doing was giving you tokens in some other crypto currencies that they were basically originating. 

00:23:48 Speaker 1 

So they basically like, they’ll give you 4% on your Bitcoin loan somebody? 

00:23:52 Speaker 1 

Else will pay that, you’ll pay that. 

00:23:54 Speaker 1 

But then the other 11% is coming from some tokens. We’re giving you that actually. 

00:24:00 Speaker 1 

Airline, airline miles. 

00:24:00 Speaker 1 

Well, yes, answer we have to answer really important question. 

00:24:05 Speaker 1 

If you we look the the markets have incinerated. 

00:24:12 Speaker 1 

Many trillions are falling by shift on. Like for example there is 1.7 trillion you know, stablished, torched in each left alone just from a distance the beginning of. 

00:24:21 Speaker 1 

This year, right? 

00:24:22 Speaker 1 

We’ve done that or more in the crystal side. 

00:24:27 Speaker 1 

We’ve done that or more on public equities. 

00:24:29 Speaker 1 

Right, we’re probably. 

00:24:30 Speaker 1 

Going to do that or more in other markets, but every other market is regulated and there’s. 

00:24:34 Speaker 1 

A full account. 

00:24:36 Speaker 1 

Of the panels on the dollars that are $100 that are lost in here, some folks have just, you know, basically escaped with billions and billions and billions of dollars. 

00:24:47 Speaker 1 

And the bag holder is just, you know, a regional vessel. 

00:24:51 Speaker 1 

So the real question is our regulator is going to actually care to try to. 

00:24:55 Speaker 1 

And something because. 

00:24:56 Speaker 1 

The lab, the level? 

00:24:58 Speaker 1 

Breath does happen in this market is extreme. 

00:25:01 Speaker 1 

And especially when, especially when everybody was telling you no, This site is different, this market is completely different. 

00:25:08 Speaker 1 

It’s transparent, it’s on chain. 

00:25:10 Speaker 1 

We can see every and it turns out actually most people would not onto who’s asking. 

00:25:15 Speaker 1 

And they were using. 

00:25:17 Speaker 1 

They were using this. 

00:25:18 Speaker 1 

Hey, have fun being poor, this like PSYOPS to get you to participate. 

00:25:22 Speaker 1 

OK, boomer, you don’t get it. 

00:25:24 Speaker 1 

Gensler was talking to Cramer on CNBC. 

00:25:26 Speaker 1 

Here’s the quote. 

00:25:27 Speaker 1 

Some like Bitcoin, and that’s the only one, Jim, 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. 

00:25:38 Speaker 1 

And then he said many of these crypto financial assets have the key attributes of the securities side from Bitcoin. 

00:25:45 Speaker 1 

He believes. 

00:25:45 Speaker 1 

Things you have. These things are securities, and that makes sense ’cause 99% of people buying them stacks were buying them because they wanted to use them. Appreciate. 

00:25:53 Speaker 1 

They were never using these as utility. 

00:25:55 Speaker 1 

Tokens they were buying them to, you know, see them appreciate. 

00:25:58 Speaker 1 

Into flip them. 

00:25:59 Speaker 1 

So what do you think’s access or is there when we look back on this whole mess in 10 years is going to be like the.com era where we’re like, yeah. 

00:26:05 Speaker 1 

Got overheated but Amazon and Google came out of it. 

00:26:08 Speaker 1 

Or are we going to look? 

00:26:08 Speaker 1 

At it and go well, that was too last season. 

00:26:11 

Well, I I. 

00:26:12 Speaker 2 

Think there is a future technology platform here with crypto, but. 

00:26:18 Speaker 2 

I mean, I’ve. 

00:26:18 Speaker 2 

Been saying this for the last year that just because there’s a future technology platform doesn’t tell you what the pricing should be. 

00:26:25 Speaker 2 

And the price action got decoupled from the level of progress in the space you know you should always be looking at. 

00:26:32 Speaker 2 

What is the real usage, use cases, customers, revenues, things like that and people stopped doing that and I think part of the reason why. 

00:26:42 Speaker 2 

The narrative was so proud. 

00:26:44 Speaker 2 

If you go back to last year, then the chart that you monster about the the increase in price of Bitcoin, which is really the root of everything, right? 

00:26:52 Speaker 2 

Because, you know, first Bitcoin appreciates and then if you think about it like Ethereum is, the serious market cap is like a derivative of the Bitcoin market. 

00:27:03 Speaker 2 

Yeah, it’s been roughly 40. 

00:27:04 Speaker 2 

Percent and then the all coins sort of get the market cap. 

00:27:08 Speaker 2 

City all coins in surgery, but it lost its earnings market cap. 

00:27:11 Speaker 2 

So the whole thing kind of moves up in In Sync. And the reason why Bitcoin moves up so much is that as the Fed kept printing more and more money, you have sands of bitcoins saying, look, the Fed is debasing the US dollar. 

00:27:25 Speaker 2 

We’re getting alternative currency. 

00:27:27 Speaker 2 

That was a powerful narrative that the Fed should be vindicating, and there was a positive feedback loop, which is the more the Fed to base the currency, the more that the price of Bitcoin. 

00:27:38 Speaker 2 

Went up now. 

00:27:39 Speaker 2 

The reason the price went up was not because. 

00:27:42 Speaker 2 

They were debating the course. 

00:27:43 Speaker 2 

It was because they were creating so much liquidity that that they created a liquidity effect that then drove up the prices and so so. 

00:27:51 Speaker 1 

Consumers money that they could buy declined because. 

00:27:54 Speaker 1 

There was more. 

00:27:54 Speaker 1 

Money in the system. 

00:27:55 Speaker 3 

Yeah, you. 

00:27:56 Speaker 1 

Or buyers. 

00:27:57 Speaker 1 

And that’s exactly what happened. 

00:27:59 Speaker 1 

I mean all of this idiotic unired. 

00:28:02 Speaker 1 

Sorry, gross. 

00:28:03 Speaker 2 

You saw an increase in speculative investments across the board including but not limited crypto, so. 

00:28:08 Speaker 2 

Again, you know. 

00:28:09 Speaker 2 

When the Fed principles money creates asset bubbles. 

00:28:11 Speaker 2 

But there’s a powerful reinforcement because as the Fed was. 

00:28:16 Speaker 2 

Hunting Bitcoin and supports the client had a really great explanation for why Bitcoin was throwing up, which is burden storing the. 

00:28:22 Speaker 2 

U.S. dollar. 

00:28:23 Speaker 2 

We’re going to need an alternative soon now I think in a very, very long term. 

00:28:27 Speaker 2 

Could Bitcoin being a non Fiat currency? 

00:28:31 Speaker 2 

I mean I actually think the technology works. 

00:28:33 Speaker 2 

You could create a a new. 

00:28:36 Speaker 2 

Trying to proceed. 

00:28:37 Speaker 2 

As fast by math and by cryptography as opposed to Fiat government. 

00:28:41 Speaker 2 

But that could take a really long time. 

00:28:44 Speaker 2 

I mean that could be decades in the future and but what happened is the market started thinking, well that’s going. 

00:28:49 Speaker 2 

To happen soon. 

00:28:50 Speaker 2 

And that’s where it just got ahead of itself. 

00:28:52 Speaker 2 

That was the. 

00:28:52 Speaker 2 

Tulip part of it? 

00:28:53 Speaker 1 

Yeah, I think that. 

00:28:54 Speaker 1 

I think that. 

00:28:55 Speaker 1 

They found all of these words, you know, written in these economic cycles that allowed them, frankly to justify what a lot of people were doing in a lot of other markets, which isn’t straight up speculation because the money printer was going for. 

00:29:10 Speaker 1 

And you know if the. 

00:29:11 Speaker 1 

If you look at this. 

00:29:12 Speaker 1 

92% correlation to the equity markets, I suspect, in Bitcoin. 

00:29:16 Speaker 1 

And crypto is probably closer to 50 than 100%. 

00:29:20 Speaker 1 

Because it really was the food starting with her skirt, and it just made the most sense for yourself. 

00:29:25 Speaker 1 

Money was, you know, effectively infinitely going to be available to supply the riskiest risk assets. 

00:29:31 Speaker 1 

Think about the friction taken out of this trade off. 

00:29:33 Speaker 1 

You could buy these. 

00:29:34 Speaker 1 

You know cryptocurrencies so easily. 

00:29:37 Speaker 1 

You could trade them so easily, you could create one so easily. 

00:29:40 Speaker 1 

People were popping up forks of these things. 

00:29:43 Speaker 1 

So in a way, what technology has done over the last 30 or 40 years, from cloud computing to software to open source, has made it. 

00:29:51 Speaker 1 

Very easy to pop up a startup, but you could pop up a. 

00:29:53 Speaker 1 

Currency and then you could get an incredible room. 

00:29:56 Speaker 1 

Board and get this incredible reward before UNC made a product for consumers and gives absolutely 0 rules and oversight. 

00:30:06 Speaker 1 

No oversight, yeah. 

00:30:08 Speaker 1 

The feature that was touted. 

00:30:11 Speaker 1 

Will that be the first one to get thrown? 

00:30:13 Speaker 1 

Away with transparency, yeah. 

00:30:15 Speaker 1 

When all of this activity was actually happening off changes. 

00:30:18 Speaker 1 

This is why you have this systemic risk issue now when sound is saying. 

00:30:22 Speaker 1 

Some of these. 

00:30:23 Speaker 1 

Exchanges are actually insolvent. 

00:30:26 Speaker 1 

What he’s saying is, well, that exchange has one master. 

00:30:30 Speaker 1 

Wallet address. 

00:30:32 Speaker 1 

Every time you open an account and transact on such exchange, you’re actually just transferring between a database entry inside of that company. 

00:30:41 Speaker 1 

And so it may look like it is fine, but it is actually awesome. 

00:30:46 Speaker 1 

That’s what he’s claiming. 

00:30:48 Speaker 1 

This is the problem with all of this. 

00:30:49 Speaker 1 

So all of this activity, you know, built on these principles of openness and you know defensibility and you know you, you can’t inflate it and you know devalue it. 

00:31:00 Speaker 3 

And do basic. 

00:31:01 Speaker 1 

Turned out to not even matter because the fundamental principle that would allow us to verify all of that was violated right from the get go with transparency. 

00:31:08 Speaker 1 

All of it is happening in the dark. 

00:31:10 Speaker 1 

Most of this stuff is happening off chain and. 

00:31:13 Speaker 3 

If you think. 

00:31:14 Speaker 1 

That’s, you know, it’s located towards a trillion dollars of equity while at least there’s rules on the equity side, but. 

00:31:21 Speaker 1 

Towards 2 1/2 trillion dollars increase. 

00:31:23 Speaker 1 

So where there are no rules, it’ll be really, you know, it’ll be a very positive sign to see if these folks get their act together and buttons, meaning regulators and politicians can do something. 

00:31:33 Speaker 1 

But then we made this crazy hybrid where we had the venture community. 

00:31:36 Speaker 1 

I’m not going to talk about any specific firm here. 

00:31:38 Speaker 1 

And to be clear, you know, nobody knows exactly what’s happening, but you had. 

00:31:42 Speaker 1 

Coins you can’t know, by the way. 

00:31:45 Speaker 1 

You can’t know because it was happening off chain. 

00:31:48 Speaker 1 

So somebody would originate a coin and I was, you know, offered these deals and you would as offensive. 

00:31:53 Speaker 1 

That would be buying some equity in a company. 

00:31:55 Speaker 1 

And then some amount of tokens would be created before the token was released to the. 

00:31:59 Speaker 1 

Public or before anybody had insights into this? 

00:32:01 Speaker 1 

These tokens were swapping around. 

00:32:02 Speaker 1 

Everybody had different rights. 

00:32:04 Speaker 1 

Some people to sell early, some people could never sell. 

00:32:06 Speaker 1 

And it was as if, you know, you took the process of going public and you gave that to a seed stage or a series. 

00:32:15 Speaker 1 

The company before they launched their product, so you’re taking a company public essentially before they go, you know, they launch their product. 

00:32:20 Speaker 1 

If you. 

00:32:23 Speaker 1 

If you subpoenaed these changes. 

00:32:25 Speaker 1 

All of this gets turned over because the exchanges are the honeypot of auction activity, yeah? 

00:32:32 Speaker 1 

So, and that’s what’s going to happen, I think, in all of this and it’s going to be really funky. 

00:32:36 Speaker 1 

This is and what’s terrible about this is This is why the accreditation laws exist. Is like only sophisticated people. Top 6% of Americans are allowed to participate in private companies. 

00:32:46 Speaker 1 

And what did we do? We allowed 100% of people on the globe to participate in five examples. 

00:32:51 Speaker 1 

Facts that less than 1000 people in the world actually understand. That’s. 

00:32:57 Speaker 1 

What could go? 

00:32:57 Speaker 1 

Wrong. What could go? 

00:32:59 Speaker 1 

You get out buying stock. 

00:33:01 Speaker 1 

Buckingham bodies cryptographically. 

00:33:04 Speaker 1 

It’s not allowed to buy a share of LinkedIn or Uber or Airbnb, even though you stated in Airbnb or an Airbnb host, you’re too stupid to buy Airbnb shares, burns. 

00:33:13 Speaker 1 

But you can buy this crypto currency that doesn’t even. 

00:33:16 Speaker 1 

Have a product in. 

00:33:17 Speaker 1 

Market and here’s this white paper that has, you know, university level pure math of the explanation of why if nothing can go wrong. 

00:33:25 Speaker 1 

And it turns out again because. 

00:33:27 Speaker 1 

Nobody asked me understand in the first place. 

00:33:29 Speaker 1 

So this is going to be a decade of discovery price chart. 

00:33:31 Speaker 1 

At the. 

00:33:33 Speaker 1 

What it? 

00:33:34 Speaker 1 

Really means is like again, either we talked about. 

00:33:34 Speaker 3 

Thank you. 

00:33:37 Speaker 1 

If the equity markets have to rebase and get all this cutie on CUNY out of it, right? 

00:33:42 Speaker 1 

And then you have to re date for earnings if you believe you’re in a recession, and then you have to rebase for margins if you believe that there’s granted inflation. 

00:33:50 Speaker 1 

Those three things have to happen in yet, but you want to squirt them into that? 

00:33:53 Speaker 1 

Yeah, but that also has to happen on the crypto markets, in your pistol markets. 

00:33:57 Speaker 1 

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 and demand were meeting each other, there were all these you. 

00:34:06 Speaker 1 

Know five 10,000. 

00:34:08 Speaker 1 

3500 to 5000. 

00:34:11 Speaker 1 

That’s still 75% from you. 

00:34:14 Speaker 1 

Yeah, 20,000 now. So yeah we got, we got, we got, we have ways to go. One thing that I thought was an interesting sign of potentially bouncing along the bottom, Zendesk has agreed to be acquired by an investor group in an all cash transaction that’s basically going private here for around 10.2 billion if you don’t know Zendesk. 

00:34:32 Speaker 1 

It’s a help desk software company. 

00:34:33 Speaker 1 

So Fast software company. 

00:34:35 Speaker 1 

They turned out a similar acquisition of 17 billion earlier this year. Their market cap is 9.1 billion. 

00:34:40 Speaker 1 

In the public markets, it’s gone up. All the systems is announced. This was announced, but they have a billion 3IN revenue. 

00:34:49 Speaker 1 

There are 30. 

00:34:49 Speaker 1 

Percent year over year. 

00:34:50 Speaker 1 

So this is a strong company, but the acquisition price is 7.7 times. 

00:34:55 Speaker 1 

For 2021. 

00:34:57 Speaker 1 

Or did you say they’re up 30% of? 

00:35:00 Speaker 1 

Euro video wrapping this up, Ferguson, year over year they have $1.5 billion in cash and securities. You know, marketable securities so that. 

00:35:08 Speaker 1 

They’re cash rich. 

00:35:10 Speaker 1 

Small loft 200. 

00:35:11 Speaker 1 

23 million for the year in 2021, so. 

00:35:13 Speaker 1 

They have 6. 

00:35:14 Speaker 1 

Years of runway. 

00:35:15 Speaker 1 

If nothing were to change, yeah, what do? 

00:35:17 Speaker 1 

You make of this tax is why. 

00:35:19 Speaker 1 

Would they do this? 

00:35:21 Speaker 1 

They don’t have to. 

00:35:22 Speaker 1 

So, and is this to you like the sign of a bottom if we start seeing a bunch of these companies that went public that are seemingly strong start to go private? 

00:35:31 Speaker 1 

And to go maybe clean up their balance sheet and go public again in three years. 

00:35:35 Speaker 1 

What’s going on here? 

00:35:36 Speaker 3 

Why is? 

00:35:36 

Well, I mean. 

00:35:37 Speaker 2 

This is a horrible outcome by the way. I mean I remember we shared when I was doing Yammer a decade ago, we shared a floor in our in office building at 410 Townsend with with Zendesk and they had. 

00:35:49 Speaker 1 

They launched that tech crunch 50. 

00:35:51 Speaker 2 

Yeah, exactly. So we had I think 5000 square feet and then the other 5000 square feet and we were in a standoff, listen for expanding and we needed the other half of the floor and it was like who would move first basically and and anyway they ended up moving and we took over this. 

00:36:05 Speaker 2 

Space, but so I mean. 

00:36:06 Speaker 2 

Like this is a company that you know was. 

00:36:08 Speaker 2 

100,000,000 bucks 10 years ago. So whatever it was, I mean they were still, you know, they were very early stage. 

00:36:14 Speaker 2 

So this is still a great outcome. So they’re taking the 17 billion, sure with 2029 slides that would been better, but let’s you’re seeing the valuations here being roughly reflected. 

00:36:25 Speaker 2 

The Fast index is now down to about 5 1/2 times revenue to think next 12 months revenue. 

00:36:32 Speaker 2 

For them, for. 

00:36:33 Speaker 2 

The medium sized company that the medium fast. 

00:36:35 Speaker 2 

Companies wearing about 20% if. 

00:36:38 Speaker 2 

You’re a high growth company, which starts at 40%. We’re trading at about 8 times next 12 months revenue. 

00:36:44 Speaker 2 

So then there must be shorter in there. 

00:36:46 Speaker 2 

I mean that is what they’re trading for and fast rounders. 

00:36:48 Speaker 1 

Why don’t why would the founders of board want to go private is the question on. 

00:36:54 Speaker 1 

It’s not, it’s not the same article friends. 

00:36:57 Speaker 1 

I think that they wanted to stay public and they wanted to build a large business. 

00:37:01 Speaker 1 

But this is where the law of large numbers catches up. 

00:37:04 Speaker 1 

With every company. 

00:37:06 Speaker 1 

That’s why it’s so rare to have an apple or Google or Microsoft or Facebook or Netflix where you can grow for 20 years at 25 plus percent because at some point. 

00:37:15 Speaker 1 

25% growth over last year just becomes too hard of a mounted surprise. 

00:37:21 Speaker 1 

And So what vendors suffered from is. 

00:37:24 Speaker 1 

But most of these are companies, not. 

00:37:27 Speaker 1 

Unless I experience this, Congress will have to go through, which is the following. 

00:37:32 Speaker 1 

The easiest kind of sound company to start, and one vessel, you know, really turns its investors like sacks will find overwhelmingly over. 

00:37:40 Speaker 1 

Others are what’s called bottoms up tasks, right, things that’s down to the lower end of the market, things that sound to. 

00:37:48 Speaker 1 

You know. 

00:37:48 Speaker 1 

Individuals can buy them in a. 

00:37:49 Speaker 1 

Corporation as opposed to. 

00:37:51 Speaker 1 

The CIO, yeah, the unfortunate part of that group. 

00:37:54 Speaker 1 

Curve is that it’s pretty terminal within 7 to 10 years and after that you are forced to go to commit market and that eventually you’re forced to go enterprise. 

00:38:05 Speaker 1 

But when you. 

00:38:05 Speaker 1 

Go to the mid market and you’re selling for 550 to 1000, two 1000%. 

00:38:09 Speaker 1 

Companies and eventually even enterprise. 

00:38:12 Speaker 1 

You’re talking about massive investments of objects, people, engineers, product managers, salespeople, and all of that stuff costs money and it’s not clear that your product is any good. 

00:38:23 Speaker 1 

So in the Zendesk, for example, not the table, products are bad. 

00:38:27 Speaker 1 

But all of a sudden they were going up in selling a CRM tool, Salesforce automation tool, and now you’re going head to head against companies like Salesforce. 

00:38:34 Speaker 1 

Who are going to market? 

00:38:36 Speaker 1 

And all of a sudden Salesforce and Microsoft and all these. 

00:38:39 Speaker 1 

Companies can play. 

00:38:40 Speaker 1 

Very aggressive pricing games with their products, they can bundle all kinds of other things for free. 

00:38:45 Speaker 1 

They can give you discounts. 

00:38:47 Speaker 1 

And it’s very hard to compete. 

00:38:49 Speaker 1 

As a single individual company. 

00:38:50 Speaker 1 

So your growth starts to stall. 

00:38:52 Speaker 1 

So I suspect what happened is vendor is they said decent naked and we believe in ourselves and we found that it was hard. 

00:39:00 Speaker 1 

Then, instead of organically growing, that’s when they turned down the $17 billion offer they try to grow inorganically. Stainless SurveyMonkey. 

00:39:08 Speaker 1 

Right with our friends Angel. 

00:39:09 Speaker 1 

Runs instead, looking to try to. 

00:39:10 Speaker 1 

Find Apple $21 billion. 

00:39:12 Speaker 1 

And the market says ha ha. 

00:39:15 Speaker 1 

And then the market basically contracts and now they’re like, well, if we. 

00:39:19 Speaker 1 

Go and now torch or. 

00:39:21 Speaker 1 

Ethical goals and tell the market we’re. 

00:39:23 Speaker 1 

Going to go. 

00:39:23 Speaker 1 

And spend all that billion dollars we have to try to go up against Salesforce and Microsoft. 

00:39:28 Speaker 1 

With the product of internal. 

00:39:29 Speaker 1 

Is gonna work, are soft and he resolved. 

00:39:32 Speaker 1 

And so I think the best part of the parade of Terribles had happened to them. 

00:39:36 Speaker 1 

But it’s a little bit of a warning sign for how difficult it is to get big, like what Salesforce pulled off right, and what work day is trying to pull off the service. 

00:39:46 Speaker 1 

Now has pulled off. 

00:39:48 Speaker 1 

I mean it underestimates. 

00:39:50 Speaker 1 

The quality of these things in the world. 

00:39:52 Speaker 1 

Pull that up. 

00:39:53 Speaker 1 

We can fix it, Vicki. Enterprise apps, solar companies, ServiceNow probably being lastly it is incredible. 

00:40:02 Speaker 1 

It’s so difficult. 

00:40:03 Speaker 1 

Palo Alto Networks is probably the next closest rundown. 

00:40:06 Speaker 1 

Explorers are maintained treatments. 

00:40:08 Speaker 1 

It doesn’t matter how you get there organically and organically doesn’t matter. 

00:40:11 Speaker 1 

The point is, it’s very hard. 

00:40:14 Speaker 1 

Most CEO’s failed nobody in Congress. 

00:40:16 Speaker 1 

Going but. 

00:40:17 Speaker 1 

OK, so my original question is, is this the bouncing along the? 

00:40:19 Speaker 1 

Bottom moment ’cause. 

00:40:21 Speaker 1 

We have paletton. 

00:40:22 Speaker 1 

We have started seeing that so many. 

00:40:23 Speaker 1 

Of these. 

00:40:24 Speaker 1 

Since this is a warning sign. 

00:40:26 Speaker 1 

OK. 

00:40:28 Speaker 1 

This is not yet the bottoms. 

00:40:30 Speaker 1 

Well, this is a warning sign that says you can now go into a massive investment cycle for all companies unless you can prove that you can sustain margins, sustained growth and minimize offsets. 

00:40:45 Speaker 1 

But isn’t this a very sophisticated buyer taking it private? 

00:40:49 Speaker 1 

They must have the thesis of how they’re. 

00:40:50 Speaker 1 

Going to get their money back. 

00:40:53 Speaker 1 

Right, so that’s my point, is taxi, you think? 

00:40:56 Speaker 1 

That this is like. 

00:40:57 Speaker 1 

If the company is already public and somebody saying, hey, you know, if I. 

00:41:01 Speaker 1 

Take this private I. 

00:41:03 Speaker 1 

Can do better than if it’s public and I’ll reintroduce it to the public marks to get liquidity later, isn’t that what’s? 

00:41:07 Speaker 1 

Going to happen here in all. 

00:41:08 Speaker 1 

The meeting has seen many happens of understanding how. 

00:41:11 Speaker 1 

The user. 

00:41:11 Speaker 1 

Well, it’s got a billion 5 and it’s break even almost. 

00:41:15 Speaker 1 

OK, but what about the what about the billions of dollars of debt they’re going to take out and slab off in this company? 

00:41:21 Speaker 1 

Right. What about the number? 

00:41:22 Speaker 1 

Of people they need to hire. 

00:41:22 Speaker 1 

Post going private. 

00:41:24 Speaker 1 

At the end of the day, the private equity firms are not trying to make, you know, this $10 billion go to 25. They’re trying to make the 2 billion of equity. 

00:41:33 Speaker 1 

They put in go to three. 

00:41:36 Speaker 1 

And there’s a lot of ways that you can go to three before 10. 

00:41:38 Speaker 1 

Goes to 25. 

00:41:40 Speaker 1 

It’s so they want. 

00:41:41 Speaker 1 

A modest return. 

00:41:42 Speaker 1 

The most conservative 50% return. It’s a lot. It’s just making a billion dollars. It’s hard. 

00:41:48 Speaker 1 

Yeah. But compared to the management team and the board view of being a public company and growing 20% a year or it’s actually more face 30, would that be a better opportunity for those shareholders? That’s what doesn’t add up here. So that’s what you think. 

00:42:00 Speaker 2 

If I had to guess, like I haven’t talked to Michael about why they’re doing it, I think that they’re operating at a new stage of the business. 

00:42:06 Speaker 2 

I don’t think it’s as fun to be growing a company at call it 20 to 30% a year and now all of a sudden you have to generate cash flow and. 

00:42:14 Speaker 2 

You’re being valued on. 

00:42:15 Speaker 2 

That, I mean, they’re past the hard Rd. 

00:42:16 Speaker 1 

So many things. 

00:42:17 Speaker 1 

Are not in short pieces. 

00:42:18 Speaker 2 

I don’t know. I. 

00:42:19 Speaker 1 

Mean it’s it seems a potential business I think. 

00:42:21 Speaker 2 

That’s basically why people sell good businesses. 

00:42:24 Speaker 2 

Like, I actually don’t think there’s a problem in their business, I think. 

00:42:27 Speaker 2 

Growing 30% a year with 1.3 billion in revenue turning a cash in the bank, I think they have. 

00:42:33 Speaker 2 

A good product. 

00:42:34 Speaker 2 

I don’t think there’s anything wrong with the business. 

00:42:36 Speaker 2 

Yeah, I think that that. 

00:42:37 Speaker 2 

I do think founders get burned out and this is an exit. 

00:42:41 Speaker 2 

And I do think that the phase of. 

00:42:42 Speaker 2 

Their business we’re in right now is not gonna be as fun as a high growth phase look when you’re growing up. 

00:42:47 Speaker 2 

100% a year and investors are willing to fund that growth and then are really safe here. Possible that is just more fun than growing a business 20 or 30% a year and investors are breathing down your neck straight when you can deliver cash flow. 

00:43:02 Speaker 2 

And what the private equity? 

00:43:03 Speaker 2 

Guys do is they’re going to go in there and we’re going to restructure the business to deliver cash flow. 

00:43:10 Speaker 2 

I think ultimately these types of businesses degrate these awful dismissal papers and stuff because the high cost margin. 

00:43:17 Speaker 2 

And you know. 

00:43:18 Speaker 2 

They’ve got a subscription base that just keeps growing organically. 

00:43:22 Speaker 2 

They’ve got positive net dollar retention, so you’ve got a, let’s call it, a $1.3 billion subscription base that will grow. 

00:43:30 Speaker 2 

To 2 billion. 

00:43:31 Speaker 2 

Over the next whatever half dozen years and quite frankly I believe the private equity guys. 

00:43:35 Speaker 2 

Are going to have to come. 

00:43:36 Speaker 2 

Structure. There’s no reason we should be generating 500 million a year. 

00:43:40 Speaker 2 

In free cash flow. 

00:43:41 Speaker 1 

But the management team would be unwilling to do. 

00:43:44 Speaker 2 

That because it would stop. 

00:43:46 Speaker 1 

It kind of sucks, ’cause you want every day to come in and fire half the team that you hired and take that hard medicine. 

00:43:52 Speaker 1 

It’s just as a bummer for that personality type. 

00:43:54 Speaker 2 

I think it is. 

00:43:55 Speaker 2 

I think, I think it is a different kind of management challenge. 

00:43:58 Speaker 2 

And yeah, I don’t think that’s fun and but look, the thesis behind software companies, the justification. 

00:43:59 Speaker 3 

And everything. 

00:44:05 Speaker 2 

So then burning money was, look, we’re going to, we’re going to spend every dollar in revenue that we make and then slump because we’re building a subscription revenue base that again has positive net dollar retention. 

00:44:17 Speaker 2 

So one day, OK, one day we won’t have to keep investing so much in sales and marketing. 

00:44:23 Speaker 2 

We won’t have to keep investing. 

00:44:25 Speaker 2 

So much in R&D, missile keep. 

00:44:27 Speaker 2 

Investing to some degree will make the product better. 

00:44:29 Speaker 2 

This will be a little bit more maintenance though. 

00:44:31 Speaker 2 

We will get to maturity those. 

00:44:33 Speaker 1 

And then the. 

00:44:34 Speaker 1 

Officers of the staff and all of a sudden. 

00:44:36 Speaker 2 

Now also the companies can be super possible and the fact of the matter is, is that day never came because the markets never demanding. 

00:44:42 Speaker 1 

And now the date now that day. 

00:44:42 Speaker 2 

It well. 

00:44:44 

Is here I. 

00:44:44 Speaker 1 

Don’t know who runs, but it never came because the. 

00:44:46 Speaker 1 

Work is kept demanding. 

00:44:47 Speaker 1 

More gross. 

00:44:48 Speaker 1 

If you look at their long term operating margins, even when they first when they first came out published this is less had like a -, 30% margin, 2 years later they had a -, 50% margin and over the last seven years that was. 

00:45:02 Speaker 1 

15 up to now they’ve clawed their way back to -, 13%. 

00:45:07 Speaker 1 

So at some point I think investors said, Oh my gosh, this company is never made money, it needs to keep investing more. 

00:45:13 Speaker 1 

In order to grow. 

00:45:15 Speaker 1 

And I think David SharePoint maybe the decision that he didn’t want amazed once to flip it to a cash cow. 

00:45:21 Speaker 1 

I don’t think that’s true. 

00:45:23 Speaker 1 

I looked at these guys have been generating cash, they reported. 

00:45:27 Speaker 1 

Gap earnings are negatives because of the stock based comp expense, meaning that they’re issuing shares being glazed. 

00:45:32 Speaker 1 

Here and. 

00:45:33 Speaker 3 

I think. 

00:45:34 Speaker 1 

That that’s actually worth highlighting because this is an important one, that people have been talking about this considerably lately. 

00:45:39 Speaker 1 

So this company has been making money every quarter to generate cash. 

00:45:43 Speaker 1 

But in the last. 

00:45:44 Speaker 1 

Quarter they issued $60 million in stock to employees to compensate them for the work that they do. 

00:45:51 Speaker 1 

So that’s 250 million roughly of dollars per year of stock based comp, which is 2 1/2% of the total shares outstanding in the company are issued as employee. 

00:46:04 Speaker 1 

That number results in a dilutive effect to shareholders over time, even though the business is generating cash. Your relative ownership of the shareholder in a business that’s generating cash is going down by 2 1/2% 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. 

00:46:24 Speaker 1 

And a lot of folks kind of taken for granted. This was well rooted in, I would say probably Google who became very generous very early on with issuing Rs years and stock in their publicly traded securities to employees as part of their compensation package. But Google has a 3040% EBIT Dom margin in terms of incremental contribution of new. 

00:46:44 Speaker 1 

And they can afford to take a point or. 

00:46:48 Speaker 1 

Two of dilution. 

00:46:49 Speaker 1 

Google, by the way, is actually not diluted things. 

00:46:52 Speaker 1 

They buy back shares with their extra cash. 

00:46:54 Speaker 1 

So as a shareholder you actually benefit from this considerable tax generation, but a lot of software businesses and tech companies in general have had to rely on issuing shares. 

00:47:04 Speaker 1 

To compensate employees for the work that they do. 

00:47:06 Speaker 1 

So even though the core fundamental of the business is generating cash and cats is going up every year. 

00:47:11 Speaker 1 

Or the business doesn’t know how to get out of this cycle of how do you pay these engineers? 

00:47:15 Speaker 1 

400,000. 

00:47:15 Speaker 1 

Dollars a year without polluting shareholders by issuing all these new shares every year. 

00:47:20 Speaker 1 

And you have to do that more likely as a private company to figure out how to consolidate earnings, how to trim hedge funds and actually get paid to generate the cash. 

00:47:28 Speaker 1 

At least in general. 

00:47:29 Speaker 1 

It’s not like you’re pretending like, it’s. 

00:47:33 Speaker 1 

Yeah, it’s not, it’s it’s a real cost. 

00:47:35 Speaker 1 

It’s across the. 

00:47:35 Speaker 1 

Server, server wide, but why? 

00:47:37 Speaker 1 

Why the asterisk? 

00:47:39 Speaker 1 

Well, no, there’s a specific. 

00:47:40 Speaker 1 

Reason because the business itself offers running out of cash. 

00:47:43 Speaker 1 

It’s not burning tasks. 

00:47:44 Speaker 1 

The business is growing its cash balance, but in order to compensate employees for that cash balance, there’s alluding you the shareholder, right? 

00:47:51 Speaker 1 

I love it when you own a share. 

00:47:54 Speaker 1 

Of a company, but they. 

00:47:55 Speaker 1 

Which, by the way, is another way of saying that the company is effectively issuing 2 1/2% new stocks of the year to fund its operations. I mean, that’s. 

00:48:02 Speaker 1 

Another way to think about it. 

00:48:03 Speaker 1 

Look, I’ll give you the Warren Buffett’s code. You can tell me that it’s stupid, but big kind of makes sense, which is you take the number of shares you own. 

00:48:10 Speaker 1 

He’s divided by the. 

00:48:11 Speaker 1 

Total number of shares outstanding. 

00:48:13 Speaker 1 

You look at the total profits and you say my look through earnings equal not percentage crimes or profits. 

00:48:19 Speaker 1 

The percentage is going down every year with stock take off. 

00:48:23 Speaker 1 

That’s a. 

00:48:24 Speaker 1 

And so the question is. 

00:48:25 Speaker 1 

It’s also going down because you’re buying real estate, you’re hiring people, you’re paying them more like it’s going down for a whole host of reasons that asked for it. 

00:48:32 Speaker 1 

To be relevant. 

00:48:33 Speaker 1 

Aspects in life like yesterday you spend money to grow. 

00:48:36 Speaker 1 

How you spend the money is not. 

00:48:37 Speaker 1 

That important to me. 

00:48:38 Speaker 1 

Let me say 2 quick. 

00:48:39 Speaker 1 

Things on the topic. 

00:48:40 Speaker 1 

One is, yeah, I totally agree. 

00:48:43 Speaker 1 

There’s an enterprise software. 

00:48:45 Speaker 1 

In fact, you’re the master of the art. 

00:48:49 Speaker 1 

You know, as an observer, it seems to me that many of these companies once. 

00:48:53 Speaker 1 

You have an enterprise. 

00:48:54 Speaker 1 

Account you benefit from being able to cross sell new products into that account and you can grow this net revenue retention number over time and ultimately generate tests. 

00:49:03 Speaker 1 

Many of the big enterprise software companies that we’ve talked about from Salesforce Work Day and others have succeeded in doing that. 

00:49:09 Speaker 1 

Autodesk is another good example in callback that based on the voltage send out. 

00:49:13 Speaker 1 

They’ve done, they’ve done this successfully by bulking up their product categories and there they’ve done acquisitions or they’ve done build outs and so over time your incremental cost to to sell a a new product and generate incremental growth, profit goes down and the business performs better with scale. 

00:49:32 Speaker 1 

This seems to be one of those businesses where ultimately they couldn’t bulk up through acquisition and they couldn’t organically don’t need products. 

00:49:38 Speaker 2 

Or a drive. 

00:49:39 Speaker 1 

And they cried. 

00:49:40 Speaker 1 

And so the challenges are kind of a, I don’t want to say once by Tony, but the portfolio of things that a business like this can sell into and ultimately increment gross profit is brain limited and that business becomes challenging to operate as a public company. 

00:49:52 Speaker 1 

’cause you really? 

00:49:52 Speaker 1 

Do have to show that momentum as a scaled enterprise software business that you’re actually generating real cash overtime? 

00:49:59 Speaker 1 

The other thing I just want to say it’s octane and sorry Sasha, come back to one second, but tomorrow and you guys, I don’t know if you realize this, but the standard in Silicon Valley. 

00:50:08 Speaker 1 

Today, when a company goes public in an IPO is to have what’s called an Evergreen stock rank proposal, and Evergreen basically means that every year the company is authorized, the board automatically authorizes the issuance of some percentage of new shares per year. This is typically in the range of 4%. 

00:50:28 Speaker 1 

And ISS and other, you know, kind of institutional shareholder advisory services actually vote against. 

00:50:35 Speaker 1 

These shareholder proposals and push back against them, but most of the companies in Silicon Valley that so public automatically include evergreens as part of their, you know, kind of ideal. 

00:50:45 Speaker 1 

Perspectives, I mean. 

00:50:46 Speaker 1 

Can we at least? 

00:50:47 Speaker 1 

Right, yeah, which means that every mirror they can, they can dilute shareholders by 4% is independent of how the business operated by year, which is effectively the same as doing a 4% secondary patch offering every year because it’s pure issuing those shares into the pub. 

00:51:02 Speaker 1 

Market and then instead of getting cash or paying your employees with them. 

00:51:06 Speaker 1 

And so it avoids you having to use your own past balance to pay your employees. 

00:51:10 Speaker 1 

So you’re effectively raising money every year and you’re allowed to raise up to 4% dilutive effective shareholders to do that every year? 

00:51:17 Speaker 1 

And it’s become a real topic and it seems to me that a lot of the big portfolio managers of big institutional. 

00:51:22 Speaker 1 

Forms are starting to pay really close attention to this quote UN quote standard in Silicon Valley. That stock based comp expense has become so high and evergreens have become kind of standard as almost like an ordinary course of business and it’s become, you know, a really intensive cropping and I don’t think it would be too surprising. 

00:51:40 Speaker 1 

Our number one to see tax salaries. 

00:51:42 Speaker 1 

Go up and. 

00:51:43 Speaker 1 

#2 as a result of that to teach salaries become rationalized in Silicon Valley where engineers they start to get challenged on the standard 400K per year that everyone become used to, you know in terms of, you know, high tier, you know, patenting series so. 

00:51:55 Speaker 3 

So for me. 

00:51:56 Speaker 1 

There is a compromise that could be had, but this compensation, if you have to remember, has been outrageous in some cases, especially for senior management. 

00:52:06 Speaker 1 

And so it makes the core business look broken. 

00:52:09 Speaker 1 

But what changes? 

00:52:10 Speaker 1 

Maybe people who are on these boards? 

00:52:13 Speaker 1 

Are also in on this compensation and it’s just bad hygiene and it’s not related to the performance of the company, right? 

00:52:19 Speaker 1 

I don’t think other than the board people are quote in on it. 

00:52:21 Speaker 1 

I think that’s it’s just it’s you have to pay an engineer for 10 year to compete effectively in. 

00:52:25 Speaker 1 

Silicon Valley. 

00:52:26 Speaker 1 

Why are we talking more about the management, the management, stock option management, stock comp is different? 

00:52:31 Speaker 1 

Than the engineers. 

00:52:32 Speaker 1 

Who would agree? 

00:52:32 Speaker 1 

Preferably there have been some enormous soccer, and for yeah, yeah, certainly. 

00:52:36 Speaker 2 

If you want to run the company as a high growth startup with employing these high paid engineers and executives, including stock compensation. 

00:52:45 Speaker 2 

That is, uh? 

00:52:46 Speaker 2 

Certain kind of way of running the business, but again, if you’re trying to run the business for profitability, that’s a different way of running the business. 

00:52:51 Speaker 2 

And just add a layer to what happened here that Zendesk was under intense pressure from an activist investor called Jana who is basically trying to replace the board of Directors or running a proxy battle against them. 

00:53:04 Speaker 2 

So Jan has been pressuring them to replace the board to make all these changes that to take. 

00:53:11 Speaker 2 

The $17 billion offer, I guess back in March, they didn’t. 

00:53:14 Speaker 2 

Do it now, they. 

00:53:16 Speaker 2 

Did a lower offer a 10 billion? 

00:53:18 Speaker 2 

I think because the market has clarified. 

00:53:20 Speaker 2 

We now it’s it’s clearer that we’re in this regime change, but the market is valuing, it’s just free cash flow as opposed to profitless growth. 

00:53:30 Speaker 2 

And my guess is, again, without having talked to Michael, my guess is they tried to strip their. 

00:53:34 Speaker 2 

Arms said listen. 

00:53:35 Speaker 2 

You know, like it’s not gonna be fun to run the company this way, but you also chat. 

00:53:40 Speaker 2 

You have to ask the question, why are these highly sophisticated tired equity firms buying it for 10 billion? 

00:53:45 Speaker 2 

I think they’re going. 

00:53:45 Speaker 2 

To make a. 

00:53:46 Speaker 2 

Lot of money and the way they’re going to make a lot of money. 

00:53:48 Speaker 1 

My dad, I’m here. 

00:53:50 Speaker 2 

They are going to flash the hell out of the cost structure. 

00:53:53 Speaker 2 

They’re gonna run it to be highly possible. They’ll probably bring the growth down since 30% year. That’s 20% or 15%. 

00:54:00 Speaker 2 

But Japan is the offsetting benefit to reducing the growth little bit will be they could probably generate 3, four, 500 million or freeze half so on that business if it’s doing 1.3 billion and they stop investing in R&D. 

00:54:12 Speaker 2 

And they stop. 

00:54:13 Speaker 2 

They bring down the sales and marketing that could be, that could be a cash cow like you said. 

00:54:18 Speaker 2 

So I think that’s probably what’s what’s going on here is the. 

00:54:21 Speaker 1 

Just want. 

00:54:22 Speaker 1 

I just want you guys to. 

00:54:23 Speaker 1 

Know not to post. 

00:54:24 Speaker 1 

This puzzle, but when people talk about free cash flow. 

00:54:27 Speaker 1 

It is held in a lot of companies touting was because you’re allowed to add back in stock based comp as if it doesn’t exist. 

00:54:35 Speaker 1 

The problem is a stock based conscious non cash. 

00:54:39 Speaker 1 

So when when you’re only first, so if. 

00:54:41 Speaker 1 

You see a. 

00:54:41 Speaker 1 

Company or as negatively, but there are negatives at everything all of a sudden are like. 

00:54:46 Speaker 1 

Quote UN quote. Free cash flow positive. 

00:54:48 Speaker 1 

It’s because we. 

00:54:49 Speaker 1 

Were able to add backing SE pump but that money is not meal. 

00:54:53 Speaker 1 

So when the only source of free cash or stock based cost that free cash flow doesn’t reflect the company’s group profit. 

00:55:00 Speaker 1 

This is what I mean by people playing slow games with these numbers to allow, you know folks, let’s mostly no value something based on metrics are actually no because you know our soft based comp is off the charts. 

00:55:11 Speaker 1 

Let’s actually go to something else, you know, we’ll do a non gap even measure, you know, you know, adjusting this. 

00:55:17 Speaker 1 

Down and then. 

00:55:18 Speaker 1 

Oh actually wait, sorry. 

00:55:19 Speaker 1 

Look at free cash. 

00:55:19 Speaker 1 

Well if you can add back in this organic food amount of stock based on, I mean it’s crazy. 

00:55:24 Speaker 1 

I’ll just the quote from Warren Buffett, but the the, the quote from Warren Buffett summarizes the best. 

00:55:31 Speaker 1 

If compensation isn’t an expense, what is? 

00:55:36 Speaker 1 

And real and recurring expenses don’t belong in the calculation of running round the world that they belong. 

00:55:43 Speaker 1 

And he’s right. 

00:55:45 Speaker 2 

My point is, is not that complex the expense it is, but rather that it’s inexpensive. 

00:55:51 Speaker 2 

You can control by reducing the amount of staff. 

00:55:52 Speaker 1 

No, I hear you. 

00:55:53 Speaker 2 

My guess is that I think the private equity guys are gonna basically wax. 

00:55:57 Speaker 2 

The service business. 

00:55:57 Speaker 1 

I’m I’m just saying you can distort free cash flow as well. 

00:56:00 Speaker 1 

Decongestant factoring stock based comp with the joke, it’s a little bit of a shell game going on. 

00:56:04 Speaker 1 

It’s like. 

00:56:04 Speaker 1 

The Dirty deeper cleaning. 

00:56:06 Speaker 1 

Up Q&A like an important investing accounting correction. 

00:56:11 Speaker 1 

Let’s say that a business like Zendesk is generating $100 million of free cash a year. 

00:56:17 Speaker 1 

No, no. 

00:56:17 Speaker 1 

What does that mean? 

00:56:18 Speaker 1 

Well, hold. 

00:56:19 Speaker 1 

On. So every year there cash balance goes up by $100 million. 

00:56:23 Speaker 1 

They have a business that generates $100 million of incremental cash every year. The cash balance codes are so you as a shareholder owns shares in a company that is creating $100 million of cap of incremental capital per year. 

00:56:34 Speaker 1 

However, your shares that you own are going down because they’re getting diluted every year by roughly 2 1/2. 

00:56:42 Speaker 1 

3%, and that’s it takes. 2 1/2 percent is endust actual number, so every year you’re getting diluted by 2 1/2%. 

00:56:48 Speaker 1 

Would you rather have any business that you are getting diluted by 2 1/2% but it’s incrementing its overall? 

00:56:54 Speaker 1 

Balanced by $100 million? Or would you rather own shares in a company that’s burning cash each year? 

00:57:00 Speaker 1 

And I think that’s where this ended up from a market perspective getting rationalized if shareholders said I want to have the safety and security of cash generation and I’m willing to take on the dilution for it. 

00:57:10 Speaker 1 

And that’s how this became, you know, as standard as. 

00:57:12 Speaker 2 

It is when I think about funding and new startup and I look at the competitive landscape, when I see that the competitors have all been acquired by private equity companies, I generally think, OK, there is room for innovation here because I know that the first thing that PE firms are going to do when they acquire. 

00:57:31 Speaker 2 

Company is like. 

00:57:33 Speaker 2 

The zero out orange or just put the tonic on maintenance mode. 

00:57:36 Speaker 2 

There’s no innovation that happens he up with the product once the PR is by the fire, right? 

00:57:41 Speaker 2 

So the reality is I. 

00:57:42 Speaker 1 

Think those are good targets for first graphic? 

00:57:46 Speaker 1 

I mean the price. 

00:57:46 Speaker 2 

Yeah, they’ll they’ll do roll-ups, right? 

00:57:47 Speaker 1 

Yeah, well, yes. 

00:57:49 Speaker 2 

They will do financial innovation. 

00:57:52 Speaker 2 

They will innovate the structure. 

00:57:54 Speaker 1 

So put all. 

00:57:54 Speaker 2 

Of the business. 

00:57:54 Speaker 1 

Those, uh, wasteful spending and all the nonsense. 

00:57:57 Speaker 1 

One is yeah, exactly. 

00:57:59 Speaker 1 

Come on, say. 

00:57:59 Speaker 1 

One side cut out all the cars. 

00:58:00 Speaker 1 

Bar chart that he exposed brick walls with all his nonsense so students. 

00:58:01 Speaker 2 

Yeah, the time bars are Russia. 

00:58:05 Speaker 1 

Vegas Strip, yeah. 

00:58:07 Speaker 2 

This soft based conversations, when I go away ’cause, we’re going to get rid of all the high-priced engineers, we’re going to get rid of a lot of the high price executives. 

00:58:14 Speaker 2 

They’re going to, probably they’re going to. 

00:58:16 Speaker 2 

Have to keep customer support. 

00:58:17 Speaker 1 

Services around with cash salaries. 

00:58:19 Speaker 2 

Probably they’ll bonus people those do Burmese, which we’re hitting targets instead of giving people such equity in the business. 

00:58:26 Speaker 2 

And overwatcher. 

00:58:28 Speaker 2 

In private equity price wise, it’s not funny to me. 

00:58:30 

So I can do this task. 

00:58:33 Speaker 1 

Right. 

00:58:35 Speaker 1 

Yeah, I mean. 

00:58:38 Speaker 1 

I think the other reason why wouldn’t be so simple level of financial engineering which is highly sophisticated. 

00:58:43 Speaker 1 

I think for some people it is fun. 

00:58:44 Speaker 1 

I think for us it’s less fun because you’re not. 

00:58:47 Speaker 1 

That’s building company person. 

00:58:49 Speaker 1 

You’re not being a product person here. 

00:58:51 Speaker 1 

Yet, but I would say that it is a highly sophisticated and the folks that do it at these places that these private. 

00:58:55 Speaker 1 

Equity firms are incredibly expensive. 

00:58:57 Speaker 1 

A tab, how they do it, and it’s all the twists and turns of how you, you know, leverage this up and use debt and blah and use the margin, loan and key funds. 

00:59:06 Speaker 1 

I mean. 

00:59:08 Speaker 1 

It’s not the stuff that necessarily you want to be thinking about. 

00:59:12 Speaker 1 

But those actually have to do as well. 

00:59:14 Speaker 2 

I totally agree that, like I’m, I’m happy they exist in the ecosystem because we need firms, we need more exits, right? 

00:59:21 Speaker 2 

And we know that right now in Washington, the. 

00:59:26 Speaker 2 

The regulatory regime is very difficult, very hard. 

00:59:29 Speaker 2 

To get deals for. 

00:59:31 Speaker 2 

So at least you have private equity firms are providing some exits and we need the ecosystem needs objects. 

00:59:36 Speaker 1 

And those actions are saying facts don’t trig. 

00:59:38 Speaker 1 

They’re like competetive concerns with Nikon and. 

00:59:42 Speaker 1 

Her group, right? 

00:59:42 Speaker 1 

Like I saw some private equity firm practice private. 

00:59:44 Speaker 1 

OK, Salesforce didn’t buy it so we don’t need to. 

00:59:45 Speaker 3 

Right. 

00:59:46 Speaker 1 

Get through regularly. 

00:59:47 Speaker 3 

Right, right. 

00:59:47 Speaker 1 

You’re going to see. 

00:59:48 Speaker 1 

A lot we. 

00:59:49 Speaker 2 

Need exists in order to justify the risk capital that goes in at the earliest stages, which in most cases can be a. 

00:59:56 Speaker 1 

Zero and interesting gives you. 

00:59:58 Speaker 1 

Some other numbers out there at Manscaped which. 

01:00:00 Speaker 1 

Covers those raises for guys. 

01:00:02 Speaker 1 

They had 315. 

01:00:04 Speaker 1 

Then in net loss in 2021 with Ranger 10 million in stock based. 

01:00:09 Speaker 1 

By the way, that number can also be distorted. 

01:00:11 Speaker 1 

Just to be clear, if you’re giving one time big grants to an executive like a CEO, yeah, 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 descriptor on, but you can have these very significant short term costs associated with a big grant that could test over a long. 

01:00:28 Speaker 1 

Period of time. 

01:00:29 Speaker 1 

Or with. 

01:00:30 Speaker 1 

That has very high-priced prices. I mean when Elon got that massive grant at Tesla, the stock based comp expense was significant. 

01:00:38 Speaker 1 

But but, you know they did. 

01:00:39 Speaker 1 

Say it was 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 fast price and the delivery of cars. 

01:00:47 Speaker 1 

So that’s one of the. 

01:00:48 Speaker 1 

Things that he just throws. 

01:00:49 Speaker 1 

Yeah, yeah. 

01:00:50 Speaker 1 

So this is one of the. 

01:00:51 Speaker 1 

Things that’s broken in Silicon Valley yourself the the comp in the stock based comp is not tide to performance. 

01:00:57 Speaker 1 

It’s like just giving people guaranteed. 

01:00:59 Speaker 1 

Well, for junior people like that, there is more sophistication to be. 

01:01:03 Speaker 1 

Here in executive comp in public technology, providing such a trickle down to the junior people to I think everybody could rise and fall with the company performance. 

01:01:11 Speaker 1 

That’s my personal feeling. 

01:01:12 Speaker 1 

I mean, this is the problem with entitlements, you know, and and people being entitled prefers to be like a red cold here, but we should have like performance should be lauded and compensated for not showing up. 

01:01:23 Speaker 1 

And hanging out, there’s really a bunch of companies in this position. So look for this as a trend. Powhatan 964 million last quarter in revenue lost 757 million in the core. 

01:01:33 Speaker 1 

After they have a $3.1 billion market cap, they’ve only got $879 million worth of cash. 

01:01:38 Speaker 1 

I’m just looking at these numbers. Hopefully they’re they’re tight and they have a billion 4IN inventory that company is going to get taken out by feed. 

01:01:47 Speaker 1 

I don’t know why that even went public. They’re down 84% and 91 million bought a media company $91 million in Q1 revenue. 

01:01:54 Speaker 1 

They lost 45 million, their market cap is down to 210 million and they’ve only got 74 million in cash or so with some, you know, means 100 million accounts receivable. So there’s a bunch of companies right now. 

01:02:06 Speaker 1 

That are public. 

01:02:07 Speaker 1 

That are about to hit in a couple of quarters, running out of cash going into a recession, are we? 

01:02:13 Speaker 1 

Going to see. 

01:02:14 Speaker 1 

Some big flameouts, do you think? 

01:02:16 Speaker 1 

And are you watching specific companies? 

01:02:17 Speaker 1 

Because the private. 

01:02:18 Speaker 1 

Equity folks must be salivating watching this. 

01:02:21 Speaker 2 

Well, I mean, let’s check how you asked what the take away was around this. And I think the take away is there’s been a regime change in the public markets. The way that investors look at these companies is changing. It’s not. 

01:02:32 Speaker 2 

About growth at all costs anymore, they’re not just looking at revenues, it’s also about margins and cash flow and you know we talked about in the last pod how? 

01:02:41 Speaker 2 

I think a lot of founders understand intellectually that we’re headed for a downturn. 

01:02:46 Speaker 2 

It’s not a recession, but they weren’t taking the medicine of basically reducing their burn well. 

01:02:52 Speaker 2 

This is an indication of what investors are. 

01:02:55 Speaker 2 

Valuing is the. 

01:02:56 Speaker 2 

Only way for Zendesk to create value as a public company is a social private equity firm which cannot. 

01:03:02 Speaker 1 

Sync contacts so fast. 

01:03:03 Speaker 2 

Is going to. 

01:03:03 Speaker 2 

Set up or some cheese almost faster. 

01:03:06 Speaker 2 

Run it. 

01:03:06 Speaker 2 

For Pete’s outflow. 

01:03:06 Speaker 3 

Thank you. 

01:03:07 Speaker 2 

That’s just an indication of the regime change. 

01:03:09 Speaker 2 

So, you know, we need founders to start internalizing this information so they can run their businesses more efficiently. 

01:03:17 Speaker 2 

You know what investors want right now? 

01:03:19 Speaker 2 

They still want growth, but they want it with low burn. 

01:03:22 Speaker 2 

High burn operations are gonna get punished. 

01:03:24 Speaker 1 

As transition growth of my public markets trying to focus on debt. 

01:03:30 Speaker 1 

And I’ve been looking at these companies because, yeah, because there’s a lot of. 

01:03:34 Speaker 1 

These really interesting tech. 

01:03:35 Speaker 1 

Companies with a. 

01:03:35 Speaker 1 

Lot of because what David said I. 

01:03:37 Speaker 1 

Think is a. 

01:03:38 Speaker 1 

100,000% right, what’s actually said there is a massive, massive regime change here and when when you. 

01:03:45 Speaker 1 

Don’t take the medicine. 

01:03:48 Speaker 1 

And what’s funny is that so many of these companies have been left for dead. 

01:03:52 Speaker 1 

But what is really juicy? 

01:03:56 Speaker 1 

Is the few companies that you think will survive and specifically making sure you’re protected in the capital structure which seems to own the debt because that is always senior to the equity? 

01:04:06 Speaker 1 

And there are some really, really interesting companies out there that are in that situation and it’s just like it’s a much better risk reward, enrollment, dinner again, you know, we. 

01:04:16 Speaker 1 

Talked about this. 

01:04:17 Speaker 1 

But why would you give up your liquidity today? 

01:04:20 Speaker 1 

I don’t know the answer. 

01:04:22 Speaker 1 

Why didn’t you use this term, Jason, before, like skipping along the bottom? 

01:04:27 Speaker 1 

I just think it’s like psychological wishful thinking as opposed to sort of like a rational summation of the axle. 

01:04:33 Speaker 1 

Jerome Powell which is. 

01:04:34 Speaker 1 

Yes, I will take the economy in order to beat inflation, he just said in the Wall Street Journal. 

01:04:40 Speaker 1 

But people believe inflation might be. 

01:04:42 Speaker 1 

Turning over, do you buy that or not? 

01:04:44 Speaker 1 

No, as I said, I think you’re going to see 8 and 9% inflation frames for at least the next three or four months, minimum. I think that things congest. 

01:04:54 Speaker 1 

Marginally better after that. 

01:04:57 Speaker 1 

But I think the things you don’t know, and again, it’s distracted and I don’t care what the ******* audience thinks, such as Russia and Ukraine. 

01:05:04 Speaker 1 

So sorry to bring up politics, but eating Corinne absolutely intertwined and if people want to adventure and gamble in the stock market, you might as well understand this because I think. 

01:05:15 Speaker 1 

You know many of the scenarios. 

01:05:16 Speaker 1 

Will trade because of what’s going to happen with Putin? 

01:05:20 Speaker 1 

Let me ask the question here. 

01:05:21 Speaker 1 

How many quarters will this recession be if you had to pick a range, pick a two quarter range? 

01:05:27 Speaker 1 

I’m taking three to five. 

01:05:29 Speaker 1 

What do you? 

01:05:29 Speaker 1 

Think I have no idea. 

01:05:30 Speaker 1 

OK. 

01:05:31 Speaker 1 

Freeburg you gotta. 

01:05:33 Speaker 1 

This is the 2nd. 

01:05:33 Speaker 3 

60 questions. 

01:05:34 Speaker 1 

How many quarters? 

01:05:36 Speaker 1 

Plus or minus two let’s say. Is this recession going to be so 5 ± 2? Four? Plus or minus 2? Plus or minus one? What are you thinking will be the bottom out point it’s feeling? 

01:05:46 Speaker 1 

Term, I told you guys I don’t like to turn quick recession as if it’s some absolute negative thing, I mean. 

01:05:53 Speaker 1 

Negative GDP growth coming off of inflated GDP doesn’t feel to me as. 

01:05:58 Speaker 1 

Systemically challenging to the economy. 

01:06:02 Speaker 1 

As you know, some other circumstance where, for example, there was a global financial crisis or 911 or some other kind of factor that drove things that that really affected the core economies. 

01:06:17 Speaker 1 

Well, certainly we had we had something that that affected the core economy in COVID then we had massive stimulus. 

01:06:23 Speaker 1 

So I, I don’t I I think there’s this unfortunate general spiritualization of. 

01:06:28 Speaker 2 

Quote UN quote process. 

01:06:29 Speaker 1 

Is being an absolute negative and I think that there’s relative growth and if your if your relative growth is negative off of an inflated number but overlook his towards 3. 

01:06:41 Speaker 3 

You let me check, yeah, yeah. 

01:06:42 Speaker 1 

Let me just finish it over historic two or three-year period, you’re still growing the economy considerably ’cause jobs are growing and. 

01:06:50 Speaker 1 

Production is growing. 

01:06:51 Speaker 1 

But it’s not as negative as it’s being made out to be, so I I’m not gonna, OK. 

01:06:55 Speaker 1 

I guess you. 

01:06:56 Speaker 1 

Let me let. 

01:06:56 Speaker 1 

Me ask you this way. 

01:06:57 Speaker 1 

Then how many more quarters will we have of stocks and real estate and access declining in value or being flat? 

01:07:05 Speaker 1 

That’s the financial market. 

01:07:08 Speaker 1 

It’s a message, yeah. 

01:07:09 Speaker 1 

And one thing I’ve realized is that financial markets in the short term. 

01:07:13 Speaker 1 

You have the old Warren Buffett quote or whoever it is that over the long term equities are weighing machine. 

01:07:18 Speaker 1 

In the short term, they’re voting machines. 

01:07:20 Speaker 1 

As we’ve seen with crypto, it was a voting machine that everyone voted on the the hot thing that you are, and now everyone voting against it. 

01:07:28 Speaker 1 

But I. 

01:07:29 Speaker 1 

I don’t. 

01:07:29 Speaker 1 

They’re weighing it now, yeah. 

01:07:31 Speaker 1 

Well, yeah, this is something. 

01:07:32 Speaker 2 

That you met with it? 

01:07:33 Speaker 1 

You hold the. 

01:07:34 Speaker 1 

Cryptocurrency long enough, you’ll find out how much fundamental productive value is screening. 

01:07:38 Speaker 1 

And the same is true for owning businesses or other real assets. 

01:07:42 Speaker 1 

You’ll find out over the longer run how much productive values are creating. 

01:07:45 Speaker 1 

So, so the fraction of when we hit a floor, OK sacks Monday, they go this, are we are we hitting a floor now? 

01:07:51 Speaker 1 

You have a lot more to go down. 

01:07:52 Speaker 1 

So your one point of view, I I am looking at buying high quality shares businesses, buying shares of high quality businesses right now? 

01:07:59 Speaker 1 

I think that there are things that are that are cheaply priced. 

01:08:01 Speaker 1 

If I own them for a long enough period of time, the underlying productive value of that business will refer my capital to me. 

01:08:07 Speaker 1 

And so one that you might want to. 

01:08:09 Speaker 1 

Mention here that you’re looking at. 

01:08:11 Speaker 1 

I don’t you. 

01:08:13 Speaker 1 

I shared some projects at the summit with our friends at Stony Brook. 

01:08:16 Speaker 1 

He’s his praise her up right? 

01:08:17 Speaker 1 

Like I told him, he’s a longer term trend. 

01:08:20 Speaker 1 

That’s when you think in terms of and then we go to some of the political process that affects markets after this. 

01:08:24 Speaker 2 

Well, I mean, I think it’s all related. 

01:08:26 Speaker 2 

So there’s three things going on here right now economically or three underlying causes. 

01:08:30 Speaker 2 

One is rate expectations have changed massively, interest rates have gone up and ratifications are going up even. 

01:08:39 Speaker 2 

Or fueled by inflation. 

01:08:41 Speaker 2 

And until we see where we’re at on inflation, whether that gets controlled, that issue is not going away. 

01:08:46 Speaker 2 

The second big issue is economic slowdown, the recession. 

01:08:50 Speaker 2 

So the first one is Wall Street. 

01:08:51 Speaker 2 

This is Main Street and these two things are related because companies are slamming on the brakes because they’re seeing that the capital availability. 

01:08:59 Speaker 2 

Is greatly getting reduced by this rewriting this regime change in markets. 

01:09:05 Speaker 2 

So we’re seeing economic slowdown that runs to turn into a recession. 

01:09:09 Speaker 2 

And consumer confidence is part of that, right? 

01:09:11 Speaker 2 

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. 

01:09:17 Speaker 2 

Plays into that. 

01:09:18 Speaker 2 

So that’s the second big issue and I don’t think we’re going to know about recession. 

01:09:23 Speaker 2 

It’s going to take you know potentially through the rest of the year before we figure out what’s happening there. 

01:09:28 Speaker 2 

And then the third part of this. 

01:09:29 Speaker 2 

Is the overhang of this war in Europe the Ukraine war which is now threatening to become a forever war? 

01:09:36 Speaker 2 

There was a pretty stunning article in the Washington Post this. 

01:09:40 Speaker 2 

Week in which the administration officials were quoted as saying that they would effectively prefer or countenance with their word a global recession and famine over letting Brusa keeps the Donbass region so they are committed now to basically flying Russia out of the Donbas. 

01:10:00 Speaker 2 

Even if it means global recession, not to mention. 

01:10:02 Speaker 1 

Did they say specifically the Donbass were specifically standing up to food? 

01:10:07 Speaker 2 

Well, no, that’s not what we’re talking about. 

01:10:07 Speaker 1 

’cause I had a minimizing. 

01:10:09 Speaker 2 

Is is the Donbass region. 

01:10:11 Speaker 2 

What’s happened is, look, the Russians lost the first few weeks of the war in which they tried to strike. 

01:10:17 Speaker 2 

They they basically. 

01:10:18 Speaker 2 

Went for a knockout blow to take over key topples orlinsky. 

01:10:22 Speaker 2 

I think we accomplished something in preventing that, but since then they. 

01:10:27 Speaker 2 

I have achieved their objective of taking over this eastern ports in the country with Donbass region in which this is where most of the ethnic Russians live. 

01:10:35 Speaker 2 

And these Ukrainian separatists, who are ethnically Russian, they’ve been fighting alongside the Russian troops, and the Russians have basically won that part of the war. 

01:10:45 Speaker 2 

And so the question is, what do we do now? 

01:10:47 Speaker 2 

And what you have is you had administration officials saying that they would not accept the status quo, that they are willing to fight on for years. 

01:10:54 Speaker 2 

You know, the same geniuses who gave us the forever wars of the Middle East are now giving us a forever war in Eastern Europe, and they are saying that they’re willing to pay such attention despite. 

01:11:04 Speaker 2 

Even if it means. 

01:11:06 Speaker 2 

Global recession now. 

01:11:07 Speaker 2 

I don’t think the American people ever voted for this. 

01:11:11 Speaker 2 

But this is what the administration is pursuing. 

01:11:14 Speaker 2 

And, you know, you got to remember that there’s always a risk that this war spins out of control, that we get a nuclear escalation. 

01:11:20 Speaker 2 

So I think that this is a huge overhang on markets. 

01:11:23 Speaker 2 

It’s a third big problem that we have. 

01:11:25 Speaker 2 

So I don’t see how we get out of this bear market until you get clarity and resolution. 

01:11:31 Speaker 2 

Of inflation rates #1 slow down the recession #2 then basically this war in Europe member queries. 

01:11:38 Speaker 1 

It’s and it’s reflective because these next three months as I kind of. 

01:11:44 Speaker 1 

Indicated last week, I think we’re going to see inflation prints that are really high in part because things like rents which haven’t seen or which are on the lag will get folded back in. 

01:11:54 Speaker 1 

So we’re going to be printing 89% and then guess what, Jason, is the fall, it starts to get colder, you know, Russian surprising Europe with Nat gas. 

01:12:04 Speaker 1 

Where is the oil going to come? 

01:12:05 Speaker 1 

From OPEC is basically still stiff arming the United States with respect to expand its production capacity. 

01:12:12 Speaker 1 

Why? Because they didn’t like the window being more strong, arming them in a whole bunch of other topics, you know? And so where do we stand? You could have $180 barrel. 

01:12:20 Speaker 1 

Well, by November, December when it’s cold, not just here but in continental Europe now, all the sudden inflation gets kicked right back up again. It could be 7-8. 

01:12:29 Speaker 1 

9% by Jan. 

01:12:31 Speaker 1 

I so I just think all of these things are now so inexorably refined. I think David’s right. We need. 

01:12:36 Speaker 1 

To put this war to bed. 

01:12:39 Speaker 1 

And the unfortunate consequence is that right now, if we want to fight a proxy war, there is no elegant off France. 

01:12:50 Speaker 1 

The right so. 

01:12:52 Speaker 1 

The prediction markets, so people now are predicting point 8.9% additional inflation in June over and I think that’s over last month and last month was. 

01:13:02 Speaker 1 

8.6. 

01:13:03 Speaker 1 

So we’re going to use 9 1/2 cheese to imagine what the markets do. We printed double digit inflation, prints 10 1/2%. 

01:13:10 Speaker 1 

10.1 just the psychology of that. Well, consumer psychology. 

01:13:14 Speaker 1 

Is really low right now. 

01:13:16 Speaker 1 

No, not consumer psychology. 

01:13:17 Speaker 1 

I’m sinking market cycle market too, yeah. 

01:13:20 Speaker 1 

So if you put those two things together and then if this war is never ending and the famine that and and the impact on 40 million people or something like that, that’s pretty birth predicted is actually going to happen. 

01:13:30 Speaker 1 

In the next six months this is going to feel quite chaotic to people around the world, so we do need to put this work with that for sure. 

01:13:38 Speaker 2 

There’s no deal on the table right now. 

01:13:39 Speaker 2 

But the deal that we’ve talked about on previous. 

01:13:41 Speaker 2 

Shows there was always. 

01:13:43 Speaker 2 

The broad concept 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 into NATO and having American troops represent bases on Russia’s border. That was always a red line to them. 

01:14:03 Speaker 2 

And in exchange for neutrality, Ukraine will get security guarantees. 

01:14:07 Speaker 2 

Piece #2 is that in the eastern region, when you have these Russians, these Russian speakers, that their rights will be respected and that they would have some autonomy. 

01:14:16 Speaker 2 

And again, that was something that Ukraine reached under the Minsk Accords, but it was never properly implemented. And the third piece was at Russia got to keep premier, which again with a fait accompli. That happened in 2000. 

01:14:27 Speaker 2 

14 smart observers in this conflict have been outlining that 3 point plan for over a year, and that is what we’re going to end up with. 

01:14:37 Speaker 2 

The only difference is that. 

01:14:39 Speaker 2 

It’s going to. 

01:14:39 Speaker 2 

Be implemented by force? 

01:14:41 Speaker 2 

And Ukraine will be distorting the process. 

01:14:43 Speaker 2 

That is basically going out right now. 

01:14:46 Speaker 2 

Russia has. 

01:14:48 Speaker 2 

They’ve taken over the bombast, they’ve taken over this eastern front through the country. 

01:14:51 Speaker 2 

They asked me A and Ukraine, basically. 

01:14:54 Speaker 2 

The rest of it will not be part of. 

01:14:57 Speaker 2 

Made-up that. 

01:14:57 Speaker 2 

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 the steps. 

01:15:08 Speaker 1 

My my. 

01:15:09 Speaker 1 

Well, maybe. Maybe. I mean, we don’t know Putin’s intent, and that’s that. That’s the wild card here. He is a bit of a man, man, and he’s pretty much of a wild card here. He’s a dictator who invaded another country. 

01:15:20 Speaker 1 

My my Council is slightly different. I think I see two things. In order to get it back to a state of relatively predictable growth and price stability #1 is, we need to retest supply. 

01:15:31 Speaker 1 

And demand by. 

01:15:32 Speaker 1 

Taking $30 trillion out of global markets. 

01:15:36 Speaker 1 

And the second is we need an. 

01:15:38 Speaker 1 

Off ramp to this Ukraine, Russia war, so. 

01:15:40 Speaker 1 

That there is predictable energy and food supply to the world so that folks can. 

01:15:45 Speaker 1 

Just get back to what they do. 

01:15:48 Speaker 1 

And if those two things can happen, then the markets will have found the bottom. 

01:15:53 Speaker 1 

But until those two things happen, in my opinion and by the way, the first thing doesn’t actually have to happen entirely. 

01:16:00 Speaker 1 

You just need to see it. 

01:16:01 Speaker 1 

Ask for it and you know if we’re the only one that’s doing quantitative tightening, right? 

01:16:05 Speaker 1 

Now the ECB hasn’t even started. 

01:16:07 Speaker 1 

Taking all this crazy money out, you know, I don’t know when the Bank of England is going to do it when it’s, you know, the bank, if you can just do it. 

01:16:14 Speaker 1 

So this has to be a global coordinated effort before we find the bottom. 

01:16:18 Speaker 1 

And this one has the self. 

01:16:21 Speaker 2 

We just can’t. 

01:16:21 Speaker 2 

Go back to this, uh, Unsearchable Magnum narrative, Jason. 

01:16:26 Speaker 2 

Hey, look, if we could transfer. 

01:16:27 Speaker 1 

Even better, yes. 

01:16:29 Speaker 2 

If what you’re trying to say here is that Putin bears moral culpability, moral responsibility, the blinds on the stands for this war, I agree with you on that. 

01:16:36 Speaker 2 

OK, however this size you asked, right? 

01:16:37 Speaker 1 

How could you have is you not and he’s the. 

01:16:40 Speaker 1 

Person who invented yet? 

01:16:40 Speaker 2 

Right, But but it’s logic, right? 

01:16:43 Speaker 2 

But the idea that this war was unpredictable or could not have been predicted is simply false because many. 

01:16:49 Speaker 2 

Experts did predict it, and they can’t tell us exactly what’s going to happen. And the reason we know what’s going to happen is because Russia has been saying since at least 2008. 

01:16:58 Speaker 2 

When there was this Bucharest Summit and NATO declared intent to bring Ukraine into NATO, the Russians in saying that is a red line and Russia experts binds own CIA director, like I mean Bill Barr. 

01:17:09 Speaker 2 

And he was then. 

01:17:10 Speaker 2 

Our emissary to Russia and he wrote a memo to then such they say comedies or life and what he said is that. 

01:17:17 Speaker 2 

The idea of bringing expanding NATO to Ukraine. 

01:17:21 Speaker 2 

Was a red line for the entire Russian elite, not just Putin. 

01:17:25 Speaker 2 

So, and if you go back and look about what other Russian leaders said about NATO expansion, Gorbachev said it was a humiliation to Russia. 

01:17:33 Speaker 2 

Yeltsin was against it, they’ve all been against it and so build bones warned in 2008. This was a red line and the Russians him saying this. 

01:17:41 Speaker 2 

In 2000. 

01:17:42 Speaker 2 

Eight he had ever said that. 

01:17:43 Speaker 2 

All of. 

01:17:44 Speaker 2 

Last year, if you go look at contemporaneous headline. 

01:17:47 Speaker 2 

Describing the tensions between the US and Russia, this is the headlines of Articles I can provide to Nick is still on the screen. 

01:17:55 Speaker 2 

They were saying this was an absolute red lines for them. 

01:17:58 Speaker 2 

So the idea that this conflict was unpredictable because sooner madman listen, you could call that dictators. 

01:18:03 Speaker 2 

Meaningfulness, sawsbuck, highly predictable. 

01:18:03 Speaker 1 

We could also see lots of predict natural. 

01:18:06 Speaker 1 

Yeah, OK. 

01:18:07 Speaker 1 

And you know it’s also highly predictable is that China considers. 

01:18:10 Speaker 1 

You know, Taiwan or Renegades. 

01:18:12 Speaker 1 

You know, problems like, yeah, dictators. 

01:18:16 Speaker 1 

You know, we’ll tell us what they’re. 

01:18:18 Speaker 1 

Going to do. 

01:18:19 Speaker 1 

The question is, does the free world want to stand up to dictators? 

01:18:21 Speaker 1 

And so while, you know, it’s messing to stand up to a dictator, but less, you know, kind of doesn’t have a choice to stand up to dictators or else they will roll into other countries. 

01:18:32 Speaker 1 

History has shown that so as messy as this is, and as terrible as it is for the economy. 

01:18:37 Speaker 1 

I do think that we have to stand. 

01:18:38 Speaker 1 

Up to dictators. 

01:18:39 Speaker 2 

There are plenty of details where we work with. 

01:18:41 Speaker 2 

Violin has fun. 

01:18:42 Speaker 1 

They’re not invading other countries, they’re not invading other countries. 

01:18:45 Speaker 1 

That’s the difference here is that you are giving food and a bit of a path here. 

01:18:46 Speaker 2 

But we could have avoided. 

01:18:48 Speaker 2 

We could. 

01:18:49 Speaker 1 

He invaded the country. 

01:18:51 Speaker 1 

We must stand up to dictators who invade other countries. 

01:18:54 Speaker 1 

Well, look before your standalone means. 

01:18:56 Speaker 1 

It’s America. 

01:18:56 Speaker 1 

I mean the free world. 

01:18:58 Speaker 2 

Yeah, well, look, look where you’ve got us then, with this policy, you and the people who we could’ve avoided. 

01:19:03 Speaker 2 

Yeah, because you are basically spouting this, this nonsense that look question is. 

01:19:09 Speaker 1 

Especially stand up to dictators who invade other countries. 

01:19:11 Speaker 1 

I think we would agree that’s a good idea. 

01:19:15 Speaker 1 

OK. 

01:19:16 Speaker 3 

OK. 

01:19:16 Speaker 2 

Listen, there’s no question that Russia has been in your cluster, but the question is why did they do this? 

01:19:22 Speaker 2 

You don’t really have a theory on that, Jason, except that you believe that on February 24, two he woke. 

01:19:27 Speaker 2 

Up and went nuts. 

01:19:28 Speaker 2 

That’s basically your explanation for what’s happening in the world. 

01:19:30 Speaker 1 

No, that’s not. 

01:19:32 Speaker 2 

The Christian matter is. 

01:19:32 Speaker 1 

We notice it debated. 

01:19:34 Speaker 1 

We know it’s a debated region. 

01:19:35 Speaker 1 

We know that this had this conflicts a. 

01:19:36 Speaker 1 

Long time, so we could use. 

01:19:39 Speaker 1 

The park many. 

01:19:40 Speaker 2 

Times every every president from Bill Clinton to Obama who has dealt with Putin has written largely the same account of him in their memoirs, which is, look, they know that he’s a thought, they know that he’s a dictator. 

01:19:52 Speaker 2 

However, they always said, they always said he’s very businesslike, he’s very direct. 

01:19:57 Speaker 2 

He told them what their issues. 

01:19:58 Speaker 2 

Were OK, Putin was very. 

01:20:01 Speaker 2 

Direct he and Biden had a summit. 

01:20:03 Speaker 2 

In June of last year. 

01:20:05 Speaker 2 

The Russians been very direct. 

01:20:07 Speaker 2 

Your attempt to bring Ukraine into NATO is a red line for us. 

01:20:11 Speaker 2 

It’s a violation of our security interests. 

01:20:15 Speaker 2 

The idea of bringing a country in tomato? 

01:20:17 Speaker 2 

It has huge security externalities. 

01:20:19 Speaker 2 

For them by. 

01:20:20 Speaker 2 

The way we. 

01:20:21 Speaker 2 

Understand us in other contexts. 

01:20:22 Speaker 2 

We understood in the context of a. 

01:20:24 Speaker 2 

Missile crisis we didn’t. 

01:20:25 Speaker 2 

Say that Cuba had the right to join any military alliance that it shows. 

01:20:29 Speaker 2 

Too, because we wouldn’t. 

01:20:31 Speaker 2 

Be able to sleep as well as. 

01:20:32 Speaker 2 

At night if Cuba. 

01:20:33 Speaker 2 

Had nukes pointed at us with the first capability. 

01:20:37 Speaker 1 

I know we’ve had this conversation. 

01:20:38 Speaker 1 

June Washington NATO should invite. 

01:20:40 Speaker 1 

Sweden, Sweden, Finland be invited in Fernando? 

01:20:43 Speaker 2 

I would table auditions over, wars over. 

01:20:45 Speaker 2 

I don’t know why we need to basically deal with that right now, but listen, we don’t even have to go back to the Cuban missile crisis right now, OK? 

01:20:52 Speaker 2 

There’s a country called the Solomon Islands about. 

01:20:55 Speaker 2 

3000 miles. 

01:20:55 Speaker 2 

Off this fairly coast they entered into. 

01:20:58 Speaker 2 

A deal with China security deal. 

01:21:00 

And the US? 

01:21:00 Speaker 2 

Been up in arms about that so. 

01:21:03 Speaker 2 

You know and the reason? 

01:21:03 Speaker 2 

’cause, we don’t want China extending its foot. 

01:21:06 Speaker 2 

But in Asia, OK, so we treat that deal as having a security externality for us. 

01:21:13 Speaker 2 

And yet we refuse last year to recognize that there would be any security externality for Russia if we brought you pregnant. 

01:21:20 Speaker 2 

And no doubt the Russians who are. 

01:21:22 Speaker 2 

Abundantly clear about what they. 

01:21:24 Speaker 2 

Need is so. 

01:21:24 Speaker 1 

Yep, we had this conversation on the podcast. 

01:21:24 Speaker 2 

My point is is this. 

01:21:26 Speaker 2 

Yes, my point is this, that this war was easily avoidable. 

01:21:30 Speaker 2 

Through the use. 

01:21:30 Speaker 2 

Of diplomacy. 

01:21:31 Speaker 2 

The administration chose not. 

01:21:32 Speaker 1 

You believe that you don’t know that. 

01:21:33 Speaker 2 

Let’s not. 

01:21:34 Speaker 1 

You believe that you don’t know. 

01:21:35 Speaker 1 

That you don’t. 

01:21:36 Speaker 1 

Everyone who don’t. 

01:21:37 Speaker 2 

We don’t know that. 

01:21:38 Speaker 3 

Right. 

01:21:40 Speaker 2 

It’s worse than that, Jason, because here’s what happened after the June 16th Summit in Geneva between President Biden last year. 

01:21:48 Speaker 2 

Currently tells binding to his face this red line, as they’ve always said. 

01:21:52 Speaker 2 

So what does administration do? 

01:21:55 Speaker 2 

No one do they not exist? 

01:21:56 Speaker 2 

Negotiate with the Russians. 

01:21:57 Speaker 2 

They invite solinski to the lighthouse on September 1st of last year and that honestly. 

01:22:02 Speaker 2 

And then on November 10th they published a map with 10 year charter agreement. 

01:22:06 Speaker 2 

This is a huge finger in the eye of emotions. 

01:22:09 Speaker 2 

And on the heels of that November Charter agreement, the Russians basically delivered an ultimatum to the US demanding a living guarantee that Ukraine not join NATO. 

01:22:16 Speaker 2 

And then in January, Lincoln was passed with negotiating with lab draw and Lincoln said there has been no change. 

01:22:22 Speaker 2 

Will be no change. 

01:22:23 Speaker 2 

Natives door is open and will remain open. 

01:22:26 Speaker 2 

This administration was incredibly stubborn. 

01:22:28 Speaker 2 

They were absolutely refused. 

01:22:29 Speaker 2 

Used to promising the diffuser crisis, now you say. 

01:22:33 Speaker 2 

Well, we can’t know what would have done well, but the point is they never tried is. 

01:22:38 Speaker 1 

Ukraine a sovereign country? 

01:22:40 Speaker 2 

Yeah, they are. 

01:22:41 Speaker 1 

Do they get to pick what they do in? 

01:22:41 Speaker 2 

But the point is. 

01:22:42 Speaker 2 

Their face look, this idea. 

01:22:45 Speaker 2 

That they would be exhausted. 

01:22:45 Speaker 1 

Do they get their picks there? 

01:22:50 Speaker 2 

Well, here’s the question. 

01:22:51 Speaker 2 

Is what you’re trying? 

01:22:52 Speaker 2 

To do is. 

01:22:53 Speaker 2 

Create a doctrine, OK? 

01:22:55 Speaker 2 

You’re trying to create a new doctrine that a country gets joined. 

01:23:00 Speaker 2 

Whatever security alliance they want, whatever military alliance they want. 

01:23:03 Speaker 2 

That is not a doctrine we believe in when it comes to. 

01:23:05 Speaker 2 

The Solomon Islands. 

01:23:06 Speaker 2 

It’s not a doctor we believe in with respect to human, human missile crisis. 

01:23:10 Speaker 2 

And the fact the matter is, is that the nations, the world, are engaged with security, competition and the end. 

01:23:16 Speaker 2 

This is a country like Ukraine joins and new military alliance that has huge externalities and so we do not believe in that doctrine. 

01:23:24 Speaker 2 

Jason, this is a doctor that did not exist until February. 

01:23:29 Speaker 1 

We don’t believe more people should be able to join NATO. 

01:23:32 Speaker 1 

While feeding for minorities. 

01:23:33 Speaker 2 

No, we clearly believe that, but this, this doctrine that the countries will also be able to join whatever military alliance they want. 

01:23:39 Speaker 2 

That is not, that is not, we do not practice that doctrine that is not adopted, included. 

01:23:43 Speaker 1 

And your example in Cuba? 

01:23:46 Speaker 2 

She had more issues found, in other words. 

01:23:48 Speaker 1 

OK. 

01:23:48 Speaker 1 

Yeah, I mean, listen, I I’m. 

01:23:50 Speaker 1 

I’m not saying this war is not a mess. 

01:23:52 Speaker 1 

Hall wars tend to be a mess. 

01:23:53 Speaker 1 

I’m not saying we shouldn’t try to resolve it with everything we have. 

01:23:56 Speaker 1 

I do think the people of the Ukraine, you know, get to pick their face and and I am in substrate authentically nursing and I am in support of the of NATO being stronger and stronger and I’m. 

01:24:00 Speaker 2 

I’m looking, I. 

01:24:01 Speaker 2 

Think we. I think we. 

01:24:06 Speaker 1 

Favor of isolating Putin, you know, and using diplomacy as the primary tactic. 

01:24:11 Speaker 1 

To do that and making sure that have run over country so he won’t stop at one. 

01:24:12 Speaker 2 

If you want to use the format news. 

01:24:15 Speaker 1 

I I think that’s the the big question I think is when we stop at one do you think he’ll stop at one country? 

01:24:20 Speaker 2 

It was an extension. 

01:24:20 Speaker 1 

He has proven he won’t. 

01:24:22 Speaker 2 

Into the settings you want. 

01:24:22 Speaker 3 

At what point are? 

01:24:23 Speaker 2 

You OK with stopping him? 

01:24:25 Speaker 2 

Listen you you just said that you want to use diplomacy as the primary tactic. 

01:24:30 Speaker 2 

Agree on that. 

01:24:31 Speaker 2 

The question is what you’re willing to give up, because the administration was not willing to engage on the key Russian since torrent, which is the admission of Ukrainian tomato. 

01:24:38 Speaker 1 

May I ask you one question, do you think? 

01:24:40 Speaker 1 

Russia will stop. 

01:24:41 Speaker 1 

With Ukraine or Donbass, do you think that’s actually the stopping point for Putin? 

01:24:46 Speaker 1 

Listen, I think. 

01:24:46 Speaker 2 

There’s a few ways to come out that question. 

01:24:48 Speaker 2 

One is to ask what is their motivation, which is very hard to know because this inside teams had OK, so the 2nd is a little interest and the third is one of their capabilities. 

01:24:57 Speaker 2 

The capabilities question is pretty easy to answer. 

01:25:00 Speaker 2 

I mean they have had a very hard time. 

01:25:02 Speaker 2 

Winning this war, they’ve won this eastern region of the Donbas, because I. 

01:25:06 Speaker 2 

Think this hurts? 

01:25:07 Speaker 1 

Why? I thought. Why? 

01:25:08 Speaker 1 

Did I have a hard time? 

01:25:10 Speaker 2 

Well, because their military capabilities are obviously not as great as people thought and the natives. 

01:25:14 Speaker 1 

Ukraine got. 

01:25:15 Speaker 1 

A lot of weapons from the West. 

01:25:17 Speaker 2 

The Internet. Exactly. So this idea, listen, I’ve said it before, the EU’s GDP is 10 times greater. 

01:25:18 Speaker 1 

Get down. 

01:25:25 Speaker 2 

Then Russia and you know economic strength is the foundation for military strength. Moreover, we’ve seen that these NATO weapons are incredible. the US was referee. 

01:25:35 Speaker 1 

I mean it’s fear and supportive, providing reference. 

01:25:38 Speaker 1 

NATO, the EU, European country. 

01:25:41 Speaker 2 

I’m not in favor of trading a forever war in Eastern Europe databases W emitters who at this Western Jason uses said that we have to isolate to do we have to deprive them of any of any positive actions from this war? 

01:25:47 Speaker 1 

Nobody wants us. 

01:25:55 Speaker 1 

No, no. 

01:25:56 Speaker 1 

Stop them from invading countries. 

01:25:59 Speaker 1 

That’s what we thought some form of adding more countries. 

01:26:01 Speaker 2 

He’s not getting ready. 

01:26:02 Speaker 2 

He’s not going. 

01:26:02 Speaker 2 

To be those countries because he’s. 

01:26:04 Speaker 2 

Still out now well. 

01:26:04 

Not made out, but I mean. 

01:26:05 Speaker 1 

There’s a lot of. 

01:26:06 Speaker 1 

Countries that are not in either. 

01:26:07 Speaker 1 

So I mean that’s exactly the thing, but everyone we discussed this a million times, their rules I. 

01:26:10 Speaker 1 

Think we both agree. 

01:26:11 Speaker 1 

We want the word end. 

01:26:12 Speaker 1 

I think we might just find a different view of food now. 

01:26:13 Speaker 2 

The question is what are? 

01:26:14 Speaker 2 

You willing to? 

01:26:15 Speaker 2 

Do to end the war and you know my my point is this that the. 

01:26:19 Speaker 1 

Only what is Putin willing to go in terms of starting was invading other countries and what does? 

01:26:23 Speaker 1 

The West half with you? 

01:26:25 Speaker 1 

You know, I think that’s what we’re talking about here. 

01:26:27 Speaker 1 

But we didn’t start this war, you know? 

01:26:29 Speaker 1 

But anyway, let’s move on, I think. 

01:26:30 Speaker 2 

Well, we we had not started this war, but we failed to prevent it through the use of diplomacy. 

01:26:30 Speaker 1 

Right. 

01:26:35 Speaker 2 

That’s always. 

01:26:35 Speaker 2 

Been my point, I. 

01:26:36 Speaker 1 

Yeah, maybe you are. 

01:26:36 Speaker 2 

Think this will. 

01:26:38 Speaker 2 

Work all. 

01:26:39 Speaker 2 

I think this war was easily preventable if we had listened many cases of policy easily. 

01:26:42 Speaker 1 

Can you believe? 

01:26:44 Speaker 2 

OK. 

01:26:45 Speaker 1 

I I’m not sure that. 

01:26:46 Speaker 3 

Well, that’s after that. 

01:26:47 Speaker 2 

Bring the setting right now, the deal that would end this war is the same deal that was on the table last year with Jewel bloodshed, which is Ukraine remains neutral state, there is autonomy for the Russian speakers in the Donbass, and Crimea basically remains part of Russia. 

01:27:03 Speaker 2 

That was the deal. 

01:27:03 Speaker 2 

That is the deal. 

01:27:04 Speaker 2 

That will be the deal. 

01:27:05 Speaker 2 

The only question. 

01:27:07 Speaker 2 

Is does the whole country have to be destroyed? 

01:27:09 Speaker 1 

All right. 

01:27:10 Speaker 1 

Well, we’re going to find out in the coming months. 

01:27:12 Speaker 2 

And does the world have? 

01:27:13 Speaker 2 

To go through. 

01:27:13 Speaker 2 

A global recession and famine. 

01:27:15 Speaker 1 

These are big questions. 

01:27:16 Speaker 1 

Yeah, yeah, it’s not. 

01:27:18 Speaker 1 

The sacrifice it takes to stand up for dictators is very significant. 

01:27:22 Speaker 1 

Especially ones with nuclear bombs, that it will be even worse with Taiwan. 

01:27:25 Speaker 1 

I mean, if you think that this is difficult, Can you imagine this kind of escalation with a capable adversary if Russia is not super capable and their weapons turned out to not be as strong? 

01:27:36 Speaker 1 

My God, what would Taiwan look like? 

01:27:38 Speaker 1 

Did you guys read this story where it was the deputy flooring insurance got demoted and there was all this? 

01:27:46 Speaker 1 

Some speculation like why did he get demoted? 

01:27:49 Speaker 1 

And one of the things that came out was that you know it. 

01:27:54 Speaker 1 

Seemed very very. 

01:27:55 Speaker 1 

Pro Russia and. 

01:27:57 Speaker 1 

And she is not. 

01:27:59 Speaker 1 

Engine is not ingenious, is much more hedged than moderate and you know wanted to have more optionality himself that he was cornered because I think there was some what was the code, I mean if you can pull it, but it was something about like you know the the strengthening basically China and Russia in seeing it. 

01:28:15 Speaker 1 

But that was the that was the post that he said that was a little bit. 

01:28:17 Speaker 1 

Off the reservation. 

01:28:18 Speaker 1 

Teams and so either turtle, that’s yeah, yeah, yeah. 

01:28:22 Speaker 1 

So this is important story as well. 

01:28:24 Speaker 1 

I mean, and you know, it’s one of the things that we can look at what’s happening in these political situations. 

01:28:28 Speaker 1 

I think we probably have 506070. 

01:28:30 Speaker 1 

Percent of the information, not even millions. 

01:28:32 Speaker 1 

Really quick. 

01:28:33 Speaker 1 

Tell us what’s going on. 

01:28:34 Speaker 1 

In Alpha Fold world Sultan. 

01:28:36 Speaker 1 

There was a paper published about two weeks ago in the journal Science, and it’s actually an an important paper because it used alpha fold to do some really important work, and the work is to actually create. 

01:28:50 Speaker 1 

A 3D structure creating model of the nuclear pore complex, and that’s nuclear pore complex, is really the scaffolding that makes up the nucleus of itself. 

01:29:03 Speaker 1 

So all eukaryotes, you know, all plants and animals, have a nucleus in ourselves and the nucleus. 

01:29:09 Speaker 1 

Holds the DNA. 

01:29:10 Speaker 1 

And the big question that ventures? 

01:29:11 Speaker 1 

Is getting bored. 

01:29:23 Speaker 1 

Yeah, I’ve been fell asleep ’cause. 

01:29:25 Speaker 1 

It’s so boring what you’re talking about. 

01:29:27 Speaker 1 

So what does this mean in terms of? 

01:29:30 Speaker 1 

Hold on. 

01:29:30 Speaker 1 

So, So what this team did and this is, uh, the problem that’s kind of been around for decades. 

01:29:38 Speaker 1 

Is we’ve never really understood what the physical structure of the nucleus in its cell looks like, and this is important because the physical structure regulates how molecules get into and out of the nucleus, and how DNA is expressed and how the RNA that comes out of the DNA goes into the rest. 

01:29:54 Speaker 1 

Of the cell, and this regulates so much of human health. 

01:29:57 Speaker 1 

In fact, it’s been shown and demonstrated that dysfunction in the nuclear pores are the nuclear pore complex in the cell. 

01:30:05 Speaker 1 

Well can lead to things like viral infections, brain injuries, cancers, cardiovascular disease, many diseases. 

01:30:14 Speaker 1 

There, their underlying driver may result from dysfunction in the transmission of molecules into and out of the nucleus of the cell. 

01:30:23 Speaker 1 

And so scientists have always tried to figure out what does that. 

01:30:25 Speaker 1 

Transport mechanism look like, what does that infrastructure look like? And so for the first time and scientists have published theories on this and they’ve shown using X-ray imaging. 

01:30:38 Speaker 1 

You know, some theory around what these complexes look like, and what this team at Harvard did that they published 2 weeks ago is a really groundbreaking, extremely detailed view of the entire nuclear comp nuclear pore complex around the nucleus of the cells by combining both X-ray imaging. 

01:30:58 Speaker 1 

And alcohol, as to what they did is they took the predicted physical structure of those proteins from alpha fold and use that to construct a sample of what the, you know, the nuclear pore complexes. 

01:31:10 Speaker 1 

How do they know it’s accurate? 

01:31:12 Speaker 1 

And so using this X-ray imaging, they’ve been able to kind of verify some of the assumptions from household yields. 

01:31:18 Speaker 1 

And now they’ve created this 3D model and this leading model now gives. And by the way, insist to think about this physically, what it means like. 

01:31:24 Speaker 1 

For a second, the nuclear pore complex. 

01:31:27 Speaker 1 

Think about it like affect, like a spiritual sense that sits around the nucleus and. 

01:31:32 Speaker 1 

Some parts of that fence open and closed, some parts are static, and the way that certain things open or closed and what can fit through them and. 

01:31:39 Speaker 1 

How they fit through and how stuff. 

01:31:40 Speaker 1 

Gets stuffed is really important to understand as a way to go. 

01:31:44 Speaker 1 

So understand the underlying cause of diseases like cancer, but also how we can create therapeutics and how we can. 

01:31:51 Speaker 1 

Target specific things that. 

01:31:52 Speaker 3 

We can fix. 

01:31:53 Speaker 1 

And how we can get molecules into the nucleus of the cell to regulate DNA expression and edited DNA insights? 

01:31:59 Speaker 1 

I’m blind, so if I were to translate this from nerd. 

01:32:02 Speaker 1 

Basically, alpha fold predicted. No, I’m being sincere, there’s a Max here that we were not able to see through X-rays and through you. 

01:32:11 Speaker 1 

Know physics? Physics. 

01:32:13 Speaker 1 

But Alpha predicted some of that in, filled in the gaps, but now we. 

01:32:16 Speaker 1 

Exactly. That’s that’s a great, exactly great way to describe it. And so now we have this incredibly detailed 3D image and they can share the images on our YouTube stream here of both the nuclear pore complex looks like and how each of those pores work. How do they open and close? What’s the structure of them this isn’t. 

01:32:34 Speaker 1 

Simply like a circle. 

01:32:35 Speaker 1 

So this is like all these weird tentacles and little things sticking out, and that can help us predict what molecules get stuck and how one error in one of those proteins can cause things to get stronger. 

01:32:45 Speaker 1 

Or something. 

01:32:46 Speaker 1 

Talking, yeah. 

01:32:48 Speaker 1 

How did she called certain DNA to be over expressed or under expressed, causing things like cancer? 

01:32:53 Speaker 1 

So we’re going to lift her out a whole new area. 

01:32:55 Speaker 1 

Of research in medicine, gene therapies and new things that we can think about targeting. 

01:33:01 Speaker 1 

To fix a lot of these underlying diseases. 

01:33:03 Speaker 1 

And so this is a ground breaking paper. 

01:33:05 Speaker 1 

What’s the name of the paper? 

01:33:06 Speaker 1 

And we? 

01:33:06 Speaker 1 

Just get the name. 

01:33:07 Speaker 1 

Of the paper so people can Google it will put it in the show notes as well. 

01:33:09 Speaker 1 

Well, thing at the. 

01:33:10 Speaker 1 

This is yeah. 

01:33:12 Speaker 1 

So it’s a team out of Harvard will send the link in the show notes structure of cytoplasmic ring of nuclear pore complex by Integrative Cry OEM and alpha fold. 

01:33:20 Speaker 1 

Terrible naming nerd general audience faxes printing it out right now, and he’s going to use it for his his. 

01:33:22 Speaker 1 

No, it’s. 

01:33:28 Speaker 1 

But, but I just want to highlight, you know ’cause we talked about alpha folds I think last year or the year before that, how it was going to open up all these new areas of green. 

01:33:35 Speaker 3 

This this is. 

01:33:35 Speaker 1 

Here we are a year later. 

01:33:36 Speaker 1 

Example of healthy alcohol it’s been used. 

01:33:38 Speaker 3 

Right. 

01:33:40 Speaker 1 

To solve this really misunderstood or never really well understood aspects of biology, that is that the root cause of so much of disease and creates all this opportunity for medicine and therapeutics, research and discovery. 

01:33:51 Speaker 1 

And so it’s great to see. 

01:33:53 Speaker 1 

This great so we can get joystick. 

01:33:56 Speaker 1 

For Roe V Wade will get to the next episode and that’s it. 

01:33:58 Speaker 1 

No, listen, I think we’ll be ready. 

01:34:01 Speaker 1 

Uh, we must do something about the reaction. 

01:34:04 Speaker 1 

So we did a pretty thorough episode, so folks really want us to double click. 

01:34:07 Speaker 1 

We double click with two of the most electric constitutional experts in the state when it first got leads, so keep going. 

01:34:14 Speaker 1 

Watch yeah, we’re living in that. 

01:34:18 Speaker 1 

I don’t know which number. 

01:34:20 Speaker 1 

Everybody see you all next time. 

01:34:22 Speaker 1 

Bye bye. 

01:34:23 Speaker 3 

By then. 

01:34:25 Speaker 1 

Love you, son. 

01:34:26 Speaker 2 

We will let your winners lie. 

01:34:30 Speaker 1 

Raymond Davis. 

01:34:34 Speaker 2 

And instead we open source it to the fans and they. 

01:34:37 Speaker 2 

Should not crazy. 

01:34:48 Speaker 3 

Our parents. 

01:34:50 Speaker 1 

This is my. 

01:35:01 Speaker 1 

You should like this, like sexual tension, but we just. 

01:35:04 Speaker 3 

Need to believe it or not.