E118: AI FOMO frenzy, macro update, Fox vs Dominion, US vs China & more with Brad Gerstner

1. 0:00 – 6:47

   Bestie intros!

   1. CPChamath Palihapitiya0:00

      You wanna run a marathon at 57 years old?

   2. JCJason Calacanis0:02

      52. 51, 2, 52.

   3. CPChamath Palihapitiya0:06

      (laughs) I'll be honest, I miss you. Can you come back to the United States please? I miss you.

   4. JCJason Calacanis0:10

      I will, I will. I miss you too. I mean, the poker game can't, by definition, be as much fun if I'm not there.

   5. CPChamath Palihapitiya0:15

      It plays at bigger states and it's more challenging, but it's not as much fun.

   6. JCJason Calacanis0:20

      There's not as much laughing. What's on the menu tonight for austerity 2023?

   7. CPChamath Palihapitiya0:23

      The amuse-bouche is a madeleine with, like, a terrine of foie gras.

   8. JCJason Calacanis0:27

      Fantastic. Uh, in honor of Friedberg?

   9. CPChamath Palihapitiya0:30

      And then rutabaga, rutabaga salad, and then some duck thing, duck breast.

   10. JCJason Calacanis0:34

       Ah, you know I love duck.

   11. CPChamath Palihapitiya0:35

       And then, and then butterscotch panna cotta.

   12. JCJason Calacanis0:37

       Wow, that is great lineup. And it, you know what? I like the idea we're doing some poultry.

   13. CPChamath Palihapitiya0:43

       Chef Sean is firing on all cylinders these days.

   14. JCJason Calacanis0:45

       Uh, he feels very, like, uh, engaged. He was very engaged. Yeah, he's, he's kinda goin' for it.

   15. CPChamath Palihapitiya0:50

       He's been on.

   16. JCJason Calacanis0:51

       Yeah, that was quite nice the other day, Brad, because it's austerity measures, we had this incredible dish-

   17. CPChamath Palihapitiya0:57

       (laughs)

   18. JCJason Calacanis0:57

       ... and we're eating it and then he said, "The caviar's on the bottom."

   19. CPChamath Palihapitiya1:01

       (laughs)

   20. JCJason Calacanis1:01

       And I was like, "Oh." So we just, we don't put the caviar on top. We just, just put it on the bottom.

   21. DSDavid Sacks1:08

       No, no. I get it. No.

   22. JCJason Calacanis1:08

       Shh, the market's down. Put the caviar on the bottom.

   23. DSDavid Sacks1:10

       That's Chabais style austerity. Caviar on the bottom.

   24. JCJason Calacanis1:14

       (laughs)

   25. CPChamath Palihapitiya1:14

       (laughs)

   26. JCJason Calacanis1:14

       I'm not lying. Am I lying?

   27. DSDavid Sacks1:15

       Oh my God.

   28. CPChamath Palihapitiya1:16

       No, he did say, "Guys, the caviar is on the bottom, not the top this week."

   29. NANarrator1:20

       Let your winner slide. Rain Man, David Sachs. I'm going all in. And I said- We open sourced it to the fans and they've just gone crazy with it.

   30. CPChamath Palihapitiya1:31

       Love you, S.I.D.
2. 6:47 – 25:22

   The VC FOMO frenzy in AI

   1. JCJason Calacanis6:47

      Item one on the, uh, docket today, there is just a massive AI FOMO frenzy going on. Economist published a piece this week, uh, about the insane fundraising in the generative AI space. Uh, this is stuff like ChatGPT, Stable Diffusion, you've heard these names. And, uh, there are now 500 generative AI startups according to this report, that tracks with what I'm seeing in the early stage, and not counting the OpenAI 10 billy from Microsoft investment, donation, rev share, round trip, whatever that is. They have so far collectively raised more than $11 billion. The article included this chart, uh, which you can see if you're on our YouTube channel, and just tons of folks working in audio, image, and text. So we're basically looking at the multimedia basically revolution of PCs in the '90s occurring again, and a complete platform, platform shift. Doug Leone from Sequoia, one of the greatest investors in history of Silicon Valley, had this to say, and we will comment on the other side of this 50-second clip from Doug.

   2. BGBrad Gerstner7:54

      I actually think that AI is the next platform shift, in the same way that mobile was the one before, internet was the one before. So I think AI is real. But I said earlier, we are going to overestimate it in the short term. We're gonna invest in everything in the same way that in 1999 we invested in everything, but then Google came out of that, or Facebook came out of that. So I think you have to have a good head on your shoulder where you don't practice FOMO, where you don't chase every company. AI is real. AI is the next platform. But how do we not invest in everything that walks? How do we make certain investments based on market maps, based on thought processes that are more rational and not do every investment just because every other venture firm is doing every investment?

   3. JCJason Calacanis8:45

      All right, Chamath, what do you think of this massive influx?

   4. CPChamath Palihapitiya8:48

      I think it's important to think about what the incentives are. As Charlie Munger says, sh- "Show me the incentive, and I'll show you the outcome." I posted it into our group chat. Credit Suisse sent all their private banking customers an offer. They are now offering 6.5% for a three-month T-bill. 6.5%. And if you go back to what we talked about before, when the risk-free rate is somewhere north of 5 or 5.5%, and banks are willing to give you 6.5% i- in the short term, you have to generate more than three times that to make an investment make sense when you're investing in the long term. So if three-month money is gonna pay you 6.5 or 7, if you're gonna invest for 10, 15 years, which is what you need to do typically for a startup, you need to get 20 to 25%. So there's gonna be a lot of pressure for venture investors to put the money to work, because otherwise their LPs, their limited partners, the people that give them the money, will have this attitude that goes somewhere along the following lines, "Okay, I've committed to you, why aren't you investing? Because otherwise I can get paid 6.5% on the front end, and so this is becoming very problematic. What am I paying you for? What am I paying you 2% a year in management fee for?" So I think what happens, unfortunately, is the opposite of what Doug says. I think good investors will try to follow Doug's feedback and advice, and the ones that have a track record of distributions, of DPI, can do more of it than not. But I think most people will be under pressure to deploy the capital, and so the 500 odd companies, Jason, you mentioned, will get a lot of it, and it'll get torched because most of them probably won't amount to much of anything in the short term. You will create way too much correlation, and you will have zero time diversity, which as we've learned is a recipe for terrible returns.

   5. JCJason Calacanis10:52

      Time diversity being, hey, you deployed all this Web2 capital, Web3 capital, sorry, crypto, whatever, in this very short period of time, you overpaid, you just fired.

   6. CPChamath Palihapitiya11:00

      Lit it on fire.

   7. JCJason Calacanis11:00

      Lit it on fire.

   8. CPChamath Palihapitiya11:01

      Lit it on fire.

   9. JCJason Calacanis11:01

      Brad, uh, when you hear Chamath talk about the 6.5% and then you look at private markets, you, uh, invest across the lifecycle of companies, obviously you're in some private companies we all know very well, famously Snowflake, uh, I think your biggest win ever, correct me if I'm wrong, uh, in terms of a private, how do you look at this, (laughs) w- when you as steward of capital, public markets, private markets, and then just YOLO, just put it into, you know, some tr- T-bills or, yeah, bonds or whatever?

   10. BGBrad Gerstner11:32

       I mean, first, let's just frame, right, the chart that you showed. I think you sh- it said, you know, X, OpenAI, I don't know, something like $10 or $11 billion have, have, has been invested into some 500 AI companies. I mean, I happen to agree with Doug that this is a platform shift on the same magnitude as the internet or mobile itself. In fact, it may be bigger than both of those. But, you know, when I look at $10 or $11 billion, you know, let's put it in context. Meta is gonna spend 20 billion in one year alone on AR/VR, and this is on an entire platform-So I, I don't know. I, I, I, I think whenever you have something as tectonic as mobile or internet, it deserves a lot of investment. And yes, it's gonna be messy and yes, Chamath's right. The cost of capital frankly is limiting the amount of money going into these businesses already. So we see a lot of dry powder sitting on the sideline that's chasing new ideas. I think one way, one way to frame it as well is, like, think about in 2000. We all knew that the internet was gonna be big. We may have been lucky enough to conclude that search was gonna be big. But if you invested in Yahoo! or Infoseek or AOL or Excite-

   11. JCJason Calacanis12:50

       Excite, Lycos.

   12. BGBrad Gerstner12:51

       You know, you, you tore it. All that money went to zero, right? So now think about just these large language models, right? The foundation models which are driving and enabling all of it. OpenAI. You've got OpenAI, you've got Anthropic, you've got Cohere, you've got Character, you've got Stability, you've got LaMDA. It is almost impossible to know with any certainty, much like it was with the search engines in '99, 2000, who's going to emerge, where the value capture's going to be. It may all end up with Microsoft and Google. I mean, this may end up looking like iOS and Android at the foundation model level. And so, you know, I think as investors, for example, on the foundation model side, I think it's very difficult to choose just one, particularly when the largest one is frankly captive in a proxy to Microsoft and they're capping your upside return. So, like, those are difficult investment decisions. That doesn't detract from the fact that I think it is as big as Doug suggests, and I do think there are gonna be applications and tooling layer to come out of this that's gonna produce really big winners. I would say that we are spending an extraordinary amount of time in this space. We haven't made a lot of investments. I think you have to study, you have to get deep. I mean, Chamath certainly, and I have been investing in this space for at least a decade, maybe 15 years. But don't underestimate that the transformer model really did change the game here, and we're now producing impacts much larger.

   13. JCJason Calacanis14:25

       Sax, uh, last week you said web three and crypto didn't kinda stick with you. You didn't see the use cases and you, in the first inning here, or first at bat, you rattled off three or four really compelling use cases from summaries to, you know, the, the assistant, uh, guide on your side concept. Is this akin, in your mind, 'cause Brad just said it could be bigger than mobile, internet, mobile, AI revolution. If you were to look at those three, do you think it's bigger than actually mobile? And then we'll get into return profiles of 6.5% on cash versus what are VCs gonna be able to do in this kinda market?

   14. DSDavid Sacks15:03

       Yeah, I mean, so I, I agree with Brad and, and Doug that this is the next big platform shift, whether it's as big as mobile or it's more, like, social or cloud. I mean, those have been the big platform shifts over the last decade or two, and I think this is definitely on par with those. I think Brad's right. We don't know where the value capture's gonna be. Maybe it just all ends up accreting to the big companies who can make massive investments in this space. You know, one difference between the internet ecosystem today and 20 years ago is you do have these giant companies who are not totally incompetent, right? I mean, they are, they do have lots of talented engineers. And, you know, like 20 years ago, you'd have company, you know, the big companies would just sit on their hands in the face of a platform shift and they'd just be sitting ducks who get disrupted. They're not, that's not gonna happen today. That being said, I do think that any new platform shifts creates opportunities for startups, and it may not be efficient the way that these opportunities get pursued in the sense that, yeah, Doug's right, that there's gonna be a lot of spray and pray, but I think that it is kind of efficient for the ecosystem as a whole, right? Because, like any smart engineer with a half-decent idea ends up getting funded, and out of all of that you get kind of a pre-Cambrian explosion where, you know, the ecosystem evolves, a lot of different types of businesses. Most of them don't work. They get wiped out, they go extinct, but there'll be some good things that get funded. So we're more like, I think Doug in how we see it, we don't wanna spray and pray. We wanna be very selective. We wanna put more money behind fewer opportunities that we think are, are better. And Doug Leone, uh, you know, I think he generally gives good advice of the tough love variety and this is of a piece with that, and so I, I agree with him. That being said, there is a certain value to the ecosystem in having all these seed funds just spray and pray, right? Because this gets a lot of plants and a lot of flowers and then you see what blooms.

   15. JCJason Calacanis16:57

       I would say, uh, to build on that, Sax, this is a, a perfect inefficiency. You know, when you see it from the outside you're like, "Well, this is super inefficient. Why so many companies?" If you free your mind and just say they're experiments, two or three-person experiments, 500K to a million and a half in that first stage when I invest, right before you do when you do your series As at five or 10 million, milestone-based funding is back in the tech industry. And that was something, Chamath, that we lost for a little while there. People would just come out and they would raise a series B out of the gate. No product market fit, et cetera. Now what we're seeing is people are raising that 12 to 18 months, they got their backs up against the wall. Speaking of tough love, which you referenced, Sax, that tough love of, "Hey, you have to hit the next milestone. What did you accomplish with the 1.5 million in order to get the 10 million in order to get the 30 million?" That 500's gonna go 10X. There'll be 5,000 of these startups, but it'll quickly whittle down, won't it, Chamath, as people go through this milestone-based funding system in Silicon Valley? We haven't given enough time for a logical framework of investing to develop, which also is tied to a logical framework for entrepreneurship to emerge. We're just way, way, way too early. So the thing with all of these language models is that they are grist for the mill. And we talked about this before. If it was a highly proprietary asset-

   16. CPChamath Palihapitiya18:20

       You would have never sold 49% of it to Microsoft for $10 billion because you would assume that it was worth a trillion dollars. So it's a huge tell on the part of OpenAI, their deep understanding, and they understand it better than anybody else, that it's a bit of a capped upside. So what is uncapped, I guess is maybe the better question? Well, if you look at the 1849 Gold Rush as an example, the people panning for gold, in my opinion, are the people building language models today. They're gonna come and they're gonna go, but who's gonna win? Well, the pick and shovel providers won, Levi Strauss won, so what is the equivalent of that today? I think it's at the silicon layer because you need to really rearchitect how compute will actually work in a world of all of these models. Those folks will get paid. If you look at AMD and NVIDIA, they've been getting paid for years. They continue to get paid. They probably will continue to get paid even more. And so folks that actually take a step into doing something hard and difficult in AI, like custom silicon, could get rewarded. And then there's what I call the white truffles. What are these unique Alba white truffles? These singular sources of data that when used in reinforcement learning make your output just zing. And that's where I think Facebook is an obvious white truffle, Quora's a white truffle, but there are a lot of startups that could become white truffles if they gather enough data, and that's, like, a pretty reasonable framework. And so in that framework, if you apply it to today, there's way few silicon startups and there's way few white truffles. Instead it's everything is the baloney in the middle, which is random people talking about some random model that's just gonna, again, become highly commoditized. You have to remember, all these models are open source and none of them mean anything in the absence of the data you give it to train on.

   17. JCJason Calacanis20:19

       100%. Brad, hey-

   18. DSDavid Sacks20:20

       Can I-

   19. JCJason Calacanis20:20

       Okay, it's actually Adam. Yeah. Go ahead.

   20. DSDavid Sacks20:22

       Well, I want to add one other piece of news that we saw this week, which is OpenAI announced that its developer AI, they were cutting the, uh, tax on that, or basically the metered rate they charge to use it by 90%. So I think this is gonna be a, a game changer. I think this is based on the ChatGPT 3.5 API and, of course, they're coming out with 4.0 later this year. I've already had-

   21. JCJason Calacanis20:46

       Explain to the audience what an API is and why this is important, for those people who don't know.

   22. DSDavid Sacks20:51

       Just application programming interface, it allows a, a developer of some other application to build on top of you. So in other words, like, a developer wouldn't have to use this chat interface to get access to the large language model. You could just submit your request through the API, and so...

   23. JCJason Calacanis21:07

       Give an example of what... Of, like, a, a popular app and how they might use the ChatGPT API.

   24. DSDavid Sacks21:13

       Okay. Yeah. So, so I think, like, Notion actually had a demo that they published where-

   25. JCJason Calacanis21:16

       Incredible.

   26. DSDavid Sacks21:17

       ... it was a pretty incredible demo. Maybe we can find it. And it would do things. They added actions in the demo, like generate a task list. So you could take, like, a document or a meeting summary and it would spit out recommendations for next steps or tasks. It could, you know, spit out a table. Basically, it's like autocomplete for everything that we talked about, right? So now Notion doesn't need to build their own LLM expertise, they just buil- use the API. And they can-

   27. JCJason Calacanis21:46

       So when the Notion app, you say, "Hey, I'm, I'm building a marketing plan," and you say, "Well, okay, give me a list of things that should be on my marketing plan for my new app," it sends a signal-

   28. DSDavid Sacks21:56

       Right.

   29. JCJason Calacanis21:56

       ... to the ChatGPT API, which will be on Azure, Microsoft's platform, and then it gives you the data back. You don't have to build the language model.

   30. DSDavid Sacks22:01

       Yeah, No-
3. 25:22 – 37:23

   Current LP mindset, VCs leaving boards, startup cram downs and mark downs

   1. CPChamath Palihapitiya25:22

   2. JCJason Calacanis25:22

      Brad, uh, you have your finger on the pulse of LPs, uh, limited partners who back funds, like Chamath's, Sax's mind, and yours. We heard 6.5% on your money for no risk. Well, you and Chamath's position is, hey, you have to triple that if you wanna be a private market investor. That's about 20%. 20%, rule of 72, that means every three and a half years you gotta double. If you're doing that for a 10-year fund, you're looking at a 5X fund is kinda table stakes then, I think, just back of the envelope math. What are LPs thinking right now? Are they looking at this world and saying, "I should just be all in cash," or are they saying, "Yeah, everybody thinks we should be all be in cash, therefore there's not gonna be enough money in private, therefore there's an opportunity there. We know the 6.5% rate, you know, that's not gonna be here forever, it may be here for a little while, but we need to, we need to keep investing in venture." Uh, or are they just cutthroat about it? Like, "Let's pause venture investing, private market investing"?

   3. BGBrad Gerstner26:18

      Uh, it's a great question. First, when I look at the three-year treasury bill, it's like 4.7. Not to quibble here. So I think Chamath's getting a little goosey-goosey on his 6.5, but the, the fact of the matter is these got-

   4. CPChamath Palihapitiya26:31

      What does that mean, goosey-goosey? What does that mean?

   5. BGBrad Gerstner26:33

      (laughs) You know, you get a little-

   6. JCJason Calacanis26:34

      Oh, when they're goosey-goosey, it's a little excited?

   7. BGBrad Gerstner26:36

      You're super special. You're VIP. JP

   8. NANarrator26:38

      (laughs)

   9. CPChamath Palihapitiya26:39

      Oh. Oh.

   10. DSDavid Sacks26:40

       Maybe there's some sort of, like, uh, bond rate that included corporates or something. Maybe it was just T-bill.

   11. JCJason Calacanis26:44

       I'm getting like 5.2 from Robinhood, on my Robinhood account for J Trading, so it's, it's right, it's right there.

   12. BGBrad Gerstner26:48

       What is in that? What is in that, Jason? They probably got some junk bonds in there ripping you off.

   13. DSDavid Sacks26:52

       Yeah.

   14. BGBrad Gerstner26:53

       (laughs)

   15. JCJason Calacanis26:53

       Whatever, whatever it is, I'm getting five points. It sounds pretty good to me.

   16. BGBrad Gerstner26:56

       Well, you are until you're not. You are until you're not. But at any rate-

   17. DSDavid Sacks26:59

       It's 100% T-bill, parentheses, and junk bond fund.

   18. BGBrad Gerstner27:02

       (laughs)

   19. JCJason Calacanis27:02

       (laughs)

   20. DSDavid Sacks27:04

       Look at the fine print, Jay Kalanick.

   21. BGBrad Gerstner27:05

       You know, uh, LPs have a 10-year view. They understand, like most people... I mean, li- listen, if you look out at the 10-year, the reason the 10-year is, you know, that we have real interest rates at about 1.5%, so that's the 10-year less expet- expected inflation when you look out, is because it... people expect inflation to come down and they expect rates to come down. So if you were an LP and you said, "I'm not gonna invest in venture in the next two vintages," which may be the best two vintages we've seen in a long time, because prices are adjusting, et cetera, "and I'm gonna move it all into some rate bet." First, it's just very difficult to do. They don't move the, their allocations around that quickly. Now, a wealthy family as an LP could move their allocations around really quickly, but if you're Texas or you're Ohio, or you're a sovereign wealth fund, you're betting on the arc of value creation. I would say this, the consequence is they're narrowing their aperture as to the venture funds they wanna allocate capital to. So-

   22. JCJason Calacanis28:07

       Okay, explain that. Unpack who they are narrowing the aperture term to.

   23. BGBrad Gerstner28:10

       Well, we've talked a lot on this pod about, uh, the power law. And the truth of the matter is, whether we're talking about AI or software or anything else that, you know, people are, are gonna be funding, it's 10% of the investments that are gonna yield 90% of the returns.

   24. JCJason Calacanis28:28

       Yeah.

   25. BGBrad Gerstner28:28

       And so they're looking at that and saying, "Who are the top 10 firms in Silicon Valley? I either wanna get allocation to those firms who are seeing the best deals, converting the best deals, and are, are selective," like Sax talked about, "or we just don't wanna allocate." And so I think, you know, what we saw over the last two years, Jason, was an explosion of new funds.

   26. JCJason Calacanis28:48

       Yeah.

   27. BGBrad Gerstner28:48

       An explosion of new, uh, you know, first-time, second-time funds. I think subscale small funds with no DPI, uh, they're gonna find a really, really tough time, to Chamath's point about DPI raising capital.

   28. JCJason Calacanis29:04

       Okay.

   29. BGBrad Gerstner29:04

       And you're gonna see the scale players scale.

   30. JCJason Calacanis29:06

       So part of that, uh, is clearing out the inventory from the last cycle. Two new stories this week about companies, you know, maybe struggling. Sequoia got off the board of Citizen. If you don't know Citizen, that's that app that tells you where crimes are happening in your city. Very popular in San Francisco. Uh, it's literally goes off every 90 seconds. (laughs) It's pretty dystopian. Uh, that company, Citizen, uh, which is a pretty cool app, uh, has raised $130 million to date. Sequoia led the Series A in 2017. Uh, they did a pay-to-play round. If you don't know what that is, um, basically, if you don't invest, you get crammed down. How does the cramdown work? Well, your shares in the company went down 10 to one, and you probably got moved to, uh, common shares as oppor- as opposed to preferred, which has a series of protections. They get their money out first, yada yada. But Sequoia, uh, refused to participate. According to this FT story, again, Sequoia did not comment on this. It's, it's kind of something you don't do at as a VC when something goes bad at a company and you leave the board. You generally don't wanna say, uh, bad things or taint the company, uh, any more than leaving the board does. So a bunch of cramdowns happening, and then dovetailing with that, Instacart, according to the Wall Street Journal, had a big Q4 as it prepares to go public.Instacart, if you remember, we talked about it on the show, cut its internal valuation 75% last year from $39 billion to $10 billion. According to sources, Instacart's Q4 results, uh, according to the Wall Street Journal, up more than 50%, even though order volume grew only 16%. Why? They turned advertising (laughs) on the app, just like Uber and Amazon. Uh, a lot of these commerce ferks- uh, folks are building ad business inside of theirs. Uh, so what do you think about what's happening as we clear out this private? Uh, anybody have thoughts on Instacart or the cram down rounds? We can go either way with this, and then we'll go to public.
4. 37:23 – 52:01

   Macro update: inflation not done, weaker earnings, interest rates

   1. BGBrad Gerstner37:23

   2. JCJason Calacanis37:23

      Okay, so of course you're referencing Salesforce, so we'll pivot to that. (laughs) I'm joking. Uh, it's not that bad. Uh, but I think this is a good time to maybe talk about the public markets and inflation and what we're seeing in macro, so...

   3. DSDavid Sacks37:35

      Can I set up a question for Brad, actually?

   4. JCJason Calacanis37:37

      Sure. Go ahead, yes.

   5. DSDavid Sacks37:38

      Yeah.

   6. JCJason Calacanis37:38

      Lovely.

   7. DSDavid Sacks37:39

      So, so on a previous podcast, I laid out my theory of how you could just use the two-year bond rate, relative to the fed funds rate, to understand where the bond market's sort of prediction market about inflation is going. And a month ago, the two-year bond rate was at 4.1% relative to 4.5% fed funds rates. In other words, the bond market was betting that interest rates would go down between now and two years from now, relative to where the Fed had it. So therefore, it believed that inflation had been conquered. Now, fast forward just one month later, and the two-year bond rate's at about 4.9%. You know, the fed funds rate's about 4.5%. That is a massive swing, basically 80 basis point swing in the, I guess, the two-year bond rate. And so the market seemed to be saying, all of a sudden, not just that they expect rates to be higher longer but also that the Fed needs to keep raising. And that is a big change. So Brad, what is the basis for that? And what do we now believe about inflation? I think just a few weeks ago, we were thinking that this problem was licked and the market took off like a rocket. It ripped. Now all of a sudden, it seems like investors are really worried that inflation is not over. So where, where does this stand right now?

   8. BGBrad Gerstner39:02

      Well, I think when we started the year, you know, the, the 10-year was close to 3.2, where now we're closer to 4%. The 10 minus 2 is, is negative as it's, it's been in the last probably 10 years. So the market is clearly saying, you know, we saw some inflation prints that came in hotter. I think it's now consensus, what you guys have been saying on the pod, that, you know, although the second derivative is slowing, but we're ... it's, it's sticky, right? We're gonna get stuck at this four, four and a half, three and a half, and it's the slope of the curve downward is gonna be slower. Um, we've gone from thinking we were gonna have two 25s to now thinking we'll have three or four, you know? And so I think everybody is now bracing for more inflation. But remember, when we started the year on January 1st, the consensus wisdom was we were gonna retest the S&P at 3200, we were gonna have an earnings recession, and that inflation was gonna continue to run hotter. The only surprise in my mind so far this year is how well the equity markets have held up in the face of a 10-year that's gone parabolic, right?

   9. CPChamath Palihapitiya40:07

      And-

   10. BGBrad Gerstner40:07

       It's a-

   11. CPChamath Palihapitiya40:07

       ... a natural earnings recession.

   12. BGBrad Gerstner40:09

       Right, and you, you know, you sh- you posted, you know, in our thread, Chamath, about just quality of earnings. You know, even the earnings beats are pretty low quality. And so I think, you know, we now are going to have a couple inflation prints coming up over the course of the next couple weeks that are gonna be important. My hunch is, you know, everybody has tilted again on, you know, what we saw (laughs) in the last couple prints. My suspicion, if you look at Morgan Stanley and Goldman Sachs, the consensus view is that we're still heading in the direction of 4% faster than I think people emotionally think. So I would say there's maximum uncertainty in the world. The fear that inflation is uncapped the way Larry Summers was articulating November and December is less today than it was. But what's emerged is this idea that we're going to have higher rates for longer, and we're gonna have higher inflation for longer. Now, the question I'd throw back at you is, the market abhors uncertainty. The market's done totally fine during periods where we had 3% inflation and 5.5% rates, right? When, when the internet boom that was, you know, 2000 to 2005, rates were a hell of a lot higher than the rates are today. So I don't think that higher rates and higher inflation means that we can't, you know, invest in venture-backed companies that have huge secular growth curves.

   13. JCJason Calacanis41:35

       The world doesn't end-

   14. BGBrad Gerstner41:37

       But what I do think-

   15. JCJason Calacanis41:37

       ... at that level.

   16. BGBrad Gerstner41:38

       ... it means is, like, if there's massive uncertainty in the world, if allocators of capital don't know whether rates are gonna double again, whether inflation's gonna double again, then everything just shuts down. And that's really bad for the economy. I don't see that happening right now, but I do think that the prints over the course of the next eight weeks are gonna be important.

   17. JCJason Calacanis41:59

       Chamath, do you have any macro thoughts here? At the same time this is happening, we saw rents broke in the last month, so rents got cheaper, yeah.

   18. CPChamath Palihapitiya42:06

       A governing principle, I think I've probably said it too many times, but I'll say it again, rates are gonna be higher than we like and they'll stay here longer than we want. So if you use that as a principle, whenever the consensus thinks we're done, it's been pretty profitable to be on the other side of consensus. And so I still kind of maintain that we're probably gonna have a 5.5% fed funds rate.... which means that, I mean, I don't know, maybe Credit Suisse will offer me 7.5% soon on three-month T-bills. But we're gonna have higher rates. And I do think Brad's right though, in the sense that as long as we know that then that's it and we can forecast it into the future without it changing too much, it'll be okay. But right now, what you're seeing is a lot of make-believe going on in, in the stock market. So Nick, if you wanna just throw up that image. So this is a really interesting thing.

   19. JCJason Calacanis43:04

       This is the chart of, uh, cash flow versus earnings.

   20. CPChamath Palihapitiya43:07

       Yeah. So this is something that I saw in Bloomberg, which I thought was really interesting. And if you focus on the period of 2020 to 2024, what you see is the white line, which is net income adjusted for depreciation and amortization, and the blue line is cash flows from operations. So what does that mean?

   21. JCJason Calacanis43:24

       And this is for, uh, S&P 500 firms.

   22. CPChamath Palihapitiya43:28

       This is the best 500 companies in the world.

   23. JCJason Calacanis43:30

       Yeah.

   24. CPChamath Palihapitiya43:31

       And the white line is what you tell Wall Street in terms of what you make on paper. The blue line is what actually appears in the bank account. So why could there be a gap between what you tell somebody you made, "I made a dollar," versus what's in the bank, 50 cents? Well, the reason is that there's all kinds of accounting tricks that you can use, accruals, inventories. And all of these things allow you to present a healthier earnings report than is actually true. And so right now, we have the worst earnings situation, so the worst gap between what we are telling people versus what is actually in the bank account, that we've had for 30 years, since 1990. And so it just brings into focus the fact that we may be in the last few innings of trying to make sure this all looks okay. In which case, one faction of the investing world who thinks that this earnings recession is actually at hand would be kind of right. And then what they would say is that once we all realize that these earnings are fake and you reset down 15%, that's where you get to the mid 3000 in, in the S&P 500. Right now, it's around 4000. I don't know if that's true or not, but there's more and more evidence that would support that the way that they see the world could be credible. The other side says, "Hey, listen, this is a bump in the road. We're getting a handle on things and it's stabilizing. So even though it's higher than we'd like, it's not gonna change that much. So now just think about 10, 15 years from now and let's go."

   25. JCJason Calacanis45:15

       How, how does, uh-

   26. CPChamath Palihapitiya45:15

       And those are the folks that wanna rip the money into growth stocks and tech stocks again.

   27. JCJason Calacanis45:19

       How does the consumer play into all this? Record low unemployment, like it's 1% in Utah, 3.5% for the country, two and a half jobs for every American who's unemployed, and then these rents coming down. But consumers have seemed to have burned off all that extra money they had. So Brad, when you look at the consumer-driven economy that the world lives in-

   28. CPChamath Palihapitiya45:40

       That's not true because you have to understand, stimulus is still entering the economy. It's just harder to measure. So for example, take Social Security. You have cost of living adjustments in Social Security that's lifting payments by 10 and 15% because it's backdated for what was going on last year. And remember, last year, we had two, three, four, five percent inflation rates. So there is more and more money coming into people's pockets that we don't realize, and we're all on the hook for that as US taxpayers. So I think it's very dangerous to kind of look at one data point and try to pick off what's happening in consumer land, because there's all kinds of hidden ways in which money gets back to people.

   29. JCJason Calacanis46:18

       Hmm. Brad, do you have thoughts on the consumer? Because, you know, uh, I tasked, it does seem like consumers are still mon- spending money, but the cost of goods, in some cases, is coming down. I mean, h- how do you look at the consumer and try to make sense of what's going on here? Because it does seem the United States is in its own little bubble here, a world of just overemployment still, even though we're seeing these layoffs in tech.

   30. BGBrad Gerstner46:42

       Well, the, uh, I would say, number one, uh, that the pop we've seen in rates, which impacts consumers by way of higher mortgages, higher variable expenses on their credit cards, was offset over the last few months by lower energy costs, so their cost of gasoline went down. Add in the things that Chamath's talking about, and I'm not sure you took a lot of money out of people's pockets. I would say this, that again, what we're talking about here, retail sales have continued to do really well. E-commerce sales in January were, were, were quite strong. That would all be consistent with the soft landing, but here we are, you know, again, talking about macro. I think when you spend this much time talking about macro, doing what we do, you know, like last year, I'll be the first to raise my hand and say, you know, like our friend Bill Gurley would say, "It leads you in the wrong direction." The fact of the, uh, matter is, it's totally unknown and unknowable where we're gonna go over the course of the next three or four months. I think there's a better ability to predict maybe over the course of the next couple of years. Um, but the fact is, if you would have told any... I was just with a bunch of, uh, investors who probably represent a trillion dollars of public market demand, 10, uh, or so long-only investors. If you would have told any of them that the tenure was gonna be at 396, they would have told you that the Nasdaq would be down 10% to start the year, and it did just the opposite. So I think you got, uh, you know, you're, uh, you have a bunch better chance, particularly if you're playing at home, right, than trying to, to guess the direction of that. Find five companies that you think are gonna grow, uh, and earn more money irrespective of the direction of rates and inflation, own those, uh, and enjoy your life.
5. 52:01 – 1:11:59

   Marc Benioff channels his inner Elon Musk, the stock-based compensation boom

   1. JCJason Calacanis52:01

      are.

   2. BGBrad Gerstner52:01

      Jason, m- maybe- maybe that's the segue to, uh, talking about Benioff. I would say we haven't took it, we're taking it. We're starting to take our medicine.

   3. JCJason Calacanis52:10

      Well, it makes sense that Benioff with his, you know, very loving family kind of approach to running the company might actually, it might take him a little while to become a bit cutthroat so as everybody knows, Benioff and Salesforce have had a lot of turnover, a lot of senior executives have left, voluntary or involuntary, but shares were up 11% on Thursday after reporting their Q4 earnings. They're up 14% year over year, small net loss, but the company bought back $2.3 billion, uh, worth of its stock. We're gonna see more of that for sure, and they're going to be increasing its share bu- buyback program to $20 billion going forward and like Meta, which suddenly got fit and got religion, Benioff is now basically with all these activists, I guess, on- on his ass, he says, uh, and this is the quote from the earnings call, "We're more closely scrutinizing every dollar of investment and resource and very focused on driving operational excellence and automation across our business, focusing on 4 key areas, ... expense restructuring, employee productivity," huh, there it is, "product innovation and building relationships with shareholders. Profitability is our, truly our number one strategy," and that's my number one strategy, that's the number one thing we talked about at the start of every meeting we have in this company." Quite a turnaround. Your thoughts, Brad?

   4. BGBrad Gerstner53:43

      I don't think the story is th- you know, that Benioff, you know, made these cuts and that activists are around the rim. What was significant was his comments, uh, that he made, and I tweeted about it today, you know. He said, "Every CEO in Silicon Valley has looked at what Elon Musk has done and asked themselves, do they need to unleash their own Elon within them?" And, you know, listen, we've been talking about this for nine months. The reality is if you look at the employee count at Salesforce, in 2015 they had 19,000 employees. As of last year they had 80,000. In seven years they 4X'd the number of employees. They were a mature company by 2015, their employee's CAGR at 23%. You know, we don't talk about it in this way but these large companies, these employee bases, they're not unions but they may as well be-... right? They-

   5. JCJason Calacanis54:41

      Un- unpack that. Wh- why would there be unions?

   6. BGBrad Gerstner54:43

      I just think there's, uh, there, there is, during this age of excess, where it was just easy for people to hire more people and build more things, not to make tough choices, et cetera, right? We just had an explosion like we've never seen in Silicon Valley, in the number of employees in these businesses. Meta went from 10,000 to 80 thou- 85,000. Google went to 185,000 and at those levels, it's very difficult to govern them. And when the CEOs went to make decisions in the businesses, there would be protests, revolts within the business, 30 or 40,000 people would sign a petition-

   7. JCJason Calacanis55:23

      Petitions even. Apple had petitions. (laughs)

   8. BGBrad Gerstner55:25

      ... saying, "No, we're not coming back to the office. No, we're not going to work three days a week. No, you can't name our AI bot, uh, what you wanna name it because it offends us." And so, to me, what's more significant is over the last six months, we've seen courage gain momentum in Silicon Valley, right? What's deeply underappreciated about Meta, uh, and the changes they made, it would be one thing if it was just window dressing, "We cut 10% of the workforce, kinda tighten our bel- belt a little bit." But Zuckerberg got on his call and he said, "We only have two priorities in 2023. One is efficiency." And he went into depth about once they started cutting people, how the company got faster, the product release cycle sped up, the employees got happier. And now it's an end in of itself to delayer the business. That's what we're hearing out of Benioff as well and I think it's, uh, you know, people can quibble with how Elon went about the change, which you and, you and, uh, David are very familiar with at Twitter, but the reality is, he lit a fuse in Silicon Valley that is giving courage I want. Whether it's private companies, series B companies, pre-IPO companies, public companies, I've had that conversation more times, uh, than, than you can imagine over the course of the ni- last six months. And I think it's a really important change, because I think it breathes new productivity into all these businesses and importantly, it unleashes these engineers back into the ecosystem to start the next wave of companies.

   9. DSDavid Sacks57:00

      Yeah, so Jason-

   10. JCJason Calacanis57:01

       Yes.

   11. DSDavid Sacks57:01

       ... I mean, y- you and I got to tag along with Elon during that transition phase at Twitter and the thing that I took away from it was just how much agency, you know, CEOs have that they're not using. I mean, Elon went in there and he basically changed whatever he saw that he didn't like. I mean, unsentimentally t- and quickly and, you know, and so you look at all these other companies, you talk to CEOs sometimes, and they act like they're prisoners of their companies. Like, "I can't change this, I can't change that."

   12. JCJason Calacanis57:34

       Stockholm Syndrome, yeah.

   13. DSDavid Sacks57:35

       Yeah, it's like, "You know, I've got all these employees and all these layers and, but I can't... You know, there's always some reason, I'm afraid of the bad PR or, you know, wha- whatever it is." And I, you know, the thing I came away realizing is just how much agency particularly found our CEOs have that they just don't use. You know, they're always like hemming and hawing and wringing their hands and acting like they're tied down by this or that, and the reality is they can do whatever they want just about, um, you know, within the bounds of what's, what's legal and, and I think they're starting to realize, "Oh wait a second, like, I actually can do that. You know, I can walk into my company one day and if there's a team that's not performing, that's giving me answers that don't make any sense-"

   14. JCJason Calacanis58:17

       "I could start over."

   15. DSDavid Sacks58:18

       "... I'm just gonna start over."

   16. JCJason Calacanis58:20

       Reboot. Yeah, reboot.

   17. DSDavid Sacks58:20

       Yeah.

   18. JCJason Calacanis58:20

       I mean, if you can't get it done-

   19. DSDavid Sacks58:22

       Yeah.

   20. JCJason Calacanis58:22

       ... then we need to have somebody who can do it." And it's, it's incredible. Like we were doing an analysis on This Week in Startups of the, you know, employees per company and the revenue per employee per headcount and I got roasted for having this con- even having this conversation. And now here we are, Chamath, people are looking at efficiency, we're looking at, you know, really, uh, how efficient can these companies, uh, be run? Is there a limit to where this is going? And, and if we were to look at this as a process, where are the FAANGs, the Amazons, the Googles, Facebooks, where are they at in terms of percentage to being at Elon? (laughs) If you, if you were to put Twitter and Elon as the, the goal, where are these companies? And I don't know that that is the goal. Maybe, maybe he's cut too much. Who knows? We'll find out. I think it's a, it's a, it's a pretty radical exper- experiment he's doing there. Yeah.

   21. BGBrad Gerstner59:16

       Yeah, I don't think that's a reasonable or an achievable goal for a public company.

   22. JCJason Calacanis59:23

       Okay.

   23. BGBrad Gerstner59:23

       I mean, I think the thing we have to keep in mind is Elon's also capable of doing that because he paid $44 billion of his own money to buy something that he owns outright that no longer has revenue pressure to outside stakeholders.

   24. JCJason Calacanis59:37

       Different se- circumstance.

   25. BGBrad Gerstner59:38

       Revenue went down 70% at Twitter. Well, that only affects him and, and his ability to pay whatever he borrowed in order to buy that company and as long as he's willing to fund that somehow, he's literally allowed to do whatever he wants. That's no longer the case when you're borrowing money from other people to build your business, which is what every other capital market participant does, public market participant does and private market participant. So I think that that distinction is just a little bit important because it probably means that there is a shadow of what Elon is doing that's probably the threshold of what's possible and it's probably, you know, sort of 50% headcount reduction. That's probably the, the bound in which things break because I think the thing to keep in mind is that over time, this stuff is like collagen in the body. It just like, it creates these interconnected webs of just very difficult stuff that you, sinew that you cannot tease apart-

   26. JCJason Calacanis1:00:38

       Blockages.

   27. BGBrad Gerstner1:00:39

       ... so even if you try to go in...

   28. CPChamath Palihapitiya1:00:42

       ... and cut 50% of a company like Facebook or Google or Microsoft or Apple or Amazon, it would be so difficult because all of a sudden the coordination that happens at that scale I think would get lost. So, I'm not sure if it's possible. You kind of have to do what they're doing, which is cut 5%, then cut 10%, then cut 5%, then cut 5%. And I know it frustrates people on the outside looking in, but I think it's the- it's probably the only way it can be done without torpedoing the company.

   29. JCJason Calacanis1:01:12

       What does that say on a culture basis then? Because that is the big critique. Hey, you're creating now this culture of fear. I guess the opposite of that is you're creating a culture of performance and expectation. So, how do you think about it on a culture basis? 'Cause that keeps coming up from founders, to David's point.

   30. CPChamath Palihapitiya1:01:25

       It depends, because I think companies when they're smaller, I mean, I can tell you, when I was a part of the Facebook senior management team, we would rank all the employees. So, we had a very good sense of who was the best and the most performant, all the way down to who was not. And we were able to do that probably up to two or three thousand employees. That's not possible at 50,000 and nor is it fair. So, because you don't know who these folks are, the real contributors are, you have to do what Elon did, which is literally go person to person and say, "Who is unbelievably performant or critical?"
6. 1:11:59 – 1:34:33

   Fox News facing defamation lawsuit over false election fraud claims, TikTok ban heats up, competition with China

   1. JCJason Calacanis1:11:59

      All right. Sachs, where do you wanna go? You wanna go Fox?

   2. DSDavid Sacks1:12:01

      I'm willing to do Fox.

   3. JCJason Calacanis1:12:02

      Yes, let's do Fox.

   4. DSDavid Sacks1:12:03

      Yeah, let's do Fox.

   5. JCJason Calacanis1:12:03

      I mean, Fox is kind of crazy. Uh, okay, so Rupert Murdoch had been, uh, deposed here with this Dominion Voting system lawsuit. They're suing Fox for 1.6 billion in damages over claims made on air, uh, that we all know around technology-enabled election fraud. We remember this wild period at the end of the last election cycle with this incredibly false claim that the election was stolen. Something, you know, both sides of the aisle said did not happen. However, it seems that the hosts on Fox knew it wasn't happening, knew it wasn't true, but were engaging, uh, in entertainment of allowing these people to come on air and say the election was stolen. So Murdoch said, "I would have liked us to be stronger in denouncing it in hindsight."And when asked if he could have stopped the host from highlighting these allega- these false allegations on air that were obvious to everybody, he said, "I could have, but I didn't."

   6. CPChamath Palihapitiya1:13:03

      He said the truth. He's not allowed to lie in court.

   7. JCJason Calacanis1:13:06

      Yeah. So- (laughs)

   8. CPChamath Palihapitiya1:13:06

      Just on air, but not in court.

   9. JCJason Calacanis1:13:07

      I mean, just, I mean, uh, Stacks, to be fair, like, um, you, uh-

   10. DSDavid Sacks1:13:11

       Yeah.

   11. JCJason Calacanis1:13:11

       ... really care about freedom of speech, you really care about the libel laws, you really care about the GOP, obviously, you bring it up every week here. So, when you looked at ... And, but you were very clear, you were not happy about the election denial, all that, like, false claims that Trump made and these insane people he put around himself. So, how do you look at these Fox hosts - and listen, you've been on Tucker and other things - knowingly spreading lies about something as important as the election, and then doing it in the most cynical ways? We, we sit here and every week we roast the media, the mainstream media, you particularly go after the Dems and the left and the media elites. How do you feel about these media elites, who are part of the GOP machine, lying incessantly, uh, about something as important as the election integrity-

   12. DSDavid Sacks1:14:03

       All right.

   13. JCJason Calacanis1:14:03

       ... of the United States of America?

   14. DSDavid Sacks1:14:05

       First of all, you're trying to tee this up as some giant dunk on me, J-CAL. I- You-

   15. JCJason Calacanis1:14:08

       No, I'm not. No, I'm not. You said from the beginning-

   16. DSDavid Sacks1:14:10

       I need to remind the audience-

   17. JCJason Calacanis1:14:11

       You said from the beginning you didn't believe in this.

   18. DSDavid Sacks1:14:13

       Exactly. Let's go back-

   19. JCJason Calacanis1:14:14

       Yes, I just said that. Yep.

   20. DSDavid Sacks1:14:15

       ... to November of 2020 on this show-

   21. JCJason Calacanis1:14:16

       Yep.

   22. DSDavid Sacks1:14:16

       ... because there may be a lot of, uh, parts of the audience that weren't watching back then-

   23. JCJason Calacanis1:14:20

       Sure, that's true.

   24. DSDavid Sacks1:14:20

       I was really clear that I said Sidney Powell and Lin Wood-

   25. JCJason Calacanis1:14:23

       100%.

   26. DSDavid Sacks1:14:24

       ... and Rudy Giuliani, I thought they were wackos, and this whole idea that the Dominion voting machines had somehow been rigged and somehow it involved Hugo Chavez was a wild conspiracy theory. So, I said it at the time-

   27. JCJason Calacanis1:14:38

       100%.

   28. DSDavid Sacks1:14:39

       That I also-

   29. JCJason Calacanis1:14:39

       You did.

   30. DSDavid Sacks1:14:39

       ... said that I thought that once the Supreme Court, uh, denied certiorari to Trump, I, I said that he had a, his right to have his day in court and to challenge the election in court. But once that the court threw out his claims and the Supreme Court denied certiorari, that that whole thing needed to stop. And it didn't stop, and that's why the Republicans lost that, uh, Purdue runoff seat in Georgia on January 5th. And then you add January 6th. So, you know, I've been warning against this for a long time, J-CAL. Now, with respect to, to Fox, I think you need to basically get a little bit more nuanced in, in what you're saying there, because I think within Fox, there were actually two groups of hosts. So, there was one group of hosts that I think you could say were Trump loyalists, and they basically not only platformed the Sidney Powell lies, but also endorsed them. And Rupert Murdoch admitted that they went too far and actually endorsed. And so you had Hannity and a couple other hosts do that, even though Hannity had some text messages that indicated he didn't believe it, so I think he came across the worst. However, there were, within Fox, skeptics of the Sidney Powell theory. And so I put Tucker Carlson in that camp, I put Laura Ingraham in that camp. And Tucker had Sidney Powell on his show on, I think it was November 19th, I think this was 16 days after the election, it was a 20-minute interview in which he grilled her, and he kept coming back to, "What is your evidence? What is your proof?" And if you were paying attention, he demolished her. I mean-

Episode duration: 1:56:24