E137: Inflation cools, market rips, Ripple/MSFT beat regulators, NATO summit, cocktails of youth

1. 0:00 – 2:55

   Addressing the podcast hack

   1. CPChamath Palihapitiya0:00

      We don't have a cold open.

   2. JCJason Calacanis0:01

      Well, since you guys decided to go rogue and, uh, agreed on a vacation week and then decided- Freeberg decided he would go rogue, it gave me a little extra time when I was whitewater rafting and-

   3. CPChamath Palihapitiya0:10

      Hold on a second. Freeberg did not decide to go rogue.

   4. JCJason Calacanis0:14

      He went rogue.

   5. CPChamath Palihapitiya0:15

      Your two peers decided to go rogue. I was taking the week off. They both sent on the text stream, "We want to do a show this week." And I said, "Sure, I'll (censored) do it." I'm in (censored) , but I'll do it.

   6. JCJason Calacanis0:24

      Yes. Yes, you went rogue.

   7. DFDavid Friedberg0:24

      It's fine.

   8. JCJason Calacanis0:25

      You went rogue. Yeah. That's what I said.

   9. DSDavid Sacks0:26

      That's what I said. There was no vacation agreed to.

   10. CPChamath Palihapitiya0:28

       (laughs)

   11. JCJason Calacanis0:28

       You don't even know your schedule. You're- You're too busy writing 30 tweet storms about Hunter Biden and-

   12. DSDavid Sacks0:33

       Why would all of a sudden there be a skip week in the middle of July? It's just 'cause you were off.

   13. JCJason Calacanis0:37

       No. We said we were gonna take one week off in the summer-

   14. DFDavid Friedberg0:40

       No, he said he scheduled his vacation after we had agreed to.

   15. JCJason Calacanis0:41

       No. I also have to give my producers a week off now and again just 'cause they work into the weekend editing the stuff since you're editors, but you understand-

   16. DSDavid Sacks0:48

       But we have multiple producers, so you can just swap them out.

   17. JCJason Calacanis0:49

       I have two editors. Yes, I gave everybody the week off.

   18. DSDavid Sacks0:51

       The point is that when one of us-

   19. JCJason Calacanis0:53

       If you had said... No, no.

   20. DSDavid Sacks0:54

       ... is off on a given week, the show goes on.

   21. JCJason Calacanis0:57

       Yes. And if you had said-

   22. DSDavid Sacks0:57

       That's what you always say, "The show must go on."

   23. JCJason Calacanis0:59

       Yes.

   24. DSDavid Sacks0:59

       But then when you have a need to go on vacation-

   25. JCJason Calacanis1:02

       No.

   26. DSDavid Sacks1:03

       ... then, you know, it gets canceled.

   27. JCJason Calacanis1:04

       No. What would have happened was, what would have happened was I would have put one of my producers on for that week and I would have given the other one off. But because we all said we were gonna be off that week, I gave everybody off that week 'cause I said, "Let's take advantage of this." That's what actually happened. But that's fine because, Zach-

   28. DSDavid Sacks1:17

       You didn't get back to us. We had to hack into all of the accounts.

   29. JCJason Calacanis1:20

       I literally, we literally both said to you in the chat, "We're off this week. We're off this week." And we confirmed with your teams multiple times we were off this week. It's no big deal. If you want to go 52 weeks a year-

   30. DSDavid Sacks1:28

       We said in the chat, "We want to record this week."
2. 2:55 – 20:34

   Macro picture: inflation cools, what happens to rates, market sentiment, soft landing, tech run-up

   1. JCJason Calacanis2:56

      All right, the big news this week is inflation has eased to 3% in June. We'll throw up a chart here. It's the slowest pace in more than two years, so the Fed's increases have worked. And I guess the question now is are we gonna have a sustained high interest rate or is it gonna get cut slowly? Chamath and Freeberg, you've been talking to a number of people about this. I think All In Summit 2023 speaker Larry Summers has been pretty vocal about this. What's your take, Freeberg?

   2. CPChamath Palihapitiya3:25

      Yeah, I mean, I think Larry's said publicly that he thinks that rates are gonna need to be higher for longer than what the market is currently showing. We talked last week with Brad, obviously, about what the market is showing rates to be, and he's assuming some rate cuts will start to happen in December, and that's really what the market is saying is gonna happen. And Brad's point was the market knows better than the forecasters. But Larry Summers has publicly shared that he thinks that, that is actually not correct, and, you know, again, diversity of, of views is important to understand, that there are structural things that are happening in the world right now, including a decoupling from China, which is inflationary because, you know, China provides cheap goods and cheap manufacturing for a lot of industries. And many of those industries sell to consumers, so ultimately those prices are gonna show up in consumer costs. There's an increase in energy transition expenditure and security, uh, globally. And Summers has pointed out that those are not free. They have to be funded. And obviously taking on more funding means you're gonna have to pay higher interest rates for investors to provide that capital to do that funding. So there are more structural longer term trends that some folks in the Summers camp have been arguing are gonna be driving inflation higher and keep rates higher for much longer than what the market is currently showing. And I think it's really worth noting that point of view, particularly given how quickly the market thinks rates are gonna start getting cut.

   3. JCJason Calacanis4:53

      Chamath, you've been talking about the interest rates and that you believe it'll be persistent, so higher for longer. You're sticking with higher for longer on the interest rates, I assume?

   4. DFDavid Friedberg5:02

      Yeah, I think the more important thing from that, J-Cal, is so what do we do about it? And I think the most important point of view that I'm trying to get to is where do I think the equity market is going to go? And, you know, all roads, at least right now, look like the market is getting set to go materially higher. And the reason isn't whether, you know, terminal rates are at 2% or 3% or 3 1/2%. I don't think that matters that much. What matters more are the trillions of dollars that are sitting on the sideline or in other defensive assets that need to then pivot around and get put back into growth assets once you know that the worst is behind us. And I think that's what a market always looks for before real sentiment changes. And what's important to note is that by the time most people figure out that the sentiment has changed, it's already actually too late. And so-

   5. JCJason Calacanis5:59

      Ah.

   6. DFDavid Friedberg5:59

      ... I think right now in the next sort of like 12 to 18 months is really when the bottom is put into the market. It's before the Fed starts cutting.... it's when rates are still going to be relatively high but the really astute sharp in this market will get ahead of it and they will start to buy what they think will be an eventual rally. And then it's gonna get supported by the fact that if not enough people are also long, you get caught on the wrong side. You don't necessarily have to be short, you just aren't long enough. And what that does is put pressure on your business model, so if you're a mutual fund or if you're a hedge fund and you've missed most of this rally, which most people have because it's really only been five or six companies. So I think that Larry is right. I think that I still believe what I've said for a while which is rates will be higher for longer, but what I didn't believe before was that the market was set to go up. I think we did a great job. I think literally that, when I made that comment November of '21 about starting to sell, it was the absolute top of the market.

   7. JCJason Calacanis7:06

      Yeah, you nailed that one. You nailed that one.

   8. DFDavid Friedberg7:07

      Nailed it.

   9. JCJason Calacanis7:08

      Yeah.

   10. DFDavid Friedberg7:09

       And I think my commentary now is that we're putting in the bottom, and-

   11. JCJason Calacanis7:13

       Okay.

   12. DFDavid Friedberg7:14

       ... I think the market is set to go materially higher even if rates are persistently higher for a while.

   13. JCJason Calacanis7:20

       Just to challenge you on that second point, the bottom really was put in maybe last summer. You're really speaking to the psychology and the dyna- dynamics of capital allocation. There are people who were scared maybe and thought the bottom could get much worse and they didn't want to put money at play. There were some people who were brave enough to put money in play in the last 12 months, so I'll give myself a pat on the back. I did day trading starting last summer and I'm up, whatever, 25%, something crazy like that, 'cause I picked all the big tech companies. But you're saying now because-

   14. DFDavid Friedberg7:48

       Well, so that's, but that's a good example, just to pick on that. The reason you did well was mostly because they were oversold, meaning that-

   15. JCJason Calacanis7:57

       Yeah. If you look at those tech-

   16. DFDavid Friedberg7:58

       If you look at those big tech companies, and, but that's not a sustainable thing if you're trying to own great companies. The reality is those seven companies, one of them NVIDIA, is actually firing on all cylinders. Everybody else just stopped acting like a fucking moron.

   17. JCJason Calacanis8:13

       Hmm.

   18. DFDavid Friedberg8:13

       And that's not a sustainable business strategy, meaning, you know, it... burning billions and billions of dollars a quarter totally wastefully with all kinds of random free stuff to a bunch of entitled employees-

   19. JCJason Calacanis8:24

       Side projects, side quests. Yeah.

   20. DFDavid Friedberg8:26

       And then taking that away doesn't ensure long-term success for anybody. All it does is just tourniquets the bleeding, and so you have more material short-term cash flow. And the markets are gonna reward it, especially-

   21. JCJason Calacanis8:39

       Yes.

   22. DFDavid Friedberg8:39

       ... in a moment where it's, the trade-off is against rates, short-term rates that are 5% or 6%. But from here, right? The real long-term value creation is still going to go to the companies that are building true product market fit and product value.

   23. JCJason Calacanis8:55

       Well said. Well said.

   24. DFDavid Friedberg8:55

       And are, are, and are really growing in a material way from adoption and usage, not from cost cutting.

   25. JCJason Calacanis9:03

       Yeah.

   26. DFDavid Friedberg9:03

       Because people see through that, and when rates start to get cut, they'll see through it even faster. The only time cost cutting gets rewarded is when short-term rates are this high because people love short-term cash flow.

   27. JCJason Calacanis9:15

       Yeah, and it was when, the moment I saw Zuckerberg and Airbnb, Uber, other places just start, and obviously Google and Microsoft start making cuts, you're like, "Okay, people are going to lower their costs." They're doing triage, as you're saying, to make the balance sheet, to make the earnings.

   28. DFDavid Friedberg9:30

       Triage works in the final third of a bare market.

   29. JCJason Calacanis9:33

       Okay. So-

   30. DFDavid Friedberg9:33

       But triage does not work in a bull market. You don't get rewarded for triage-
3. 20:34 – 30:31

   Consumer sentiment: demand crash coming?

   1. DFDavid Friedberg20:34

      So let's talk about the driving force in this. In CPI, the first word is consumer. Chamath, stimmy check summer last year and the year before, NFT, crypto, you know, secure your bag summer, (laughs) I think it was this- the same sort of phenomenon. And unlimited, you know, double or triple bonus unemployment, plus deferring your student loans. Those four things were, you know, pretty much defined in the last two years, and all of them have come to a crashing halt. You can't get unlimited unemployment. You gotta start paying your student loans in September, from my understanding. And, uh-

   2. DSDavid Sacks21:11

      And rent.

   3. DFDavid Friedberg21:11

      Yeah, you're-

   4. DSDavid Sacks21:12

      You gotta pay your rent.

   5. DFDavid Friedberg21:13

      And rent. Oh, yeah.

   6. DSDavid Sacks21:14

      (laughs)

   7. DFDavid Friedberg21:14

      Oh, wow. What a crazy concept. We should do number f- so we have five factors there. You have to, you have to pay your landlord your rent. So let's talk about the consumer for a quick second here. Is this the last hurrah summer, people? Consumers are gonna need to get back to work in September, 'cause th- it seems like the credit card debt's going up. We talked about that over the last year. And if consumers aren't spending, you know, that's gonna be the driving force, and that was the goal of raising the interest rates is to maybe get consumers to have a higher car bill, a higher mortgage bill, and to get back to work. Yeah. I mean, I think that's very well summarized. I think that we, um, are absorbing all the excess liquidity in the economy that would otherwise have gone into really speculative things, the extra vacation, the extra pair of shoes on StockX or whatever, the extra NFT, the extra this, the extra that. That's all out the window. A traditional home mortgage has probably doubled in terms of your monthly payment. So yeah, people will be forced to get back to work. They'll have to stay in jobs longer. They'll have to just do a much better job of managing their finances. But all of that doesn't necessarily mean that the US economy falls off a cliff. I think that the thing we have to remember is that ... and I don't think we can explain it, actually, very well, because every time a- an economist has tried to do it, I don't think they've really figured this out, but we tend to have a very resilient level of consumer demand. And when you look at the correlation between consumer demand and the underlying economy, even in periods of extreme shock, so even ... Like, the pandemic is one of those moments where, yeah, the demand fell off a cliff, but that's because we were literally prevented from doing anything. We could not buy the things that we wanted to. Right? Or if you even go back to 2007, 2008, in the great financial crisis, the interesting thing about consumer demand is that it snaps back very quickly. Mm. So there's this weird dynamic where folks have a base level of spending, and they use a- an amount of debt to basically, you know, subsidize that. And then they're willing to work in order to make sure that that doesn't change. And I think that that's what we're getting back to. We're gonna get people off the sidelines into the labor market and- Yeah. I think it's a- ... things will keep going. Sax, I think it's all psychology. Like, if you're ... I think people's spending is a function of their optimism and, like, maybe their last trade- Yeah. ... or their last bank statement. So it's like, "Oh, my NFT tripled, therefore it's going to triple again next month. And hey, there's a chance it might go 10X." "Oh, I invested in this startup. Oh, you know, I'm getting stimmy checks. I'll get another stimmy check." And now, if they get three or four moments in time where, "Oh, my NFT is now worth 10%. I can't defer my student loans anymore. Oh, I'm accruing interest. Oh, no, the house I bought now has a 15% mortgage and I was on variable," so what, what's your thoughts on the psychology of the consumer here? And is everybody just still spending, but maybe downgrading a little bit? Maybe they buy the Tesla Model 3 instead of the, you know, going for the Model S? Uh, they take business class ... instead of taking business class or economy plus, they, they do a staycation and drive somewhere?

   8. DSDavid Sacks24:32

      I've been surprised at just how resilient the economy has been. I figured that after all the distortions we had in the economy, all the stimulus during COVID, we basically floored the accelerator and then slammed on the brakes with this incredibly rapid rate tightening cycle. I thought for sure that was going to basically crash the economy. I was in the Druckenmiller camp on this, but I think, again, what you're seeing over the last few weeks is just more and more evidence that it could be a soft landing, that we may not have a recession, and we might even get rate cuts next year. But I do think that right now the risks are probably as balanced as they've been. So if you want to pull up... Nick, can you pull up that chart, the quadrants from the CO2 Summit? I thought this was actually a pretty interesting chart that we saw at the CO2 Summit as a useful framework for thinking about the scenarios for the economy. So in other words-

   9. DFDavid Friedberg25:21

      Sportscast it-

   10. CPChamath Palihapitiya25:22

       For the audience listening, yeah.

   11. DSDavid Sacks25:23

       Yeah, so basically it's a two by two quadrant where on one axis you've got inflation, and inflation can be either low or high based on 3% being the dividing line, and then the economy can be either weak or strong with 4.5% unemployment being the dividing line. So if you believe that inflation's coming down below 3% and unemployment's going to stay below 4.5%, I think it's already at, like, 3.5% right now, then you're back in the sustained growth quadrant in which case the S&P 500 is going to keep ripping. On the other hand, if inflation is above 3% with low unemployment, you're back in the overheating quadrant which is probably bad for stocks. Now, you could have a situation in which inflation goes down and remains good but unemployment goes way up, in which case that'd be the hard landing. And then the final quadrant is stagflation where you've got high inflation and high unemployment. So I think the quadrants right now are probably as balanced as they have been in quite some time in terms of where we could end up in, let's say, a year.

   12. CPChamath Palihapitiya26:26

       Yeah, I think that there are some-

   13. DFDavid Friedberg26:28

       Yeah, 3% already then came.

   14. CPChamath Palihapitiya26:28

       Yeah, there's some early signals that you can look to to get a sense of where this may be going. Disney World is empty. The lines are really short. (laughs) I don't know if you guys have any friends that have been to Disney World lately or Disneyland? It was in The Wall Street Journal, that traffic has fallen off a cliff. Yeah, and there's just, there's seriously-

   15. DFDavid Friedberg26:46

       Another go woke, go broke company.

   16. CPChamath Palihapitiya26:48

       (laughs)

   17. DSDavid Sacks26:48

       (laughs) That's a really interesting point is, do you think that Disney traffic has gone down because the conservative half of the country basically feels offended-

   18. DFDavid Friedberg26:58

       Yes.

   19. DSDavid Sacks26:58

       And they're boycotting-

   20. CPChamath Palihapitiya26:58

       I think you're right.

   21. DSDavid Sacks26:59

       It a la Bud Light?

   22. DFDavid Friedberg27:00

       Yes. Yes.

   23. DSDavid Sacks27:00

       Or is it a larger consumer spending problem?

   24. DFDavid Friedberg27:02

       Yes. Everybody everywhere else is still spending. Like even if you go to, like, look at the World Series of Poker main event this year had the historic number of entries. Everything is telling you that people are getting their last hurrah. So the fact that Disney has been decaying for the past year is more emblematic of the fact that they've gotten into this social culture war and half the population of America said, "We're not going to support your business," like they did to Bud Light. And I'm not adjudicating the rightness or wrongness of either Bud Light or Disney, but the answer is in the actual results. The people are not walking into the store.

   25. CPChamath Palihapitiya27:37

       Just to show this while we're on Disney, so here's a Disney chart for you just to show you the times at the different parks over the years. It, it is, in 2023, meaningfully shorter than 2022 or pre-pandemic.

   26. DFDavid Friedberg27:48

       Right.

   27. CPChamath Palihapitiya27:48

       So I don't know if that's a function of their technology that they've been deploying or if maybe conservatives are not going, but there's also another X factor which is the previous head of Disney who got ousted and Bob Iger's back was the guy who ran parks, and he just leaned into changing the pricing and it got absurdly expensive and they got rid of, like, the California Pass and all that stuff. So I think the, the, the jury's out on this one. Bob Chapek, yeah. But there's a broader consumer spending question that I'm, I'm, uh, saying that there may be some early signals. Most consumers rely on credit. As you guys know, interest rates are rising and that passes through to consumers purchasing goods, but other folks look at the metric of consumer credit card balance as a percentage of savings or a percentage of earnings which is actually a little bit lower given wage growth and savings that have accumulated. Regardless, there are other signals we can look to. So if you pull up this chart, this just shows a really important, uh, statistic. So 80% of new car purchases are financed, meaning you take out an, uh, a loan to buy the car. 40% of used cars are financed. And interest rates on, uh, car loans as you guys can see in this chart, in just the last year or so, interest rates have spiked from under 4%, call it 3.7%, to an average of 7% today. And that obviously translates into a doubling of the monthly payment needed to buy a car. And now if you go to the next image, so this is now playing through in terms of used car demand and used car prices. In the last month, it was reported by Cox Automotive that the pricing for used cars has declined by 4.2%. And so this starts to indicate that there may be a bit of a softness emerging. We could argue, yes, this is having a, a positive effect on the inflationary conditions, but it may also be an indication of consumer spending and that we're starting to get to a point where credit is so expensive and consumers' ability to flex credit is being dec- decreased and that's starting to translate through into what everyone's been worried about which is the recessionary or declining effect on revenue, declining effect on profit of companies that are selling goods and services. So that is obviously the challenge to Sachs' point on that two by two matrix on, you know, if you, if you reduce cost and reduce demand too much, you can have a recessionary effect and consumers are a big driver of this and so many consumers depend on credit. It's a, it's going to be a big condition to watch. Well, austerity measures are gonna happen. Here's the chart of quarterly revenue for, uh, Disney. Yeah, still doing great. I bought the stock and, and it's the one thing in my JTrading portfolio I've gotten crushed on that and Warner Brothers Discovery. I made two entertainment bets on what I think are the two best companies. I also did Netflix, but one out of three ain't good. All right, so some breaking news

4. 30:31 – 36:33

   BREAKING: Ripple gets big win in SEC case, token rips

   1. CPChamath Palihapitiya30:31

      here that we'll try to dovetail together with this-

   2. JCJason Calacanis30:35

      ... Lina Khan and the FTC losing their Activision case. Apparently, and it's breaking news, a partial win is what it looks like. Let me read this here, "Judge gives Ripple partial win in SEC case over XRP currency. 'Ripple Labs, Inc. violated federal securities law in its sale of cryptocurrency XRP directly to sophisticated investors, but its sales on public exchanges did not involve securities,' a U.S. judge said in a ruling that sent the cryptocurrency soaring. XRP was up 25% after the ruling. SEC had accused the company and its current and former chief executives of conducting a $1.3 billion unregistered security offering by selling XRP, which Ripple's founders created in 2012. U.S. District Judge, who is based in New York on Thursday said the company's 728.9 million of XRP sales to hedge funds and other sophisticated buyers amounted to unregistered sales of securities. But Torres ruled XRP sales on public cryptocurrency exchanges were not offers of securities under the law because the purchasers did not have a reasonable expectation of profit tied to Ripple's effort." Okay. "'Those sales were blind-bid ass transactions,' she said, 'where the buyers could not have known if their payments..." I'm reading from Reuters here, "'... of money went to Ripple or any other seller of XRP.'" Interesting. So the buyer becomes the- the person who profits from it becomes the, the, the fulcrum here? "XRP sales on cryptocurrency platforms by Ripple-"

   3. DSDavid Sacks32:03

      I mean, Jason, you're not gonna figure this out in real time. This is too complicated. The bottom line is that... The headline is-

   4. JCJason Calacanis32:09

      No, I just wanna make sure the audience gets it, yeah.

   5. DSDavid Sacks32:11

      Look, the headline is, I mean, the tweet, "Ripple sales of XRP do not constitute offer of investment contracts, according to judge." They won.

   6. JCJason Calacanis32:20

      They won. Well-

   7. DSDavid Sacks32:20

      This is a huge vindication for them. And that XRP-

   8. JCJason Calacanis32:23

      Uh...

   9. DSDavid Sacks32:23

      ... is ripping 35%.

   10. DFDavid Friedberg32:25

       Yeah, and it really handcuffs the SEC. What are they gonna do about Coinbase and every other exchange? I mean, th- if they're not selling securities, I think Coinbase and everybody else has always maintained they're selling tokens. This was the f- this was the fulcrum argument for the SEC, and they just c- they just lost.

   11. JCJason Calacanis32:42

       Yeah.

   12. DSDavid Sacks32:42

       The whole crypto market is ripping right now.

   13. JCJason Calacanis32:44

       It's an interesting one. The confounding part of this is that the initial sale, to accredited investors and hedge funds, was done, that they violated securities law there, when they were selling directly to sophisticated investors. I... Just looking at it logically you would think it was the reverse, but this is a fascinating turn of events.

   14. CPChamath Palihapitiya33:01

       I just texted with Brad Garlinghouse-

   15. JCJason Calacanis33:03

       Yeah.

   16. CPChamath Palihapitiya33:03

       ... and he says, um, yes, it does mean that they won, and he feels-

   17. JCJason Calacanis33:09

       Oh. Vindicated.

   18. CPChamath Palihapitiya33:10

       ... vindicated and really happy about the, uh-

   19. DSDavid Sacks33:14

       How do you feel, J Cal?

   20. JCJason Calacanis33:15

       Well, I feel like I'm gonna launch J Coin and sell a token to back, uh, startups. I mean if, if it's a free-for-all now...

   21. CPChamath Palihapitiya33:21

       I, I, I won't tell you, tell you what he said about you, J Cal, but-

   22. JCJason Calacanis33:24

       He said, "F J Cal." (laughs)

   23. CPChamath Palihapitiya33:24

       Yeah. (laughs)

   24. DSDavid Sacks33:25

       (laughs)

   25. JCJason Calacanis33:25

       No, I mean, I said from the beginning-

   26. DSDavid Sacks33:26

       J Cal, you were accusing these guys of securities fraud for, like, the last several years.

   27. JCJason Calacanis33:29

       I think it is sec- well, the- they've been convicted of securities fraud here. So that's the... it's a two-part judgment.

   28. DSDavid Sacks33:34

       Wait, what?

   29. JCJason Calacanis33:34

       "Ripple violated federal securities law in its sale of cryptocurrency," the first line of the story. The- there's two judgments here. "They violated federal securities law in its sale of cryptocurrency XRP directly to sophisticated investors, but the sales on public exchanges did not involve securities." So what they're saying is, if you sold XRP to hedge funds, that was a security when they did the first offering. But when the public started trading it on public exchanges, they did not have, according to the Howey test, this belief predicting that-

   30. DSDavid Sacks34:03

       But that's where their vulnerability was. Because if you sell to a professional hedge fund, they're accredited.
5. 36:33 – 51:08

   Lina Khan's losing streak, "spray and pray" strategy, overzealous regulators

   1. DFDavid Friedberg36:33

      filing.

   2. JCJason Calacanis36:33

      All right, so let me just pivot over to Lina Khan's, uh, losing streak here. On Tuesday morning, a federal judge denied the FTC's attempt to delay Microsoft's $70 billion acquisition of Activision Blizzard. And the FTC's argument is basically Microsoft should not be allowed to acquire Activision because it would make Activision's core assets, which is basically Call of Duty, uh, one of the greatest franchises in the history of franchises.... movies or television shows (laughs) or video games, and that it would be exclusive to the Xbox. Satya Nadella and Xbox head Phil, uh, Spencer both said under oath they could not make COD an exclusive, and they wouldn't. And not only that, they said they would allow it-

   3. DFDavid Friedberg37:10

      No, it made no sense. I mean-

   4. JCJason Calacanis37:11

      They also said they would put it on Nintendo, which-

   5. DFDavid Friedberg37:14

      Of course, because Nintendo and Sony-

   6. JCJason Calacanis37:15

      ... Activision had done.

   7. DFDavid Friedberg37:16

      Because Nintendo and Sony are the two... are the number one and number two players in this market, and Sony alone is basically 50% of the market. So, I think, like, the crazy thing about all of this is if you look at the, the legal strategy of the FTC, it's basically that they view themselves as a hammer and every deal, particularly if it's done by big tech, is a nail. And so, you know, Amazon, Roomba, lawsuit. Facebook, some rando little company, lawsuit. Microsoft, Activision, lawsuit. And it's that emotional reactivity that takes away faith and trust that this organization is intelligent and sober and well-run. And that's the shame of it because if you actually look across all of the deals in tech that have happened recently, this deal was frankly DOA from the start from a regulatory blocking perspective because of what I just said. The number three player, a distant third, buying an asset. Why would you take an asset that you pay $70 billion for and immediately turn it off from 50% of all consoles? Nobody would do that.

   8. JCJason Calacanis38:30

      Hey, Sax, when we look at this, and let's widen this aperture to the faith in institutions because we have the Gary Gensler, hey, do we actually believe, uh, that they're acting in good faith or are they trying to protect fiat currency and not let, uh, an alternative currency take some control and, and sort of be a backstop against their behavior on the money printing machine, which is crypto's, you know, big sort of, let's call it the Balaji position. And then in this case, Lina Khan was selected, handpicked as a 32-year-old wunderkind who had this incredible thesis that she could predict who would compete in the future. She was like a Minority Report precog. She alone could decide, you know, who, how these, uh, competitions would, uh, emerge and she keeps losing. So, are these two institutions now being used for political purposes by the Biden administration or do you think that they're just poorly executing? What's your take?

   9. DSDavid Sacks39:28

      Well, I think clearly the legal strategy that Lina Khan has been pursuing is not having much success in the courts. I mean, she just lost this big decision on the Microsoft acquisition of, of Activision. But that being said, I'm almost starting to feel bad for her because although some of her legal theories may be flawed, I do think that these big tech companies like Google and Microsoft do need to check on their power. And so what I would urge is that Lina Khan needs to regroup, maybe figure out a different legal strategy, figure out a different way to take on big tech, because someone does need to cut these big tech companies down to size. They are giant monopolies and they do need to be restrained and controlled or they will basically consolidate the whole tech ecosystem and abuse their market power. So, I think it's actually pretty vital that we have a regulator who is energetic in wanting to check the power of big tech. I think maybe trying to put a damper on M&A was the wrong way to do it. We've talked about this before.

   10. JCJason Calacanis40:26

       Yeah. It needs to be more surgical, right?

   11. DSDavid Sacks40:27

       There's so few ways to have a good exit in the tech industry that when you take away M&A, it puts a damper on all risk-taking and-

   12. JCJason Calacanis40:35

       Yes.

   13. DSDavid Sacks40:35

       ... the deployment of risk capital into the ecosystem. So, I think it was having too big of a chilling effect, so I think she needs to move away from these M&A cases unless it's a very, very clear case. But I think where she can be more aggressive is on restraining anticompetitive tactics, and also maybe busting up these companies. You know, I'm thinking more and more about this Google case that she has where she wants to basically break up the company because they've got this monopoly, not just in search, but also in advertising. Maybe that's a good thing, and maybe Amazon should have to spin out AWS. Maybe Google should have to spin out YouTube because I do think they are abusive in the way they exercise their authority. As a small example over the past week, YouTube just banned a video of Jordan Peterson interviewing RFK Jr. Why? What gives them the power to interfere in our democracy that way where they just decide for their own reasons that the public can't watch a video of Jordan Peterson interviewing RFK?

   14. JCJason Calacanis41:42

       Well, wouldn't be counter argument be it's-

   15. DSDavid Sacks41:44

       That is absurd.

   16. JCJason Calacanis41:44

       ... didn't the Supreme Court just say private companies can serve customers however they want? If you want a gay cake, uh, a baker doesn't have to make it. Isn't it the same analogy?

   17. DSDavid Sacks41:52

       No, I don't think it's the same principle. These are huge monopolies that have tremendous-

   18. JCJason Calacanis41:56

       Oh, okay.

   19. DSDavid Sacks41:56

       ... market power that are interfering and are-

   20. JCJason Calacanis41:57

       So small companies can choose their customers and products, but the big company has more of a responsibility to be an open platform, in your mind?

   21. DSDavid Sacks42:05

       Yeah, that's the common carrier argument.

   22. JCJason Calacanis42:07

       Yeah, okay.

   23. DSDavid Sacks42:07

       But my point is just they have tremendous market power that they abuse in arbitrary ways.

   24. DFDavid Friedberg42:12

       You have to admit, Sax, their, her lawsuit strategy is scattershot.

   25. DSDavid Sacks42:15

       It's a little bit spray and pray.

   26. JCJason Calacanis42:17

       Uh, in fairness to her, she said she was gonna do that.

   27. DFDavid Friedberg42:19

       No, but for example, like, but where is the... I, I agree with you, like where is the lawsuit on Adobe Figma? That seems like a more obvious one. You have the number one and the number two, right? There's a clear number one monopoly buying the number two. And so that could be more market consolidation than a number three player buying a gaming company.

   28. JCJason Calacanis42:36

       It's not a, nobody... The, the, the public doesn't know those names and Biden put her in there to be anti-tech but to be anti- wealth cr-

   29. DFDavid Friedberg42:42

       But I think, I think you're, I think you're answer-

   30. JCJason Calacanis42:42

       This has to, this is, uh, her... But no, I just wanna tell you, sh- her position has also been driven by wealth inequality, which is not the mandate of the FTC. I think that's why she's the worst modern day FTC head. I'll say it again. I know she doesn't like it.
6. 51:08 – 1:04:58

   EV supply/demand mismatch

   1. CPChamath Palihapitiya51:08

      with it, you know?

   2. DSDavid Sacks51:09

      So speaking of, you know, Friedberg made this point about the administration being overzealous. Did you guys see this article on the glut of electric cars that are piling up now?

   3. JCJason Calacanis51:18

      Yeah.

   4. DSDavid Sacks51:18

      On dealers' lots?

   5. JCJason Calacanis51:20

      Yeah.

   6. DSDavid Sacks51:20

      Can we shift gears to this?

   7. CPChamath Palihapitiya51:21

      By the way, I think this is-

   8. DSDavid Sacks51:22

      Because-

   9. CPChamath Palihapitiya51:22

      ... a big part of what I said earlier about interest rates on car loans. Oh, no, this is a bigger problem. This specific thing is more because of the bureaucracy of the government-

   10. JCJason Calacanis51:29

       Yeah.

   11. CPChamath Palihapitiya51:29

       ... not allowing these credits to beca- basically work across all different kinds of cars. This, this should not exist for the reason.

   12. JCJason Calacanis51:36

       Yeah.

   13. CPChamath Palihapitiya51:36

       This is not a demand issue. This is a bureaucracy issue.

   14. JCJason Calacanis51:38

       Let's shift gears to the car story.

   15. CPChamath Palihapitiya51:39

       Yeah, yeah, government intervention and market dynamics, is that the driver?

   16. DSDavid Sacks51:43

       Oh, yeah. So, Axios, so it says here, "The legacy auto industry is beginning to crank out more EVs to challenge Tesla, but there's one big problem, not enough buyers. There's a growing mismatch between EV supply and demand. Even though consumers are showing more interest in EVs, they're still wary about purchasing one because of either price or charging concerns."

   17. JCJason Calacanis52:03

       Range anxiety.

   18. DSDavid Sacks52:06

       Yeah, a lot of these new companies that are, are, they're not new companies, but they're new to EVs, don't have charging networks.

   19. JCJason Calacanis52:12

       Yep. Th- that's an issue, and then also if you've never owned an EV, and you don't live in a city, 'cause now we're going down the curve of people who live outside of cities, and you see 200-mile range, you remember your trip where you drove 300 miles or 400 miles, and you're like, "Well, then I can't have this car." If you have a Tesla, you obviously can, but then Tesla also made the chess move of lowering their prices and having record sales. So their margin went down, but their sales went up, and everybody can wait a year. Like, that's, I think, that what people don't realize about cars. You can always get another year out of your current car.

   20. DSDavid Sacks52:46

       So according to this article, the nationwide supply of EVs in stock has grown nearly 350% this year to more than 92,000 units, which is a 92-day supply of EVs. Whereas, by comparison, dealers have 54 days worth of gasoline-powered cars in inventory. So, even though interest is growing in EVs, there's simply too much supply.

   21. JCJason Calacanis53:15

       Too much supply.

   22. DSDavid Sacks53:16

       It's because all these other companies, like Ford and GE, are now producing tons of EVs, but they don't have the charging networks. And they're new to the EV game, and they don't really produce great cars, great EVs. Tesla does not have this problem, by the way. And what I come back to is just the administration's industrial policy. I mean, the administration just gave all these subsidies and credits to big companies like Ford and GE to make EVs, but no one wants those cars.

   23. JCJason Calacanis53:44

       Yep. Now the other problem-

   24. DSDavid Sacks53:46

       And so th- they're actually interfering in a free market where Tesla is the big winner because they took a huge risk and created a product people wanted. And now you've got these big, stodgy, old companies trying to catch up, but no one wants their cars.

   25. JCJason Calacanis54:01

       And the administration, which is pro-union, is anti-Tesla 'cause they don't have a union, and so they put the thumb on the scale and give them the credits instead of giving the credits to Tesla, although Tesla lowered their prices, and I think they now qualify. But the prices are so low for Tesla, and the cars are so sophisticated. Listen, not to talk up our guy's book, but I, I think the other big issue here that's not mentioned in the story is interest rates. I mean, if, if you could give these things away at 2%, 3%, 4% interest rates, that's a big difference, isn't it?

   26. DSDavid Sacks54:30

       Yeah, you're right.

   27. JCJason Calacanis54:30

       In terms of your monthly car payment.

   28. CPChamath Palihapitiya54:32

       80% of new cars are financed. There's no loan.

   29. JCJason Calacanis54:36

       Okay, so that's the beginning and end of this probably. I mean, it's, it's, it's three factors going on here.

   30. CPChamath Palihapitiya54:40

       And interest rates on auto loans have doubled, like the chart I showed.
7. 1:04:58 – 1:18:52

   Fraught NATO summit, ammo crisis, Sweden joins NATO

   1. JCJason Calacanis1:04:58

      Red meat for Sax, eh, and for, uh, J Cal to a certain extent. There are no winners in war. NATO has, uh, brought Sweden and obviously Finland came in right before them because of Putin's invasion of Ukraine. And here we go, uh, Zelensky, uh, denounced the NATO alliance's administration policy as, "Absurd and disrespectful." First sentence of, uh, Sax's very long tweet storm, "Despite Biden's best efforts to put a happy face on it, Vilnius will be remembered as the NATO summit where tensions boiled over." Obviously, uh, this photo has become a bit of a meme. Throw it up on the screen right here. Zelensky literally, not figuratively, having NATO turn his back on him on stage from being the cause celebre last year, to everybody I, you know, and again, it's, it's just a picture. Uh, there was a, uh, it was a press conference with Biden who said Zelensky was stuck with the US and, uh, I'll let Sax take it from there.

   2. DSDavid Sacks1:05:55

      These NATO meetings are supposed to be symbols of unity and harmony and the alliance coming together to show how on the same page they are. And this meeting, it sorta ended up there, but it's not the way it, it started. Zelensky had been told, the Ukrainians had been told before the summit that there would not be a timetable for their admission to NATO on the agenda. Stoltenberg had said it weeks ago, Biden had said it weeks ago. This controversy had played out already in the pages of the New York Times and other publications. So he knew that it would not be on the agenda and yet he went into the meeting demanding that they put it on the agenda, trying to muscle his way into admission into NATO, which Biden, I think to his credit, has resisted, because Biden understands that this is an escalation that could lead to World War III. As Biden explained, the members of NATO have an Article 5 commitment to defend each other's territories. So if Ukraine is admitted to NATO, then we would end up being directly involved in this war, or at least that's the risk. And so, Biden's position is that the alliance will admit Ukraine at some point in the future when the conditions have been met. And that wasn't good enough for Zelensky and he basically threw a diplomatic tantrum.

   3. JCJason Calacanis1:07:14

      Why?

   4. DSDavid Sacks1:07:15

      Well, I mean, do you want me to explain it from his point of view? I mean, I think from h-

   5. JCJason Calacanis1:07:17

      Yeah, yeah, I'm curious what you would think his, why would he do something like that? Is I guess my question, yeah.

   6. DSDavid Sacks1:07:21

      I think there's a couple of different reasons, okay? So-I think the less positive explanation is that his sense of entitlement has reached incredible proportions, that you had here the entire West, and especially the Western media has been fawning over him for a year. The West has given over a hundred billion dollars, and he just feels entitled to more and more aid. And I think that really rubbed the attendees the wrong way. You had Ben Wallace, who's the Secretary of Defense for the UK, basically chastise Zelenskyy for his ingratitude. And just so you understand, I mean, Ben Wallace is a super hawk. He is super pro-Ukraine. And if he had his way, we might even be directly involved in the fighting. Biden actually vetoed Ben Wallace becoming the new head of NATO. That's why Stoltenberg got another year. So, you probably got one of the most hawkish members of this club reprimanding Zelenskyy for, again, this lack of gratitude, basically, to the alliance. Now, I think from Zelenskyy's standpoint, his view is that, "Hey, we had a peace deal." He didn't say this, but this is my reading between the lines, that, "We had a peace deal at Istanbul. We could have ended this war, and you sent Boris Johnson to tell me, 'We don't wanna make a deal, we wanna pressure Putin, and we're gonna give you the weapon systems to win this war.'" That was the deal that he thought he was making, and now it turns out that the US doesn't have enough ammunition to give him. I'm talking about the key type of ammunition in this war, which is artillery shells. The US has basically run out of 155 millimeter artillery shells, which are the key type of ammunition that's used in these Howitzers and these tanks and so forth. And artillery is the main weapon being used in this war. It's what's creating most of the casualties. So, it must have come as a rude awakening to Zelenskyy to find out that his partners don't have enough ammunition to give him. And I'm still stunned that we spend over 800 billion a year on defense and we can run out of ammunition. I mean, how does that happen? I mean, how royally screwed is the American taxpayer when we spend 800 billion a year and we are out of ammunition already? It is mind-boggling to me.

   7. JCJason Calacanis1:09:40

      Mind-boggling.

   8. DSDavid Sacks1:09:40

      Now, the prob- It's mind-boggling, right? I mean, how incompetent has our military-industrial complex become that this can even happen?

   9. JCJason Calacanis1:09:48

      We need more competition startups. Shout out Palmer Luckey, friend of the pod.

   10. DSDavid Sacks1:09:51

       (laughs) But in any event-

   11. JCJason Calacanis1:09:53

       No, sincerely. I mean, I know he hates me-

   12. DSDavid Sacks1:09:55

       Yeah.

   13. JCJason Calacanis1:09:55

       ... but I, I do think that the solution is 10 more Palmer Luckeys. I mean, I think the Silicon Valley's anti-supporting the military is a crazy position that needs to change, and we should make more weapons and have VC back companies making weapon systems that are more affordable and, and, you know, more advanced, obviously.

   14. DSDavid Sacks1:10:14

       This is actually not a case of needing some smart bomb or some-

   15. JCJason Calacanis1:10:18

       No, this is blocking-

   16. DSDavid Sacks1:10:19

       ... super sophisticated-

   17. JCJason Calacanis1:10:19

       ... and tackling.

   18. DSDavid Sacks1:10:19

       ... new cutting-edge tech.

   19. JCJason Calacanis1:10:20

       Yeah.

   20. DSDavid Sacks1:10:20

       This is basically just-

   21. JCJason Calacanis1:10:21

       Basics.

   22. DSDavid Sacks1:10:21

       ... classic industrial production, and we've hollowed out so much for our industrial production that we don't have the capability to scale up the manufacturing of these artillery shells. It's gonna take us... According to the Pentagon, they started the war at 14,000 shells being produced a month, mainly for training purposes. They've scaled that to somewhere between 20 and 30,000 a month now, and they're saying that they will get to about 90,000 in somewhere between 2025 and 2028

   23. NANarrator1:10:48

       Yeah. We have-

   24. DSDavid Sacks1:10:49

       ... according to different estimates.

   25. JCJason Calacanis1:10:49

       ... we have 3% unemployment-

   26. DSDavid Sacks1:10:50

       So, you're talking about-

   27. JCJason Calacanis1:10:50

       ... as we talked about earlier.

   28. DSDavid Sacks1:10:51

       You're talking about multiple years-

   29. JCJason Calacanis1:10:52

       Who's gonna, who's gonna work in these factories, right?

   30. DSDavid Sacks1:10:54

       You're s- It's gonna take multiple years to scale up these factories.

Episode duration: 1:28:06