E163: Market rips, Media RIFs, Texas defies Biden, Fintech reckoning, ARkStorm 2.0 & more

1. 0:00 – 1:37

   Bestie intros!

   1. JCJason Calacanis0:00

      Is this a real picture? Is this Helmuth?

   2. CPChamath Palihapitiya0:03

      Yeah. (laughs)

   3. JCJason Calacanis0:03

      Come on, stop. That's not Helmuth.

   4. CPChamath Palihapitiya0:03

      No, no, no. This is Helmuth. This is Helmuth last year. (laughs)

   5. JCJason Calacanis0:09

      (laughs)

   6. DSDavid Sacks0:09

      Yeah, I recognize the gut.

   7. CPChamath Palihapitiya0:10

      That's Darth Vader? (laughs)

   8. DSDavid Sacks0:10

      I recognize the gut, very... It's like a fingerprint. (laughs)

   9. JCJason Calacanis0:13

      (laughs) You gut printed him? You gut printed him?

   10. DSDavid Sacks0:16

       (laughs)

   11. CPChamath Palihapitiya0:17

       Oh my God. Look at this picture. Pull it up. (laughs)

   12. JCJason Calacanis0:24

       Oh, no. Oh, no.

   13. CPChamath Palihapitiya0:26

       He's hiding. He's such a disaster. (laughs)

   14. JCJason Calacanis0:30

       This is unbelievable. This is unbelievable.

   15. CPChamath Palihapitiya0:31

       I don't- I don't think you guys know. There's a treasure trove. You go to Google Images and you type in Phil's name and WSOP.

   16. JCJason Calacanis0:36

       Which is the last thing I would ever do.

   17. CPChamath Palihapitiya0:38

       Dozens of these, dozens. Every year, he dresses up in some outfit.

   18. JCJason Calacanis0:42

       Oh, my God. Oh, my God.

   19. CPChamath Palihapitiya0:43

       Let me see which ones I like.

   20. DSDavid Sacks0:44

       Yeah, the plunging V-line's a little much.

   21. CPChamath Palihapitiya0:46

       (laughs)

   22. DSDavid Sacks0:46

       I could do without the plunge.

   23. JCJason Calacanis0:48

       I mean, he does have perky C-cups, so...

   24. CPChamath Palihapitiya0:51

       (laughs)

   25. JCJason Calacanis0:51

       Sometimes you gotta use your assets, Sacks. (laughs)

   26. DSDavid Sacks0:55

       (laughs)

   27. JCJason Calacanis0:55

       Oh, my Lord. Nick, pull this one up. (laughs)

   28. CPChamath Palihapitiya0:59

       Oh. (laughs)

   29. JCJason Calacanis1:05

       Oh, my God. (laughs)

   30. CPChamath Palihapitiya1:06

       Oh, my God. (laughs)
2. 1:37 – 17:05

   Markets rip on strong economic data

   1. JCJason Calacanis1:37

   2. All right, everybody. Welcome to episode 163 of the All-In Podcast. With me, of course, the sultan of beep science, we'll find out his crop soon, David Freiberg and David Sacks, the Rain Man himself. And of course, Chairman and Dictator, Chamath Palihapitiya. Let's get to work, boys. Tons and tons of interesting topics on the docket. Markets are ripping. Jobs and inflation looking good as the Dow hits an all-time high. Uh, forget about soft landings, boys. Sentiment is now flipping to a market melt-up in 2024. The GDP numbers that just came out smashed it 3.3% year over year in the fourth quarter. Expectations were just 2%. Dow and S&P 500 both hit all-time highs in the past week. Dow's above 38,000 for the first time in history. CPI number, reasonable, up 30 basis points month over month. 3.4% from last year, getting close to that 2% target. And, uh, the jobs data beat expectations. 2023 jobs, not so bad at 2.7 million. It's the fifth strongest year for job increases since 2020. Real test will be, of course, this year. We've seen a bunch of layoffs. We'll get to that later. Gas prices plummeted 40% from $5 a gallon in the summer of 2022. Now just $3 a gallon. And consumers are apparently feeling great about the economy. University of Michigan, which is the most respected report on consumer sentiment, said it increased in the past two months, the most since 1991. And the Federal Reserve Bank of New York survey found that Americans' inflation expectations have reached their lowest point in three years. Kalshie, uh, is a prediction market I like to use and it says 37% chance of a cut by March. That's dropped, so people are thinking the rate cuts are going to get pushed back. And prediction markets also think four to five rate cuts still in 2024. But again, people seem to think that they're going to get pushed towards the spring or second half. Chamath, you alluded to this melt-up, I don't know, was it like three or four episodes ago, that we might have a chance of a market melt-up. Everything seems to be aligning here. What do you think?

   3. CPChamath Palihapitiya3:42

      I think the important thing to note is that Tesla put out a pretty important missive at the end of market close yesterday, which essentially said that, expect a very different demand curve in Q1.

   4. JCJason Calacanis3:57

      Hmm.

   5. CPChamath Palihapitiya3:57

      And you have to understand that Tesla has done the best job of understanding supply, demand, and their pricing power and the pricing elasticity of their cars. And so the fact that they put this out, to me says that we are now really in the belt-tightening phase of this kind of like economic process. So, I think that the next probably six to nine months are more of these kinds of things where folks realize that the amount of discretionary income that people had is less. They will either lower prices or lower expectations. And so the- the thing is then what happens to the market, this is sort of why about a month ago when we... On- on the pod, I was kind of like, "We're going to be in a melt-up." And it's because the economy will cool, demand will cool, inflation cools, rate cuts come in. Again, it's not really worth debating whether it happens in six months or nine months. But when we look back 18 to 24 months from now, the market will probably be materially higher because there's just so much money on the sidelines. And that just continues to grow and grow and grow. So trillions of dollars on the sidelines, cooling economic consumption actually on the ground meets reasonable to resetting to lower expectations for some of these companies. I think that all roads lead to a continued melt-up.

   6. JCJason Calacanis5:34

      Sacks, you were just at the prediction show saying, "Hey, maybe it's going to be a little bumpy." So, and again, this isn't... None of this is investment advice. We're just four dudes talking. But what are your thoughts on the- the economic data and the melt-up scenario versus the soft landing versus the rocky landing?

   7. DSDavid Sacks5:51

      Well, Jason, we're only three weeks into the new year, so there's plenty of time for bumps here. But this report was good. I mean, the GDP growth was good. Inflation continues to come down. So, you know, we are on track here for a soft landing, it seems like. Um, but yeah, there's definitely potential storm clouds on the horizon. Like Chamath mentioned, there's some...... data points out there suggesting that the consumer may not stay as strong as the consumer has over the past year. There's a few other things, though, that are kinda going on. The Fed has announced that they're gonna end BTFP, the Bank Term Funding Program, on March 11th. That could reveal weakness in the regional banking system. Remember, we had a banking crisis in March of last year that BTFP sort of papered over. You also have what looks like a crash happening in China. The Chinese government took some actions to prop up the stock market there, which is a pretty negative signal. That mainly impacts the Chinese economy, not us, but it will have an impact on the global economy if China has, you know, a big crash. And then we still have a lot of geopolitical risks. I mean, I still think we could get an oil shock in the Middle East if this situation broadens into a larger regional war, maybe with Iran. You could get, you know, a shock in the price of oil and then that can have a big impact on the economy. So, look, I think the baseline is that the economic outlook is good, but there's definitely potential for things to still go wrong.

   8. JCJason Calacanis7:18

      Freeburg, we've talked about the debt here in this country, 35 trillion now, or so. What are your thoughts in terms of how politicians are gonna look at the future now and spending when, you know, they keep spending and markets keep going up, and maybe it's good for elections and getting votes as well?

   9. DFDavid Friedberg7:39

      I put a chart from Paul Krugman here. He put out this tweet analyzing unemployment against inflation over the last 20 years and, uh, plotted on a graph how they're related. And as you can see, there's a pretty linear relationship between unemployment and inflation, except for the last couple of years since COVID, where inflation has spiked completely off the charts while un- unemployment has remained low. And I think if you look at what's happened from a federal debt perspective over this period of time, we've seen US federal debt climb from $22 trillion at the end of 2019 to $34 trillion, which is where it sits today. An extraordinary increase in, in federal debt in the last couple of years, which largely explains what happened. We effectively took this massive hole in the economy that arose from the pandemic and the shutdowns around the pandemic, and we filled that hole with money, and we took on debt to fill that hole. And as we filled that hole, assets inflated, financial assets inflated, so the stock market went up even as, you know, core inflation and economic growth meant that we were paying more for less. So, things look good. The stock market as an indicator looks good, but it's largely been filled by the capital that we've now taken on into the economy through fiscal and monetary policy over the last couple of years, which has driven up inflation over this period of time. And now, at some point, we're gonna have to pay the cost for the hole in the economy over the last couple of years. So, we bridged the gap, but we've got a bigger problem looming on the horizon. If rates don't decline fast enough, I think I tried to do the math on this, every day that interest rates are off, are 1% higher based on the current federal debt level, we're paying an incremental billion dollars in interest payments per day. The US is.

   10. DSDavid Sacks9:38

       That makes sense. I mean, actually, let's pull up this chart real quick. I think the average interest rate on our debt is now around 3%. That's up from about one and a half percent in 2020, so during the, the ZIRP period. And the 10-year is still at, what, four, 4.1%? So there's still room for that number to move up, um, even with rate cuts on the front end of the curve. And you can see that if you annualize the Q4 interest that we paid, it's around a trillion dollars, which makes sense, right? You got about 34 trillion of debt, about to be 35 trillion, 3% is one trillion. And so, Freeburg, to your point, one billion a day, 365 billion a year, yeah, that's basically 1% of a $35 trillion dollar debt number. So yeah, that makes sense.

   11. DFDavid Friedberg10:26

       You know, it's pretty scary because it's already consuming a large chunk of the federal outlay, and we're still running $2 trillion deficits and not a single person is talking about how we end that. Why is it important? We have to keep the stock market up. We have to keep financial asset prices up because we're so heavily levered. And if they fell down, pensions, retirement funds, everyone's housing value, where most people have most of their net worth tied up collapses. It creates a cataclysmic effect. So we had to inflate all these assets. And that's what happened. We filled that hole over the last couple of years. Now we've got the quandary of how do we get out of the hole that we're gonna have to pay back over time.

   12. JCJason Calacanis11:03

       Yeah, and we cut these rates to lower our interest payments. What's gonna happen? People will take money that's sitting in cash, as you've pointed to, Chamath, there's trillions of dollars sitting in cash, and they wanna look for some returns, some alpha, they're gonna put it into markets. And so, then we have a rush into the magnificent seven and maybe even, you know, the next tier of stocks. Yeah, Chamath?

   13. CPChamath Palihapitiya11:25

       That's what's gonna, I think that's what's gonna exacerbate all of this because you, you can't correlate stock market returns with the number of people that are actually making money.

   14. JCJason Calacanis11:38

       Mm.

   15. CPChamath Palihapitiya11:38

       So, even though the top seven stocks are going up, those holdings may actually be concentrated enough that it's not the case that the millions of market participants are actually seeing those gains, it's just at a smaller percentage. That's gonna further exacerbate this sense of FOMO that everybody has because they own all of these other stocks. Let's just take the top 500. So, even if you own the S&P 500 or some component of it, there are 493 other companies that people just don't...... care about right now. (laughs) And that's crazy. So all of that pressure is just gonna create a lot of psychological necessity in people's minds at some point where they just see these things going up, where they say, "I need to be a part of this." And I think that's what unlocks a lot of this money on the sidelines, and then as long as you have rate cuts and a reasonable inflation and reasonable growth, there's no reason to think that the, that people will not reinflate risk assets.

   16. JCJason Calacanis12:38

       And just so people know, about 60% of Americans own equities. It always goes between 50 and 60%. Interestingly, it kind of parallels the, uh, home ownership in the country, which is also low 60%. Uh, it went as high as I think 67, 68% home ownership right before the Great Recession, so 2006, 2007 it kind of peaked. So now everybody, Chamath, runs into equities, those go up, and then consumers maybe some percentage of them feel affluent, they feel rich again, and they start spending again, and then the inflation might kick back up. Is that the cycle we might see here?

   17. CPChamath Palihapitiya13:14

       I don't think so. I think that rates are probably... I think that we're in a much more interesting and non-obvious trend that I think is worth talking about, which is that for most of us, forget boomers for a second, so take people that are 50 years and down. We've spent 20 years of our productive economic lives, so for us, Jason, that's two-thirds of our productive economic life as workers. For younger people, it's 100% of their productive economic life as a worker in a zero rate environment, and we adjusted and we made decisions because of some variables that were true that may fundamentally no longer be true. And one of the things that I think we've never really understood is how to build a business in the face of sustained rates that are not zero, that are not always getting cut, that don't have trillions of dollars of stimulus because of government stepping in as Friedberg well said, "To fill these holes." If that doesn't happen over the next 10 or 15 years, we're in a different phase, which we've not really seen for our generation, and I think that's really what is worth debating is, are we at this inflection point where rates will always be between 2 and 4% for a very long time? And then, you know, we said this last week, this is why there will be gross margin decay. This is why governments will step in to make sure that winners don't get much, much bigger. All of these things are about using the tools of capitalism to basically reallocate who the winners and losers are and to reallocate what the risk-free rate of return will be in a world where it's just very different than what it was. And I think that that's, that's the really big question that I have in my mind.

   18. JCJason Calacanis14:57

       Yeah, and if we were to look at the Fed funds rate, we've lived since 2010 with almost no, yeah, 0% interest rates essentially, but if you go back to the '80s and '90s when we were first starting our careers, it was a much different situation for mortgages and for, this is the Fed funds rate, mortgages you can add a couple points to this to get the equivalent. So what do you think that'll be, Sax? If we're gonna be operating businesses differently in this environment, what is the new discipline gonna be here? Or do you think we're gonna get right back to, you know, when interest rates come down to 3% or 2% or whatever, we're gonna just get back to the party?

   19. DSDavid Sacks15:34

       I don't think it's ever gonna be quite the party that it was in 2020 and 2021 where both the Fed and the federal government were just air dropping money into the economy. At that beginning of COVID, the economy was contracting at an annual rate of about 30%, and we ended up adding what, seven trillion or so to the national debt to basically-

   20. JCJason Calacanis15:52

       Yep.

   21. DSDavid Sacks15:52

       ... paper over that problem that we largely created through the lockdowns. So in any event, it's never gonna be like that again because we're never gonna have that magnitude of money air dropped on the economy, but will things get a little bit frothier if rates go down? Absolutely.

   22. JCJason Calacanis16:09

       Yeah.

   23. DSDavid Sacks16:09

       But I think that just because short rates come down, meaning the Fed drops the Fed funds rate from, where is it now, like five and a half to, I guess it's expected to come down to four, doesn't mean that the long-term rates, called the tenure, will come down much. I mean, normally the yield curve is upward sloping, so you know, in a normal economy, it's not clear that the tenure is gonna be, gonna be going back down to 2, 3% where it was during the ZIRP period. It probably will be around 4% plus or minus. So just capital will be a little bit scarcer and valuations will be lower, more normal, but things could pick up for sure, relative to where they've been last couple years.

   24. JCJason Calacanis16:54

       Last couple years have been brutal, but yeah, I'm, I'm, I'm with the rest of the panel here. I don't think we're gonna see... I don't think in our lifetime we're gonna see that 2020, 2021 again. I don't think that's happening for 20 years or so.

3. 17:05 – 35:47

   Media's broken business model, death spiral

   1. JCJason Calacanis17:05

      All right, listen, speaking of like the economy, layoffs have continued, not just at tech companies, but I wanted to point out just how brutal this has been for media companies recently. In 2023, 20,000 job cuts. That's on top of 30,000 during the COVID era, and it's not stopping. Business Insider just announced 8% cuts. LA Times cut over 100 people. The billionaire owner of the LA Times says he's getting close to a billion lost owning that asset. We use air quotes on the term "asset." Condé Nast cutting 300 people, and all of this is happening while unions are hosting what I'll just call meaningless protests. Sports Illustrated and Pitchfork, two really well-respected brands obviously, they're done basically. They're cutting 100 staffers. Sports Illustrated, Vox cut another 4%. Jezebel shut down. Vice went bankrupt last year. It's just absolute complete chaos, and Bill Ackman is loving it. (laughs) Business Insider is a sleazy, unethical defamer of some of our greatest heroes. It's a worthless POS rag run by the lowest of the low in journalism. It is a stain upon humanity. (laughs) ... was his quote today, his commentary (laughs) on the press.

   2. DFDavid Friedberg18:17

      Jason, you've run, like, these media businesses before. Like what's-

   3. JCJason Calacanis18:21

      Yeah.

   4. DFDavid Friedberg18:21

      ... the underlying economic condition here that's changed in the last couple of years that's causing all these layoffs to happen? Like what, what do you think is actually-

   5. JCJason Calacanis18:31

      Yeah.

   6. DFDavid Friedberg18:32

      ... going on, like, financially with these businesses?

   7. JCJason Calacanis18:34

      Yeah.

   8. DFDavid Friedberg18:34

      Is it advertisers running away, or what is it?

   9. JCJason Calacanis18:38

      Advertising and classified businesses got gutted. And obviously Print got gutted over the last 20 years. Google and Facebook, all the gains in advertising have gone to those two firms, and now TikTok obviously. And Amazon, Uber building respectable ad businesses as well. So all of that takes ads out of publications and puts it closer to the point of purchase, right? You're on Amazon, you're, you're right there with the buy button. So would you advertise in the New York Times or there? So if you were to look at, like say a journalist salary, pick $100,000 all in, fully baked. Most journalists start at $50,000, $60,000 in the United States. You know, get up to $80,000, $90,000, $100,000 would not be abnormal. Well, your overhead is going to typically be two or three times that. So you can put that journalist at $200,000 or $300,000 in cost. You look at that, what can a journalist do in terms of the number of stories a week? If you had them as a beat reporter, maybe two stories a week. You do two stories a week, if you're, you know, $100,000 salary, and you have like maybe $200,000 or $300,000 fully baked with overhead and managers and salespeople, that means each story is costing about a thousand bucks. If you were to do a $10 CPM or RPM on that, that means every story, to break even, in today's market we need 100,000 people, 150,000 people to read it. Obviously that's not happening. So these publications are just hammering, hemorrhaging cash. If you were to put that same journalist on a subscriber platform, that means they've got to get like 15, 20 subscribers per story for a year to hit their, just their salary. So the economics are just hugely broken except for subscription businesses. There's a ton of other nuance, but I could drone on and on about it, but the math basically does not work. At the same time, Sacks, you have experts, right, who are now going direct. So if you want Draymond Green and JJ Redick to tell you about basketball, you can watch them talk about it. Yeah, I did a tweet on this the other day. Or if you want... This is, you know, not to toot our own horn here, but we're the number one business and tech podcast, and we do this as experts in the field. We're not journalists obviously. So that's probably, I would say experts encroaching and people going direct to sources, that's probably taking 20% to 30% of an already crippled business. So it's going to get worse and worse. And of course having unions and going on strike, Friedberg, at the same time is like literally the kitchen staff on the Titanic.

   10. DFDavid Friedberg20:55

       Yeah.

   11. JCJason Calacanis20:55

       You know like going and protest-

   12. DFDavid Friedberg20:57

       I just think, I think-

   13. JCJason Calacanis20:57

       ... doing a walkout after the Titanic has hit an iceberg. Like it's completely meaningless.

   14. DFDavid Friedberg21:01

       I think that there's this, like, slow attrition over time away from centralized sourcing of data and centralized analysis of that data to a more decentralized sourcing of data and then distributed analysis of the data, which is the evolution of the internet has enabled that. To compete, traditional media has largely had to create sensationalist approaches to taking the data that's out there and creating stories around it that are more sensational, that bring emotion, that make people upset, that make people happy, that drive an emotional reaction. If you look at the New York Times, and you can look at these archives online from the 1960s, the articles are so damn boring. Like you read them, it's like literally just reading a ticker tape of information. There's nothing that we see today represented in the media of old, which was really the source of data. It, and now it's had to have become a narrative. It's had to have become a storytelling operation in order to keep people's attention and to drive clicks. The problem with that is that over time, the media businesses have lost the trust and faith of the viewership and the readership because they see how much of this is biased and opinionated, and they don't just get pure analysis and pure data. So in the current model, which you're, you've described well, I think it's more about the fact that you've got all these crowd sourced citizen journalism type systems, whether it's Wikipedia or WikiLeaks or Twitter, where people are put... Or YouTube, people are putting direct video, direct evidence, direct data, direct documents on the internet. And then analysts, like we're a good example of four people on a frigging podcast that just talk about stuff that we're reading and data that we're picking up. And we analyze it in a way that people then choose which analysts do they want to go to for which understanding of data that's out there. And that model totally breaks the old media model, which unfortunately has evolved into this like untrustworthy, biased, and opinionated source to keep the business alive. So it's definitely a breaking that's happening. I think it's very hard for that model of centralized sourcing of data and centralized analysis of data to happen in one place to continue in that old form. And this is definitely the breaking of the old.

   15. CPChamath Palihapitiya23:06

       I went to trends.google.com and I just compared wsj.com to bi.com to twitter.com to newyorktimes.com, and what's incredible is two takeaways. The first is that media is really the least relevant it's ever been, and they really are on a lifeline. That's number one. And second is if you just scroll down a little bit, Nick, Twitter is really like a, a universally relied upon resource in the United States. The WSJ actually also does a pretty good job, but if you look at, for example, Business Insider, it's really three states, Texas, California, and New York. And if you look at the New York Times a little bit further down, it's a bunch of the traditional Democratic states. So what you have is this regional kind of segregation that's happening in terms of information. But for the most part, nobody cares about these print outlets. And I think that that explains why you're forced to lie. If telling the truth, which is basically a commodity... It's weird, but it actually is a commodity. It's just there, the truth is there-

   16. JCJason Calacanis24:15

       Yes.

   17. CPChamath Palihapitiya24:15

       ... we...... and you can't build the business by telling the truth, you have two choices. One is to opine on the truth-

   18. JCJason Calacanis24:24

       Opinion.

   19. CPChamath Palihapitiya24:25

       ... but that then is a function of, frankly, to be honest, your intellect and how interesting you are as a person and how you relay that information. And you see the people that do that well. You can debate the truthfulness of all of these people, but the Rachel Maddows and the Ben Shapiros of the world-

   20. JCJason Calacanis24:41

       Tucker.

   21. CPChamath Palihapitiya24:42

       ... Tucker, they're just extremely eloquent, interesting arbiters of-

   22. JCJason Calacanis24:48

       Spicy.

   23. CPChamath Palihapitiya24:48

       ... the information. They, they may take spicy takes on the truth-

   24. JCJason Calacanis24:51

       Yeah.

   25. CPChamath Palihapitiya24:51

       ... but they don't outright lie. And then you have everybody else who's frankly not nearly as good as them, and the choice is to lie. And that's why Ackman can say this about Business Insider, because Business Insider doesn't have a Rachel Maddow, nor do they have a Tucker Carlson or a Ben Shapiro, and so what choice do they have except to lie? And so for all of us, it's a very simple litmus test. You're better off trusting a really opinionated, articulate person. Why? Because the thing that they probably don't wanna lose is their fame. But the anonymous person at Business Insider has gone into a totally different direction. They've decided to lie as a service.

   26. JCJason Calacanis25:34

       (laughs)

   27. CPChamath Palihapitiya25:35

       And so you just have to ignore it all-

   28. JCJason Calacanis25:37

       Yeah.

   29. CPChamath Palihapitiya25:37

       ... because you can't rely on it.

   30. JCJason Calacanis25:40

       That-
4. 35:47 – 1:04:18

   Texas defies the Biden Admin on the Southern Border after SCOTUS votes in favor of the federal government

   1. JCJason Calacanis35:47

   2. DSDavid Sacks35:47

      I think it probably also led in part to Texas suing the federal government.

   3. JCJason Calacanis35:50

      Yeah, which we'll get to in a moment. Yeah, for sure. And, you know, if you think about that, we were trying to parse the numbers here. Remember we had the number, um, and we were trying to parse the number of encounters? So we, we never were able to get a number. We still don't have a number of how many people-

   4. DSDavid Sacks36:05

      No, that's not true. The numbers are-

   5. JCJason Calacanis36:06

      No, no. I didn't finish my sentence. We don't have a number knowing how many people have gotten past the border. We know how many people got intercepted. We don't have the number of the people who didn't get intercepted. By definition, we don't have that. We only have the ones that are encounters. That's why they call it encounters there.

   6. DSDavid Sacks36:21

      Y- you've been running interference on this point for, like, a year on this pod. Like, saying that we don't know the numbers and Fox News is just providing, you know, biased footage and it's not really a crisis at the border-

   7. And-

   8. JCJason Calacanis36:35

      No, I said, I said I wanted to know the numbers, but the only numbers we can get was encounters, not how many people are actually getting through.

   9. DSDavid Sacks36:41

      Even the encounters, there's something like six million encounters since Biden took, took office.

   10. JCJason Calacanis36:44

       It ha- They finally updated those numbers, Zach. When we were talking about it last year, they w-

   11. DSDavid Sacks36:46

       And the number, the number is increasing like a hockey stick.

   12. JCJason Calacanis36:48

       Yeah.

   13. DSDavid Sacks36:48

       Show the chart of it. It looks like a hockey stick.

   14. JCJason Calacanis36:50

       But last year's, last year it wasn't.

   15. DSDavid Sacks36:52

       Every year there's more.

   16. JCJason Calacanis36:52

       That was the point. When I showed it last year, it was flat.

   17. DSDavid Sacks36:53

       Every week, every month, every year is a new high.

   18. JCJason Calacanis36:56

       It comes out monthly. When we looked at it last year, it was flat. I'll pull up the episode. We'll play the clip.

   19. DSDavid Sacks37:01

       No, it wasn't.

   20. JCJason Calacanis37:02

       At the time, it was flat. It was, it was only in the last year that it started to spike.

   21. DSDavid Sacks37:06

       It's been going up like a rocket since COVID.

   22. JCJason Calacanis37:07

       Okay. Well, we'll pull it up. We'll pull it up. So if you look at this chart, this explains it perfectly.

   23. DSDavid Sacks37:11

       Okay, this-

   24. JCJason Calacanis37:12

       So let, I'll explain this chart.

   25. DSDavid Sacks37:14

       Where's that from?

   26. JCJason Calacanis37:15

       This is from the CBS, the Border Patrol.

   27. DSDavid Sacks37:19

       Border Patrol.

   28. JCJason Calacanis37:19

       So this is the exact chart that we pulled up last time. And as you see, yellow, 2022, was essentially flat, and then the dark blue, 2023, 2021 spike. See this, this chart is not correct. And then if you look, the one thing that does look like a massive spike is 2024. So there was, and I said at the time-

   29. DFDavid Friedberg37:39

       No, it's showing, Jake L., it's showing from June to December-

   30. JCJason Calacanis37:41

       That's a record.
5. 1:04:18 – 1:13:07

   Ethics of publishing non-public financial data

   1. JCJason Calacanis1:04:18

   2. CPChamath Palihapitiya1:04:18

      Let's go to fintech.

   3. JCJason Calacanis1:04:19

      On the topic of fintech and, uh, more journalism, a bunch of news has been leaked recently. We can get into that aspect of the story as well. Confidential financial data from Brex and Anthropic were leaked this week. If you don't know Brex, they offer credit card and expense management software. It's pretty dope, actually. Very hot startup. They raised a billion five between 2017 and '22. And they were last valued at $12 billion. Earlier this week, it was reported that Brex was burning 17 million a month, 200 million a year on net revenues of 280. These are select leaks. We don't have like the full P&L here, so we, we can't tell you exactly what's reality or what parts of this are true. But later that same day, after the leak, Brex announced it was cutting 20% of its staff, 300 jobs, which it said would help it extend its runway by two years. Anthropic one of the breakout AI companies that's building a proprietary large language model called Claude. It's really dope, actually, as well, another cool product. They've raised over 7 billion at a $19 billion valuation recently, and their gross margin was leaked this week. Two anonymous sources said it was between 50 and 55%. Obviously, we talked here about SaaS software being a 70 to 80% margin business. So, Friedberg, you wanna maybe ... I don't know which way you wanna go with this. Stuff being leaked by the press or the finance side?

   4. DFDavid Friedberg1:05:41

      I wanted to ask you guys your opinion. Do you think it's almost like the gossip version of business when you get private companies' financials and report on it with like an angle of being effectively disparaging towards the business? "Look how much they're burning. Look how bad the business is." It hurts employees. It hurts shareholders. Any one of us who have been investors in or involved in or on the board of a company where the press then writes an article where they got their hand on confidential financial information about the business always hurts the business. It's almost like taking photographers outside of celebrities' homes and taking photos of them through their windows. I don't understand the true newsworthiness. And I, I'd just like to take a step back, because we always kind of dive into these conversations and treat it as totally appropriate when private confidential information about businesses is leaked and discussed like this, and we kind of have accepted it as the standard. But, you know, do we really identify the newsworthiness in this, or is this really just like the gossip fodder for hurting businesses? And it's the kind of sensationalism that we've kind of come y- gotten used to in, in, in the news in general. Who does the, the reporting benefit?

   5. JCJason Calacanis1:06:50

      What the journalist would say is it gives the public the ability to understand business and trends at a deeper level, and that's good in a free society. That's what they would say.... but you could argue, like, what's the point of this?

   6. DFDavid Friedberg1:07:02

      Isn't it a sensational story? It's like, oh, look how much money this company is burning. Oh, wow, that's why we should all talk about it. Like...

   7. JCJason Calacanis1:07:08

      They would say maybe that it speaks to-

   8. DFDavid Friedberg1:07:09

      It's like look at the, look at the mega-yacht that the billionaire is on, you know? Or, like, look at the-

   9. JCJason Calacanis1:07:13

      Yeah.

   10. DFDavid Friedberg1:07:13

       Look at the celebrity at the beach, you know? Like, look at how they're dressed.

   11. JCJason Calacanis1:07:16

       The journalists who reported this would say it's no different than us talking about the ZIRP era or overspending and it's just part of the reporting on that trend.

   12. DFDavid Friedberg1:07:24

       But that's a gene- you know, that's a general framing of, like, where the market's at.

   13. JCJason Calacanis1:07:26

       That's not their framing.

   14. DFDavid Friedberg1:07:27

       I don't know, I just think, like, going in and getting confidential financial info, it hurts the employees, it hurts the shareholders, it hurts the board-

   15. JCJason Calacanis1:07:33

       Yeah.

   16. DFDavid Friedberg1:07:33

       ... it hurts the company, and the customers of the company then end up questioning the business. From a journalistic perspective, there is nothing about this that, to me, seems to benefit the public at large by revealing all of this salacious information. It's a private business that's not required to disclose their financials, and all of their shareholders privately own the stock, and someone took some private company data and, and leaked it.

   17. JCJason Calacanis1:07:53

       I could tell you in, you know, w- when we ran Engadget, 90% of the leaks, 95% of the leaks were calls from within the building. So-

   18. DFDavid Friedberg1:08:00

       Yeah, totally disgruntled employees.

   19. JCJason Calacanis1:08:02

       I think in this case it's actually an investor who doesn't want to see them burning 17 million a month and wants the runway to go further, and they leak this because that's who would have access to it. The accountants and lawyers would have access to it, but that would be the end of their careers and their firms if they did leak it. So somebody who has a financial interest in this, typically an earlier-stage investor or an investor who's frustrated with the management that they won't cut the burn, leaked this in order to create pressure. So in other words, the press is just a tool being used by the insiders, and that's how this went down 95% of the time.

   20. DSDavid Sacks1:08:34

       I think it's more likely to be a low-level employee. I think that's typically where this comes from. A board member has a fiduciary duty to basically keep proprietary data secret. I really don't see most investors wanting to take the chance of it coming back on them by, again, violating their Delaware obligations, their fiduciary duties. Furthermore, I think even passive investors who are on the board generally don't want to hurt their investments. I think it's generally disgruntled employees who do this. L- I'd say lower-level disgruntled employees. And the reason they do it is that either they feel like the management of the company is asking them to do something unethical or is non-responsive to their concerns. So I think it is the, the motivations you're talking about, J-Cal, but my view on it is that lower-level employees have less to lose and are more likely to do this.

   21. DFDavid Friedberg1:09:30

       But what about the newsworthiness of this, Saks? Like, what do you think the journalists', like, objectives are besides sensationalist headlines on... Like, what's the newsworthiness to the public on reporting these stories?

   22. DSDavid Sacks1:09:39

       Well, I mean, you talk about how damaging these stories are and they hurt the company, so why would the reporters do it? And the reporters are like, "Write." Th- they're not there to help companies. They are there to hurt companies and sell clicks by doing it. So now is it newsworthy? What I would say is it's annoying when the media gets ahold of proprietary information and puts it out, but it's hard to argue that it's not newsworthy. I wish the media would do it in a non-clickbait way, like if they're gonna put out some numbers, don't cherry-pick one or two of the worst ones.

   23. DFDavid Friedberg1:10:12

       But these are private companies so d- so by, by that vein, shouldn't a journalist go out and try and get the private financials of every private company in Silicon Valley?

   24. DSDavid Sacks1:10:19

       Pfft, they would if they could.

   25. DFDavid Friedberg1:10:20

       And just publish it on a website?

   26. JCJason Calacanis1:10:22

       Okay, but if they did ask for that explicitly, that would be illegal. So they can take inbound, but they can't go out and try to steal it themselves, obviously, so...

   27. DFDavid Friedberg1:10:29

       Right, so why wouldn't someone just set up a WikiLeaks for private financial information?

   28. JCJason Calacanis1:10:33

       Well, they have. If you look at every journalist now, they have a PGP key or whatever, they have an- a phone number, they say anonymous, hit me f- on these anonymous services, and that's how this is done. Having been on the other side of it, it's w- back in the Engadget days, people used Yahoo, I think they use Proton now or something now.

   29. DFDavid Friedberg1:10:48

       I don't know, I just reacted kinda negatively when I see these stories and I'm always like, "What's the point here? Why are we reporting and hurting companies based on, like, reporting of financials?" Yeah, it's just-

   30. DSDavid Sacks1:10:57

       That is the point. That is the point, to hurt them. (laughs)
6. 1:13:07 – 1:26:27

   Fintech's reckoning

   1. DFDavid Friedberg1:13:07

   2. JCJason Calacanis1:13:07

      Is fintech a great business or not? I mean, is it a tech-based business? Do you believe in the category?

   3. DFDavid Friedberg1:13:12

      So I started Metromile, which was an online auto insurance business with a telematics device that plugged in the cars, back in 2010 and the term "fintech" wasn't used at that time, and in the years that followed, "fintech" became a term where it was, like, technology companies or software companies reinventing financial services in different ways and, you know, so we're now 14 years past that and a lot of, quote, "fintech" businesses are looking like fin businesses without the tech, meaning their margins and their LTV to CAC or their return on invested capital, it looks the same or in some cases worse than the traditional financial services businesses that they're meant to disrupt. And so this spans insurance, to lending, to banking, because the- the technology advantage was meant to accrue either a better margin or, uh, you know, a better return profile or a better, call it LTV to CAC, meaning you can acquire customers for less or you can get more money from those customers by retaining them longer and get more money over time. I always used to sit at the board meetings at Metromile and I would scream, "Guys, if- if we don't demonstrate margin advantage, the business will eventually trade like the market trades, which is one times revenue. And if we trade at one times revenue, we're already overvalued and we've burnt so much money." It was always a challenging conversation about pulling up the margin, pulling out the LTV to CAC numbers. The truth is, over the years, a lot of fintech companies fell into the same trap that D2C businesses did, which is to grow, they started acquiring customers through Facebook and Google, and Facebook and Google became all the page views on the internet and then they ultimately got competed away and the price went up and the conversion rates went down, and so the CAC went through the roof. There was a lending company I was involved in early on as a main shareholder, and we were spending $4 to acquire a customer making 12 bucks a month in gross profit. Fast-forward 24 months and it was costing north of $30 to $60 to acquire a customer and gross profit per month declined to $2 to $4. So, you know, this- this margin advantage went away as the business scaled and the CAC went up and so the LTV to CAC ratio started to look worse than traditional lenders. So what do the fintech companies do in response when this happens, which many of them faced, is they had some inherent margin advantage or some inherent growth advantage that over time got competed away. Well, they start giving product away for free. In fintech, it's really easy to grow by giving away a dollar for 90 cents. So you could drop the price of auto insurance and suddenly everyone buys your auto insurance and your revenue growth goes through the roof, but your margin profile is terrible, you'll lose money over time because you'll have higher loss ratios, and same in lending. In lending, you can offer people a lower rate, revenue goes through the roof, everyone signs up for loans from you, and over time, you end up having defaults that eat away your gross profit and you end up losing money on that product. So many of these fintech companies, it takes a couple of years for those economics to play out, are now starting to run into that headwind which is, they couldn't just grow through some, um, unique margin or CAC advantage, they acquired traffic and when they couldn't acquire traffic with a good LTV to CAC ratio, they have to start doing this giving stuff away and then the margins get eaten up over time and the business gets unprofitable and they can't get out of that cycle. So I think we're in this kind of, like, realizing the truth, which is that a lot of fintech businesses are just fin businesses, there are a few that are doing great, but many of them, for many years, I think masqueraded as having some unique tech advantage until those numbers started to play out which demonstrated that, in fact, they did not.

Episode duration: 1:33:47