E91: SoftBank's $21B+ Vision Fund loss, signals of a bubble, macro picture, Trump raided by FBI

1. 0:00 – 3:02

   Bestie intros

   1. CPChamath Palihapitiya0:00

      How mad is Sachs gonna get when he sees my button situation today?

   2. JCJason Calacanis0:03

      I'm gonna join you. Hey, Chamath, how are you doing?

   3. CPChamath Palihapitiya0:05

      Oh, my God. Look at the collar situation. Look at the button situation. Look at that. Oh, this is fantastic.

   4. JCJason Calacanis0:12

      Oh, hey, besties.

   5. DSDavid Sacks0:14

      (laughs)

   6. JCJason Calacanis0:14

      So, I just got off the lake.

   7. CPChamath Palihapitiya0:16

      We're at the lake?

   8. JCJason Calacanis0:17

      I just got off the lake, yeah. I was just on the lake with the boat.

   9. DSDavid Sacks0:19

      Lake Como? Where, where were you?

   10. JCJason Calacanis0:21

       I was doing a little wakeboarding in Tahoe. Yeah, I was still wakeboarding. Me and Zach.

   11. CPChamath Palihapitiya0:24

       Me and Nat took all five kids, and we navigated the entire island of Sardinia for eight days.

   12. JCJason Calacanis0:31

       Amazing. And by, when you say, "We navigated," you mean the crew navigated and you ate seafood?

   13. CPChamath Palihapitiya0:37

       We are... Yeah, it took, it took a village but- (laughs)

   14. DSDavid Sacks0:39

       (laughs)

   15. NANarrator0:40

       Let your winners ride.

   16. JCJason Calacanis0:43

       Rain Man, David Sachs.

   17. NANarrator0:46

       I'm going all in. And I said- We open source it to the fans and they've just gone crazy with it.

   18. JCJason Calacanis0:51

       Love you, besties.

   19. NANarrator0:52

       Queen of Quinoa. I'm going all in.

   20. JCJason Calacanis0:56

       All right, everybody. Welcome to episode 91, episode 91 of the All In podcast. Yeah, we're still here. Uh, lots of news to discuss this week. With me, of course, to chop it up from his deposition room, uh, the war room, the Rain Man himself, David Sachs. How are you doing, brother?

   21. DSDavid Sacks1:11

       Good.

   22. JCJason Calacanis1:11

       Big week for you?

   23. DSDavid Sacks1:13

       They're all big weeks. They're all big weeks.

   24. JCJason Calacanis1:14

       They're all big weeks?

   25. DSDavid Sacks1:15

       (laughs)

   26. JCJason Calacanis1:15

       Yeah? You look tired.

   27. DSDavid Sacks1:17

       Well, we were recording pretty early today.

   28. JCJason Calacanis1:19

       It's a little exhausting.

   29. DSDavid Sacks1:20

       You actually look really tired.

   30. JCJason Calacanis1:22

       What are you talking about? I just got off the lake. I, I feel fresh. I was just wakeboarding this morning on Lake Tahoe.
2. 3:02 – 27:59

   Where Masa and SoftBank went wrong, why VC isn't scaleable, Vision Fund impact

   1. JCJason Calacanis3:02

      week. I think one of the most interesting things last week we were talking about it in the group chat, uh, that doesn't exist. Uh, Vision Funds' $21 billion investment loss for the quarter. Masayoshi-san did a really great, uh, YouTube video. I sent it around. Did any guy- any of you guys watch the video?

   2. DFDavid Friedberg3:19

      Yes.

   3. DSDavid Sacks3:20

      Nope.

   4. JCJason Calacanis3:21

      Oh, okay. It's, it's really interesting to watch. We'll put it in the show notes.

   5. DFDavid Friedberg3:23

      It's like a six-minute interview he put on his earnings page, right? Like right when they put out quarterly earnings, he's like, "Here's my interview."

   6. JCJason Calacanis3:30

      Yeah, the, y- you know, he comes to a podium and basically talks about, uh, the Vision Fund. Obviously, if people don't know, the Vision Fund 1 was $100 billion, the largest venture fund ever raised. Um, and SoftBank's current market cap is $66 billion. Here's the quote from the FT article. "Sun set on Monday that SoftBank would now subject itself to dramatic cost-cutting exercise, uh, after a $59 billion investment gain at the two Vision Funds almost completely reversed over the past six months." They were up almost $60 billion at the peak, and it came crashing down. Masa kicked off the presentation showing portraits of Tokugawa... Tokugaga... Gawa, uh, Ieyasu. This is the, uh, founding shogun of Japan's, uh, Tokugawa shogunate. And, uh-

   7. DSDavid Sacks4:16

      (laughs)

   8. JCJason Calacanis4:16

      ... he ruled Japan for six... I mean, I'm killing this.

   9. DFDavid Friedberg4:18

      (laughs) It's such a long intro. (laughs)

   10. JCJason Calacanis4:20

       God, it's so hard. Yeah, I mean, it, but it was just-

   11. DFDavid Friedberg4:22

       (laughs) Just-

   12. JCJason Calacanis4:22

       ... so great. Let me just play a clip for you. Here, here's a 68-second clip and we'll, we'll talk about it right after and then we'll get into what all this means.

   13. NANarrator4:30

       This is a portrait of Tokugawa Ieyasu. He actually made a big loss against Takeda Shingen and came back. In the background of that, Tokugawa Ieyasu had to face Takeda Shingen, which is much, much larger army than theirs. And most of the allies actually said this is gonna be the losing battle so that they should not go for it, but actually it's better to stay at the castle. However, Tokugawa Ieyasu didn't want to lose his face, so that he get out from the castle, had a battle, made a complete loss and suffer, uh, and came back. And that actually learn lesson. He tried to remember and remind, uh, his own learnings and put it into this drawing. So since the foundation of SoftBank Group, I made a two consecutive quarters loss. So previous quarter and this time quarter, consecutively we made 3 trillion yen level of the loss. So in total, 6 trillion yen loss, uh, was made in the past six months. So I believe I need to remind that myself.

   14. JCJason Calacanis5:39

       Pretty spectacular loss. And then he, he goes on to take some Q&A, and this is the, I guess, the, the killer quote. "When we were turning out big profits, I became somewhat delirious. And looking back at myself, I am quite embarrassed and remorseful." You remember, of course, uh, and, and he complained a little bit in the, in this whole thing about how there was a giant bubble without ever recognizing that he kind of created the bubble with a $4 billion check, uh, to WeWork at a $47 billion valuation after a 20-minute (laughs) meeting with Adam Neumann.This chart is pretty incredible. This is the, uh, net income quarterly. Essentially, you can think of SoftBank as, like, a holding company of a bunch of, um, different assets, including Alibaba, previously Uber, and all of this Vision Fund stuff. 97% decrease in terms of deployment of capital. So if you look at capital deployment as well, nobody ever put this much money to work, especially in privates. The second chart, if you look in Q1 of 2021, they put $20 billion into work, and then Q1 this year, they're putting $600 million to work. Uh, just quick reflections on this. What we saw here with Masayoshi-san deploying $100 billion at the top of the market into, and mai- basically creating the market up top, Chamath, what, are there lessons here, uh, or takeaways for you?

   15. CPChamath Palihapitiya6:53

       I mean, I think that people don't seem to understand that if you're gonna attempt to be great, there are gonna be moments where you look the exact opposite of great. You know, the guy that takes the final shot is the same guy that can miss the final shot. And here is a guy over his y- you know, 50-year career, has had some huge ups and downs. This is also the same guy that found a way to rip in $25 or $30 million and made $125 billion off of Alibaba. That's the same kind of person who has that kind of risk tolerance. He was, for seven minutes or something, the richest person in the world-

   16. JCJason Calacanis7:34

       Yep.

   17. CPChamath Palihapitiya7:34

       ... and then lost 99% of his wealth in the dot-com bubble. I have enormous respect for a person like this because I feel like it takes enormous amounts of courage. I've said this before, most people jibber-jabber about investing and all of this stuff, and when push comes to shove, they crumble like little bitches and run into mommy's coattails. It's hard to put lots of money to work, and this is a guy that's done it. So the same person that can make $125 billion turns out is the same person that can lose $30 billion. And so one thing is, I would just keep in mind that this is a resilient guy who seems to land on his feet. And the second thing that nobody talks about is how smart Saudi Arabia and Abu Dhabi were in how they structured the investment into the Vision Fund, because half, more than half their investment is in preferred equity, which is effectively debt that pays a coupon. And you see it now, where SoftBank, by the way, who has been pretty smart in how they've managed their Alibaba position, have been using these derivatives and forward swaps to be able to sell and manage their liquidity. So it turns out that, you know, even if the Vision Fund breaks even, Saudi Arabia and Abu Dhabi will have made money, because I think they gave, paid a 6% coupon on, you know, $50 billion is a lot of money over six, seven, eight, nine years. It's a lot. SoftBank has found a way to sell down 25% of Alibaba, which is no trivial feat for a half a trillion-dollar company, and this guy gets to keep swinging, and if he, you know, hits it one more time, he'll end up with half a trillion.

   18. JCJason Calacanis9:10

       This chart is pretty great. Um, Sax, if you look at this, this is the gain and loss on investments at the Vision Fund. Uh, you can see the first Vision Fund racing up, uh, then coming down, I think, after that summer of IPOs, uh, that we had in the Airbnb, Uber days, um, and then a huge peak run-up in 2021, and then coming, crashing down. Apparently, he wasn't selling, uh, any portion of this. That, to me, was a big lesson of, like, maybe pairing some of these winners. If he had sold 10 or 20% on the way up, this could look like a completely different outcome. Uh, but I agree with you, Chamath. He, he swung for the fences, and there was downside protection built in for the LPs into some of these. Sax, what are your thoughts? Any lessons here in terms of the impact on our overall ecosystem or that you can take as a capital allocator yourself?

   19. DSDavid Sacks9:56

       Well, uh, Jason, I think Masa did something you could never do, which is admit a mistake.

   20. JCJason Calacanis10:02

       Oh, here we go. (laughs) Wow.

   21. NANarrator10:04

       (laughs)

   22. DSDavid Sacks10:04

       (laughs)

   23. JCJason Calacanis10:04

       That burned real quick. (laughs) Well, when I have my first mistake, I'm certainly-

   24. NANarrator10:10

       Oh.

   25. JCJason Calacanis10:10

       ... willing to admit it.

   26. DSDavid Sacks10:10

       Yeah.

   27. JCJason Calacanis10:10

       I'm waiting.

   28. DSDavid Sacks10:11

       Imagine that you ran $100 billion for sovereigns instead of $100,000 for doctors and dentists, and then-

   29. JCJason Calacanis10:17

       (laughs)

   30. NANarrator10:17

       (laughs)
3. 27:59 – 36:46

   Metrics that signify a bubble or the top of a market

   1. DSDavid Sacks27:59

      whether you're in a bubble.

   2. JCJason Calacanis27:59

      Is there a grounding metric that you use, I'll open up to Friedberg and then everybody else, when, to know that the market is overheated? Do you, Friedberg, is there something you look at and go, "Okay, we've disconnected from reality." Price to earnings, price to sales? Uh, some valuation metrics, uh, are there things you look for so you know that this is overheated and maybe it is time to pare positions? Uh, what have you learned over now our third collective, uh, down market?

   3. DFDavid Friedberg28:26

      Valuation trophy hunting I would say is a pretty good indicator of things being, things being, um...

   4. JCJason Calacanis28:35

      Explain what that is.

   5. DFDavid Friedberg28:36

      In a heated market, like if the... The businesses, the CEO, the founder, the venture firms, everyone is all about how much you can mark up your investment as opposed to talking about the quality of the business and the quality of the earnings. Um, and then you revert back, as we just recently did, to now people talking about, okay, how strong are the gross margins of this business? How effectively can they deploy capital? What's the return on invested capital? Key metrics around the fundamentals of the business versus the value that the market is willing to pay for the business. And the more heated the market gets, the more everyone focuses on terms like unicorn, decacorn, you know, and- and that becomes the key metric as opposed to saying, "This business is so good. For every dollar they spend, they make $3 in gross profit in 12 months." That's what fundamentally says that's a high quality grow-, uh, you know, valuable business over time, as opposed to, "Here's what the market is telling me it's worth today." And if the market is telling you it's worth that much today, um, and you're, and that's what you focus on, you inevitably end up in these kind of bubbly moments where you miss out on focusing on core value creation, which will actually pay off much, much more over time.

   6. JCJason Calacanis29:57

      Chamath, you pointed out a- another signal. Uh, hey, when smart people (laughs) who have the largest amount of capital in the markets are clearing positions, uh, maybe that's a- a signal of a top. And then I think it's a really good insight by Friedberg, when the conversation, the narrative is about the valuation and the status and vanity metrics as opposed to the quality of the earnings, hey, that's a really good indicator we're in a bubble, maybe should start clearing positions. What are indications for you that we're either in a bubble or the market is undervalued? Because we're really talking about this timing, right? Timing is very important as a

   7. NANarrator30:29

      It's not possible. This is why I think that...

   8. CPChamath Palihapitiya30:33

      You have to define what game you want to play before you start playing the game.

   9. JCJason Calacanis30:37

      Okay.

   10. CPChamath Palihapitiya30:39

       This is why I think it's kind of nonsensical... For example, I believe that, at best, I am an equity investor in technology companies or things that have a technology bias, 'cause I can generally understand them maybe, you know, a few seconds faster than everybody else, which allows me to make a decision a little bit quicker. But if all of a sudden I started investing in debt, you should expect that I'll lose my money, because I don't know what I'm doing. And that's not the game th- where I have any advantage. So, I think the most important thing to do is to not try to do all of this crazy stuff, because this is what happens in moments where either things are very, very good or things are very, very bad. People try to create all these stupid rules. And the rule, the only rule is there are no rules. So, I don't know, I just think it's like, stick to your knitting. If you're a product builder, build products. If you're an early stage investor, just do that. It's hard enough to do any one of those things really, really, really well.

   11. JCJason Calacanis31:47

       Hmm.

   12. CPChamath Palihapitiya31:48

       But this idea that, you know, you're gonna come up with, like, some mosaic and a system, I think it's just highly suspect, and I think the market returns have showed that everybody that tries has failed, except for maybe one or two.

   13. JCJason Calacanis31:59

       Sax, any thoughts on this?

   14. DSDavid Sacks31:59

       Yeah, I mean, this is-

   15. CPChamath Palihapitiya32:00

       It's just not gonna work. What's the point?

   16. DSDavid Sacks32:01

       Yep.

   17. CPChamath Palihapitiya32:01

       So, I don't know, if you're an early stage investor, make good deals and then give the shares and book the win.

   18. JCJason Calacanis32:06

       That's what I do, yeah, that's, uh, my philosophy. (laughs) Um, Sax, what are your thoughts?

   19. DSDavid Sacks32:10

       There's a couple of metrics that I'll be looking at from now on that I wasn't paying a huge amount of attention to before. Uh, one is the price to ARR of the median public SaaS company.

   20. JCJason Calacanis32:22

       Mm-hmm.

   21. DSDavid Sacks32:23

       And so, like, Brad Gerstner has these great charts where you saw that, historically, that number was around six. You know, the median SaaS company was, was trading at about six times their next 12 months revenue. And it went all the way to 15 during this sort of COVID bubble in 2021. And for the high growth SaaS companies, which are the ones growing 40% instead of 20%, it went from, you know, like 8 to 35. So, um, so I'll definitely be looking at that. And, you know, what you're looking for is just how off the historical mean are we, positively or negatively? Because these public valuations are the exit comps for, you know, the private markets, and those valuations do eventually trickle down. And so, if there is a bubble in the public markets, it will trickle down to the private markets. So, that'll be, like, one metric. I mean, again, it's not something that, like, affects me daily, but it's something I'd want to periodically keep tabs on. The other is just interest rate policy. I mean, I've never spent so much time in my entire career, like, looking at inflation and interest rates than I have this year, because who knew how much this, this stuff was affecting us? I thought I was a micro investor.

   22. CPChamath Palihapitiya33:30

       Right.

   23. DSDavid Sacks33:30

       I thought I was just picking companies on a micro level. As it turns out, we were all massively impacted by macroeconomic policy. And, you know, it got so we didn't even notice it. The zero, the zero interest rate policy, the ZIRP, along with quantitative easing, these were supposed to be exceptional measures that started back in 2008, but we stopped noticing them. They continued for years and years and years. They continued until l- last year, and w- again, we just stopped noticing 'cause we got used to it. We kind of got hooked on, hooked on drugs. So, the market did. Um, so I'm just gonna have to pay a little bit more attention to what the Fed is doing now. And, you know, if you go all the way back to the dot-com bubble, what's interesting is that the fed funds rate back in, uh, 1999 wasn't low, it was like 4%. Um, it wasn't like it was even today, and we still had a bubble. But what popped the bubble was that interest rates went from 4 to 6% in, uh, from 1999 to 2000. That's what popped the bubble. So, y- you know, I, I don't, I don't know if we'll ever have a situation again like we had over the last few years with the, with the ZIRP, but, um, I mean, that, probably looking for that next time is fighting the last battle instead of the next one. But you do probably have to be a little bit more aware of monetary policy and what the Fed is doing.

   24. JCJason Calacanis34:49

       Yeah, this chart, um, exhibit six from the Vision Fund benchmarking against peer funds that Chamath just put into the group chat is absolutely spectacular. Um, it puts, uh, Sequoia, Insight, and SoftBank, um, you know, large, large funds, uh, against each other. Fund size, 100 billion for SoftBank, eight billion for Sequoia, 6.3 billion for Insight, and to Chamath's point earlier, the pace is, yeah, really crazy. 130 deals-

   25. CPChamath Palihapitiya35:14

       Three and a half deals per month, but then the average check size is 620 million.

   26. JCJason Calacanis35:20

       Versus 130 and 70.

   27. CPChamath Palihapitiya35:22

       Correct.

   28. JCJason Calacanis35:23

       And the deals per month, 3.5 versus .6 versus 4.2. So Insight going pretty fast with small checks, SoftBank going very fast with huge checks.

   29. CPChamath Palihapitiya35:32

       I think the Sequoia data here is really... You know, Sequoia has the benefit of being able to back test against 40 years of returns. And so if essentially what they're saying is there's really no more than five or six companies a year that are worth investing in, that's a really big signal that's worth thinking about. And so, you know, five or six companies, maybe they can absorb even $600 million each, you know, it still puts you at three and a half, $4 billion. Doesn't (laughs) put you at 20, which is what you need to put 100 into the ground and try to make it.

   30. JCJason Calacanis36:02

       Two billion a month, I mean, my Lord, it's like Brewster's Millions or something. It's, it's like some crazy premise-
4. 36:46 – 50:45

   US macroeconomic picture

   1. JCJason Calacanis36:46

      Do we wanna talk about the markets? And we got the inflation print. Uh, Sax, I guess depending on what political party (laughs) you're in, it's either 8.5% or zero. 0% month over month, uh, if you're a Democrat. If you're a Republican, it's 8.5% (laughs) in our, uh, polarized times. Uh, but what does this tell us, uh, Sax, just at least about maybe inflation is tipped over and we're gonna be flat for a little bit? That obviously caused the market to rip a little bit, and we had this incredible jobs report. Uh, we're now at 3.5% unemployment-

   2. DSDavid Sacks37:22

      Yeah, I mean, look, I think, I think-

   3. JCJason Calacanis37:22

      ... and we had twice as many jobs as we predicted. I mean, it's pretty extraordinary what happened in the last 30 days to the, to these, uh, prints.

   4. DSDavid Sacks37:29

      Yeah. Look, I think that overall, the economic data is mixed, uh, but we got a couple of good data points in the last month. Um, so inflation did decrease from 9.1 to 8.5%. Inflation was, until now, measured on a year-over-year basis, not a month-over-month basis. But since we got the first good month-over-month reading, all of a sudden now it's been redefined to be on a month-over-month basis. Just this is the same thing that happened with the definition of recession, where recession used to mean two quarters of negative GDP growth. Of course, that happened, and so all of a sudden the definition became unknowable. We have to defer to this, um, this economic board that won't render a decision till next year. By the way, if that were true, how could we ever contemporaneously talk about a recession? You know, if, if you had to wait until this economics board declares a recession a year from now, the press could never have ever reported on a recession.

   5. JCJason Calacanis38:26

      I, for one, am shocked. Yeah, I, I'm shocked politi- politicians are spinning.

   6. DSDavid Sacks38:28

      So look, the politics of this are obvious-

   7. JCJason Calacanis38:29

      Yeah.

   8. DSDavid Sacks38:29

      ... which is they keep redefining terms rather than admit that there's any bad data at all. Um-

   9. JCJason Calacanis38:34

      It's mixed.

   10. DSDavid Sacks38:35

       Now, look, I don't, I don't think the data is catastrophic. I don't, I don't think-

   11. JCJason Calacanis38:39

       No.

   12. DSDavid Sacks38:39

       I don't think it's in anyone's interest to catastrophize the data, but there's a lot of negative data out here. I mean, look, inflation is still very high, eight and a half percent. If you had told any of us that in August that inflation would still be a half- eight and a half percent at the beginning of this year, we would've said that is horrible. Because remember, the investment banks were all saying it's gonna come down to 3% by the end of the year. So inflation is still high. The jobs picture is good. Um, we're technically in a recession. I, if I were to predict, I think, what's gonna happen now, I think, you know, look for a double dip. I wouldn't be surprised at all if in Q3 or Q4 we're back to positive GDP growth, but I don't think we're necessarily out of the woods, because I think there's a pretty good chance that next year these in- these, um, rate hikes really kick in. It takes six to nine months for them to ripple through the economy. So if you look at the construction industry, the construction industry's just been devastated. New housing starts, you talk to the builders, they tell you that the construction industry has just been clobbered by these rate hikes. The, uh, inventories are piling up and the affordability of... There's a chart today about the affordability of home prices is at a 40-year low. And so the construction industry, it's really the bellwether. When a recession starts, they're the ones who are first impacted. But it's probably gonna take six to nine months for that to get-

   13. JCJason Calacanis39:58

       Because the loans are so expensive and cost of capital is expensive.

   14. DSDavid Sacks40:02

       Right. Exactly. So-

   15. JCJason Calacanis40:02

       They can't start new projects in.

   16. DSDavid Sacks40:03

       So look, I, if I had to g- w- I think we're in a shallow technical recession right now. I bet that we probably bounce out of it in Q3 or Q4, but I think there's a significant risk that we're back in, we're back in it next year. Just my guess.

   17. JCJason Calacanis40:17

       Friedberg, we've, we've been talking about consumer credit a whole bunch. Buy now, pay later. Um, household debt now totals more than 16 trillion. Credit card balances, uh, make up 890 billion of that. Obviously, student loans, mortgages, other things are in there. And the number of credit cards, uh, is now at a massive high. 500, uh, 50 million of them issued here in the United States. Uh, we added a massive amount of debt. Uh, it's still lower. The c- the credit card debt, just to be clear, is still lower than the pre-pandemic level of 930 billion. But consumers seem to be taking out credit, I guess, to deal with inflation or to (laughs) enjoy their lives 'cause they're not stopping their spending. Uh, and w- we see that in some of the stocks in the earnings reports that are coming out as well. So what's your, what's your take on this, you know, conflicting data we have? Or is... Or have you made some sense of it? And, and what is your prediction of Q4?

   18. DFDavid Friedberg41:10

       Sorry, are you asking what my take is on the consumer credit?

   19. JCJason Calacanis41:13

       Well, basically the overall macro situation here. We've got consumer credit, you know, people taking on a lot of debt while jobs look great, while inflation is still high. What does that look like, you know, as we go into Q4, uh, and next year? What i- what i- what is this telling you? Is there some signaling you can take from this? Sax said shallow recession, thinks we might double dip. I'm kinda getting to your prediction of Q4 maybe going into next year.

   20. DFDavid Friedberg41:37

       I mean, this is a little repetitive. I mean, I've said this... I-

   21. JCJason Calacanis41:39

       Yeah.

   22. DFDavid Friedberg41:39

       ... first said it in May at the All In Summit, and I said it again on the show twice-

   23. JCJason Calacanis41:44

       Great.

   24. DFDavid Friedberg41:44

       ... which is, I think that the definition of a recession, of negative GDP growth when you're coming off of inflated GDP is, you know, like it's, it's not a binary catchall term. I mean, the fact is we had, uh, inflated assets and, um, as a result of inflated assets, we had inflated earnings and we had inflated valuation and we inflated income and, you know, now the capital's coming out and things are gonna go down inevitably. S- but I don't think that there should be deemed that there's something fundamentally negative about the US economy. The biggest risk I still see is this rising consumer credit balance, particularly in a rising rate environment. People are taking on more debt. If you look at the New York, uh, Fed... Here, I'll just give you the latest, um, uh, this is the household debt and credit report they put out. Household debt rises to $16 trillion dollars amid growth in housing and non-housing balances. And so there are variable rate loans in there in the auto, uh, home, and credit card markets. Those variable rates mean that as interest rates climb, the amount to service existing debt will go up each month.... um, and the amount of debt that's being taken on is also going up each month. And so the key economic question is does the, uh, income gain that's being experienced or the asset value gain that's being experienced outpace the increase in, um, monthly debt service needed for a large number of consumers? Student loans are also in here, by the way. And so when you put that all together, um, it's a, it's a very technical question, which is technically where do you start to see defaults rise? And when you have defaults rise, then the money that's owed and the services that are... the service payments that are owed on that debt trickles through the economy because bonds start to default, um, equities start to decline, and so on. So, um, you know, I... this is why I can speak at a high level, uh, from a macro point of view, that the rate at which debt is going up and consumer credit is going up, and the rate at which rates are climbing that affect the revolving, um, and variable rate, um, uh, debt that consumers hold could outpace the income and the asset value gain, particularly when equities are down, 401 (k) s are down, hous- housing prices are down. And so there's a tipping point. And, uh, when that starts to happen, then you start to really hit, um, an economic crunch. And I, I've mentioned this multiple times now that it's the thing, you know, I would kind of watch most closely. While there are core elements of the current economy that look strong, um, there are, uh, real, uh, concerns around whether consumers can keep up with their debt payments, uh, in the months-

   25. CPChamath Palihapitiya44:20

       Chamath, are you-

   26. DFDavid Friedberg44:20

       ... and quarters ahead. Yeah.

   27. CPChamath Palihapitiya44:21

       Chamath, are you following this consumer credit, uh, surge? And do you think that this could be a black swan type event? This could be, you know, um, uh, a major headline?

   28. DFDavid Friedberg44:30

       Well, it's no black swan because it's right here in front of us. So, you know.

   29. CPChamath Palihapitiya44:32

       Okay. Well-

   30. DFDavid Friedberg44:32

       Like, I think... Yeah, yeah.
5. 50:45 – 1:08:59

   FBI raids Mar-a-Lago, Trump back in news

   1. DFDavid Friedberg50:45

      saying.

   2. DSDavid Sacks50:45

      I don't understand why you guys are trying so hard to avoid the, the obvious news of this week.

   3. JCJason Calacanis50:50

      Is there something else in the news this week?

   4. DFDavid Friedberg50:52

      Sacks, um, if Trump actually had some material in Mar-a-Lago that was related to the nuclear program, and, um, you know, there was an attempt to try and r- get, recover those documents through normal means, and they were not recoverable, what would your course have been if you were the director of the FBI or the president of the US in that condition? 'Cause I think that seems to be the party line of what's going on here.

   5. DSDavid Sacks51:17

      Well, I, you know-

   6. DFDavid Friedberg51:18

      Or the, the, the Democratic kind of spin on what's going on here. But, like, you know, honestly, in that circumstance, what do you think would've been appropriate? So there's, there's some sort of confidential material related to our nuclear program or nuclear weapons. Something's, something there in those materials that were attempted to be recovered or were taken without approval, and then they tried to recover it. For, you know, assume there's no nefarious intent, what would be the right kinda course here?

   7. DSDavid Sacks51:43

      Well, I, I, so, I, I, I don't know exactly what's going on. I just think that, um, you can't necessarily give the F, sadly, I don't think you could necessarily give the FBI the benefit of the doubt here in light of their history. Um, but let's back up. I mean, first you had this, this raid on Mar-a-Lago where you got 30 FBI agents. They're not wearing suits with holstered sidearms. They're carrying AR-15s, you know, weapons of war, fingers just outside the trigger guard. They're wearing body armor. It looks like a paramilitary raid on Mar-a-Lago. It's utterly unprecedented. And you look at tweets by, um, Andrew Cuomo, for example, or, uh, Andrew Yang. I mean, th- these guys actually turn out to be pretty, I think, intellectually honest Democrats on this point, saying, "This is unprecedented, and it's really gonna..." Here, I wanna read this by-

   8. JCJason Calacanis52:28

      Why don't you just answer Freeburg's-

   9. DSDavid Sacks52:29

      ... Andrew, Andrew Yang. Hold on, let's just-

   10. JCJason Calacanis52:30

       Why don't you answer Freeburg's question?

   11. DSDavid Sacks52:32

       I'm getting there. I know you're gonna cut me off, so I'd like to just read these tweets, so maybe you, 'cause, you know, maybe you'll give more credence to Andrew Yang. He said, "I am no Trump fan. I want him as far away from the White House as possible. But a fundamental part of his appeal has been that it's him against a corrupt government establishment. This raid strengthens that case, for millions of Americans will see this as unjust persecution." You have Andrew Cuomo saying, "DOJ must immediately explain the reason for its raid. It must be more than a search for inconsequential archives, or it will be viewed as a political tactic and undermine any future credible investigation and legitimacy of January 6th investigations." And let me read one other tweet, uh, by Elon that's not directly about this, but he tweeted this on July 11th, so a month ago. And he said, "I don't hate the man, but it's time for Trump to hang up his hat and sail into the sunset." That was the part that was widely reported, but he also said, "Dems should also call off the attack. Don't make it so that Trump's only way to survive is to regain the presidency." I think there was a lotta wisdom in that. And, you know, I'm old enough to remember when the case for Biden getting elected is we have to move past this partisan warfare, this extreme rancor and derangement. And we were told that the media, you know, all these people who had TDS, that, that their psychosis was due to Trump, and if we could just move past Trump, this, all this sort of partisan warfare would end. And now, and, and I was certainly hoping that would be true. And now, sadly, it seems like we're right back in this thing, um, where we're right back with the media being obsessed with TDS, portraying this narrative that somehow he's a traitor. And what does this whole thing hang on? Just these two words, nuclear documents. Well, listen, until they actually produce those documents, I'm gonna suspend judgment, because the FBI, the last time they did this, remember, they manufactured a falsified warrant to the FISA court for this type of, uh, investigation. They have that history. So, I'm just gonna suspend judgment on what's going on here until they actually produce the documents they're talking about, because-

   12. DFDavid Friedberg54:37

       So, Sacks, can I ask, are you, do you-

   13. DSDavid Sacks54:38

       ... right now, this stinks.

   14. DFDavid Friedberg54:39

       Do you honestly question the integrity of leadership and agents, uh, of the FBI? Like, honestly?

   15. DSDavid Sacks54:46

       Are you serious? Like, you don't think-

   16. DFDavid Friedberg54:47

       Yeah.

   17. DSDavid Sacks54:48

       All right, let me read you this tweet from Michael Burry from-

   18. DFDavid Friedberg54:50

       I don't wanna, I don't wanna hear the tweet. I wanna hear your point of view.

   19. DSDavid Sacks54:51

       Well, no, no. Well, I, I, I agree with what Michael Burry's saying, so I think sometimes help, there's a lot of thoughtful commentary about this. And what Burry says is, "J. Edgar Hoover led the FBI for five decades, denied the mafia existed, fought the civil rights movement, shielded the KKK. Multiple presidents acknowledged fear of him." So what he's saying is that the FBI, since its inception-... has political origins, uh, and, and, and basically meddled politically in the affairs of the country. Then he says, "The FBI lied to the FISA court..." This is back in 2016. Totally true. "... Altered emails. Leaked lies to the press to get Trump. Nothing shocking." So Freeberg, listen, I don't know whether the FBI is telling the truth, but are you honestly gonna say that the FBI's leadership has never been political, that it's never harbored or pursued their own agenda, and that it's never had a desire to go after Trump?

   20. DFDavid Friedberg55:41

       I'm not, I'm, I'm not making an opinion. Yeah.

   21. DSDavid Sacks55:42

       We saw... Hold on a second. We saw, we saw the text messages from Comey, Strzok, Page, McCabe. I mean, these guys basically took it upon themselves when Trump was elected to be the "insurance policy".

   22. DFDavid Friedberg55:55

       Yeah.

   23. DSDavid Sacks55:55

       And an FBI lawyer pled guilty to falsifying documents to seek a warrant from the FISA court. So I just think anything's possible here. And now-

   24. DFDavid Friedberg56:07

       Yeah.

   25. DSDavid Sacks56:07

       ... I'm not saying the FBI is lying about this. I don't know. But the idea that the FBI is automatically entitled to the benefit of the doubt in light of their proven history of basically pursuing Trump like Ahab pursued the white whale. I mean-

   26. DFDavid Friedberg56:21

       Yeah.

   27. DSDavid Sacks56:21

       ... these guys ha- have been after him.

   28. DFDavid Friedberg56:23

       I'm just gonna zoom out for a second c- And the reason I'm interrogating Sacks on this is, like, it's just so telling to me that a guy like, like you, Sacks, in your position are, are actually questioning the integrity of, like, the highest justice, authority, and institution in the United States, um, really says a lot about kind of the state of, of the U.S. citizenry, the state of our society today. I, I think it speaks a lot to what-

   29. NANarrator56:49

       It's at least a third of Americans.

   30. DFDavid Friedberg56:51

       I know. It's incredible. And what Ray Dalio said in his book about how during these periods when the empires begin their decline, and, you know, when you're challenged with kind of the economic conditions that the U.S. is challenged by, printing lots of money, lots of debt, very hard to service all that debt, and we have a ton of obligations over the next decade or two that are gonna be very hard to meet given our economic, uh, growth and inflation conditions right now, that you start to see these sorts of behaviors. Historically, it's happened six times in the last 500 years where large empires like the United States or large, um, you know, economic powerhouses like the United States start to decline, that the civil war begins, that the institutions get challenged by a minority and then a mag- majority of the citizenry. And it really starts to crumble and, and, and challenge the, uh, the integrity of the institution and its ability to hold itself together.

Episode duration: 1:09:00