All-In PodcastE110: 2023 Bestie Predictions!
EVERY SPOKEN WORD
150 min read · 30,031 words- 0:00 – 2:44
Bestie New Year catch-up!
- JCJason Calacanis
All right, everybody. Welcome to 2023. Everybody's well rested and ready to take on 2023? Yes? Chamath, how was your break?
- CPChamath Palihapitiya
Yes. Amazing.
- JCJason Calacanis
Okay. Saxypoo, I know you don't go to, uh, temperatures that are under 57 degrees anymore. Did you have a nice break? Did you go somewhere warm?
- DSDavid Sacks
Yes.
- JCJason Calacanis
Okay, that's a confirmation. Uh-
- DSDavid Sacks
(laughs)
- JCJason Calacanis
Wow, man of so many words.
- DSDavid Sacks
(laughs)
- JCJason Calacanis
And Freeburg.
- DSDavid Sacks
I'm over cold weather vacations.
- JCJason Calacanis
Yeah, uh, that does happen at a certain point. I-
- DSDavid Sacks
Actually, we went to Florida. We went to the, the free state of Florida.
- JCJason Calacanis
Oh, really?
- DSDavid Sacks
Yeah.
- JCJason Calacanis
What- what- what's going on in Florida at the turn of the new year, I wonder, that drew you down to the great state of Florida?
- DSDavid Sacks
We were just freeing it up in the free state of Florida.
- JCJason Calacanis
(laughing)
What's going on? Let your winners ride. Rain Man, David Sachs. What's going on? And I said- We open sourced this to the fans and they've just gone crazy with it. Love you guys. Queen of quinoa. What's going on?
We have our 2023 predictions now. Uh, played some music and all that kind of stuff, Producer Nick, at this point. Let's get to it. Last year, we did our biggest-
- CPChamath Palihapitiya
By the way, do you guys, do you guys notice that every time we talk about something, somewhere between sort of two months to a year later, The Wall Street Journal ends up writing a big think piece about it?
- JCJason Calacanis
Yes, think piece about it, yes.
- CPChamath Palihapitiya
So, I tweeted into the group chat, like last year, we all talked about Sequoia and distributing public equities and-
- JCJason Calacanis
Yeah.
- CPChamath Palihapitiya
... how it's very fraught and difficult. And then today, they write this big article about how people have just burned enormous amounts of billions of dollars that they could have returned to LPs, like these venture investors-
- JCJason Calacanis
Mm-hmm.
- CPChamath Palihapitiya
... by not distributing.
- JCJason Calacanis
Yes.
- CPChamath Palihapitiya
That makes sense. Three weeks ago, when we did our end of the year wrap up, my big winner for 2022 were the pot shops, right? Citadel. And today, in Wall Street Journal, an article lands that these guys, with 56 billion of AUM, over the last two years have made almost $45 billion of revenues. Isn't that incredible? I mean-
- JCJason Calacanis
This is what happens, Chamath. Usually, uh-
- CPChamath Palihapitiya
They are j- These guys are just crushing it. And Citadel Securities did like almost, you know, seven and a half billion of revenue. I mean-
- 2:44 – 17:25
Prediction 1: 2023's biggest political winner
- JCJason Calacanis
said Putin. Who do we think is our biggest political winner, uh, going forward? Who do you pick? Sacks, biggest political winner for 2023? Who will be your biggest political winner for 2023?
- DSDavid Sacks
Well, I went a little bit outside the box here because I think-
- JCJason Calacanis
Oh.
- DSDavid Sacks
... we're gonna have gridlock in Washington. So, not expecting a ton to be coming out of Washington over the next year. My pick for biggest political winner is Asian American college applicants.
- JCJason Calacanis
Oh.
- DSDavid Sacks
There are two Supreme Court decisions that the court heard on Halloween last year. Uh, there was a lawsuit against Harvard and, uh, another lawsuit against, uh, UNC by a group called Students for Fair Admissions, and that they maintain that Harvard and UNC violate Title VI of the Civil Rights Act, uh, because Asian American applicants are far less likely to be admitted than similarly qualified applicants from other groups. And the, the federal courts in Boston and North Carolina rejected this argument, but the Supreme Court took up the cases. So, they kind of went out of their way-
- CPChamath Palihapitiya
Hm.
- DSDavid Sacks
... to hear this and I think that they are going to find-
- CPChamath Palihapitiya
They're gonna repeal affirmative action.
- DSDavid Sacks
... I think the majority will rule to strike down these policies that, uh, really discriminate against Asian Americans. And I think they're the last, uh, group in America where it seems to be okay to discriminate against, and, uh-
- CPChamath Palihapitiya
Absolutely.
- DSDavid Sacks
... I think the Supreme Court is gonna, is gonna find that unconstitutional.
- JCJason Calacanis
Chamath, any thoughts there? You have brought this up multiple times on the podcast over the last two years.
- CPChamath Palihapitiya
I have said that this was unfortunately... Affirmative action, when it started, I think had very, very good intentions, and I still think that there's a place for it. The problem is that these very liberal institutions decided to play judge, jury, and executioner on which minorities counted-
- JCJason Calacanis
Mm-hmm.
- CPChamath Palihapitiya
... in affirmative action, and that's not what the intention was. The intention was to look at the establishment and their ability to get their progeny into these incredible schools, even when they didn't deserve to be there. And so I think this was always, uh, an issue of classism that was disguised as racism. And people who are in the upper classes of society have always had an edge. You had the legacy admissions into Harvard, you had people, the Kushners very famously, right? Like, the $5 million check from the father that got the son into the school, all of this stuff. It's al- it's been well written about. And whether or not those things are right isn't the point. I think the point is that there are folks in emerging lower middle classes who have the potential to crush and those kids should have a chance, and you can't just decide who those kids are based on the color of their skin. And in this case, what happened was, some Blacks were still allowed in, some Hispanics were allowed in, but Asian Americans broadly were discriminated, and that was a really stupid outcome. You cannot punish kids for willing to work their ass off, and I think that that was the unfortunate outcome of what affirmative action has become by 2022. So, it is gonna get repealed. The reason it's gonna get repealed is that...You know, we have case law that very clearly states that, that any institution that accepts federal funds cannot have any form of discrimination. And this is how these folks who have tried to repeal affirmative action have taken up this lawsuit. And hopefully the outcome is a more meritocratic system that also tries to create a plurality of different people from different backgrounds.
- JCJason Calacanis
Friedberg, any thoughts? Uh, if not, uh, your biggest political winner for 2023.
- DFDavid Friedberg
Um, my biggest political winner for 2023 is, um, MBS, Mohammed bin Salman. I think that Saudi Arabia will have the most important year in kind of the modern era in terms of, uh, their role. I don't know if you guys saw this Reuters report from a few weeks ago, but there's kind of, um, a deepening discussion about the oil yuan trade, in that, um, Saudi would sell oil to China and they would get paid in yuan. Saudi Arabia sits at the intersection of the United States, Russia, and China. They have relationships with all three nations. And in the kind of, um, conflict and power struggle that is underway, I think that ultimately, the direction of where global currency kind of reserves will be taken, um, and the importance of these great nations and who sits atop whom can actually be dictated and s- significantly influenced by MBS this year, by some of the deals and trades he might put in place and the r- and the, the, the kind of partnerships he might forge. I think as a result, you will see him kind of rise in terms of influence, not in terms of, you know, hey, the world has accolades for this, for this guy. But I think in terms of global influence, uh, he will rocket ship to kind of the top because of this, this kind of, uh, jockeying he can now do between these three great nation states, um, in defining, you know, what's going to happen with the US and what's going to happen with China and what's going to happen-
- JCJason Calacanis
Great selection.
- DFDavid Friedberg
... with, with currency reserves-
- CPChamath Palihapitiya
Great, great selection. And I mean-
- DFDavid Friedberg
... and the US prime ministry.
- JCJason Calacanis
Great selection. Chamath, what do you got?
- CPChamath Palihapitiya
The shitty, the shitty thing, by the way, about your selection is that Biden, our explicit stance is unfortunately quite confrontational with MBS. And-
- DFDavid Friedberg
Yeah.
- CPChamath Palihapitiya
... you saw that play out in Q4. We asked them to ease up on OPEC+ to introduce supply cuts, and they did some nominal 100,000 barrel per day cut, didn't do much of anything. There was an article, to your point, Friedberg, just recently about Saudi really doubling down on getting the oil out of the ground and monetizing their petrochemicals. So there's just going to be a glut of supply in the market, and we have the least amount of influence with Saudi Arabia than we've ever had. And it seems like we could change that if we decided to, but I think Biden has taken this very confrontational approach, which doesn't seem to make-
- DFDavid Friedberg
And remember-
- CPChamath Palihapitiya
... a lot of sense.
- DFDavid Friedberg
... their stated intent is to diversify away from oil and into technology and other kind of emerging growth economies, that's why they funded the vision fund. That's why MBS made that big kind of visit to Silicon Valley a few years ago. And there is technology that they want to import into Saudi Arabia and they want to have ownership in around the world. And if the US is creating a barrier for them to import US tech into Saudi or for Saudi to kind of invest in the US, but China and Russia have open arms and all they want is for Saudi to start doing trades in yuan, it's going to happen. And I think that's where this guy has, um, kind of a real opportunity to shift the global, uh, economic dynamic.
- JCJason Calacanis
Say what you will about Trump, he, uh, had open dialogue with North Korea, China, Russia, MBS.
- 17:25 – 21:57
Prediction 2: 2023's biggest political loser
- DSDavid Sacks
playing out.
- JCJason Calacanis
Yeah. Okay. Let's go for our biggest losers. Uh, we'll rip through this. Last year I said Biden and Trump in the extremes. Chamath said the progressive left, again, the extreme. Sachs said Pelosi, who just wrapped up her tenure. And Freeberg said US influence globally was the biggest political loser. Uh, let's get our predictions for the biggest political loser of 2023. Freeberg, who do you think will be the biggest political loser of 2023? The world wants to know, Freeberg.
- DSDavid Sacks
I would continue my US influence, but I, I am gonna shift. Here's what I think is gonna happen this year. My, my big prediction is based on, um, I think the world has too much debt.
- DFDavid Friedberg
I think that the economic slowdown coupled with rising interest rates globally and a, and a dearth of, uh, kind of asset, uh, capital inflows means that there's gonna be a lot of issues with a number of debt markets around the world, particularly kind of emerging sovereign debt. Just to give you guys a sense, global debt is about $235 trillion in public e- and private. Um, you know, that's somewhere between five and $15 trillion of interest payments a year, depending on what the net rate is on $96 trillion global GDP. And there's another trillion and a half of unfunded liabilities in the US in pensions and Social Security and all this other stuff. I think this is the year where a lot of the debt markets start to unravel. The, the-
- CPChamath Palihapitiya
So Friedberg, is this a business loser-
- DFDavid Friedberg
... primary entity that steps in-
- CPChamath Palihapitiya
... or a political loser?
- DFDavid Friedberg
I'm gonna tell it in one second.
- CPChamath Palihapitiya
Oh, okay.
- DFDavid Friedberg
This is the political, yeah, so the political ramifications, so the political ramifications for me, I think that the, um, the entity that steps in to try and support these, um, unwinding moments is the IMF. And I think that no matter what the IMF does, they're gonna look bad. I think that the, (laughs) you know, it's sort of like, like Jerome Powell, this, this past year, right? Like, you, you raised rates too late, you raised rates too quickly. No matter what you do, it has some adverse effect and impact. It's either inflationary, uh, or it impacts growth. And so I think the IMF, uh, is gonna get a lot of heat for either acting not too soon, uh, or sorry, not fast enough, or, uh, or acting too aggressively and causing inflation, uh, as a bunch of these markets face credit risk, uh, this year. So my big bet is the IMF is gonna play a major role, and we're gonna be talking a lot about the IMF later this year. I, I think as a result, the IMF will get a lot of heat and you'll end up seeing a lot of pressure and political, you know, just like we blame NATO, just like we blame Jerome Powell and the Fed, we'll end up blaming the IMF for a bunch of problems, uh, that'll arise. But the natural physics of what's going on is the world has too much debt and not enough growth to cover the debt, the cost of debt. That's it.
- CPChamath Palihapitiya
Okay.
- DFDavid Friedberg
And the IMF will be the political kind of, you know, hit that'll, that'll result.
- CPChamath Palihapitiya
Who do you have-
- DFDavid Friedberg
A little complicated of a point of view, but I think, yeah.
- CPChamath Palihapitiya
And who do you have, uh, as your biggest political loser prediction for 2023, Mr. David Sacks?
- DSDavid Sacks
Well, I mean, Kevin McCarthy may not survive the week, so let me go in a different direction.
- CPChamath Palihapitiya
(laughs)
- DFDavid Friedberg
(laughs)
- DSDavid Sacks
I think California is my big political loser. And I would say in particular, the City of San Francisco, both are gonna have gigantic budget shortfalls. You may remember that this is back in 2021 when we had that asset bubble, California had a surplus of 76 billion.
- CPChamath Palihapitiya
Insane.
- DSDavid Sacks
Yeah, insane. And then 2022 happened, and now the state is looking at a $24 billion deficit. Well, if we had taken, say, a third of that surplus from '21 and put it in a rainy day fund, we wouldn't have to worry about this deficit, but that was never done. Newsom started handing that money out like candy to the electorate to goose his elect-, his reelect numbers and to get him past the, that recall, remember.
- CPChamath Palihapitiya
Okay.
- DSDavid Sacks
So the, the state never got its fiscal outlook in order, and now I think it's gonna be even worse in 2023. And San Francisco, the city, very similar kind of problem where its, uh, tax base is heavily dependent on commercial real estate, which is really suffering. So, you know, the City of San Francisco and the State of California, they've moved their tax base to, uh, to v- highly volatile capital gains and with a really lousy stock market. I don't know how these guys are gonna meet their budgets. So a lot of pain coming.
- CPChamath Palihapitiya
It's gonna be a lot of austerity and pain coming, that's for sure. And these people do not know how to manage a budget. They're incompetent. So you say California, Friedberg says IMF. Chamath, who do you think the biggest political loser for 2023 will be? Who's your prediction? Already gave it to me, DeSantis, right? Remember? He's part of this country. Okay. And, uh, I'm in alignment with you. I think DeSantis peaked a little too early and the forever Trumpers and the, and the chaos is gonna be a little too much for him to handle.
- 21:57 – 30:34
Prediction 3: 2023's biggest business winner
- CPChamath Palihapitiya
Okay, now we get into what everybody wants, business, business, business. Biggest business winner for 2023. Who do you have, Chamath, for your biggest, biggest business winner of 2023? I'm gonna pick something out of my portfolio. Mm-hmm. I think I'm the only non-trivially large investor in both SpaceX and Relativity Space. Relativity Space has a huge... SpaceX is clearly just crushing on all cylinders. And they're really the only game in town with respect to launch capability. And if you just Google it, you'll see that the Europeans, you know, have a hit or miss capability on launch. The Russians are completely unable to do launch now because of all of these sanctions. The private companies in New Zealand or the United States have also had fits and starts, really incapable. Relativity, which is really, which is now the second most highly valued space business, is about to do a launch in the third week of January. And the big difference between it and SpaceX, which is sort of why we did it, this is a early YC company I did the series A and kind of went along the whole way, they have 3D printed everything. And the reason why 3D printing is interesting is you take a... So if you, if you think a rocket costs $5 billion if built by NASA, Elon was able to take that to 100 to 500 million. And if you 3D print everything, you can take that cost to like five to 50 million. And so it allows you to just have this repeatability and manufacturability. Now, SpaceX also has a lot of 3D printed parts, but Relativity's entirely 3D printed. It has a launch in three weeks at Cape Canaveral, I think. And we have a, like a $10 billion order book that gets unlocked. So I don't know how to see beyond a lot of these market forecasts right now, so I'd rather pick a company. I'll pick something in my portfolio. If the rocket does not blow up, there's a (laughs) $10 billion order book and this company is now on a trajectory to be as valued as SpaceX. And if it doesn't- All right, talking his book times two. Well done. And if it doesn't, i- it goes to zero.
- JCJason Calacanis
... Freeburg, go ahead and talk your book times two or three. Let's see if you can one-up Chamath. Which one of your investments will be the biggest business winner of 2023, Freeburg? (laughs)
- DFDavid Friedberg
I'm not an investor. My big bet is OpenAI. It's just way too obvious to be anything else this year.
- JCJason Calacanis
(laughs)
- DFDavid Friedberg
As you guys know, there are dozens of startups that are being started right now, based on OpenAI's demonstration of DALL-E and, uh, ChatGPT.
- JCJason Calacanis
Yes.
- DFDavid Friedberg
I think we're seeing this in the enterprise and consumer markets. I think OpenAI will become, uh, to some degree, maybe, they could be, there's many paths they could take, be AWS providing tooling and infrastructure to all these startups that are building applications for consumers and, and business users. Or they will end up doing a massive deal with Microsoft. I think it's inevitable they're gonna get a billion-dollar-plus investment this year. They could power, you know, AI-driven Bing search and voice-driven search. They could build their own products and their own tools. And they're becoming great investors. They invested in Descript, which is a product company we use here for our podcast, which is an incredible product. And I think that Sam Altman is a very smart and, and shrewd investor as well. So for a lot of reasons, I think OpenAI could-
- JCJason Calacanis
Hmm.
- DFDavid Friedberg
... end up having an amazing year this year, and a lot of different paths they could walk. And we're gonna come out of this year and say they're one of the top tech companies in the Valley.
- JCJason Calacanis
Okay. Sacks, OpenAI has, of course, uh, increased your ability to talk to other humans, so you're seeing a lot of big wins there, I know. Um...
- DFDavid Friedberg
(laughs)
- JCJason Calacanis
Is how do I talk to a (laughs) child about their college hopes and aspirations?
- CPChamath Palihapitiya
No, no, no. How do I talk to a child about their day?
- JCJason Calacanis
(laughs)
- CPChamath Palihapitiya
(laughs) Hello.
- JCJason Calacanis
It literally is 4-
- CPChamath Palihapitiya
Hello, hello progeny of mine. How are you faring today in this complicated-
- JCJason Calacanis
ChatGPT, write me a script-
- CPChamath Palihapitiya
(laughs)
- JCJason Calacanis
... of talking to a 12-year-old about their hopes and dreams. Hmm. Say it in the voice-
- DSDavid Sacks
That's interesting, using GPT for talking points on different topics. We should try that for the pod, you know?
- JCJason Calacanis
Oh, okay. Here we go.
- DSDavid Sacks
We should have actually-
- CPChamath Palihapitiya
We should have done the GPT predictions-
- JCJason Calacanis
That would have been great, have GPT make its answer.
- DSDavid Sacks
... for each of these categories.
- JCJason Calacanis
Sacks, as a person on the spectrum, uh, yeah, how delightful is, uh, this, uh, ChatGPT in, you know, your treatment of your condition?
- DSDavid Sacks
It's great. Let me, let me get to my answer here.
- JCJason Calacanis
Okay, please.
- DSDavid Sacks
So, um, my, my answer for the big business winner of the year is America's natural gas industry.
- 30:34 – 42:03
Prediction 4: 2023's biggest business loser
- JCJason Calacanis
and Gen Z. Let's go on to biggest business loser for 2023. Friedberg, who do you think will be the biggest business loser in '23? This year, in fact.
- DFDavid Friedberg
Okay. So my biggest loser is the general category of capital-intensive Series B3D growth businesses in the startup landscape, private companies. Um, as you guys know, there's been a big shift in capital allocation. A lot of the folks who were writing big checks into growth rounds are retreating back to writing smaller checks in seed and A rounds. They don't want to write the $20 million Series B, they want to write the $5 million seed and A round. Uh, no one wants to kinda follow the valuation. No one wants to set the valuation for these growth businesses, particularly if after this round you know you need another big round of capital and no one's sure if someone's gonna be waiting on the other end. As a result, we're seeing tons of these businesses run into capital-
- JCJason Calacanis
Great pick.
- DFDavid Friedberg
... confusion walls. They can't pivot. I think we'll see what we saw in the dot-com bubble, where 99 and a half percent of these companies actually die. The half percent that win-
- JCJason Calacanis
Whoo.
- DFDavid Friedberg
... are gonna emerge as the next hundred billion dollar enterprises, the Googles and the Amazons of the world. So there will be light at the end of the tunnel for the winners, but generally, there are hundreds of companies in hardware, in syn bio, in biotech, in high growth enterprise, uh, software that require significant sales investment expense. A lot of these businesses where the capital-intensive nature of the business just doesn't have the market for it right now. Uh, and they're ... and, and investors are, are all retreating and they're gonna be selective. So that, that's where-
- JCJason Calacanis
Got it.
- DFDavid Friedberg
... I think there's gonna be more pain-
- JCJason Calacanis
Capital-intensive startups.
- DFDavid Friedberg
... um, and so ... By the way, seed, seed and A investing, hot as a button.
- JCJason Calacanis
Mm.
- DFDavid Friedberg
Uh, B+ ...
- JCJason Calacanis
Chef's kiss.
- DFDavid Friedberg
That's, that ... Yeah, that's it.
- JCJason Calacanis
Okay. Sacks, biggest business loser for 2023?
- DSDavid Sacks
Well, I just, by the way, 100% agree with what Friedberg said, but my, my biggest loser for business in '23 is the consumer.
- JCJason Calacanis
Mm.
- DSDavid Sacks
I just don't understand how the consumer isn't gonna finally tap out in this economy. I mean, they, they have a mountain of personal debt, credit card debt's at all-time highs. I think the average credit card rate hit 19.6% last week and is expected-
- JCJason Calacanis
Yeah.
- DSDavid Sacks
... to rise even further. Uh, the mortgage rates are above 7% now, so forget about trying to buy a new home or, uh, sell your home. And your stock portfolio's down too, and now layoffs are starting to pile up.
- JCJason Calacanis
Mm.
- DSDavid Sacks
So, I just don't understand how we're gonna avoid a recession. And you saw, you know, Kashkari saying that r- the Fed's gonna keep raising. 5.4%'s his prediction. Uh, you know, I don't understand how if, if rates are at 5 and a half percent, that doesn't finally break the back of this economy and, uh, we go into recession. So-
- JCJason Calacanis
Do you think, Sacks, that the economy is actually broken right now? We just don't have the data 'cause the data lags 60 days i- in most people's minds? 'Cause it does feel like the consumer is just ... a- and real estate has just broken at this very moment.
- DSDavid Sacks
It seems like it. I mean, the pain is very unequal, right? But in the tech industry, we've been in a recession for a year. I mean, like, the growth stocks are down 80%. What Friedberg said is true. No one's gonna fund these, you know, high-burning companies. There's an enormous amount of retooling that has to happen.
- JCJason Calacanis
Mm-hmm.
- DSDavid Sacks
Look, I think the recession is here. It's just very unequally ...
- JCJason Calacanis
Distributed.
- DSDavid Sacks
Distributed, exactly.
- JCJason Calacanis
Yeah. Well, I mean, if you look at it, uh, buy now/pay later, that's a category starting to break. Credit card debt, as you're saying, hitting, you know, uh, big, um, uh, bad records in terms of how much people love spending. Also, people's, um, savings are going down. So, the consumers' back has been broken. I think we're just gonna feel it in the, in the first and second quarter. Chamath, who's your biggest business loser prediction for 2023? The world wants to know.
- CPChamath Palihapitiya
Let me just build on what Friedberg and Sacks said for a second before I give you my pick.
- 42:03 – 52:41
Prediction 5: 2023's biggest business deal
- JCJason Calacanis
All right, let's go to biggest business deal of 2023. This is a prediction. What do we think could be the biggest business deal?
- CPChamath Palihapitiya
Easy, easy. This one is easy.
- JCJason Calacanis
Okay, Chamath, go. Let's go-
- CPChamath Palihapitiya
It's not, um...
- JCJason Calacanis
... lightning round here. Go ahead, Chamath, quickly.
- CPChamath Palihapitiya
Starlink will go public.
- JCJason Calacanis
Ooh.
- CPChamath Palihapitiya
SpaceX will cut and paste the cap table and we will take-
- JCJason Calacanis
Yum, yum.
- CPChamath Palihapitiya
... that Yum, it'll be yummy and delicious, and-
- JCJason Calacanis
Mm.
- CPChamath Palihapitiya
... my prediction is that the Starlink valuation will be at least half of SpaceX's current private market.
- JCJason Calacanis
75 billy, just for Starlink.
- CPChamath Palihapitiya
75 billion. It will be phenomenal. And I think the reason why is that I think...In order for Elon to have complete financial flexibility and do what he needs to do and, you know, he talked about this on our pod, about the difficulties and the dangers of margin loans and all of that stuff.
- JCJason Calacanis
Yes.
- CPChamath Palihapitiya
He's gonna create breathing room for himself.
- JCJason Calacanis
Ah.
- CPChamath Palihapitiya
This is the simplest and most obvious way for him to do it. It'll give him a ton of more dry powder.
- JCJason Calacanis
Sure.
- CPChamath Palihapitiya
So I think that this is an obvious outcome in 2023.
- JCJason Calacanis
They already have a million subscribers in their better than nothing beta, as they call it. I have two of them. I think, uh, this is a great, great, uh, prediction.
- CPChamath Palihapitiya
I was the, I was the first one to get it for, for the global 7500. So, uh-
- JCJason Calacanis
Okay. Well, I-
- CPChamath Palihapitiya
... I can tell you.
- JCJason Calacanis
... I got it for, yeah, 5000. Yeah, similar. Uh, so, uh-
- CPChamath Palihapitiya
(laughs)
- JCJason Calacanis
... there-
- CPChamath Palihapitiya
My 5000 and your 5000 are the same size. (laughs)
- JCJason Calacanis
Yeah, exactly. So, there you go.
- CPChamath Palihapitiya
(laughs)
- 52:41 – 1:03:03
Prediction 6: 2023's most contrarian belief
- JCJason Calacanis
Most contrarian belief, this is the Peter Thiel award, your chess partner, Sax. Who's winning in 2022 in chess? How many chess games do you have going with Peter Thiel right now and who's higher rated? You demolished me with your Queen's Gambit.
- DSDavid Sacks
(laughs)
- JCJason Calacanis
I played one game, I got killed in seven moves. I'm- I'm- I'm ranked at 800, 900 right now. Sax is at 1800. He just walloped me. Who's higher rated right now? You or Peter Thiel?
- DSDavid Sacks
Well, you acce- you accepted the Queen's Gambit.
- JCJason Calacanis
Well, you know, I just, I, I didn't even know what it was. I was like, "What opening is this?" You were like, uh-
- DFDavid Friedberg
(laughs) .
- JCJason Calacanis
... "Queen's Gambit, you're dead." Boom.
- DSDavid Sacks
Queen's Gambit-
- JCJason Calacanis
It was like I got sniper-shot.
- DSDavid Sacks
... is the best, you don't want to accept the Queen's Gambit.
- JCJason Calacanis
All right, so now you tell me.
- DSDavid Sacks
It's a ver- very pleasant game for white. I'm gonna go out on a limb here, you know, and- and-
- JCJason Calacanis
Okay.
- DSDavid Sacks
... and risk being wrong. Uh, my- my prediction or most contrarian belief is that the bromance between Biden and Zelensky comes to an end at some point in 2023. And, uh, let me state the- the part that I think is, uh, conventional wisdom and everyone agrees with, which is there's gonna be a massive Ukrainian counteroffensive in the spring. And I think that could go one of two ways. Either it could make limited gains, basically the Russians fight them to a stalemate, or it could be successful and they could basically push the Russians back to the February 23rd lines and then make a play for Crimea. I predict that in either one of those circumstances, Zelensky's interests and Biden's interests will start to diverge. So in the case of a stalemate, which I think is probably 50/50 here, Biden's gotta start going into election mode for 2024. And I think we're saying that we're gonna be in a recession. So I think that if there's a re- a stalemate, I think Biden's gonna tell Zelensky, "Wrap this thing up, it's time to negotiate, we need to get this over with." By the same token, if the counteroffensive is successful, I think that the administration, hopefully cooler heads will prevail and not let them take Crimea. That's basically what they're gunning for, is they not only wanna get back to the February 23rd lines, they wanna go all the way back to the 2014 lines of retaking Crimea. I think that's extremely dangerous. I think that could precipitate a nuclear war.And I think that the cooler heads in the administration will tell Zelenskyy to stand down and that's the right time to make a deal. So, I think in either one of these scenarios, I think you'll start to see a divergence between Ukrainian and the American interests, and that could create a rift. And I think no one's really predicting that.
- JCJason Calacanis
I, I think this is great. This is kind of what I thought the plan all along was, which was to deplete Putin of resources, distract him, and then, uh, get the West off of his oil and, and try to do regime change, but do it by bleeding him. This would be, uh, proof positive of that strategy, which is bleed him to the end and then sell Zelenskyy out. I think that's actually ...
- CPChamath Palihapitiya
(laughs)
- JCJason Calacanis
I know that's, I know it's cynical, but I think that's what we're doing. I think Ukraine is a tool to deplete Putin and then maybe get to regime change. Uh, I, I'm cynical as it gets with this. Chamath, what's your most contrarian belief of 2023?
- CPChamath Palihapitiya
I will go and pick that inflation, which people expect to fall off a cliff, doesn't fall off a cliff as fast or as meaningfully as people want. And so I will explain inflation as three different chapters. And we've seen the first two chapters play out. So 2021, chapter one, was all about energy inflation. And, you know, we all talked about having almost $10 gas at the pump and what does it mean for everybody and, you know, um, it caused that initial spike in inflation. And then we had it come off and Sax called this. He said, you know, "We're gonna have this sort of double hump." And 2022 was really the story of goods inflation, right? All these prices and all of these things went up because the input costs went up, and we all had to bear the implications of that. But then that started to ebb. Now, if you looked at the tail end of 2022, what I found super interesting was the number of articles I saw about wage inflation. Whether that was Biden using an 1800s era law to prevent a railroad strike, the number of states that increased minimum wage, the trend around unionization. So in general, my thought is that the pendulum is swinging very markedly away from capital and towards labor. And as the labor participation rate stays low and continues to go down, and also it's compounded by an unemployment rate that may go up, right? People are ... It's gonna be harder and harder to get people to do the work you need at the company you have unless you pay them more. And if that gets exaggerated, then inflation will stay where it is. It won't be as muted and it won't fall off a cliff as people want. So that's my-
- JCJason Calacanis
It'll be persistent.
- CPChamath Palihapitiya
That's my big contrarian-
- JCJason Calacanis
Got it.
- CPChamath Palihapitiya
... wager for this year, is that we see inflation-
- JCJason Calacanis
That is quite contrarian.
- CPChamath Palihapitiya
We see wage inflation that keeps inflation not going down as much as people want.
- JCJason Calacanis
This is contrarian because everybody's saying, "Hey."
- CPChamath Palihapitiya
It's over.
- JCJason Calacanis
The consumer's back has been broken, the credit card debt is high, and everybody's being laid off, yada, yada, yada. Therefore, goods and services, there'll be more supply than demand and, uh, prices will lower. Very contrarian. Friedberg, do you have a contrarian belief for 2023?
- DFDavid Friedberg
I think my, it follows my earlier points about the Saudi, China, Russia- Russia trade. This year, exiting 2023, it may be the case that, you know, there's historically been this belief and this continuing belief that the US dollar will always be the de facto global reserve currency. And the current mantra is that it's better than the rest. Everyone else is worse off than the US. Western Europe is in trouble. Japan is in trouble. China's in trouble. Everyone's in trouble. But if there is a coalition, an economic coalition, a, a scaled economic coalition that starts to shift the balance of power a little bit, and the US meanwhile is taking on extraordinary debt load, spending $1.7 trillion in an omnibus bill, you know, has this massive unfunded social security problem coming down the pipe and are trying to manage multiple funded conflicts around the world, it could be that the US dollar coming out of 2023 starts to trade more like a risk asset and less like a risk-free asset. And so I think that that's my big contrarian bet, is that maybe this year marks the beginning of the end of the US dollar as the kind of global de facto reserve currency based on some of these big trades that I talked about happening.
- JCJason Calacanis
Unbelievable. Great.
- DFDavid Friedberg
Um, so that, that would be my, um, my big kind of contrarian-
- 1:03:03 – 1:07:50
Prediction 7: 2023's best-performing asset
- DSDavid Sacks
- JCJason Calacanis
All right, let's go on to best performing asset of 2023. I'm going with seed stage investing again. I don't think people want to get into these toxic cap tables at the late stage, as Chamath pointed out. So I go with seed stage, eh, you know, and up to series A, the people brave enough to place bets, the founders brave enough to start companies, I believe it's the best performing asset class of 2023. Chamath, what do you got?
- DFDavid Friedberg
I think that there's still a lot of uncertainty in the world and in the markets. And so I'm generally concerned that there's a lot of chop. And so I pick something that's pretty conservative, but I would have a combination of cash and the front end of the yield curve. So T-bills all the way up to two year bonds. So you can generate four and a half probably by the end of this year, 5% pretty safely owning this stuff while you wait for things to become more certain. And the way that I think about it is that I would rather miss the first 10 or 15% of a rally once we're really done with this stuff than try to overcorrect and try to pick a bottom, just because I think that you could lose a lot of money. So I think the goal for this year is to stay resilient and in the game and so owning, having a bunch of cash on the sidelines ready to pound it in, meanwhile, a portion of it collecting 5% is not such a bad thing while you wait for the bottom.
- DSDavid Sacks
My answer was actually very, very similar, which is if Kashkari is right, that rates are going to 5.4% in Q1, why wouldn't you just put all your money in short term T-bills? You earn five, five and a half percent risk free.
- JCJason Calacanis
Yeah.
- DSDavid Sacks
Like set it and forget it.
- JCJason Calacanis
Yeah.
- DSDavid Sacks
And that's why capital flows are moving hugely right now from equities into bonds, especially if we're going to a recession, which is inherently deflationary.
- JCJason Calacanis
What do you got, Friedberg? Performing asset class of 2023.
- DFDavid Friedberg
One of the things... So I think, uh, it's inevitable that we continue to have, um, significant infrastructure spending from both the stimulus and security point of view. So, you know, we kind of want to continue to stimulate the economy and, and support growth. We want to continue to create jobs and, uh, support this transition and the r- if, if the, if the recession predictions play out true and the job market does loosen, it's very tight right now, um, there's gonna be even more of an impetus to continue to do infrastructure investment. But I think there's also these big economic transitions happening underway right now with, uh, pharmaceuticals, with, uh, semiconductors, with energy. There's a lot that we've talked about where there's a security problem and a redundancy problem. And so, you know, there, there are a couple of ways to kind of play this infrastructure spending thesis in each of those areas. I've kind of highlighted four of them. One is in semiconductor capital equipment, so Calyten, Core Applied Materials, that, that, that range of businesses that provide and sell the equipment into the, uh, the fabs and the, and the, uh, organizations that build semiconductor manufacturing facilities. Uh, the second is kind of an oil and gas services. So similar to what Sachs said earlier, Schlumberger, Baker Hughes, that class of businesses I think benefit in this, in this environment. And this is independent of kind of economic conditions certainly, because these are big, uh, multi-year spending projects. The third is in the, the equipment to support them, so Deere and Caterpillar. And then the fourth, I think is an important one, I'll talk about this in a minute with respect to my biggest kind of anticipated thing for next year, which is, um, in, uh, pharmaceutical infrastructure. So Thermo Fisher and there's some company and others like them, uh, because there's a lot of build up happening to support these big transitions happening in the modalities that are being used, uh, in pharmaceutical drugs and diagnostics. And then I think that, uh, there's also a couple of these businesses that are diversified like Danaher, Honeywell, Thermo Fisher is a good example, that play across multiple of these, um-... uh, these opportunities. So th- those are, those are all great businesses to own and you don't need to worry about, you know, they're, they're, they're growing cash flow positive, dividend paying companies. And you don't need to worry about, you know, uh, "Am I getting 5% or five and a half percent based on the equity price this year?" These are long range businesses that are building real value, growing their top line, and, and compounding value from within. And then they're acquiring a lot of smaller businesses very cheap. I'll say one, that's an important trend I've seen across these companies. Danaher, Honeywell, Thermo Fisher, they buy small companies, they pay very little, and they immediately get massive, uh, return on invested capital. Like, they're in the, the high teens. So why get 5% on T-bills when you can get high teens ROIC, uh, uh, on the management teams running these incredible platforms? So that's where I- I'm most excited for this year.
- JCJason Calacanis
Okay, now let's move on to-
- DFDavid Friedberg
That was like a, that was like a mad, that was like my, my mad, my mad money segment.
- JCJason Calacanis
I love it.
- DFDavid Friedberg
I've never done the mad money segment before, but th- there you guys
- 1:07:50 – 1:14:46
Prediction 8: 2023's worst-performing asset
- DFDavid Friedberg
go.
- JCJason Calacanis
Worst performing asset, I, I went with energy, because, not that I think it's not important, but it just feels like, uh, everybody rushed into it in 2022 so it feels like it's overheated. And if we are in a recession, people might lower consumption, uh, in terms of energy and, uh, be looking for cheaper alternatives so it could be overheated, so I went with energy. Chamath, worst performing asset? You got one?
- CPChamath Palihapitiya
I think that if we've learned anything from the last three years, you have to separate the valuation of a company and how it performs in the stock market with its value in society. So for example, if you look at Zoom, Zoom's valuation has cratered, but its value in society has probably continued to go up. It's still a massively relied upon tool. The point is that markets do not give you credit for the value in society. They will give you credit when you are about to over-earn, but then they'll pull it all back when they think that you're going to under-earn. So, in that lens, I think that tech will have a tough year. I think energy will have a really shit year. And probably the biggest asset class that is going to get pressured is going to be junk debt. And the reason is a bunch of these variable rate loans, when rates are at 5% and 6%, that all of a sudden are like 11%, 12%, 13%, 14% coupons, a bunch of companies will have trouble meeting their debt obligations and will have to restructure the debt or will have to fail. So tech, energy-
- JCJason Calacanis
Sachs, worst performing asset for 2023?
- DSDavid Sacks
Uh, subcategory of what Chamath just said, I think office towers in San Francisco are-
- CPChamath Palihapitiya
Mm.
- DSDavid Sacks
... that is some serious toxic debt. 27% vacancy rates and growing as leases roll. Uh, I think that a lot of these buildings, maybe virtually all of the San Francisco downtown's gonna be owned by the bank soon because no one can
- JCJason Calacanis
real estate in San Francisco has-
- DSDavid Sacks
Well, specifically the office towers-
- JCJason Calacanis
... perhaps
- DFDavid Friedberg
Got it.
- DSDavid Sacks
... specifically the office towers 'cause no one wants to be in those, those skyscraper buildings south of Market, you know, mired in homelessness. So, um, yeah, I mean, I think that a lot of those buildings are gonna be owned by the banks. There's gonna be some major fire sales.
- DFDavid Friedberg
Oh, wow.
- DSDavid Sacks
Remember, this was the hottest commercial real estate market in the country-
- CPChamath Palihapitiya
Yeah.
- DSDavid Sacks
... a few years ago, and now it's the worst.
- CPChamath Palihapitiya
Well, look what happened to-
- DSDavid Sacks
So when you think about-
- CPChamath Palihapitiya
Look what happened to BREIT. What do you think about that crazy thing that happened with the Blackstone REIT? I mean, that's nuts. You know, this is-
- JCJason Calacanis
Explain what happened.
- CPChamath Palihapitiya
Blackstone has a product called BREIT. It's like a $70 billion exchange traded fund effectively, and what it is is the ability for individual investors to own access to Blackstone's, you know, commercial real estate portfolio. And they had such a massive amount of redemptions that they had to close redemptions at the end of Q4. And they were worried that the redemptions were gonna continue to go up. These are individual investors who basically sees the writing on the wall, as David said, and wants their money out. And so they went to the University of California pension system and they essentially got a huge infusion of capital, I think it was about $4 billion, where they guaranteed 11.5% interest to these guys for the $4 billion. And they also posted a billion dollars of their own equity in, in the actual REIT to backstop it. So, what does it show you? I think what Sachs is saying is really right. It's a- it may not just be in San Francisco, but, you know, with all of these people either getting laid off, with all of these people now working remotely, we may finally start to see the beginning of the reckoning in commercial real estate, which has been an unbelievably performant asset class up until right about now. And, and on top of that, you have to factor in these much higher rates, and so these building owners, if they financed it, which they invariably have always financed, they have huge variable rate payments that are due on these buildings, the rent rolls are lower. Even people like Twitter is r- refusing to pay the rent, so you have to take them to court. So it, it elongates when they have to pay, and so you could miss a bunch of rent payments and all of a sudden the banks could just go crazy and take ownership of these things.
- JCJason Calacanis
Okay. Do you have a worst performing asset class for 2023 prediction? Sultan of Science, Queen of Quinoa, David Friedberg.
- DFDavid Friedberg
Uh, it's, it's really simple. I've mentioned it before, it's consumer credit. We assumed that raising, rising rates and inflation would taper down consumer, uh, demand, c- meaning consumers buying goods and stuff, and that certainly hasn't happened. I'm, I'm in Vegas right now. I was in the car yesterday and the driver grew up in Vegas. Uh, he's like, uh, "In all the, I've lived my whole life in Vegas." He's like, "I've never seen a December like we just had." It was packed the entire month. He's like, "Normally in Vegas, it's dead up until Christmas and then New Year's people come into town, but it's normally dead." He's like, "I've never seen such a busy month." And I think we see this in the numbers. Consumers are still spending like it's 2021. They're still spending like interest rates are zero. As we talked about-
- JCJason Calacanis
(laughs)
- DFDavid Friedberg
... um, consumer-
- JCJason Calacanis
Lower.
- DFDavid Friedberg
... credit is skyrocketing while rates are skyrocketing. Um, and so I think we're gonna run into a real wall with respect to consumer credit in, um, uh, sometime this year, and you're gonna see, a- as, as you guys know-
- JCJason Calacanis
Great-
- DFDavid Friedberg
... this is such a complicated interwoven market of assets that the way that this, this can be traded, there's a lot of different ways to trade it, but I think it's gonna be a-In general, consumers are not going to be able to meet their debt obligations and it's gonna be really ugly.
- JCJason Calacanis
So defaults. Could be mortgages, could be-
- 1:14:46 – 1:21:40
Prediction 9: 2023's most anticipated trend
- JCJason Calacanis
brings us to the most anticipated tre- I love it, great one. Most anticipated trend of 2023, related to yours, I went with austerity. I have a friend who sometimes flies private often, and I was talking to him about his Christmas vacation. This friend of mine, Chamath, instead of flying private to his vacation, he had to pick up his kids, he had to go back and forth. He was driving his car-
- DFDavid Friedberg
That was me.
- JCJason Calacanis
... three hour... That was you?
- DSDavid Sacks
(laughs)
- JCJason Calacanis
Oh, okay, I didn't want to, I didn't want to de-clue you.
- DSDavid Sacks
(laughs)
- DFDavid Friedberg
Yeah. It was so, it was so great.
- JCJason Calacanis
But I had a friend named Chamath who would normally fly private to Lake Tahoe. And he's like, "No, I can't go out with you. I have skiing on Friday. I gotta pick up my kids and then I'm driving back." I say, "Wait a second, how are you doing that?" He's like, "I'm driving a car." I said, "What? Who's driving the car?" He said, "I'm driving the car." And that's why I say austerity is my anticipated trend of 2023.
- DFDavid Friedberg
I agree with you. I actually think this is a really good opportunity to pull back on so much waste.
- JCJason Calacanis
Mm.
- DFDavid Friedberg
I haven't really looked at my household budget in probably two or three years. Didn't even bother.
- JCJason Calacanis
Why?
- DFDavid Friedberg
And then, and then when I looked at it, I was like, "Wow, this is really inflated to a level that I didn't expect."
- JCJason Calacanis
Yes.
- DFDavid Friedberg
But it makes a lot of sense to live in a more heads down, austere way. I don't know, yeah. I-
- JCJason Calacanis
Well, I mean, look at tonight's menu. You went with duck. I, I guess the olive-fed Wagyu, everything's off the menu now.
Episode duration: 1:38:06
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