E84: Markets update, crypto collapse, Russia/Ukraine endgame, state of the podcast

1. 0:00 – 7:03

   Besties discuss the one-month hiatus

   1. CPChamath Palihapitiya0:00

      J-Cal, you look a little grifty. You feel okay?

   2. DSDavid Sacks0:02

      Yeah.

   3. JCJason Calacanis0:03

      Me? I'm great. I'm great.

   4. DSDavid Sacks0:04

      You look half a milli richer today.

   5. DFDavid Friedberg0:07

      (laughs)

   6. DSDavid Sacks0:07

      What's it like to be half a milli richer?

   7. CPChamath Palihapitiya0:09

      J-Cal, you look like a failed hostage taker. (laughs)

   8. DFDavid Friedberg0:14

      (laughs)

   9. JCJason Calacanis0:14

      Laugh it up, boys. Laugh it up, boys. Laugh it up, boys. When you see my other projects drop-

   10. DFDavid Friedberg0:18

       Oh, my God.

   11. JCJason Calacanis0:19

       ... you're gonna be crying again, okay?

   12. DFDavid Friedberg0:21

       I can't wait. Why don't you take yes for an answer, J-Cal? Look at him.

   13. JCJason Calacanis0:25

       I- I'm taking yes for an answer. Welcome to the All-In podcast with three miserable rich bastards who pull up-

   14. DSDavid Sacks0:30

       (laughs)

   15. JCJason Calacanis0:30

       ... the ladder behind them.

   16. DSDavid Sacks0:32

       (laughs)

   17. DFDavid Friedberg0:32

       Do you wanna explain why it took us a month to produce a new episode, J-Cal?

   18. JCJason Calacanis0:37

       Uh, what about the-

   19. DFDavid Friedberg0:37

       And just in your view.

   20. JCJason Calacanis0:38

       Whoa, hold on a second, attorney.

   21. DSDavid Sacks0:40

       Let me give you guys the TLDR. J-Cal thought the All-In pod was his, and then he realized it wasn't.

   22. DFDavid Friedberg0:48

       (laughs)

   23. JCJason Calacanis0:49

       No. And so if you guys wanna go, there we go. There, I'm- I'm totally-

   24. DSDavid Sacks0:52

       That's it.

   25. JCJason Calacanis0:52

       ... transparent.

   26. DSDavid Sacks0:53

       All right, let's do it.

   27. JCJason Calacanis0:53

       I requested, I requested to own 6% more of the All-In podcast.

   28. DSDavid Sacks0:57

       No, no, no. Back up to the summit. Back up to when you wanted to kick me-

   29. JCJason Calacanis1:00

       No, back-

   30. DSDavid Sacks1:00

       ... off the show.
2. 7:03 – 32:19

   Markets update: Fed decisions, goals, macro factors, root causes

   1. JCJason Calacanis7:03

      And here we go. The markets are in complete turmoil. Uh, SPY down 21% year-to-date. Dow's down 17% year-to-date. As Sacks has pointed out, that is not representative of what happened to growth stocks at the same time. And, uh, the May CPI, uh, went up, and it was at 8.6. We also got the 75 basis point rate hike. Who wants to start here? Chamath, I mean, uh, it's markets, so maybe I'll just dump it to you first, and then we'll go around the horn to Sacks and then Friedberg.

   2. CPChamath Palihapitiya7:32

      Well, there's a lot to say, so, uh, bear with me for a second. But, um, the thing that you have to do before you talk about what is happening now, I think, it's probably useful to go back, and you have to really start at the end of the great financial crisis. And the reason is, there was a bunch of people coming out of the GFC who confused what the US government and some European governments were doing. At the time, there was the risk of a huge financial contagion, and so the US stepped in, and the Federal Reserve started to use their balance sheet to buy toxic assets, right? And the ECB did that, and I think Japan did that as well. Anyways, a bunch of banks did it. I mean, a bo- a bunch of governments did it. And then there was this body of pseudo-scientists, -stific economists who coined this thing called modern monetary theory, which basically said, "Hey, you can keep printing money, and introducing it into the economy to smooth things out and to actually drive long-term growth." And it turns out that a bunch of government officials fell for it. And if you fast-forward to 2022, so 14 years later, you know, governments around the world had printed something to the tune of about 30, 35-odd trillion dollars of money into the economy that should have never been there. So the thing to remember is, like, we have not necessarily just been obfuscating true supply-demand in the last six or eight months when we've been talking about a recession or inflation. We've been actually doing it since 2008. It's just that it's been building up in the system. So one of the things that we have to realize is that all of that money somehow needs to get destroyed in some way, shape, or form if the true economic equilibrium is meant to be found. What is true supply, what is true demand in the absence of government sloshing money around, trying to prop up things that should not be propped up, or buying votes, or all the grifts that these folks have engaged in in the last, you know, decade and a half have to get undone? So that's the backdrop. So if you think about taking $30 trillion out of the global economy, you know, you're talking about almost, you know, I think it's 85 trillion is the world GDP. So like, you know, it's, it's, it's almost half of an entire year's worth of global GDP. It's gonna take three years, probably, of the slow, meticulous, you know, running off of money, you know, not reintroducing new money. So it seems like we're at the beginning of the beginning of something that's gonna be long and drawn-out. Now, that's separate-

   3. JCJason Calacanis10:16

      Sacks, what about-

   4. CPChamath Palihapitiya10:16

      ... from... And that's separate from whether we're in a recession or not. That's just the bear market that we're in. Right? And so you have to look at asset prices today as a microcosm of a much larger trend that has to be about fake money pushing asset prices up, and now taking all that fake money out and finding out what the real price of something is. And I just don't think that takes six months. So for all the people that were, you know, fingers crossed, hoping that this would be the end of it, Fed raises 75, we're done with this, they're gonna raise 75 more, I just think that's not how it's probably gonna be. It's gonna take, you know, 24, 36 months. That may mean the bottom doesn't happen for another 18 months. So I think it's a... We're in, we're in for a lot of choppy, um, market action.

   5. JCJason Calacanis11:05

      Sacks, three asset bubbles, clearly all, um, you know, being impacted. We had stocks, looks like that story was pretty violent. (laughs) Uh, then we had crypto. This last two or three, uh, weeks have been absolutely insane in terms of that asset bubble. And now, uh, record-high inventories for homes, record, um, sales are now dipping below the average of the last 20 years and, um, we're seeing, uh, mortgage origination just absolutely get crushed. 6% mortgages just a couple of months ago. It was two-point-X, uh, for some folks. So when you look at those three asset bubbles, do you buy Chamath's, "Hey, we're gonna see even more deprecation in these for another 18 months," possibly? Or do you think we've taken such crazy action, this has come down so violently that we're now bouncing along the bottom? Bouncing along the bottom, or 18 months of more pain?

   6. Well, the, the stock market, especially growth stocks, may have taken the majority of the carnage. But you're right, there are other asset classes, and I think we're gonna see the carnage start to rotate into those. Um, so you're right. If you look at residential real estate now...... the prices are at the highest they've been relative to median income since something like 2006, 2007, before that sort of great real estate crash that precipitated the Great Recession of 2008. Um, so I think there are gonna be more, more shoes to drop. I just wanna build on Chamath's point about root causes here. Um, Milton Friedman once said that there's nothing quite so permanent as a temporary government program. The temporary government program was quantitative easing. We had this Great Recession of 2008 that could have turned into a depression. They broke the glass in case of emergency. They started this QE, which is basically the government intervening to buy bonds in the market. They had never done that before, and they loaded up their balance sheet. The crazy thing is, that program was still continuing until last year. Why? I mean, it was like on cruise control. And so last year-

   7. CPChamath Palihapitiya13:01

      No, no, no. It was c-

   8. JCJason Calacanis13:02

      ... the Fed-

   9. CPChamath Palihapitiya13:02

      It was, it was continuing till last month, and countries like-

   10. JCJason Calacanis13:05

       Those... Well, yeah.

   11. CPChamath Palihapitiya13:05

       ... Europe are still doing it. 9%-

   12. JCJason Calacanis13:07

       Right.

   13. CPChamath Palihapitiya13:07

       ... inflation in Europe, and they're still buying bonds.

   14. JCJason Calacanis13:10

       Right. So you, you go back to last year, the Fed bought 54% of the government's debt despite the fact that the economy was growing at like 5% GDP, that it was bouncing back really strongly from COVID, that you had the stock market at all-time highs, and yet they were still intervening with this massive QE. And then when we got the, the surprise 5.1% inflation print last summer, they didn't stop QE till the end of Q1. So you're right, they kept basically printing money, and it's still going on, and that's created massive distortions in the economy. Now, so the Fed I would say is the number one culprit here, and Jay Powell is the number one culprit. But the number two culprit is the Biden administration, and I think Biden did three things very early on in the first few months of his presidency to effectively tank his presidency. Number one, he canceled our energy independence on his first day in office, canceling the Keystone Pipeline and making it much harder to drill. And of course, uh, energy inflation is the number one factor in this sort of overall inflation. Number two, he pushed through that last 2 trillion of stimulus on s- straight party lines, the ARP, the American Rescue Plan, after Larry Summers said, economists in his own party said, "This is gonna create inflation. Don't do it." And then the third thing is, and no one really talks about this, is that Biden could have used diplomacy in 2021 to basically find an off-ramp to this Ukraine crisis before it turned into a full-fledged war. And if you listen to the economists, the international, uh, development economists like Jeffrey Sachs, he basically says that Biden polled his cabinet and said, "Listen, should we negotiate and compromise with the Russians?" They all said no, and Biden handed down the order, "We will not compromise with the Russians." So now we have this massive war in Ukraine that's fueling food and energy inflation. It's gonna tank his presidency, and I don't even think there was any debate-

   15. CPChamath Palihapitiya15:01

       No, but we're... But we are now-

   16. JCJason Calacanis15:02

       ... in his cabinet about this.

   17. CPChamath Palihapitiya15:03

       We, we may not be negotiating against Russia, but we're enabling them to print enormous, uh, surpluses. Meaning, I don't know if you guys saw, but there was an article today. Janet Yellen is traveling around basically convincing folks to, uh, not include Russian oil from a bunch of import bans, so that these Russian oil tankers can be insured. Why? So that they can sell this oil to places like China and India, et cetera.

   18. JCJason Calacanis15:33

       The ruble's at a five time, five-year high. The ruble's at a five-year high.

   19. CPChamath Palihapitiya15:36

       We push for all these sanctions. Europe gets on board and says, "We're gonna do it, and we're gonna take the lumps." And then we go around Europe and basically say, "Well, we kinda wanna fight this proxy war, but at the same time, we wanna try to fix inflation, and we didn't mean to cause this." And it's completely disorganized what's happening right now.

   20. JCJason Calacanis15:53

       Okay. So if you had six minutes in the pool for when (laughs) Sachs would blame Biden for the economy, uh, you win. Uh-

   21. Well, who, who do you blame? You... Of course, the president's responsible.

   22. CPChamath Palihapitiya16:01

       Well, I mean, I... We s- we talked about quantitative easing starting in 2008, so that, that goes over a couple of presidents. And I guess the question I would have for you, Sachs, is how much of the spending, the free willing spending, you know, um, you know, was from the previous administration? 'Cause it does seem like-

   23. JCJason Calacanis16:14

       Over-spending is a bipartisan problem. There's no question about it.

   24. Got it.

   25. But what may-

   26. I just wanna make sure that we point that out. Yeah.

   27. For sure. And, and Republicans only seem to find their principles on spending when there's a Democrat in the White House. I totally get it, and I would like to see more fiscal responsibility regardless of which party is in power. And I'd like to see the Republicans less, be less hypocritical in their principles on this. But look-

   28. Perfect.

   29. ... here's the thing. The economy was bouncing back strongly last year, and Biden still pushed for this last 2 trillion of spending and then 1.2 trillion more in infrastructure-

   30. Yup, thank God we didn't do that.
3. 32:19 – 47:17

   Earnings estimate skepticism, labor force, job openings

   1. CPChamath Palihapitiya32:20

      One of the most interesting canaries in the coal mine of all of this was two days ago and what, uh, happened to Facebook, and this sort of ties a lot of this stuff together in terms of like economics, inflation, asset prices, equities, tech. We should, we, then we can try to talk about non sort of, you know, big tech. But the, everybody was saying, "Oh gosh, the market's gonna rip on the open." You know, we were closed for Juneteenth, and then on Tuesday, the market, you know, the S&P was up like 250 basis points, 2.5%, and the NASDAQ was also up, you know, call it maybe 300 basis points, roughly. But Facebook was down like 400 points, right? So it's a big spread. And why is that? And I was like, "This makes no sense to me. What is going on with this price action?" Everything was up. Apple was up. Google was up. And so I called around and, you know, I was like, "Wh- why is this happening?" And this is the best explanation I got. When you look at who the incremental buyer is in the stock market, it tends to give you a sense of whether prices can go up or will continue to go down. And the poorest informed buyer tends to be retail, and the most informed buyer tends to be these very large institutional hedge funds, right? So there's a spectrum. And, uh, Facebook is an example of one of the, of big tech that is poorly owned by retail. So it's mostly owned by smart money. And the case that smart money makes for owning Facebook is that it's got an extremely cheap price to earnings ratio, so you must own it. And what they said was that they, you know, looking at the tea leaves of consumer demand, what they actually re-underwrote was that actually it's not that the price to earnings was cheap, it's that the E in PE was just wrong. And if they pass through all of these increases in inflation and, you know, their earnings expectations into Facebook, it's actually more like fair value at a lower price. That's why they sold it so much on a day where the market was up. Now why is that important? Well, eventually you're gonna touch all these other stocks as well that are gonna go through earnings revisions in this recession. This is where I think Wall Street has done a very poor job on behalf of retail. If you look at the average estimates of earnings, you will be shocked to hear that Wall Street actually has this year being record earnings, next year earnings continuing to go up. How is that even possible?

   2. JCJason Calacanis34:53

      Wait, and you'd think... Well, I, I-

   3. CPChamath Palihapitiya34:54

      How is that, how is that... If you're sitting here-

   4. JCJason Calacanis34:56

      I actually have a theory.

   5. CPChamath Palihapitiya34:56

      How do you see, how do you see earnings continuing to go up into these prints like this when you cannot pass through, you know, 80, 90% increases in energy and COGS and whatnot? How does that happen?

   6. JCJason Calacanis35:09

      I mean, I think the, the, what people would say is maybe they're gonna lower their costs, and so with layoffs and can- and lowering salaries and lowering spend on advertising, you know, the earning, the E could go up if people bec- start belt tightening and then we start having companies that are being run, you know, just more, um, for the bottom line.

   7. CPChamath Palihapitiya35:29

      You'll have to sell fewer, you'll have, you'll have to sell fewer things because there'll be fewer people with jobs to buy things.

   8. JCJason Calacanis35:34

      But we have 10 million job openings. So this is the weird thing about this recession is because we haven't let a lot of people immigrate into the country-

   9. CPChamath Palihapitiya35:40

      But i- is that, is that what you think-

   10. JCJason Calacanis35:41

       ... and we have so many jobs.

   11. CPChamath Palihapitiya35:42

       Is that what you think the consensus view on Wall Street is, that basically-

   12. JCJason Calacanis35:46

       I don't know.

   13. CPChamath Palihapitiya35:46

       ... a bunch of people get fired and so that's why earnings continue to go up?

   14. JCJason Calacanis35:49

       Well, they stop hiring for two years in advance, right? Facebook said they were hiring for like 2024. Their hiring plans were looking out two years. So now if they go on a hiring freeze, maybe there's, you know, and that's their number one cost?

   15. CPChamath Palihapitiya36:00

       I'm gonna give you-

   16. JCJason Calacanis36:01

       I'm just putting out a theory.

   17. CPChamath Palihapitiya36:03

       I'll give you the counterfactual. I think Wall Street's-

   18. JCJason Calacanis36:05

       Yeah.

   19. CPChamath Palihapitiya36:05

       ... wrong.

   20. JCJason Calacanis36:05

       Okay.

   21. CPChamath Palihapitiya36:05

       And I think that earnings are gonna go down this year and will definitely go down in 23. And so I think what probably happens is the entire world of equities needs to get repriced at a lower price, and in that, it's gonna put enormous pressure on these cash burning non-profitable tech companies.

   22. JCJason Calacanis36:25

       Well, that's for sure, but, and the ones that are profitable, Chamath, they're aware of this. Facebook just canceled like two of their prototypes they were working on to save money. So that whole $10 billion into, you know, VR, I think they're trying to make that number look small, smaller. Uh, Sax, what do you think?

   23. Well, I think you're bringing up a really interesting point with this. The 10 million, you know, job openings, and wha- now that, that number is coming down really fast as, uh, companies close open reqs and they basically freeze hiring. So that number is gonna come down very, very fast. But one of the major contributors to inflation is that the labor force participation has been very low. A b- millions of people left the la- labor force during COVID as a result of the stimulus checks and the freezing of, uh, rent and evictions. I mean, look, rent's the num- people's number one expense. If they don't have to pay rent for a couple of years, a lot of them may not work or may not work as much. So we've had this problem where we really need about two million people to reenter the labor force, and if you describe inflation as too much money chasing too few goods, we need to increase production and productive capacity. And when you have millions of people dropping out of the labor force, you've got less goods and services being produced that people want. So just reducing the money supply is not gonna get us out of this mess. We also need to improve productive capacity.

   24. Just to put a number on that, we, we peaked in the 1999 era at 67% of, uh, participation in the labor force, uh, and then it's been down in the s- low 60s, 61, 62, and it continues to be low.

   25. Right.

   26. But that is the solution here. We get that 7%, that gap, um, could change everything.

   27. You, you can't just fix the demand side because if, if all you do is fix the demand side, what you're doing is you're killing the economy to reduce demand in order to bring it, down prices. That's very painful. It's all pain. But what you also have to do is fix the supply side. You have to increase the availability of all the critical inputs into the economy. So labor, obviously, is one of them, but also critical resources like energy, you know, oil, natural gas, and so on, and that goes back to fixing the supply chain, hopefully getting a resolution of the situation in Ukraine, the war. Um, so if we could fix those things-

   28. Yeah.

   29. ... it's a way to improve the economy without creating more pain.

   30. Friburg, if the prices of just daily living, of which transportation and housing and healthcare are now the top three, I believe, um, groceries and healthcare I think have flip-flopped a couple of times in the last decade in terms of cost, if those things go up, would that make people want to go back to work to pay for those things? Or does it create capitulation where people say, "I'm moving in with my cousin. I'm gonna lower my balance sheet." What, what is your prediction there? Are more people gonna go to work or do we still have this, you know, call it 10 million people in the country who just don't wanna go to work?
4. 47:17 – 56:20

   How startups should think about the next 18-36 months

   1. JCJason Calacanis47:17

      I think that startups have not fully embraced or, or realized what, what's happening. I just got back from the Coatue summit over the past-

   2. Yep.

   3. ... couple of days. This was an event that was hosted by Coatue, um, you know, whose founders are, um, Philippe and Thomas Laffont. Very smart guys, very smart investors who've been public market, sort of hedge fund investors for a long time, but also have a large venture fund to do growth stage investing. Some of the takeaways from that conference, uh, s- some of the more vivid lines that stuck with me is that one of the speakers said that, he said that when it comes to runway for startups, three to four years is the new two years, because if you just have two years of runway, you're gonna need to raise in a year, and in a year from now, we're gonna be in the middle of a recession. They're predicting, they're forecasting that capital availability is gonna decline about 75%. The amount of money, that's venture money that's available to the ecosystem, down s- by three quarters. So if you try to raise in that environment, either you're not gonna be able to or investors are gonna, you know, have all the leverage. You're not gonna get terms that you like. So they were recommending three to four years of runway.

   4. (laughs)

   5. So that is not what I think a lot of companies are planning for.

   6. Tha- that's just not even pro- possible.

   7. Right. The other thing that, the other really vivid takeaway is that they did some polling of the startup founders who were in attendance, okay? And what the numbers basically showed is a, is a contradiction. On the one hand, the founders sort of understood...... that intellectually that we're heading into a downturn, we're heading into a recession, and so the polling reflected that. On the other hand, if you asked the founders how they're gonna react to it, "What are you gonna do about it? Are you gonna cut headcount? Or are you gonna accelerate your business to beat competitors?" Everybody said, "Oh, we're gonna out-accelerate our competitors." So everybody thought that they're the exception. In other words, everyone understood we're headed for this massive recession and it's gonna be really bad, but we're gonna be the one company that doesn't need to cut. We're actually gonna grow, we're gonna accelerate during the downturn. So there was a real contradiction in how founders are interpreting this advice. And I have to tell you, when I talk to founders in our own portfolio, what I see is, you know, we've now done multiple meetings where we lay out what's happening in the economy, and they get it. They understand it. And when we do a board meeting, they're like, "Okay. We're gonna go look at our plan and we're gonna reevaluate and we're gonna make major cuts. We're gonna bring our burn multiple down to, you know, the, where it should be." But then, you know, when you check in with them a couple of months later and you're like, "Where are you on the plan?"

   8. They haven't taken the medicine.

   9. It's, it, or, or the medicine is like a 10% cut. And I'm like, "Guys, like 10%'s a performance review."

   10. Yeah.

   11. Like, 10%'s really-

   12. That's what you should be doing every year anyway.

   13. Y- yeah. You get rid of the, the bottom, like the C performers. You promote the As and Bs and you get rid of the Cs. So no one really wants to take the medicine yet, and, um, you know, it's a problem. I mean, Sequoia has this great chart called Survival of the Quickest that we should put up on the screen, and it shows two lines. One company is the one that takes the medicine right away, brings their burn down to where it should be, and then they're able to grow from there, and they really will out-accelerate the competitors. But then there's the company that basically delays and waits, and what happens is, by the time they finally get religion to make the cuts, it's too late because even after they make the cuts, they don't have enough runway on the other side.

   14. They burn the capital, yeah.

   15. They burn the capital and then they're in a death spiral. So I think, you know, what, what companies need to think about is this, is this 75% reduction. Imagine if you did $100 million round last year, right? If you go try to raise next year in the middle of this recession, that $100 million round might look like a $25 million round. So imagine if you're burning an extra 25 to 50 million more than you should be according to your burn multiple. You're basically burning the next round. Forget about the fact that the last round gave you all this cushion. Think about how much of the next round you're burning. And if you reorient your thinking around that, it could lead to a change in behavior.

   16. Anecdotally, I'm seeing people come back from rounds where they were expecting $40 or $50 million, in some cases, like, with 250K in revenue, 500K in revenue. They were living in a 200, 300 times revenue kinda world. I- it was just insane. And, um, you know, they're now coming back with $10 million caps, $15 million caps on their notes.

   17. CPChamath Palihapitiya51:34

       I was offered $100 million (beep) at a 50% discount, and I said, "Call me when you get to 65."

   18. JCJason Calacanis51:41

       And that's the best company.

   19. That's literally the best company.

   20. CPChamath Palihapitiya51:43

       That's the best company.

   21. JCJason Calacanis51:44

       Y- and the best founders to bet on, right? Uh, of, of probably most private companies is them. (beep)

   22. DSDavid Sacks51:48

       You don't like that valuation, Chamath? What is that valuation, 40 at 50% off?

   23. CPChamath Palihapitiya51:53

       I, I, it, it's less of a judgment on (beep) but it's just more an observation that we're at the beginning of the beginning. And, a- again, we're at the beginning of the beginning, okay? For all of us that lived through 2000, this was four years of sheer hell and a grind. Now we have $30 trillion that we have to work through the economy, a recession we have to overcome, a war we need to end, and people all of a sudden assume that two or three rate hikes and five or six months of headlines are enough. And on the margin, maybe they're right. But from my perspective, you know, it's less a judgment on (beep) but it's just an observation that we're at the beginning of something that just fundamentally has to take some amount of time to work its way through the system. And so, I don't understand why anybody would give up their liquidity in this moment right now. Why would you? Why would I, why would I give up $100 million of cash in my bank account? I would not do that right now.

   24. JCJason Calacanis52:50

       'Cause the cash, the caps g- the cash gives you so much optionality. It's basically-

   25. CPChamath Palihapitiya52:54

       So much optionality.

   26. JCJason Calacanis52:55

       So you're gonna be looking for distress, and this is the thing. So you have a huge amount of capital leaving the ecosystem. Like, we know Tiger is basically out. I mean, they were the, basically the default provider of growth-stage capital over the last couple of years. So you have a lot of liquidity leaving the system, and then the liquidity that's in the system is waiting for distress. So you're right. It-

   27. DSDavid Sacks53:15

       I don't know. There's a quarter t- I mean, like we talked about, there's a quarter trillion dollars of, quote-unquote, "dry powder." I mean, I know Chamath thinks that people are gonna give that money back, but there's never been-

   28. JCJason Calacanis53:24

       Mm-hmm.

   29. DSDavid Sacks53:24

       ... this much venture money sitting-

   30. JCJason Calacanis53:24

       They're not, they're not, they're not gonna-
5. 56:20 – 1:08:41

   Crypto collapse, next shoe(s) to drop

   1. JCJason Calacanis56:20

      Let's, that's a perfect time to segue into crypto. Bitcoin's price is down 71%, uh, from the all-time high, uh, 69K in November of 2021. Bottomed out at 17,000 or so on June 18th. Ethereum's price down 78%. And if you look at the craziness since the last All-In episode, you know, thi- this 3AC, Three Arrow Capital, they're a crypto hedge fund that was letting people, uh, basically loan out their crypto. Uh, they are basically closing a $10 billion, um, crypto hedge fund at its peak. They're insolvent according to the reports. Terra Luna collapsed. The founders and employees of that company are not being allowed to leave South Korea. (laughs) Doesn't mean they're guilty, but it's certainly not looking, uh, good. And, um, there is a whole situation with Solana and a company built on top of it, Solend, which is not Solana, it's an application built on top of it. I talked to Vinny Lingham, our friend, earlier this week about it. They had a whale who had, um, tried to loan out $100 million, and they had to freeze their account because they thought the downward pressure, since there's not many buyers in crypto right now, could collapse Solana. So thoughts on crypto writ large? What is this gonna look like, Sacks, over the next year for crypto?

   2. I mean, it's like the dot-com crash all over again.

   3. Yeah.

   4. I mean, basically you had an extremely promising technology. I mean, it is a promising technology-

   5. Of course, yeah.

   6. ... and it is a future, you know, technology platform, but the price action got totally decoupled from the level of progress in the space. And people were not valuing these things based on real customers, real usage, and real use cases, but it was, became, you know, very speculative. And again, all of this was fueled by the excess liquidity that was pumped into the system. So, you know, we've said it before that crypto is like a liquidity sponge. It sucks up when there's a lot of excess liquidity, it's- sucks up that liquidity, but now that sponge is getting wrung out. And, um, you know, and part of the problem is with interest rates going up, you know, it's one thing when you have negative real interest rates and, and, and, and you can't earn a return on your money, then you start to get, you basically, people start to push the envelope and invest in more and more speculative things. But as you can get a real return in, like, let's say there's, like, a real risk-free rate, now there's alternatives for all that cash. And then you've got the problem of leverage as well, which I think over the last few weeks, the crypto space was heavily over levered and a lot of people got margin called and wiped out.

   7. That's the contagion that's occurred, and people were levered up five, 10 times their Bitcoin on these rogue-

   8. CPChamath Palihapitiya58:52

      Wait till these token sale things get litigated. I mean, the amount of-

   9. JCJason Calacanis58:57

      Oh, my God.

   10. Yeah.

   11. CPChamath Palihapitiya58:57

       ... the amount of grift by so many of these venture firms in running these sketchy deals where they would put in some amount of money. This is my understanding of the scam because it was explained to me. You put in a little bit of equity at some crazy price, and then you get these tokens, and apparently there's no... Like, you can just sell these tokens day one. And so what happens is, like, you, you price the equity, but it's meaningless because really what you're getting is the right to get some amount of these tokens. The price is crazy. You sell it, and then you just kind of walk away. And apparently, you know, you do these deals where you just rinse and repeat this thing. Um, wait-

   12. JCJason Calacanis59:33

       Well, and the-

   13. CPChamath Palihapitiya59:33

       ... and wait till that gets exposed.

   14. JCJason Calacanis59:35

       I mean, th- the firm-

   15. CPChamath Palihapitiya59:35

       That seems like a total-

   16. JCJason Calacanis59:36

       ... the firm that did this the most is Andreessen Horowitz. Uh, Chris Dixon, I think, was considered, like, the best investor last year or the year before, uh, because of all these token returns. I, I gotta wonder when they go... Now that this, people are losing money, that's when people start suing. I mean, what is it gonna look like if they were f- what, what do you think their marks look like last year versus right now? (laughs) I mean, and all these coins, like, looking back in the review mirror and saying, "Hey, you bought all these coins, you flipped some number of coins." I mean, th- to your point, Chamath, like, what is the litigation path and the, the shadow economy that was created? What is that gonna look like?

   17. CPChamath Palihapitiya1:00:17

       Well, there was an article, there was an article in, I think it was in Bloomberg, um, about folks trying to figure out how to get, um, a lawsuit filed against Binance.

   18. JCJason Calacanis1:00:28

       Mm.

   19. CPChamath Palihapitiya1:00:28

       And the problem was that they didn't even know what entity to sue.

   20. JCJason Calacanis1:00:31

       (laughs)

   21. CPChamath Palihapitiya1:00:32

       Um, it's not clear who owns what and, you know, what owns the other, and who the ultimate look through ownership structure is. And, um, and it doesn't mean that Binance is guilty of anything, but the article was just, you know, showing how there was a US investor who lost $1.2 million who wanted to file a lawsuit, and they have every right to do that. Um, couldn't even find the corporate entity to, to actually file this lawsuit against. So if that's what's happening in a trillion dollar market, there's, um...

   22. JCJason Calacanis1:01:01

       I mean- It's gonna be a lot of pain. ... it's free, it's- Yeah. ... it's a lot of oversight that's, that's, that, that we've missed. Frey, Freyberg, what is this going to do to regulation in crypto at this point? Because crypto regulators now are gonna... or regulators are going to just be looking at this going, "Wow, look at all the pain and suffering." And when a local DA gets, you know, five or six of their people complaining they lost money in Terra LUNA or whatever it is, this is like the perfect opportunity for them to collect a pelt and get some crypto kid and, you know, hold them responsible and get some great headlines. I mean, what do you, what do you think happens from this point forward in the crypto land?

   23. DSDavid Sacks1:01:35

       What you just said.

   24. JCJason Calacanis1:01:36

       Okay.

   25. DSDavid Sacks1:01:36

       So there you go. (laughs)

   26. JCJason Calacanis1:01:37

       There you have it, folks. (laughs)

   27. DSDavid Sacks1:01:38

       Yeah.

   28. JCJason Calacanis1:01:38

       But what about regulation? I guess that's the next piece, because all of these entities have taken a very...

   29. DSDavid Sacks1:01:43

       I mean, I look, I mean, the SEC, the, the, the SEC last July or August published this kind of initial opinion letter, but remember, there's also the CFTC, there's a bunch of regulatory authorities in the United States that have a longer process than governments ex-US that have had a much more kind of stringent point of view that there's a lot of casino-like gambling going on with these things and that's it. There's no functional utility. There's not a... it's not... is it a security if there's no underlying business? If it's not a security, then it's just a bet on something. If it's a bet on something, it's gambling. It's, you know, obvious that...

   30. CPChamath Palihapitiya1:02:14

       If it's a security, it has to be governed by the SEC. If it's a future or commodity, it's the CFTC and the problem is we need Congress to pass some legislative framework that puts the puck in one side of the, of the arena, rink or the other.
6. 1:08:41 – 1:33:12

   Russia/Ukraine endgame, escalation, scrutinizing US alliances, sanctions failing

   1. JCJason Calacanis1:08:41

      Go ahead, Sax.

   2. Well, so- so something happened in the last week that I think is pretty disconcerting. I mean, just intellectually speaking, we all know that wars that go on and on have a tendency to escalate, and there was an example of how this could happen over the past week. Lithuania is now essentially stopping the flow of goods from the Russian mainland to another part of Russia called Kaliningrad, which is- it's called an oblast. It's a little area, but it's outside the Russian mainland. It's basically between Poland and Lithuania. And so, goods go by rail from the Russian mainland to Kaliningrad, and they've been stopping these goods, because they say they're under EU sanction. The problem is... Listen, when you think about a sanction, a sanction is me not buying goods from you because I don't like what you're doing. That's fair game. Everyone has a choice over who they wanna buy from. But this is not that. This is, uh, Lithuania deciding to stop goods going from Russia to Russia. And so the Russians say this is a blockade, I think with some justification, and blockades are understood to be an act of war. So you've got Lithuania basically engaging in this act of escalation against Russia.

   3. We always thought it would be Poland, but it's Lithuania now.

   4. Right, exactly. And remember, Lithuania is- is a member of NATO, so they have an Article 5 guarantee. Now, think about the upside versus downside of this action. In terms of- from the Western point of view, the upside is, this has absolutely no impact on the outcome of the war. This is not gonna help anyone in Ukraine to blockade Kaliningrad and prevent coal and building materials and steel from reaching Kaliningrad. That's not gonna have any impact on the war. So there's zero upside to this from a military standpoint, but the downside is that you now have Lithuania and Russia getting into it, and if they get into a war, then we are instantly pulled in. Under Article 5, we're in the middle of World War III. So, this is the kind of dangerous, escalatory act that has no upside, only downside for us, and my view on it is that we have to tell, we have to instruct, frankly, our treaty allies not to engage in these types of dangerous acts, because there's a huge externality. We could be pulled in. This is very dangerous, and I just wonder if the administration is on top of this. Did they give the green light to the Lithuanians to do this, or were they caught by surprise? And what is the reaction to acts like this? Uh, you know, what I worry is that we're conducting foreign policy by virtue signaling, where we just say, "Who are the good guys and who are the bad guys?" And, you know, if, if the Russians are the bad guys, the Lithuanians are the good guys, so therefore this is okay, it's like playing cops and robbers on a global stage. I think we need to be asking the question, is this smart or is it dumb? Is this prudential or is it reckless? Is this in our interest or is it not in our interest? And, um, you know, I really gotta wonder about who's minding the store on this.

Episode duration: 1:41:57