E142: "Rich Men North of Richmond" hits #1, upward mobility, real estate capital crunch, Trump RICO

1. 0:00 – 2:56

   Sacks' big night

   1. JCJason Calacanis0:00

      Oh, my God. Sax looks like he got hit by a Mac truck. You okay, little fella? Oh, oh.

   2. CPChamath Palihapitiya0:04

      How long were you out last night, Sax? (laughs)

   3. DSDavid Sacks0:06

      (laughs)

   4. JCJason Calacanis0:06

      Oh, boy. (laughs) Did you see this, the message?

   5. CPChamath Palihapitiya0:09

      I got the text messages. I was like, "What the fuck is going on over there?"

   6. DSDavid Sacks0:12

      (laughs)

   7. JCJason Calacanis0:12

      (laughs)

   8. CPChamath Palihapitiya0:12

      "I gotta get back to the United States."

   9. JCJason Calacanis0:14

      Timestamp, 1:39 AM Pacific. "I'm still out (laughs) drinking tonight. There's no way I'm making 9:00 AM. I'll do 10:00 AM to noon." This is Sax. The negotiation has, uh, begun.

   10. CPChamath Palihapitiya0:26

       And I'm waking up. It's my last day on the boat. I'm trying to get off the boat in a reasonable manner. And that's the first text message I get.

   11. JCJason Calacanis0:32

       That's the first text. Then six minutes later, Drake just came in, "Better make it 11." (laughs)

   12. CPChamath Palihapitiya0:38

       (laughs)

   13. NANarrator0:39

       (upbeat music) Don't let your winner slide. Rain Man, David Sachs. I'm goin' all in. And I said- We open-sourced it to the fans and they've just gone crazy with it.

   14. JCJason Calacanis0:52

       Love you, SI.

   15. CPChamath Palihapitiya0:52

       Queen of Kinwai. I'm goin' all in.

   16. DSDavid Sacks0:56

       Do you wanna tell you the story? So the thing I would compare it to is, do you remember that episode of Seinfeld where Costanza stumbles onto the model bar? You know, he finds the place that all the supermodels are hanging out.

   17. JCJason Calacanis1:09

       Ah.

   18. DSDavid Sacks1:09

       And he calls it Shangri-La because it's like-

   19. JCJason Calacanis1:11

       (laughs)

   20. DSDavid Sacks1:11

       ... this mythical place.

   21. JCJason Calacanis1:13

       Yeah.

   22. DSDavid Sacks1:13

       And he spends the rest of his life trying to find Shangri-La again, but he can never find it.

   23. JCJason Calacanis1:16

       Yes. That was you last night in LA.

   24. DSDavid Sacks1:19

       Well, so we were just out having a few drinks at this private club that's, uh, new in town. It's just me and, you know, my wack pack. And the room is, it's just, you know, a few of us having drinks.

   25. CPChamath Palihapitiya1:30

       Hey, sorry. Who, who is your wack pack? We can bleep out these names, but I'm just curious. (laughs)

   26. JCJason Calacanis1:32

       How many of the wack pack are on salary versus-

   27. DSDavid Sacks1:35

       (laughs)

   28. CPChamath Palihapitiya1:35

       Yeah, yeah, yeah. That's what I want.

   29. JCJason Calacanis1:36

       He's like an NBA player. It's like he rolls there with six people. Four of them are on the payroll, two are friends.

   30. CPChamath Palihapitiya1:42

       What percentage do you pay and what percentage are your friends?
2. 2:56 – 14:27

   Sacks on spirits

   1. DSDavid Sacks2:56

      we were hanging out with him.

   2. JCJason Calacanis2:56

      What were you drinking? Are you on the tequila still? Or what are you on right now? You, you seem to love that tequila. Are you on the ranch water still?

   3. DSDavid Sacks3:02

      Yeah. I used to like bourbon or scotch, but now these-

   4. JCJason Calacanis3:05

      Oh, I remember those days.

   5. DSDavid Sacks3:06

      ... sort of highly refined tequilas are, are better.

   6. JCJason Calacanis3:10

      Mm-hmm.

   7. DSDavid Sacks3:10

      So the, the Clase Azul is probably my favorite.

   8. JCJason Calacanis3:12

      Right now.

   9. DSDavid Sacks3:12

      Clase Azul Reposado. Yeah. These reposados or añejos are really great. And I, I've advocated to this group that we should actually have our own All In tequila label.

   10. JCJason Calacanis3:23

       I'm in. I'm in.

   11. DSDavid Sacks3:24

       So we'll see if-

   12. JCJason Calacanis3:24

       That's a great...

   13. DSDavid Sacks3:25

       If the fans like that idea, let us know in the comments and we'll-

   14. JCJason Calacanis3:28

       (laughs)

   15. DSDavid Sacks3:28

       ... we'll work on it.

   16. JCJason Calacanis3:29

       Well, now, what do you, how do you drink it? Are you a neat guy or you put a couple of ice cubes in? Or do you do like a Bill Gurley ranch water situation?

   17. DSDavid Sacks3:35

       What, what's the ranch wa- (laughs) What do you mean by ranch water? (laughs)

   18. JCJason Calacanis3:37

       Ranch water is you take a Topo Chica, some tequila, and then what? You put a couple of limes in it? .......................... 'Cause you're on this ranch water kick too, aren't you?

   19. CPChamath Palihapitiya3:45

       I had a little ranch water the other night. I had some ranch water last night. You hear, you hear my voice? I had a little too much ranch water.

   20. JCJason Calacanis3:50

       (laughs)

   21. DSDavid Sacks3:50

       (laughs)

   22. CPChamath Palihapitiya3:50

       But Topo Chica is just, that's just, it's a seltzer water, right?

   23. JCJason Calacanis3:54

       In a glass bottle from Mexico.

   24. CPChamath Palihapitiya3:55

       Like, but it's fan- it's a fancy seltzer.

   25. JCJason Calacanis3:58

       It's delicious.

   26. CPChamath Palihapitiya3:58

       And then you get lime juice in it. And it's just, you know, it's a very, like it's basically a double tequila and soda with some lime.

   27. JCJason Calacanis4:03

       So, so it's, it's like a margarita minus the sugar.

   28. CPChamath Palihapitiya4:06

       No sugar, yeah.

   29. JCJason Calacanis4:07

       No sugar.

   30. CPChamath Palihapitiya4:07

       Yeah, interesting.
3. 14:27 – 53:01

   "Rich Men North of Richmond" goes viral and debuts at #1 on Apple Music, upward mobility issues in America, solutions

   1. JCJason Calacanis14:27

      But speaking of media, are, are you guys aware of this, uh, song that has rocketed to number one? Rich Man-

   2. DFDavid Friedberg14:34

      I haven't listened to it.

   3. JCJason Calacanis14:34

      ... North, uh, Richmond? All right.

   4. DFDavid Friedberg14:36

      Yeah.

   5. JCJason Calacanis14:36

      So I just... I, I thought I'd bring this up. I think it's... Have, have you heard it, Friedberg? Song?

   6. DFDavid Friedberg14:39

      Great song, great voice.

   7. JCJason Calacanis14:41

      Incredible.

   8. CPChamath Palihapitiya14:42

      Can you play it? Because I, I haven't heard it. I have no idea where you got it.

   9. JCJason Calacanis14:44

      Yeah, l- let me play you a little bit. I want you to, uh, just listen to some of the lyrics here. And then for context, nobody knew the song a week ago. It got 25 million views on X in a week or three days, and it's the number one song on iTunes right now. Number one track in the country. Here we go. Coming at you, Oliver Anthony, Rich Man in Richmond coming at you on a Thursday.

   10. OAOliver Anthony15:03

       Overtime hours for bullshit pay. So I can sit out here and waste my life away. Drag back home and drown my troubles away. It's a damn shame what the world's gotten into.

   11. JCJason Calacanis15:17

       ... -ten two.

   12. OAOliver Anthony15:18

       For people like me.

   13. JCJason Calacanis15:19

       People like me.

   14. OAOliver Anthony15:20

       People like you.

   15. JCJason Calacanis15:21

       People like you.

   16. OAOliver Anthony15:21

       Wish I could just wake up. And it not be true.

   17. JCJason Calacanis15:25

       (laughs)

   18. OAOliver Anthony15:25

       But it is.

   19. JCJason Calacanis15:25

       Be true. Is.

   20. OAOliver Anthony15:27

       Oh, it is.

   21. JCJason Calacanis15:28

       But it is.

   22. OAOliver Anthony15:29

       Living in the new world.

   23. JCJason Calacanis15:30

       In the new world.

   24. OAOliver Anthony15:33

       With an old soul. These rich men north of Richmond. Lord, knows they all just want to have total control. Want to know what you think. Want to know what you do. And they don't think you know. But I know that you do. 'Cause your dollar ain't shit. And it's taxed to no end.

   25. JCJason Calacanis15:55

       Taxed to no end.

   26. OAOliver Anthony15:56

       'Cause the rich men north of Richmond.

   27. JCJason Calacanis16:02

       Incredible. When you hear the song... I saw that Sax was getting into it. This is a popular song.

   28. DFDavid Friedberg16:08

       He's crooning the American voice.

   29. JCJason Calacanis16:10

       Absolutely.

   30. DSDavid Sacks16:11

       I'm into it.
4. 53:01 – 58:33

   Michael Burry's bet against the market: overblown?

   1. JCJason Calacanis53:01

      All right, The Big Short II, Michael Burry, he just made a bet against the markets. This was trending. I'm not sure how much of this is all true, but there's been some reporting on it. Burry's fund has recently bought 866 million in put options against the S&P and 739 million puts against the NASDAQ. Uh, these are headline numbers on the SEC. There's probably more to it. Context, obviously, we all know the market's ripped, NASDAQ up 37% this year, S&P up 15% this year, inflation getting cracked, GDP looking strong, unemployment on the floor, number of job openings still above nine point X million. Pretty crazy to think about how resilient this economy is with pockets of disastrous stuff, but what, what's your take on this, Friedberg?

   2. DFDavid Friedberg53:50

      Yeah, I think the reporting is a little wrong on this.

   3. JCJason Calacanis53:52

      It's okay.

   4. DFDavid Friedberg53:53

      So this came out of a 13F filing, and on the 13F filing, you... When you report option contracts, remember each option contract represents 100 underlying shares, and you don't have to talk about the strike or the expiry on the option contract when you do the 13F filing. So we don't actually know what the strike or the expiry is on the option. That dollar amount that's being reported is when they take the number of option contracts, multiply it by 100, which is how many shares per contract, and then just use the price on the actual underlying, the index. He may have paid a dollar an option. He may have bought an option-

   5. JCJason Calacanis54:29

      Got it. So he could, way out of the money-

   6. DFDavid Friedberg54:30

      ... that was three years out. This could be much more.

   7. JCJason Calacanis54:31

      It could, it could have-

   8. CPChamath Palihapitiya54:32

      ... it could be much smaller. It could be a short-term contract that's just a near-

   9. JCJason Calacanis54:35

      Yeah.

   10. CPChamath Palihapitiya54:35

       ... term hedge on the portfolio and we have no idea how much, what the actual dollar value of the contract is. It could be really way out. It could be, just be a short-term hedge. So, we, we really don't know directionally or, or, or magnitudinally how significant this, this, this is. So it's a bit of a misreporting. Without knowing the strike and the expiry, we don't know how much he actually spent buying these puts and what the bet really means. Is it a near-term bet or a long-term bet.

   11. JCJason Calacanis55:00

       And what percentage it is-

   12. CPChamath Palihapitiya55:00

       I'll say a little bit more.

   13. JCJason Calacanis55:01

       ... of his portfolio, right, Shamon?

   14. CPChamath Palihapitiya55:02

       You don't-

   15. JCJason Calacanis55:02

       Come in.

   16. CPChamath Palihapitiya55:03

       ... have to disclose in a 13F what your short positions are. And so, all you have to do is disclose what your ownership is. So my suspicion is that Michael probably has what's called a short straddle on. And so a short straddle is when you're basically selling a call and you're buying a put. And so, you know, we've talked about these a lot, which is instead of taking a naked exposure for $1.6 billion, which seems very aggressive and risk-on, and he's not the type of guy, if you look at his trading activity, that does that kind of stuff. His typical positions are 50 basis points, 80 basis points, 100 basis points. So he's not a big risk taker. So what he probably has on is what's called a short straddle. And what you don't have to disclose in these 13Fs is the other side of the trade where you're short a call. And so I suspect that's what that is. So this is a big much ado about nothing. It's good headlines in a-

   17. JCJason Calacanis55:55

       Yeah. That's the, I was about to say.

   18. CPChamath Palihapitiya55:56

       ... in a moment where there's not much to talk about.

   19. JCJason Calacanis55:58

       It's August and the media, uh, you know, this is, the media business losing its business model and Google and Facebook taking all their revenue, and Craigslist, and Facebook, you know, marketplace taking all their-

   20. CPChamath Palihapitiya56:09

       And Michael, by the way, Michael-

   21. JCJason Calacanis56:10

       Revenue.

   22. CPChamath Palihapitiya56:10

       ... can go on Twitter and tell us that we're wrong, but I'm-

   23. JCJason Calacanis56:12

       Yeah. We're sure.

   24. CPChamath Palihapitiya56:13

       I would bet dollars to donuts he's, he's got a short straddle.

   25. JCJason Calacanis56:14

       Didn't he go off Twitter? He's like, done with Twitter?

   26. CPChamath Palihapitiya56:17

       He goes on and off and he auto deletes his tweets. So I set a Zapier up. Anytime he tweets, it puts it in the Slack room for me.

   27. JCJason Calacanis56:23

       Have you guys noticed the quantity of wine-

   28. CPChamath Palihapitiya56:24

       How many I'm drinking? This is my second.

   29. JCJason Calacanis56:26

       I know. We're getting a little worried here. (laughs)

   30. CPChamath Palihapitiya56:28

       Whoa, whoa, whoa. You got ice cubes in there?
5. 58:33 – 1:12:26

   Real estate capital crunch

   1. JCJason Calacanis58:33

      sorry. I'm joking.

   2. DSDavid Sacks58:33

      I think we should follow up on where the economy is right now and, and what the macro situation is like-

   3. JCJason Calacanis58:38

      Let's go macro.

   4. DSDavid Sacks58:38

      ... and why, and why Michael Burry might want to short the market.

   5. JCJason Calacanis58:41

      Yes.

   6. DSDavid Sacks58:41

      So in terms of where things stand today, I think the consensus view of the street is that inflation is largely in the rearview mirror. It was down to 3% last month. And the bet now, I think, is that it will continue to remain low. It will be in this two and a half to 3% range at the end of the year, and therefore, the Fed will be able to cut rates next year, and the market has rallied quite a bit in anticipation of that. I think that is the consensus view.

   7. JCJason Calacanis59:10

      Yep.

   8. DSDavid Sacks59:10

      I think there are at least two really big risk factors to that. One is that inflation could still rebound. We haven't really gotten that many months of good inflation data. And if inflation ticks back up-

   9. JCJason Calacanis59:21

      Mm-hmm.

   10. DSDavid Sacks59:22

       ... if there's another wave of it in the next several months, then there will not be rate cuts next year, and that means if its rates are higher than anticipated, valuations come down. So that would be a big risk factor to the market. The other big risk factor is, I think, in the real economy. It's true that the economy does not seem to be hurt so far by these huge interest rate hikes that we've had. However, there is typically a big lag in the impact on the real economy of rate hikes, and I think you could still see these rate hikes take effect over the next several months, and you could see a real dip in the economy, potentially a recession, and that would be a big risk factor to the markets, because right now, the markets are pricing in a soft landing or, or no landing. They're pricing the economy...

   11. JCJason Calacanis1:00:07

       Or no landing. We're just gonna do a flyby.

   12. DSDavid Sacks1:00:09

       Right. Right. So what is the evidence that there might be a lag? Well, a couple of things, and it really has to do with real estate, which I think is the most impacted asset class by rate hikes. You saw that the mortgage rate is the highest it's been in over 20 years.

   13. JCJason Calacanis1:00:23

       Yeah, since the '80s.

   14. DSDavid Sacks1:00:25

       Yeah. 7.09%. And the rates I'm seeing in Florida and other places, mortgages are like 8%.

   15. JCJason Calacanis1:00:31

       Yep.

   16. DSDavid Sacks1:00:31

       Well, if it's gonna cost you 8%, y-... to buy a new house, and it used to be 3% a couple years ago. Y- you're not gonna be able to afford to buy that same level of house, and you can't afford to sell your current house and buy a new one, because your current house is financed at 3%. You're not gonna give up-

   17. JCJason Calacanis1:00:48

       Why would you?

   18. DSDavid Sacks1:00:48

       ... that mortgage to trade it into-

   19. JCJason Calacanis1:00:49

       Yeah.

   20. DSDavid Sacks1:00:49

       ... an 8% mortgage. So, we're already seeing a huge reduction in the number of transactions in residential real estate. And so that means that we're not seeing a lot of fresh marks in terms of where prices are. But that doesn't mean the valuations haven't gone lower. I think that as this washes through the system, you could see a big correction in the values of residential real estate, which is most people's main asset. So I think there's a big risk factor there. The other big risk factor is on the commercial real estate side. There was a interesting article in the Wall Street Journal about distress funds are forming in anticipation of a lot of commercial real estate projects-

   21. JCJason Calacanis1:01:29

       Mm.

   22. DSDavid Sacks1:01:29

       ... basically going under. So, the vultures on Wall Street are gonna be looking to scoop up these projects. I think the really interesting thing about commercial real estate right now is multifamily. Until now, the conversation has all been about office space, and we know that office space is impaired because of the high vacancy rates, that this, this sector just hasn't come back the same way-

   23. JCJason Calacanis1:01:51

       Work from home. Yeah.

   24. DSDavid Sacks1:01:52

       ... since COVID, right, exactly. But now, we're starting to see real distress in the multifamily sector. Now, why has this happened? Because multifamily is full. There's no vacancy problem.

   25. JCJason Calacanis1:02:03

       Yeah. We... It's hard to get a home, and more people would be renting if mortgages are high.

   26. DSDavid Sacks1:02:07

       Right.

   27. JCJason Calacanis1:02:07

       So explain why that -

   28. DSDavid Sacks1:02:08

       The problem is not on the demand side. The problem is in the capital stack. So let me describe-

   29. JCJason Calacanis1:02:11

       Ah.

   30. DSDavid Sacks1:02:11

       ... the, the problem with what's happened here is, let's say that you are a, uh, real estate developer who bought multifamily. You bought it at a certain price level. Let's say you financed it two-thirds with debt. You now need to go out and refinance that project, because let's say you did a value-add, let's say you, you basically did some improvements to it. That means you didn't put long-term debt on it. You can't put long-term debt on a project that's not stabilized yet. If you're wanna do value-add work to it, you get what's called a construction loan for two or three years. So, there's a lot of real estate developers who needs to go out right now and finance these projects that they bought, and they bought these projects at the top of the market. So let's say you're going out now to refinance. First of all, the rates are much higher. You're looking at paying 8 or 9% instead of the 3 to 4% that you had penciled in your model a couple years ago. Moreover, there's another problem, which is potentially even worse, which is loan-to-value. You had basically gotten two-thirds loan-to-value a couple years ago, but values were much higher. Now values are lower, because again, multiples have shrunk as interest rates have gone up. And so the amount that you can finance is much lower. So you either have to top that off by coming out of pocket with your own equity, or you have to go to one of these mezzanine funds. So now there's these mez funds-

Episode duration: 1:30:20