Yen Carry Trade, Recession odds grow, Buffett cash pile, Google ruled monopoly, Kamala picks Walz

Jason Calacanis 0:00 Sorry, everybody. I wasn't here last week.

Chamath Palihapitiya 0:02 So, what's your bit, J Cale? Ju- jump into your bit.

Jason Calacanis 0:05 No, there's no bit. I'm just... I'm, uh, you know, triple vaxxed. I took the Paxlovid and I'm back, everybody. I know everybody was very concerned about me, and thank you to everybody. But I can take my mask off, right, Friedberg? Do I need a mask in 2024?

David Friedberg 0:18 You're good. You're clear.

Jason Calacanis 0:20 Okay, so let me take one of these off. Let me get that off. (laughs)

David Friedberg 0:24 (laughs)

Chamath Palihapitiya 0:24 (laughs)

Jason Calacanis 0:25 It was getting uncomfortable.

David Friedberg 0:27 You're in the clear for one.

Jason Calacanis 0:29 Okay, you know what? I'll take the third mask off. Totally free. No... Mask-free. I hope I don't get you guys in custody with my COVID.

David Sacks 0:33 The CDC says we can treat COVID like the flu now.

Jason Calacanis 0:35 I mean-

David Sacks 0:35 Did you see that?

Jason Calacanis 0:36 What happened?

David Sacks 0:36 They finally admitted after two years of shutting down schools, the economy, everything. Like, "Oh, it's just the flu." We can treat it like the flu.

Jason Calacanis 0:43 Yeah. (laughs) Well, it's interesting, you know?

David Friedberg 0:44 (laughs)

Jason Calacanis 0:45 I got the COVID, just to explain to everybody, I went to Billy Joel's final concert with my daughter. She... We had a great time. It was his final MSG-

Chamath Palihapitiya 0:52 Nick, timestamp the end of this so everybody can just skip to the end of... Go... Sorry, go ahead, Jason.

Jason Calacanis 0:57 There's no bit here. I'm just saying, I- I'm letting people know that I think I got COVID at the last Billy Joel show. It was a great show. Um, shout out Billy Joel. But it was 48 hours that were very intense, and then I took that Paxlovid and I came right out of it. But, so apologies to everybody. But man, it was no joke.

David Friedberg 1:12 Yeah.

Chamath Palihapitiya 1:13 Great story.

Jason Calacanis 1:14 Great story.

David Friedberg 1:14 Great story. Great story.

Jason Calacanis 1:15 Well, I mean, listen-

Chamath Palihapitiya 1:17 Jason got a cold and now he's better.

Jason Calacanis 1:17 ... a lot has happened since I've been gone.

David Friedberg 1:18 I sneezed earlier today.

Jason Calacanis 1:20 Did you guys sneeze too?

Chamath Palihapitiya 1:20 Oh, my God.

David Friedberg 1:21 Yeah.

Jason Calacanis 1:21 The Olympics happened. Have any of you guys taken the Olympics at all? Friedberg, you seem like a guy who would watch obscure Olympic sports.

David Friedberg 1:28 I just think there's a lot of sports that should be regulars, like the pistol shooting guy.

Jason Calacanis 1:32 Anyway, it's all moot because, um, you know, the paparazzi were there, and they took... Took pictures, Chamath. Do you know, there's big paparazzi in Paris this year because of all the celebrities there?

Chamath Palihapitiya 1:41 Yeah, the paps are all over the place in Europe.

Jason Calacanis 1:43 They're everywhere.

Chamath Palihapitiya 1:43 Everywhere.

Jason Calacanis 1:44 They're everywhere. I'm sure you saw them in Italy. It's, uh... It's getting crazy. But, um, they got you when you were getting your gold medal. Nick, pull it up. This is... This was, I think, in Us Weekly. Here it is.

Chamath Palihapitiya 1:54 (laughs) Here-

Jason Calacanis 1:54 Here's Chamath getting his gold medal. Okay? Oops. (laughs) Whoa. Now, this-

David Friedberg 2:00 (laughs)

Jason Calacanis 2:00 This is in the, uh, category of, uh, being the biggest prick. Now-

David Friedberg 2:04 (laughs)

Jason Calacanis 2:05 Just let- let people know, Chamath has... There he is.

David Friedberg 2:07 (laughs)

Jason Calacanis 2:08 The biggest prick.

Chamath Palihapitiya 2:11 (laughs)

Jason Calacanis 2:12 Other people were there too, by the way. It wasn't... It wasn't just Chamath. Uh, Friedberg was also there. Here's, here's Friedberg. Yeah.

David Friedberg 2:18 Oh. (laughs)

Jason Calacanis 2:18 Most likely to fight a girl. Yeah, there it is. He was in the-

David Friedberg 2:22 Am I the Syrian, uh...

Jason Calacanis 2:25 Yes. That's you in the w- That's you in the women's category-

Chamath Palihapitiya 2:27 Algerian. He's Algerian.

Jason Calacanis 2:27 ... of boxing, yes.

David Friedberg 2:27 In the women's boxing? Right, thank you.

Jason Calacanis 2:29 Yeah.

Chamath Palihapitiya 2:29 He's Algerian.

David Friedberg 2:30 Thank you, J Cale.

Jason Calacanis 2:31 Sacks was there too, though, by the way. Here he is. He, uh... He won silver for the-

David Sacks 2:36 Yeah.

David Friedberg 2:37 (laughs)

Jason Calacanis 2:38 At the very least, the Ozempic and Wegovy lost the weight, but you didn't get any muscle definition. That's a known... That's known, right, Friedberg? It's known. You lose the muscle, right?

David Friedberg 2:46 Right. That's right.

Jason Calacanis 2:47 You're doing, you know, fat and the muscle. Um, I was there too, by the way. And I'm very, very proud to say, uh, in a photo finish. You can see me there.

David Friedberg 2:56 (laughs)

Chamath Palihapitiya 2:56 (laughs)

Jason Calacanis 2:56 You guys know this one, right? This is the 100, uh, meter virtue signal. So, you see there.

Chamath Palihapitiya 3:01 (laughs)

Jason Calacanis 3:01 Reed Hoffman just edged me out, and I'm right ahead of Paul Graham, so we, uh, virtue signaling 100 meter dash. It was pretty grand. It was pretty grand. But congrats to Reed Hoffman, also coming on the pod to debate you, Sacks.

David Sacks 3:15 Hard to beat them in virtue signaling.

Jason Calacanis 3:16 I know. I felt like-

David Sacks 3:17 Very hard.

Jason Calacanis 3:18 I felt like silver in this case was a goal, you know, given the competition, right?

David Friedberg 3:23 (laughs)

Jason Calacanis 3:23 You can just... If you medal in that group of virtue signals, you're good.

David Sacks 3:28 Let your winner slide.

Jason Calacanis 3:31 Rain Man David Sacks.

David Sacks 3:35 And I said we open sourced it to the fans, and they've just gone crazy with it.

Jason Calacanis 3:39 Love you guys.

David Sacks 3:40 Queen of quinoa.

Jason Calacanis 3:43 All right, everybody. Welcome back to the All-In Podcast. Of course, the number one podcast in the world. And, uh, I'm back. Daddy's home, and we've got a very full docket. Sacks

Jason Calacanis 3:55 will get his red meat at the end, for all the MAGA lunatics in the comments. Don't worry, he's gonna get his red meat, but we got bigger fish to fry in the markets. Markets were down big on Monday, due to something called the yen carry trade. Uh, the DOW was down 700 points, NASDAQ was down like 6%. It was unsettling. Social media went crazy on Sunday night, that it was gonna be the end of the world, the beginning of a recession, maybe a depression. And this all happened because Japan's central bank raised their interest rates by a whopping 15 to 25 basis points, uh, and we'll explain why that's important in just a moment. We'll get Chamath to give us a little overview here of the yen carry trade. Uh, but this is a big deal because Japan has had its interest rates at near zero, even negative since 1999. So, this little blip on the chart is, uh, you know, the interest rate going up, uh, you know, there in Japan. So, quick explainer, and then Chamath will have you go deeper. The yen carry trade is a pretty basic concept. Investors borrow at 0% interest or close to it due to this 0% interest rate, uh, and then you convert your yen into another currency, or perhaps a stock (laughs) like NVIDIA, and you take the spread. So, um, you know, the goal is obviously to return a higher rate than the cost of borrowing the yen. And so here's an example of it, um, if you just wanna look at the flow. You borrow some yen at 0%, you invest it in stocks, whatever, you get some appreciation, and then you liquidate the stocks and you pay back your bill. Of course, this can all go horribly-

David Sacks 5:25 Well, the safer... Yeah, but a, a safer way to do this is just to invest in a US T-bill that's paying 5%.

Jason Calacanis 5:31 Sure.

David Sacks 5:31 You don't have to take the risk-

Jason Calacanis 5:32 Or what people are doing. Yeah. People are doing the Australian-

David Sacks 5:34 ... of the market going down.

Jason Calacanis 5:34 Yeah, so you have like-

David Sacks 5:35 So, you borrow at... You borrow yen at 0%, invest in T-bills at 5% and you pocket the difference.

Jason Calacanis 5:41 Yeah, and you just have to pay back the loan. Of course, Chamath, this can all go very wrong if a number of things happen. So, maybe you could give us an overview of this kind of trade. Have you ever done something like this? What do you think of these type of trades, these, quote-unquote, "free money trades," you know, picking up free money off the ground trades?

Chamath Palihapitiya 6:02 I mean, I think these kinds of thi- so I've never done them, and part of the reason why is I think these things look genius, and they work until one moment in time where they stop working, and it stops working so severely that it becomes almost impossible to unwind yourself. And so you can get caught-

Jason Calacanis 6:22 Okay, explain unwinding. Yeah, yeah.

Chamath Palihapitiya 6:23 Yeah, so I, I think typically in these situations, the thing you have to remember is you don't really make a lot of money in this trade. The way you make a lot of money is by leveraging this trade up, so meaning it's not like borrowing a million dollars in yen and then swapping it to US dollars and then putting it in T-bills is a real moneymaker. You're talking about 50K. That's not really gonna move the needle. So what people try to do in these situations is do it on a billion dollars and then lever it up five or 10X. The problem with that is that you're posting all kinds of collateral as margin to these banks to give you that leverage because then all of a sudden, capturing 150 basis points on 10 billion or 15 billion, now we're talking about real money. And so when these things go wrong, and they happen very suddenly, what it does is it puts pressure on all other asset classes because people are scrambling to make sure that they don't get margined out. And what you saw over the weekend was th- mostly a lot of that happening, which was a lot of these folks were putting this trade on to the tune of tens or probably even 100 billion-plus dollars-

Jason Calacanis 7:43 Wow.

Chamath Palihapitiya 7:44 ... of which they had maybe five or 10 billion of equity and 80 to $90 billion of just margin. And that's what caused this very quick cycle.

Jason Calacanis 7:56 Mm.

Chamath Palihapitiya 7:57 Then it looked like it unraveled itself, and so people thought, "Oh, we're probably mostly past this." I actually think we're not. I've said this before, I think one of the most interesting things I've learned in the last few years about the stock market is the stock market is owned, by and large, by these algos, right? Meaning there's these large, kind of murky, grayish hedge funds that have these computer trading algorithms that are allowed to be levered to the tune of, you know, 13, 15, 20 times about $50 billion, so these folks are swinging around a trillion dollars each, okay? And we all just live in their world because when these algorithms make a decision, and they react to these kinds of events, that's when the real volatility starts. So I think the most important thing was summarized by friends of ours from Goldman Sachs. I just wanna, Nick, if you wanna just throw up the picture that they sent me. So they, they sent, they sent some really good market insights whenever these things kind of happen to a bunch of their clients, and one of the interesting things that they observed is a couple of facts. The first is the algorithms, in the middle of all of this chaos, sold about $41 billion of global equities. Okay, no big deal, except that it actually causes everybody else to have to react, and then they sell billions and billions more. The other thing that they noticed though is that there, we're in a moment in time where you can see how these algorithms will behave over the next month, and right now, if there's relatively minimal volatility and not much changes, y- the algorithms will have to sell another 160-odd billion dollars of equity. And that'll pull through many hundred billions more from everybody else. So I think we're in a little bit of a delicate moment where the preponderance of the market action will be to continue to sell, and I think it's just going to be, when we look back in hindsight, another reason why getting levered on these things is very dangerous. There's no free money basically.

Jason Calacanis 10:12 Yeah, there is no free money in this free money trade, and just to translate a little bit of this on the margins for the audience who's not familiar with it, margin is a loan, fancy way of saying a loan. Margin call, you have some asset that backs it up. You know, in your case it might be, uh, you know, a civilian, it might be your house, whatever, your bank account. In these cases, these big companies, uh, and these hedge funds might have cash or equities, and if they come down and they have to pay the loan, they are forced to liquidate it, and in some cases those assets are controlled by the person giving the loan, and they will just start programmatically selling your shares in whatever, Apple, Google, whatever, NVIDIA you own-

Chamath Palihapitiya 10:52 Whatever you own.

Jason Calacanis 10:53 ... to pay down that margin. And this is called a margin call, thus the name of the, uh, movie. And so it's incredibly dangerous, and the leverage is you and I can, or like any civilian could borrow, you know, $500,000 against their $2 million house and home equity. Rich people and these big banks, they can borrow 10 or 20 times the value of the assets which then could lead to absolute chaos. Freeberg, let's go to you next and just talk a little bit about what's going on in Japan because they have had a rush of people buying their stocks, uh, the population declining. It's a very unique economy. Maybe you could talk a little bit about it.

David Friedberg 11:34 One of the biggest challenges facing Japan is the level of debt that they've accrued. Their debt to GDP ratio is currently 263%. They have about 1.3 quadrillion yen of public debt on an annual GDP of about 591 trillion yen. They're currently, at the federal level, spending about 20% of GDP per year, 5% of GDP is being spent per year just on servicing the existing debt.And that's at interest rates set by the central bank of roughly 0%. So, you know, or whatever the market is trading it at, so slightly above 0%. But if the central bank had to start to raise rates because inflation started to run away because there's so much yen in circulation, there's so much debt outstanding, the federal government would not be able to actually service this debt. So as of March of 2024, the Bank of Japan, the central bank, actually holds 53% of Japan's outstanding government bonds, which is equal to about 100% of Japan's GDP. So their central bank has bought the debt that's being issued by the federal government to fund their budget, a large chunk of which right now is being spent just on paying the interest on the debt while interest rates are close to 0%. So imagine if interest rates bumped up to one, two, three, four, 5%, as we're seeing with US treasuries. We were recently at a nearly 5% handle on the, on the 10-year treasury, it would become an unsustainable debt burden for the Japanese government to be able to handle that. And a large part of this is being driven by a number of crises that Japan has faced since the early '90s. So there was the financial crisis in '08, there was the nuclear, uh, meltdown, there was a couple of earthquakes, tsunamis, and a lot of debt has been taken on to support the country after those crises. But really importantly, and Nick, if you could just pull up this age chart, is the aging of the Japanese population. So this chart shows that... And you can kind of see back to 1950 when the average age in Japan was 21 years old, and today the average age in Japan is around 48. You know, in the next decade, it'll be 50, then it'll be 52. So that means more and more people are relying on public pension. Today, 33% of their government spending goes towards their social security programs. In the US for comparison, social security is about 20% of federal spending. So that number's only getting bigger and bigger. As the population ages, the Japanese government has to continue to service their older population, and they've had to face several crises. Their debt has ballooned to a level that is well beyond any other industrialized nation, and the only way to continue to service that debt economically is to keep interest rates low. And the problem with keeping interest rate low? Inflation. And that's the big driver that caused them to say, "Let's uptake the interest by 15 bps or 25 bps," is to try and tackle the inflation problem they're facing just like our central bank recently tried to do the same. (dog barking) But clearly, the market can't have it. So Japan is in a real pickle, and I think that it shows how much having a large amount of federal debt can impact the ability for a nation to maneuver itself during difficult times. And ultimately, debt payments come due. They come due either in the form of economic contraction or massive taxes or inflation, and currently Japan is paying for it in terms of inflation.

Chamath Palihapitiya 15:03 Sorry, you're saying Japan has inflation? Japan has no inflation.

David Friedberg 15:06 The government raised rates to tackle inflation. I'll pull up the inflation chart. Japan's inflation hit a 40-year high, and this just shot up in the last 18 months. Inflation is running at, uh, close to 4% a year.

Jason Calacanis 15:20 And so they're setting, Friedberg, the interest rate in the country, and they own the debt. So they are basically in control of, or they're manipulating the economy and trying to control it. Correct, Friedberg?

David Friedberg 15:34 Well, their central bank has to buy most of the debt, and their central bank sets the rates. So they have a large amount fif- you know, 53% of their feder- of their public debt is held by their central bank.

Jason Calacanis 15:45 And if they don't pay a high interest rate, then people don't buy future bonds. If they do raise it, they have to pay that rate. So this is the conundrum, Friedberg, if I were to summarize it.

David Friedberg 15:54 Well, yeah, while rates are low, you see this, you know, particularly in a, a market like we're facing today where there's global inflation, they need to raise rates in order to reduce inflation. The problem with raising rates is this, this, you know, this currency problem.

Jason Calacanis 16:09 But also buying the debt, Chamath, is... You know, who's buying debt if they're, you're not getting anything on the coupon, correct? That's another challenge they face in Japan is that-

Chamath Palihapitiya 16:18 There's a famous quote from an economist, Simon Kuznets, who said there's four kinds of countries in the world. There's developed countries, undeveloped countries, Japan and Argentina.

David Friedberg 16:27 (laughs)

Chamath Palihapitiya 16:29 And I think the reason he said that is that J- Japan has been in this state since the '90s. So they had a massive property and equity bubble collapse, and they've not had to deal with anything that looked like typical economic issues since then. And part of it is because the government plays a very big hand in the Japanese economy. There's a lot of price controls there. So I don't know, I'm not sure what it is that we can learn there that you can extrapolate to the rest of the world.

Jason Calacanis 16:58 Yeah, it is a very unique Sachs geography and economy. So, Sachs, your thoughts on this overall and what we can expect. Maybe you could take the future-looking, forward-looking and prediction crystal ball. Go ahead.

David Sacks 17:09 So I think Friedberg is right that the reason why the Japanese Central Bank tried to raise rates, I mean, just by a tiny amount, was because they are dealing with inflation. If you look at that inflation chart and you go back to when their inflation was zero, roughly in 2020, the exchange ratio between the US dollar and the yen was about 100 to one, meaning one US dollar could buy 100 yen. Now it's at roughly 150 yen to the dollar. So their currency has massively depreciated over the last several years. And a big part of the reason why is because, again, their central bank is offering roughly zero, and you can earn 5% in US T-bills. So people are basically moving their money to countries that pay a lot more on their bonds, and they're even borrowing yen, like we talked about, selling the yen to then buy Australian dollars or US dollars to invest money there. So there's huge downward pressure on the value of the yen. And the, the way this creates inflation is that...Uh, Japan is, uh, is obviously a- an island that has very few natural resources and it has to import all of its oil. So it has an adv- advanced economy but it needs to import a lot of resources. And so as its currency depreciates, the price of all those commodities goes up. And this is why you're seeing inflation in Japan. Now, when the Central Bank tried to solve this, it created huge jitters in the financial market because it was starting to unwind the whole yen carry trade which is something like 20 trillion dollars.

Jason Calacanis 18:42 Wow.

David Sacks 18:42 And so the- the Bank of Japan backed off and you heard the- the Japanese central banker said, "We can't raise rates while it would create instability in the global markets. We have to wait until it's stable." But the problem is that raising the rates and unwinding the yen carry trade creates the instability. So what they're saying is, "We're never gonna be able to raise rates." And the result of this is gonna be more inflation in Japan. Their currency is gonna continue to depreciate. Uh, uh, you know, they've been unable to defend it. And so what I would expect is that the US dollar's gonna keep buying more yen, it's gonna go from, I don't know, 147, 150 to-

Jason Calacanis 19:20 There is one-

David Sacks 19:21 ... some bigger, some bigger number.

Jason Calacanis 19:23 There's one huge upside to this. Sachs-

David Sacks 19:25 And who's gonna pay the price here is the Japanese consumer because everything's gonna cost a lot more.

Jason Calacanis 19:31 Yeah, and that was, you know, obviously when the- when you get (laughs) 158 yen to the dollar, this is extraordinary. I was talking with Tucker and we just took our Niseko ski trip this year from four days to seven because it is just such a great deal, so. (laughs)

David Sacks 19:46 (laughs) It'll be good for tourism because yeah, you'll be able to travel to Japan much more cheaply.

Jason Calacanis 19:50 It amazes-

David Sacks 19:50 But if you're- if you're actually Japanese and you live in that country, you're gonna see your purchasing power continue to erode. So I would expect big domestic problems in Japan, and eventually they may conclude that this system does not benefit them. Now, who does it benefit? You could argue that it benefits the United States because it has subsidized the purchase of our debt, right? Because again, so- so you have this yen carry trade of 20 trillion and a lot of that has gone into US bonds or US T-bills, right?

Jason Calacanis 20:22 Right.

David Sacks 20:22 And so it basically is a huge subsidy to the US Treasury's need to continuously issue more and more debt. We're issuing what, a trillion dollars of net new debt every 100 days? So having the Japanese consumers subsidize all of this by taking it on the chin, you know, in terms of inflation, or to provide this yen carry trade, you could argue has been very beneficial to the US Treasury.

Jason Calacanis 20:48 And Chamath, uh, at some point, the- you know, the percentage of your debt to GDP, you know, we've talked about it so much on this show, you've said previously, "Hey, you know, we can have a little bit of this, uh, because we're a very strong dollar." So when you look at Japan, is there some lesson here for the US or, you know, maybe some, uh, warning here that we- we shouldn't necessarily follow them too far down this road?

David Friedberg 21:13 Nope.

David Sacks 21:15 (laughs)

Jason Calacanis 21:15 Okay. O- okay. Keep printing money. Got it. Okay. Uh-

David Sacks 21:17 Well, I don't know. I mean-

Jason Calacanis 21:18 (laughs)

David Sacks 21:18 ... I- I- I tend to agree with Freeberg here that when you have massive amounts of debt, it definitely limits your flexibility. Uh, I mean-

David Friedberg 21:25 It's just arithmetic. You're gonna pay for it with either economic contraction, higher taxes, or inflation. Those are the three places it goes.

Jason Calacanis 21:32 Yeah. And they- and they did test it. They've stress tested it now. Yeah.

David Sacks 21:35 One of the reasons why Japan can't raise rates is because their debt will become even more expensive.

Jason Calacanis 21:43 Mm.

David Sacks 21:43 Right? I mean, Freeberg, isn't that part of the problem?

David Friedberg 21:46 Yeah. That's exactly right. And then their federal spending gets compressed because now they have to service that debt. Again, they're already spending 25% of their federal budget on servicing existing debt with the low interest rates. And they've got to support an aging population.

David Sacks 22:01 Okay. So- so to analogize this to the US, what- our- our debt service costs are what- what are they at now? Like, well over a trillion.

David Friedberg 22:07 We're about a trillion a year with a proposed 7.3 trillion budget, so we're at 13.6%. And Japan's-

David Sacks 22:14 But also-

David Friedberg 22:15 ... at 25%.

David Sacks 22:15 ... over the next, over the next 10 years, isn't our debt service supposed to rise to-

David Friedberg 22:19 Yeah. As all of the- as all of the low interest bonds mature and we issue new debt at a higher interest rate, our debt service cost is gonna continue to climb. It's already higher than discretionary military spending at over a trillion a year.

Jason Calacanis 22:33 Well, just buy Bitcoin and when it goes to, uh, a million dollars a coin, we can just pay it all down so problem solved.

David Sacks 22:38 Just one other point is I think it shows the fragility of the global financial system. I mean, the market snapped back. As soon as the- the Bank of Japan backed off, basically capitulated, said, "Okay, fine. We can't, (laughs) we can't defend our currency, we're just gonna let it-"

Jason Calacanis 22:54 Yeah.

David Sacks 22:54 "... keep depreciating, we're gonna let inflation keep raging." As soon as they declared that, then the market snapped back but it just showed in that 24 hours, putting aside, like, all the panic porn that was on social media 'cause I think that was overdone, it still showed how fragile the global economy is. The- the yen carry trade has injected roughly $20 trillion of liquidity into the global economy, and that is propping up all sorts of things, right? And that is subsidizing US government debt. And you just wonder if the yen carry trade were to end because let's say, for example, the Japanese people don't want to experience hyperinflation, then what would that do to the global economy? It just showed how rickety the whole system is.

Jason Calacanis 23:36 I think it shows how much leverage there is in the system.

David Friedberg 23:39 Totally. That's what it is. It's all about leverage.

Jason Calacanis 23:41 Okay, let's talk about leverage for a second, Chamath.

David Friedberg 23:44 Leverage on leverage on leverage. So for example, like, if you take something like Citadel runs about $50 billion and they have extremely precise risk management systems. They're the best in the business. But as a result of that, they are so systematically important to make the financial machinery run properly that as they're inspected and as they prove that they have very good risk management, they're allowed to lever up to incredible levels. You know, 15, 16, 17 times. So I think that Citadel with the $50 billion of capital that investors have given them-

Chamath Palihapitiya 24:20 ... is probably running a trillion dollars on a daily basis in the markets. Renaissance Technologies, same situation. Millennium, same situation. A bunch of these funds that sit inside of the large banks, same situation. So when you add it all up, you're probably talking about a few hundred billion dollars of notional capital. That's enormously levered. That's what causes the, that sensation, as Sacks said, that things are rippling.

Jason Calacanis 24:49 So should we have more increased regulation or increased scrutiny on this? Chamath, you've talked about it before when we had some of these hedge funds flip and we talked about maybe some regulation. Yeah.

Chamath Palihapitiya 24:59 We have a lot of regulation on banks. Essentially what happened is after all of the chaos of the great financial crisis, the thing that we don't talk about is what we really did was keep running the same, if not more, risk. We just took it off balance sheet. So the banks were able to structure business lines to work with these hedge funds. And these hedge funds, in turn, were able to show over time that they're so tightly managed that there are no black swan events that could happen, that they can run highly levered. So I think we are in this moment where there'll be these fissures from time to time. So here's this Bill Hwang, that's an example. The carry trade is another example. There, there have been examples a couple times a year, but at some point, these folks will have taken too much risk and we'll look back on it and we'll think that hedge funds should probably have been more regulated than they are with respect to their leverage ratios, not with respect to their strategies.

David Friedberg 26:03 With this particular trade, JP Morgan yesterday or a few hours ago said that they think about 75% of the yen carry trades have now been unwound, and it was at 50% a little over a day ago. So the market has moved to kind of unwind these trades it seems, and we're pretty much at the end of the levered fallout of this particular activity. So, uh, I put the link here from the book, the Bloomberg.

Jason Calacanis 26:28 And so people at home understand when we move on to the, to the, to the next phase of the financial markets, all of those people had to cover those trades, which means they all have to sell assets at the same time as buying yen or covering the yen, and that's what causes this acute chaos in the markets. We saw the NASDAQ go down 6% or in some cases, maybe people wanted to take some chips off the table since things were at the highest-

David Sacks 26:49 Yeah. But they're just gonna put that trade back on. In fact, now is-

Jason Calacanis 26:52 I mean-

David Sacks 26:53 ... an even better time to put that trade on because the Bank of Japan's basically just capitulated and said that they can't raise interest rates while things are so unstable. So we know they're just gonna keep rates where they are. So if I was one of these traders-

Jason Calacanis 27:06 Yeah. Okay.

David Sacks 27:06 ... I'd just put the trade back on now. (laughs)

Jason Calacanis 27:09 (laughs) So let's talk about the landing here in the US. Let's get US-centric now. And it looks like maybe it's gonna be a bumpy landing rather than a soft landing, uh, as one might suspect. And as we talked about here, that we think this

Jason Calacanis 27:22 could be bumpy to soft. July's job reports was, uh, pretty bad, which is good in some ways when you're thinking about inflation. So the new jobs added were way down, uh, growing 114,000 here in the US in July. And a bunch of these estimates have been reported downward, uh, over the past year. Uh, just so we make a note of that. And this was below the Dow Jones estimate of 185,000. There's your chart. It just keeps ticking down, you know, since the Fed started hiking rates. And you hear anecdotally about all of your friends, 88% of millennials right now are actually preparing to be laid off, according to a recent survey. Unemployment is way up in the short term here. We're at 4.3% in July. That's the highest since October of 2021, up from 4.1% last month and 3.5% in July. So you take that July number to now, it's pretty significant. Here's your chart on the jobs. Obviously, historically, it's low, but it's ticking up pretty quickly, which is what you would expect with the rate hikes. And we had this great moment of hourly earnings growth, uh, going up. So how much people make on average per hour was going up. And, and I think that was causing a, a decent amount of the consumer enthusiasm in the economy. Here it is. It's coming way down from almost 6% down to three and a half, and so that means Fed rate cuts are coming. Here's your chart, uh, from Prediction Market of the chances of how much the Fed cuts rates this year. Looks like 75 to 100 basis points is the majority. About 60% of people believe it'll be one of those two numbers. I'll stop there. There's a lot more to talk about here and we'll get into specific companies and the NASDAQ. Yeah, let me pull up this last chart before I go to you, Chamath. It's been a strong year for the market. Uh, S&P and NASDAQ both up 11% year-to-date as of Thursday morning, but obviously a massive, I guess, do we call it a correction when it's... Yeah, 20% is correction territory, Chamath? So your thoughts on the wider US market and the selloff?

Chamath Palihapitiya 29:33 I think we're in a low-key recession. So I think that we're gonna probably go through a couple of very difficult revisions of old data. The thing to remember about non-farm payrolls isn't as much what the number is, but if you actually look to the number of times it then gets revised, the reality is that these things get revised constantly. And right now, we're in this trend where we are overestimating and revising down. Sacks mentioned this, that that was the same with GDP. So we are, I think, in a tough situation. And then what you're seeing is folks that run very cyclical businesses are telling us in very plain spoken English that demand isn't there. So the one that was interesting this past week, Jason, you mentioned millennials, but like Airbnb where you think all these young people are running around YOLOing what, whatever cash they have.Airbnb had a massive warning on demand. So when, I think the excess capital, whether it's the STEMI check or what have you, has been exhausted, you're now starting to see it bear out in these cyclical businesses. I don't think the demand is there. I think we're in a recession. It probably becomes more obvious in Q3 and Q4, and so Powell's going to have to cut. The question is, will he overreact to the pressure and cut 75 to 100 versus 25 and take it slow?

Jason Calacanis 31:05 Okay, Friedberg technical definition of a recession is two quarters in a row of negative GDP. We haven't had that, but we're sort of bouncing along that possibility. Is the recession baked in or if they cut rates at the extent the prediction markets are predicting and they're signaling, do you think we have a nice rebound? How do you feel about the overall US economy?

David Friedberg 31:28 Obviously you have to account for inflation and government spending. How much of government spending is driving economic growth? Today the US is proposing to spend $7.3 trillion next year out of $25 trillion GDP. So the US go- federal government is roughly 30% of GDP and we obviously still are tackling inflation. The real question is how much of the economy is growing because of productivity gains in the sector of the economy where people are making things and doing things versus the government using its ability to tax and borrow to drive growth in the economy by inflating numbers, by pushing revenue onto businesses, by pushing capital into the markets, by creating levered trades in the markets using their, um, borrowing capacity and their taxing capacity. So that's the thing I remain concerned about. I, I mentioned this last week. I remain highly concerned about many sectors of the economy that are deeply challenged right now. Particularly the industrial sectors, manufacturing sectors, the agricultural sectors, but um, services and software sectors where you can raise prices and you have a nice high margin business, you can continue to, to grow and, and look good. But there are many parts of the, uh, the global economy and the US economy that are pretty challenged right now.

Jason Calacanis 32:56 Sax, let's talk about, uh, this soft to bumpy landing. Uh, consumers are definitely weakening on the low end. Airbnb and Amazon are an example of bargain hunting, people who are looking for discounts, who want to save money with those services. Higher end services that have a bigger price tag like Uber and some of the high-end retailers are showing actual growth, and they're saying that consumer's strong. So it was a tale of two cities during this earnings season with a bunch of the high-end folks saying strong consumers on the high end, weak consumers on the low end. What are the chances we go into a recession? And, you know, a second question for you. Elon was recently on Lex Fridman for I think, uh, eight days or something. It was like a record podcast of how long he was on. But one of the things he talked about was that he had discussed with Trump, and Vivek has been very strong about this on our podcast and other places, uh, and he was a leading VP candidate of making the government more efficient and radically cutting the amount of spending, but there would be a reaction. So does the, uh, potential GOP administration have a platform to cut costs massively or not? And do you think that, you know, that would have been maybe too unpopular to, to sort of unveil that plan now as a, as a presidential candidate in either party?

David Sacks 34:12 I don't think they have that plan specifically because I just think that you would need, you would need a supermajority in Congress to do something like that, and I just think that this election's going to be too close regardless of who wins to provide that kind of mandate. I mean, sadly, I think we do need to get government spending under control, but I think it's a long-term political problem and I just think our political system doesn't have the will to fix it. I, I do believe Republicans will be better than Democrats on that, but I think that's the truth of it. To go back to your first question on the state of the economy, I had lunch with a very prominent investor yesterday who's very plugged in with the hedge fund community, and he said that the sentiment shift, you know, I'd say again within hedge funds, professional investors, public market investors, had been very sudden, that people were now very worried about the risk of a recession. And, and I do think that the Airbnb revenue that Chamath cited is a big factor. Airbnb stock went down 15% in, in one day on soft demand. And what's driving all of this is, is consumer weakness or at least fear of consumer weakness. You mentioned the rise in unemployment. It went from 4.1 to 4.3% month over month. So 4.3 is still a pretty low number by historical terms, but to jump so much in one month, that's a pretty big increase, and then of course it's up from 3.5% a year ago. So we're seeing pretty big increases in unemployment-

Jason Calacanis 35:41 10% year over year, 5% month over month is very significant. Yeah.

David Sacks 35:45 Yeah. So these are big changes. There's real evidence of, of consumer weakness and I think professional investors are, are getting quite worried about, uh, the risk of a recession. And I guess just one last point on this is that if you were to remove the impact of government spending, it's pretty clear the private sector is in a recession. I mean, like we've been talking about, government's been going hog wild with spending. We have s- the, the government is running 6% of GDP deficits. Uh, the, the latest Q2 growth number was something like 2%. So if you force government to live within its means and to cut its way back to balance, we would definitely be in a recession. We'd have a negative growth rate. Uh, so I do think that the economy is looking pretty shaky all of a sudden. Uh, whether we actually tip over into recession in the next few months, I'm, I'm not sure.

Jason Calacanis 36:34 All right. Well, listen, I wanna corner everybody here with a question. You gotta answer the question. You, you can't, uh, avoid the hard questions here on The All-In Podcast. Chamath, sitting here a year from now, market up or we experience a recession defined as two quarters of negative GDP, which one is the more likely scenario? Market up or a recession? Give it a percentage or just which is more likely? Freyberg, you're next, so just put your answer below.

Chamath Palihapitiya 36:58 Well, those are not- those aren't- those are not opposing things. So you're saying-

Jason Calacanis 37:02 Okay.

Chamath Palihapitiya 37:02 ... in a year from now, I don't- I don't honestly know.

Jason Calacanis 37:05 Okay.

Chamath Palihapitiya 37:06 But I do think that we'll probably be in a technical recession.

Jason Calacanis 37:10 Okay. So you lean towards... I'll just go recession, no recession in the next year.

Chamath Palihapitiya 37:15 Um, but I also think that there's a pretty decent chance the market will be up.

Jason Calacanis 37:19 Ah, got it. Okay, so we could have a recession, but the market goes up. So to unpack that, I am with you on that same prediction because I do think people are addicted to efficiency. They're gonna lay people off and earnings are gonna keep ripping as these companies become managed so well.

David Friedberg 37:33 That's a small percentage of the economy, J-Cal. That's a few tech companies. But much of the manufacturing sector, the industrial sector, the ag markets, like there's a lot of markets where you don't have this option to just cut knowledge workers. The knowledge worker economy, the software economy has the ability to do that. The tech economy can do that, but much of the rest of the economy doesn't have a lot of maneuverability like we do in this- in this fast growth-

Jason Calacanis 37:55 Well-

David Friedberg 37:56 ... high margin kind of industry we work in.

Jason Calacanis 37:58 I think it's a good point, but I do see McDonald's, Starbucks, and some of those consumer retailers are taking steps right now to rightsize their businesses and offer $5 meals or $3 coffee. So I do think there's a shift in management in how they run these companies.

David Friedberg 38:14 That's about reduced forecast, right? So when their revenue decline- when their revenue forecasts have to be cut, they have to cut headcount, that's different than creating more efficiency in the operation.

Jason Calacanis 38:22 Well, but they're also cutting stores and they're cutting-

David Friedberg 38:24 I mean these are- these are-

Jason Calacanis 38:25 ... things and projects-

David Friedberg 38:26 Yeah, yeah. But- but that-

Jason Calacanis 38:26 ... that are inefficient. So I just think there's gonna be massive efficiency in all sectors. That's gonna be the theme for the next year. But I mean, it's obviously-

David Friedberg 38:32 But that's- that's a loss of jobs-

Jason Calacanis 38:33 ... we're gonna debate this.

David Friedberg 38:33 ... and a loss of growth, right? So just to be clear, when you cut stores, you have less growth. When you cut jobs, that's because you don't have as much revenue growth. So those are about contraction.

Jason Calacanis 38:41 But earnings can go up, right?

David Friedberg 38:43 They can be supported, but you're still facing contraction. And, you know, one of the challenges right now, a lot of food companies, a lot of retail companies have been raising prices to try and keep earnings going up, but there's hitting this natural inflection point where consumers no longer buy, where you find this tipping point. I don't know if you guys have been to the supermarket lately, but man, it is crazy expensive how- how like prices have gone up like 50% to 100% on like everything at the supermarket.

Chamath Palihapitiya 39:09 Mm-hmm.

David Friedberg 39:09 And this is like-

Chamath Palihapitiya 39:10 It's basically impossible.

David Friedberg 39:12 We can afford it. We- we could deal with it. But like a large percentage of people, this is a big deal in terms of like now you have to budget your life and you spend less.

Chamath Palihapitiya 39:19 Matt and I, when we're here in Portofino, we go in the morning to the fishmonger and we'll buy, you know, fish for the family. It is unbelievably expensive. And, you know, we always think to ourselves, "How is it possible that folks can actually choose to eat healthy and local if they want to?" It's next to impossible.

Jason Calacanis 39:38 What was a branzino? What was a whole fish? Tell us. (laughs)

Chamath Palihapitiya 39:42 You know, like if- if you wanna have-

Jason Calacanis 39:44 Branzino nuts.

Chamath Palihapitiya 39:44 ... like locally caught sole, it's like €48 a kilogram.

David Friedberg 39:49 Wow.

Chamath Palihapitiya 39:49 Okay? And like it's expensive.

David Friedberg 39:52 Wow.

Chamath Palihapitiya 39:53 And it's expensive for all kinds of food.

Jason Calacanis 39:54 That feels like more than a restaurant. (laughs)

Chamath Palihapitiya 39:56 So to- to feed a family of seven, which is what we are, you'll have to spend, you know, $150, $200. It's not sustainable. It's not something that can- that makes sense for enough people anymore, because that probably used to be 40 bucks or 30 bucks. But Freyberg is right, like we're in a real serious problem because it's- it's like these systems have remained the way that they have been for a very long time, and while other industries like the tech industry have captured all these incredible efficiencies. But the problem is that then these other industries are what supports everyday people's everyday lives. And in the absence of a way to actually reduce cost and improve quality, you end up where we are today, and I don't think that that's sustainable.

Jason Calacanis 40:45 Freyberg, greater chance of a recession in the next year or not a recession? You have to give an answer.

David Friedberg 40:49 Yeah, I think there's a great chance of a recession.

Jason Calacanis 40:52 Okay, majority chance of recession. Got it.

David Friedberg 40:54 But I do think that there's gonna be, uh, government programs to mitigate the effects, meaning you could see the markets, the equity markets continue to rally-

Jason Calacanis 41:02 Okay.

David Friedberg 41:02 ... on some of the government, uh, programs and government activity, which has become kind of like the learned behavior. It's like Pavlovian. It's like we- we have a- we have an economic problem, the government step- the government steps in and spends money.

Jason Calacanis 41:15 Let me get an answer from Sachs.

David Sacks 41:16 The reason why the markets could rally in the midst of a recession is because interest rates get cut. We've already seen that the expectations of rate cuts have now grown substantially. The markets are starting to price in 100 to 150 basis points of rate cuts this year, where before it was more like 25 to 50 basis points. So obviously lower interest rates make stocks go up. So I think that's the- the main driver of the rally you're seeing right now, J-Cal, not the prospects for increased efficiency 'cause I think th- you know, those prospects were already there.

Jason Calacanis 41:48 So are you majority case recession or- or majority case not recession in the next year?

David Sacks 41:53 I've been predicting recession for like three years now because I just think when you jack up interest rates so suddenly, so violently, you get recession. So I guess I- if I ha- if you pin me down, I'd say I- recession. And I'll tell you-

Jason Calacanis 42:05 Okay.

David Sacks 42:05 ... one of the reasons- one of the reasons why is-

Jason Calacanis 42:07 Interestingly, I've just checked the notes, uh, Sachs, you predicted five of the, uh, nine of the last five recessions.

David Sacks 42:13 I know, I know. Look, it's the same recession that I've been predicting. It's very simple. When you jack up interest rates-

Jason Calacanis 42:18 Yeah.

David Sacks 42:18 ... from near 0 to 5.5%, that makes everything much more expensive.

David Friedberg 42:24 Unless- unless the government spends money, which has been-

Jason Calacanis 42:27 Mm-hmm.

David Friedberg 42:27 ... the counterbalance, right? And that's a lot of why governments di-... And- and by the way, I have a theory on this. I think this is also why we have an open border policy...... or why, um, the current administration has pushed an open border policy because that can also be deflationary to counteract the effect of the interest rate accrual because of the economic contraction.

Jason Calacanis 42:42 Because it lowers wages overall and fills jobs.

David Friedberg 42:45 It lowers wages, it increases the workforce, et cetera, creates more competitive workforce. But no one's allowed to publicly say that and I do think that that's one of the primary motivating factors of having an open border policy.

David Sacks 42:55 Well, people have been saying it.

David Friedberg 42:57 I think you just did. It's well said.

David Sacks 42:59 If you look at job creation over the last four years, there's been no net new job creation for native born Americans. All the job creation has been foreign born or-

David Friedberg 43:09 Because native born Americans have too high of a wage expectation. That's the fundamental problem, right? And I'm not saying-

Jason Calacanis 43:14 They're too, they're too affluent. I agree, yeah.

David Sacks 43:15 I don't think it's too high.

David Friedberg 43:16 Right. And I'm not making an argument-

David Sacks 43:17 I think that's horrible.

David Friedberg 43:17 ... one way or the other. I'm just highlighting, I think that this is one of the motivators for the policy.

David Sacks 43:21 I think it'd be a lot better to let their wages rise. But in any event, let's not get political on it. Just to the point about recession, Jason. I mean, yeah, look-

David Friedberg 43:28 Yeah.

David Sacks 43:28 ... I've been predicting the same recession, but I think one of the reasons why it might finally come now, first of all, you've got a lot of investors are suddenly worried about it. There's been a big sentiment shift. I think the other thing is I don't think we know all the bad news yet.

Jason Calacanis 43:42 Hmm. Unknown unknowns, yeah.

David Sacks 43:44 Well, n- none of us were tracking the yen carry trade, like, very... I mean, it was something we may have heard of, but it's not like we were actively thinking about it until this past week. And the question is, how many more things are out there like that? And I also think that the pattern with this administration has been to hide the ball. They hid behind senility for years. (laughs)

Jason Calacanis 44:04 Not to get political though.

David Friedberg 44:06 Sachs, he just said-

David Sacks 44:07 I- I'm just saying-

David Friedberg 44:07 ... not to get political. Not to get political. Biden, Biden, Biden. Sachs starts out by saying, yeah, not to get political, but Biden. (laughs)

David Sacks 44:12 This is just a fact. Look, the MO-

David Friedberg 44:14 (laughs) It's just fact, it's not political.

Jason Calacanis 44:15 I was about to give him an award for saying not to get political and moving on.

David Friedberg 44:19 I know. That's so good. (laughs)

David Sacks 44:20 No, I'm not... I'm making an economic point here actually-

David Friedberg 44:22 Yeah, yeah. Yeah, please.

David Sacks 44:22 ... and you guys can decide if I'm just being partisan or whether I have a good point here, which is, look, I think the MO of this administration has been to hide the ball.

Jason Calacanis 44:31 Okay.

David Sacks 44:31 And any good news, they would've reported. Do you think that they're reporting all the bad news? I don't. I think there's more bad news that's gonna come out after the election because there's too many incentives for people to, to hide it.

Jason Calacanis 44:41 And for people who don't know, we're talking about the concept of black swans. In order to have a black swan, it has to be something you're not aware of and it has to be... have a dramatic impact. The yen trade would not fall into this because people were well aware of it, even if it wasn't front page news and it didn't have a dramatic impact, but there could be a black swan sitting there. Obviously, the black swan that you can think of recently would be in the great financial crisis, the subprime mortgage. That truly was massively impactful and it was not known. Dot com was known and was massively impacted. You need both of those categories to define a black swan. And there could be black swans, right, Sachs, is what you're saying?

David Sacks 45:19 When you said that the yen carry trade didn't have a big impact, that's because the Bank of Japan backed off.

Jason Calacanis 45:25 Right.

David Sacks 45:25 So if they kept going with it, we don't know what the impact would have been.

Jason Calacanis 45:28 Correct. But it didn't, so just so people who are tracking the black sw- swan track or just the more you know, let's talk about Apple. Chamath, I'll give you your flowers right now. Uh, they're coming to you. Just look to your left. Here comes a huge bouquet because you predicted... (laughs) I didn't actually send you flowers.

David Friedberg 45:44 He looked to his left.

Jason Calacanis 45:45 But,

Jason Calacanis 45:46 uh, here's your virtual flowers. You predicted, I think, absolutely correctly that the less Berkshire Hathaway and Buffett talk in their documents, in their letters, and at their, uh, events about a, a trade, the more they're falling out of love with it and I understand Berkshire Hathaway has sold half of their largest position, which is Apple. Some people are saying because they don't have faith in the company, some people are saying because they're over-weighted, other people saying because they, Freyberg want to get more cash on the books to make other acquisitions. So Chamath, you're... Maybe just take your victory lap and then we'll, I think, Freyberg double clicked on this and did a deep dive.

David Friedberg 46:30 I don't have much to say. I mean, I think it's been a trend in their letters when he stops mentioning a company in his letter, it's because he's selling. It's a great, uh, great read.

Jason Calacanis 46:42 There it is.

David Friedberg 46:42 Yeah. And that's what happened here.

Jason Calacanis 46:44 Okay. So Freyberg, take us through this.

David Friedberg 46:47 Well, so it looks like since the start of the year, they've sold 55% of their holdings in Apple and if you look at the end of the year... Nick, if you could pull up this image with the pie chart. This is what Berkshire's stock holdings were in their non-majority owned, uh, businesses. So businesses that they don't own the business outright. And 50% of their portfolio was in Apple at $174 billion. We obviously saw Apple's, uh, stock price peak, highest level ever, just a few days ago. But it has since come down as it was reported that since the start of the year now, Berkshire sold 55% o- of this position. So some people are arguing that they've got a point of view on the company's strategy and compe- competitive kind of landscape. Some folks have argued that the valuation multiple has gotten too high, trading at nearly 30 times earnings. The stock has risen 900% since Berkshire bought the stock in 2016.

Jason Calacanis 47:44 Nine bagger. Nicely done. Yeah.

David Friedberg 47:46 And some people would argue that the percent of the portfolio is too high at, at over 50%, as you can see here, at the start of the year. But, you know, I'll kind of provide some of the counterarguments. You know, Warren Buffett does not do much analysis on corporate strategy when he provides reviews of the stocks that he's picked. He often finds and talks a lot about great managers that generate great returns and he sticks with them, and he sticks with them sometimes for many, many decades. The management in this company has not changed. The return profile on cash invested and cash returned has only improved since he put money in. They're generating more cash flow, they're offering more dividends, they're doing more stock buybacks, and he's happy to be concentrated. Over the years, he's made large bets on single companies to the point that sometimes he just outright buys the entire company like he did with GEICO in 1996. He always talks a lot about finding a company that is run by great managers, that has a premium product with a nice high margin, and a durable moat, strong brand value. As I look at kind of-What's really gone on here, it feels to me like the difference between Apple and some of the other big holdings in its portfolio is that many of those other businesses are regulated monopolies. So BNSF Railway is regulated by the Federal Railroad Administration. Berkshire Ener- Energy, which owns MidAmerican, is a regulated utility. The prices that they charge consumers are set by the government, so they have a market that's locked in. The prices are set, they have locked in distribution, they have locked in utility value, and the same is true in the insurance business. Geico's rates are approved and set effectively by state regulators. Berkshire has a moat because they've got the largest capital base and they've got this machine that just keeps generating cash and the rates are publicly set by government. Apple however, is not regulated and it is very clear that Apple is facing very deep and severe financial impact from the regulatory authorities that are overseeing the business. So if you look at the Google antitrust ruling-

Jason Calacanis 49:37 Right, we're gonna get into the Google deal in a second.

David Friedberg 49:39 ... which we're gonna get to in a minute, yeah, there's a real regulatory risk there because Google's paying Apple $20 billion a year to be the default search engine. Apple also has a very deep relationship with China. They have a lot of manufacturing being done in China and they sell a lot of product into China. So as regulators t- start to take a harder look, as they've said they're going to, at companies' relationships with China, that's a real risk to Apple. Advertising, tracking users, and then the subscription fees that are charged to consumers, and most importantly, we've talked a lot about the 30% vig that Apple takes on their app store and how regulators are now stepping in and take a look at this. So because this business is not yet a regulated monopoly, it may be a monopoly in many senses of the word, it's not regulated yet, and that transition could be financially painful for Apple. Once they get to the other side, it starts to look a lot more like a large scale Berkshire type business. So that, that's my kind of summary take on what's going on with Apple, I don't know if you guys-

Jason Calacanis 50:30 Awesome, well-

David Friedberg 50:31 ... agree.

Jason Calacanis 50:31 Yeah, no, no, I think it's pretty deft, uh, Sachs, your thoughts on this massive increase in cash and what Berkshire Hathaway is thinking. What is Warren Buffett thinking here? Is it this became, he became overweight Apple or that he's building up cash because the recession's coming and he wants to buy things on the cheap?

David Sacks 50:47 Well, when we-

Jason Calacanis 50:47 Or regulation to Friedberg's point.

David Sacks 50:49 When we had this global selloff on Sunday, Monday, a lot of people were sharing this chart online and pointing out that Buffett was sitting on this gigantic cash pile, by far the biggest cash pile that he's ever sat on. We then had a market recovery, so people aren't really talking about this, but it does stand to reason that Buffett is building up a, a war chest here and he's somewhat defensively positioned. You can see that, you know, what was it? Like, '20, '21, '22, the cash pile went down because he started making a bunch of investments. Now the cash pile's really high, so it seems logical to infer that he thinks that the risk/reward right now is, is not great on public equities and he is, um, again, he's just a little bit more risk off.

Jason Calacanis 51:35 What do you think of the regulatory risk argument Friedberg is floating here, Chamath?

Chamath Palihapitiya 51:40 I think that David is right that, Friedberg is right that the China thing could have impacted it, but because he also sold a lot of BYD, which they've owned since 2008, I think. So, you know-

Jason Calacanis 51:55 Mm.

Chamath Palihapitiya 51:56 That's a Chinese EV company and so it could be just that, that could have played a part. To be honest, I don't know.

Jason Calacanis 52:03 So wait, you're saying China dependency, both of those have a China dependency, so he maybe felt the overall portfolio had too much China dependency.

Chamath Palihapitiya 52:10 Maybe, yeah. I could buy that, that seems like reasonably logical.

Jason Calacanis 52:13 Yeah. Interesting.

Chamath Palihapitiya 52:13 I think the thing to remember though is that these decisions, I think have been stewing for at least a couple quarters. Remember, like, you know-

Jason Calacanis 52:23 Mm-hmm.

Chamath Palihapitiya 52:23 ... that letter that he writes was not written yesterday, right? That was being drafted-

Jason Calacanis 52:29 No.

Chamath Palihapitiya 52:29 ... months and months ago. So these decisions-

Jason Calacanis 52:31 Three months before, yeah.

Chamath Palihapitiya 52:31 ... were made or e- even longer. So I think these decisions were made a while back. Another reason, if we're gonna play kind of conspiracy theorist is like, you know, after the death of Charlie Munger, maybe what he's starting to do is consolidate the book so that it can transition elegantly to Greg Abel when Buffett passes away, and so that could be another thing as well because it's, it's-

Jason Calacanis 52:59 Let me unpack that for a second. So when you say that, you're saying he, he wants to hand it off with less risk in it, so, uh, dependency on one stock would be risk, a dependency on China would be risk, but he wants to make it really clean so the handoff is smoother. He wants to hand off a very organized book.

Chamath Palihapitiya 53:14 Or maybe he and Abel, he and Greg Abel have already talked about the kind of risk book that they want over these next five to 10 years-

Jason Calacanis 53:22 Mm-hmm.

Chamath Palihapitiya 53:23 ... and it reflects a discussion about what the incoming CEO wants. It could, it, so there, there could be all kinds of reasons why. I don't, I don't really know. I just think that Apple, just back to Friedberg's core thesis, I agree with many of his general points. I'm not sure that they affected the Berkshire strategy, but Apple is sort of a little bit wayward. It is a company with an effective and unregulated monopoly or duopoly that doesn't really know what to do, and I think that that's the biggest problem with that company, and that's independent of Buffett selling now or selling a year from now or having not sold a year before.

David Friedberg 54:06 Once you're regulated, you know what the prices are, you know what you can do, you know where you can go, and all that risk is off the table. That's what is a feature of all of those other monopolies he owns is that the government has a role in it so-

Chamath Palihapitiya 54:19 By the way-

David Friedberg 54:19 ... it's a highly predictable business.

Chamath Palihapitiya 54:22 By the way, and you mentioned the Google thing, but this clearly was not part of his calculus. I think he just got very lucky, but if you're holding Apple today, I think you have to take the $20 billion that Google pays you every year, which comes in at 99% margin and you should probably sensitize the value of Apple-... for not having that 20 billion if this anti-trust ruling against Google stands.

David Friedberg 54:51 Yeah.

Chamath Palihapitiya 54:52 That alone could be worth upwards of half a trillion to a trillion dollars, depending on what multiple you wanna put on that 20. So-

David Friedberg 54:59 Well, I mean, what, what's crazy is that Apple, Apple st- is still up to 214, which is 11, 12% higher than it was at the start of this year, at 185. The stock is just coming off of its all-time highs at 230 a share, so it's just barely off the all-time highs.

Chamath Palihapitiya 55:16 I mean, this is just an, an extraordinary amount of cash to be held by both Apple, Apple's, you know, also has over 100 billion in cash now. Warren Buffett has close to 300 billion. Allocators want to make trades and they got a be- uh, obviously, he's got a better trade, I think, he can make on this, whether that's the 5% he's gonna get on the 300 billion, or maybe there's something he wants to buy. That's another possibility. So, uh, great job wrapping this all up, and let's pivot to the federal judge that ruled that Google has an illegal monopoly in search and advertising. This is huge news. Perhaps this is the biggest news in the tech industry for a couple

Chamath Palihapitiya 55:54 of years. On Monday, a, a judge ruled that Google had acted illegally to maintain its monopoly in online search. If you remember, this was filed under the Trump administration in 2020, uh, by the DOG. The 277-page ruling agrees that Google abused its search business monopoly by paying billions of dollars to third-party platforms like Apple and Samsung in order to be their default search engine. So, it's not just that you have the monopoly, it's how you maintain the monopoly. Uh, this is called TAC, Traffic Acquisition Cost. We've talked about it here many times. According to the suit, Google conducts around 90% of web searches. I think we all know that. Company's disputing that claim. The ruling doesn't contain remedies yet for Google's behavior. They're gonna decide that in a subsequent ruling. Obviously, Google is going to fight this. It could result in a change in business practices, i.e., they cannot pay Firefox, Samsung, Apple to be the default search engine anymore. That will lead to many interesting possibilities, uh, s- Chamath and I were discussing them on X. And so this is huge news. Uh, this is gonna be great, I think, for the search engine market. I know Apple, from my time doing maha- Mahalo, a human-powered search engine over 10 years ago, when I sent it to, to Steve Jobs, he opened it up in the middle of the night and started playing with it, and there were many rev- views of, or many rumors of Apple wanting to be in the search business 'cause they had a contentious relationship with Google. Obviously, when Google competed with Android, that upset Steve Jobs greatly, and, uh, also, Google created Chrome, which also, Safari and Chrome competing with each other. It's not out of the question, I think, Chamath, that you could see Apple, when they lose this 20, $30 billion deal for TAC, to start their own search engine by DuckDuckGo. Brave has an amazing search engine and a search API, and they've obviously, they've got a crawler, so people who don't know this but Apple has a crawler. My prediction is Apple buys a search engine and they go it alone and expand their advertising network like Amazon, Uber and other companies have. What's your take on this and what we're gonna see in the future? Will this ruling stand up? Oh, my gosh. And then what are the downstream market impacts? I think that this Google thing is the most important thing that's happened in tech since the Microsoft DOJ decision in 2000. Internet Explorer, yeah. Yeah, because if you, if you go back to that consent decree in 2000, it essentially handcuffed this incredibly foreboding company for more than a decade, while all kinds of innovations happened. So they missed out on two huge waves, right? Microsoft essentially missed out on social and then they missed out on mobile, largely as a result of that consent decree and then they were able to catch up and embrace SaaS in the cloud. Amazing. Amazing. But there is this small O outcome here, which is essentially a consent decree, where Google gets handcuffed for some number of years and it creates a couple of big waves of innovation of new companies that can succeed, that may not have otherwise been able to succeed, in the absence of such a consent decree. And a good example of this would be the AI-powered search experiences that you're starting to see, whether it's from OpenAI or Perplexity or a few of these other folks. The big O outcome, though, is more if you go back to the Ma Bell kind of thing where the company gets broken up. Hmm. I think that the odds of that are extremely unlikely. So I think the big O outcome is probably something that you can pretty safely take off the table. I think it's gonna be a little O outcome. But the point is that there's a distribution here between these two things that this judge will be in control of, and I think that, uh, a- again, uh, again, I'm just guessing, I think both the Democrats and the Republicans will really support whatever happens here. And, and that's not- Uh-huh. Because? ... necessarily because, I don't think that's necessarily because they have a bone to pick with Google. I think that, you know, they have bones to pick with other companies more than Google. But I think that it, it starts to set the tone for being able to check big tech in a very meaningful and productive way, and I think that that has important ramifications for Washington. Okay, Sax. Uh, not to make it political, but this is the government stopping corporate America, so it can't not be political. What's your take here and what will we see in the future? More regulation, more rulings like this? Slap on the wrist? Breakup?

Jason Calacanis 1:00:53 Is this more to come or this is peak regulation, in your mind, of big tech?

David Sacks 1:00:59 Well, I, I think this is a good decision. I mean, Google clearly is a monopoly. In fact, it's at least two or three monopolies. They have a monopoly in search, they have a monopoly in advertising, and they at least have a dominant position in video with YouTube. And I think that it would be great if the government broke up this company. Uh, I mean, it should be, it should be at least three or four companies. I mean, uh, there should be ... Search should be its own company. Advertising should be its own company. YouTube should be spun out. And then I don't know if G Suite should be a separate company or should get lumped in with Search. I, I, I don't know. But I think there should be at least three or four companies. And I think Republicans will be on board with that because frankly Google's a threat to democracy. If you go to Google and search for search results of anything related to the election, it is clearly so biased.

Jason Calacanis 1:01:45 Explain that, yeah. Give an example.

David Sacks 1:01:47 If you wanna get the latest info on Kamala Harris, just search for Donald Trump. I mean, compare the search results. And I've done this and I've posted the results online. If you search for Trump, you'll get a bunch of negative articles on Trump and you'll get positive articles about Harris. And then conversely, if you search for Kamala Harris, you'll get positive articles about her and it's like Trump doesn't exist. It's clearly ... They have put their thumb on the scale here in favor of the candidate they prefer, as 90 something percent of their donations indicate.

Jason Calacanis 1:02:15 Here's a real time search. I just did Donald Trump. As you can see, the first one that came up was a Harris story about Trump and Harris. Uh, Google has actually addressed this issue. The issue is actually, I think, I'll take a little bit of the other side of it, not bias in the algorithm but bias in media. The overwhelming majority of media is left-leaning and, uh, there's a very small amount of, uh, Republican right-leaning media when compared to the left, obviously. And so when you do a search for Donald Trump, you know, you've got the first three choices, New York Times, left-leaning, Washington Post, left-leaning, Newsweek, left-leaning, CNN, left-leaning, Daily Beast, super left-leaning. Five of five are left-leaning. That really is the issue, is that there isn't enough GOP or right-leaning media to actually make, uh, this work. That's at least my take on it.

David Sacks 1:02:59 I don't think that's-

Jason Calacanis 1:03:00 What's your take?

David Sacks 1:03:00 Well, well-

Jason Calacanis 1:03:01 ... sucks.

David Sacks 1:03:01 Okay. Y-

Jason Calacanis 1:03:02 That's their explanation, by the way.

David Sacks 1:03:02 Yeah. Okay, fine. But the problem is that-

Jason Calacanis 1:03:04 And I believe them. Yeah. Yeah.

David Sacks 1:03:06 They're weighting the publications they want to weight. Why is Daily Beast like some authority on the election? They're the most partisan, ridiculous, untrustworthy publication when it comes to the election, so why should they be top four? I mean, why isn't Fox News in there? Why isn't New York Post in there? Why isn't Substack in there? There's a lot of great publications on Substack. So they are very selectively choosing the publications who, you're right, are in the tank for the Democrats, so th- they are reflecting the bias of the mainstream media, but they are being very selective about what media they show. And even so-

Jason Calacanis 1:03:39 Here's Kamala Harris.

David Sacks 1:03:41 I mean, and-

Jason Calacanis 1:03:42 And let me just give the statistics here.

David Sacks 1:03:43 Okay. So, so-

Jason Calacanis 1:03:43 Here. Hold on. Kamala Harris, uh, I just did a search. First five, New York Times, NBC, The Hill, CNN. Is The Hill right or left? I don't know.

David Sacks 1:03:52 I think they're left.

Jason Calacanis 1:03:53 Would you say, Sacks? It's left, yeah.

David Sacks 1:03:54 They're left.

Jason Calacanis 1:03:54 And then Forbes, which I think would be considered right, and then Fox, obviously right. So, y- I mean, it's just the percentage of news sources here-

David Friedberg 1:04:03 The Guard- The Guardian, The Guardian's often ... Yeah, The Guardian's often ranked right, so there's another two. But again there's a, there's a, there's-

Jason Calacanis 1:04:07 Yeah. So it would, it would be like three of eight in this case.

David Friedberg 1:04:09 By the way, The Washington Post-

David Sacks 1:04:10 I want you to, I want you to put on the screen this.

Jason Calacanis 1:04:12 Yeah, go ahead. You can do it.

David Sacks 1:04:13 I, I tweeted some receipts. Please click on the screenshot so I can show you the side by side.

Jason Calacanis 1:04:17 Yeah.

David Sacks 1:04:17 And you'll see what I'm talking about. Okay. I searched for Donald Trump. What do I get? News about Harris. The first ... Uh, this is on my phone, so this is mobile.

Jason Calacanis 1:04:25 Mm-hmm.

David Sacks 1:04:26 The articles are all basically about Harris criticizing Trump. Okay? Then the second carousel is about the Project 2025 director stepping down, which is pretty tangential to Trump but is a major Democratic line of attack on Trump. So this whole thing seems rigged to support the DNC point of view on Trump. Same thing. You search "Donald Trump latest news," same thing. There's some weird story about Donald Trump's nephew.

Jason Calacanis 1:04:52 Mm.

David Sacks 1:04:52 I didn't even know, uh, he ... About this person, but somehow they're elevating it to be a major story, and again-

Jason Calacanis 1:04:57 Okay.

David Sacks 1:04:57 ... the first carousel is all about Harris. Now keep going, please.

Jason Calacanis 1:05:01 Yes, ma'am.

David Sacks 1:05:02 Okay, now we look at Kamala Harris. Top stories, just Harris. No news about Trump.

Jason Calacanis 1:05:07 Got it.

David Sacks 1:05:08 N- next one. Same thing. Okay? So the point is that when you search for Trump, you get news about Harris and criticism of Trump. When you search for Harris, you get positive news about Harris. There's no way you can tell me that this is fair or this is the result of an algorithm that hasn't been tampered with. This is very clearly programmed. I mean, you get-

Jason Calacanis 1:05:30 Okay. I'm gonna take the-

David Sacks 1:05:32 : ... different carousels-

Jason Calacanis 1:05:32 Okay.

David Sacks 1:05:32 : ... depending on which candidate you search for.

Jason Calacanis 1:05:33 I am gonna take the complete other side of this, but Freiberg, I wanna give you a chance because you worked at Google. I think you know a lot about the algorithm. What ... Is there an explanation for this that makes technical, logical sense given what you know about the algorithm? Uh, and then I'll give my position, then Chamath you can-

David Friedberg 1:05:49 Yeah. There's very little kind of editorialization going on with respect to showing the rankings of the news sources. The ranking of the news sources is typically set by some ranking algorithm. The algorithm is usually around click-throughs, views, popularity of the sites, how many visitors there are. So there are other metrics that drive the order. So for example, if NBC, CNN, Fox News all have kind of higher rankings than some smaller publication, they're gonna end up higher in the, the ranking algorithm because they have a higher, call it quality score. There's also measures on how often people click through and come back, the bounce back rate. So if they click through an article and then come back, that can actually reduce the ranking versus if they click through and stay on the site. So there's a lot of factors that go into the ranking algorithm. The thing that probably upsets people is that there isn't any transparency into this, so there's no understanding on how these things are ranked, how they're set, and it's probably very good guidance and feedback that there should be more transparency and openness. And I'm not necessarily trying to defend anyone's product or behavior. I'm just saying that there's certainly a lack of understanding on why one thing is being shown versus another. I'll also say, Sacks, it is probably the case or there might be the case that there's many more sites potentially putting out-

Chamath Palihapitiya 1:07:02 ... pro-Harris articles than there are putting out pro-Trump articles, which can start to overweight the, the algorithm as you know, or overweight the rankings that are showing up. So, that might also be feeding into this that, that the general news media bias is what you're actually seeing versus a Google bias.

Jason Calacanis 1:07:19 Correct.

David Sacks 1:07:20 I, I don't believe that.

Jason Calacanis 1:07:21 Okay. Let me get Chamath. Hold on, let me get Chamath involved here on this issue, uh, and then I'll give my position.

Chamath Palihapitiya 1:07:26 And sorry, I do wanna come back, I do wanna come back to the anti-

Jason Calacanis 1:07:27 Do you have any thoughts on this, generally speaking?

Chamath Palihapitiya 1:07:29 I, I, I do wanna come back to the anti-trust ruling in a minute.

Jason Calacanis 1:07:32 Okay, absolutely. Sachs thinks the, the fix is in. Friedberg thinks this is explained algorithmically, but that Google could do a better job explaining and being more transparent about the algorithm. I agree with that 100%.

Chamath Palihapitiya 1:07:45 And look at the media companies. Don't, don't look at-

Jason Calacanis 1:07:46 Google has always been considered a black box.

Chamath Palihapitiya 1:07:48 Yeah. Go look, go look at all the media companies-

Jason Calacanis 1:07:48 And I agree 100% as I explained-

Chamath Palihapitiya 1:07:50 ... that are writing all these articles. Yeah.

Jason Calacanis 1:07:51 ... the, the number of independent journalists-

David Sacks 1:07:53 Why-

Jason Calacanis 1:07:54 ... in left-leaning publications is, like, 30 to one, and places like Fox News, which is largely opinion, Daily Wire, largely opinions-

Chamath Palihapitiya 1:08:00 Sachs, we've talked about this countless times. There are so many, there are so many more-

Jason Calacanis 1:08:02 There needs to be more investment in journalists by Republicans. That's the key issue here.

Chamath Palihapitiya 1:08:06 There are so many more liberal journalists, and there's so many more liberal media outlets out there-

Jason Calacanis 1:08:11 20 to one.

Chamath Palihapitiya 1:08:11 ... that is a big

David Sacks 1:08:12 Yeah, of course I understand that mainstream media is hopelessly biased. Please remember you said that when we discuss it-

Jason Calacanis 1:08:20 No, no, no.

David Sacks 1:08:20 ... in the future-

Jason Calacanis 1:08:20 Hopelessly outnumbered.

David Sacks 1:08:21 ... some other time instead of saying it's a conspiracy theory.

Jason Calacanis 1:08:22 He didn't say biased. He didn't say... Sachs, I gotta stop you there. He didn't say biased. What we said was, it's 20 or 30 to one, it's outnumbering. So, if the pool of things to search and come up with is 30 to one, it's of course going to appear biased, which is what they need to do, is they need to show who's in the ranking, what percentage are left, what percentage are right, what percentage are comito- middle of the road. Show that at the top.

David Sacks 1:08:44 The mainstream media is biased, we all know that. You can defend it however you wanna defend it. You can-

Jason Calacanis 1:08:47 Nobody's defending it.

David Sacks 1:08:49 Okay, fine. So we agree on that. I don't know why you're making these-

Jason Calacanis 1:08:52 I agree with you five times on it.

David Sacks 1:08:53 ... picking your inner points. Okay. My point about Google is they're reinforcing the bias because they uprank the mainstream media sources and they downrank the sources that provided dissenting opinion, or an alternative opinion. Again, why is Vanity Fair upranked above the New York Post?

Chamath Palihapitiya 1:09:08 I don't know if that's... I, yeah.

David Sacks 1:09:08 Is that because of, is that because of their journalistic quality? I don't think so.

Chamath Palihapitiya 1:09:12 One way to think about this-

David Sacks 1:09:13 Why is it... Ho- hold on, why is it that that Kamala Harris search result does not say anything about Trump, but the Trump search result has a carousel on Kamala Harris? That looks programmed to me.

Jason Calacanis 1:09:25 You want an answer?

David Sacks 1:09:25 Yeah.

Chamath Palihapitiya 1:09:25 You want an answer?

David Sacks 1:09:25 That looks programmed to me.

Jason Calacanis 1:09:26 Okay, I'll tell, I'll tell you the also answer. Um, this was the week Kamala... Or this was the last 10 days or so of Kamala taking the position, raising (censored) tons of money, hiring her VP, and Trump disappearing from public life for 10 days. So, there's also a, on top of the 30 to one ratio of, let's say, left-leaning journalists to right, you also have this was Kamala's coronation week, so therefore it's going to be. I don't think Google is in the bag with their algorithm in any way. I think it's the source material they're indexing. Chamath, what are your thoughts?

Chamath Palihapitiya 1:09:59 One of the things that I like to do when I'm in Portofino is, when you see these huge yachts in the bay, I, I like to figure out what they are.

Jason Calacanis 1:10:08 (laughs) Okay.

Chamath Palihapitiya 1:10:09 And so, I use-

Jason Calacanis 1:10:10 Not signing up.

Chamath Palihapitiya 1:10:12 ... Google for, like, a vessel finder. And two of the top three links send me to spyware. And I think to myself every time, ev- every year this happens, "How is it that in 2024, Google hasn't figured out how to click these links in a sandbox, isolate the ones that send you to spyware, and just take them out of the index?" And of course they can do it. They have, you know, 100,000 people and $2 trillion in market cap. So, I think that there's, like, just a level of technical navel-gazing at some level that I think besets every big company. And so there are m- other examples here that you can look at that are a lot less charged than politics. I think Friedberg is right, that it's largely algorithmic, but I think David is right in that there is a quality problem. I think the solution here is that for certain extremely important moments, there needs to be a little bit more intervention, and there needs to be a little bit more curation so that it passes the smell test. I mean, the, the version of this that I, that I also experimented with, and Nick, you can find the tweet that I had, was when I was searching for the assassination of Donald Trump on Google. It just d- it didn't show up. It does show up now. So I think they got the message and they fixed it. So clearly somebody's listening. And I think clearly then, the index changes. So, I think that both things are possible, which is the algorithm can improve, and also that certain things, before people start to complain loudly about this perceived bias, there should be enough intervention to make sure that the algorithmic results pass a smell test. And if they're not, to add some amount of reinforcement learning or something else, some human feedback-

Jason Calacanis 1:12:19 Human curation.

Chamath Palihapitiya 1:12:20 ... that allows, that, that allows you to get to a good answer that's unbiased.

David Sacks 1:12:25 Before we leave this topic, can, can I just show this chart? Okay, look. This is a-

Chamath Palihapitiya 1:12:29 Yeah, we've seen this chart.

David Sacks 1:12:30 ... chart showing-

Chamath Palihapitiya 1:12:30 We know it. Of course.

David Sacks 1:12:30 This is a chart showing-

Chamath Palihapitiya 1:12:31 All of tech, all of tech is deeply biased towards the Democratic Party.

David Sacks 1:12:34 Okay, well people in the audience may not know, okay?

Chamath Palihapitiya 1:12:36 Okay.

David Sacks 1:12:36 Employee donations to, to party are, again, it's well over 90% to Democrats. This basically represents the constituency of Silicon Valley, okay? Inside these companies. We also know that Google search results use more and more manual interventions. Friedberg, you agree with that, right? That over time-

Chamath Palihapitiya 1:12:54 There's a ma- Yeah, th- there, there's definitely... Again, there's, there's meant to not be an editorial process, but there certainly is tweaking of rankings.

David Sacks 1:13:00 Okay. So all the people doing this stuff...... are Democrats. They're liberal. And you're telling me that this does not have an influence and does not create bias. Come on. You can see-

David Friedberg 1:13:10 I'm not saying that.

David Sacks 1:13:10 ... the bias in a common sense search for Trump versus Harris.

David Friedberg 1:13:14 I'm just saying, like, you've, you've... We've all made a huge leap in this conversation from talking about an antitrust ruling, which I will speak to very specifically in a minute, to, "Oh my God, tech is biased. That's what's driving the, you know, the, the, the sense of the nation." I don't know if you've noticed, Sax, but more than half the nation is gonna vote for Donald Trump. More than half, like nearly 60%.

David Sacks 1:13:33 I think it would be like-

David Friedberg 1:13:34 This isn't-

David Sacks 1:13:34 ... I think it would be like 70 or 80% if it weren't for the bias of the mainstream media being boosted by big tech.

David Friedberg 1:13:39 We'll call it balance in the force then, I guess. But, like-

David Sacks 1:13:42 Hold on a second. Maybe, maybe not, maybe not quite that percentage.

David Friedberg 1:13:45 Yeah.

David Sacks 1:13:45 But if you look, if you look at, if you look at issues, polling on issues, the Republican position on most issues is like a 60 to 70% winner, and yet the elections are a nail-biter. And I think a lot of it has to do with the influence of the mainstream media and big tech.

David Friedberg 1:13:59 Yeah. Okay. Well, let's come back. So I think that everyone has... What Sax is speaking to is a deeply-rooted feeling held by politicians, held by regulators on one side of the aisle or the other. When Democrats feel shunned by the search engine or by Twitter or by Facebook, they raise their hand and they say, "Let's regulate these guys." When Republicans feel shunned because they're not showing up in the news rankings or the algorithms, they feel, "Let's regulate these guys." When it actually comes down to the court case, here is what is being described. When you go to Apple and you type in a couple of words in the URL bar that you wanna search for... Because we've all gotten used to this. You guys may not remember this, but nearly 20 years ago when browsers first came out on desktops and on mobile phones, you would not be able to just search by typing into the URL bar. You would have to type in a web search engine in the URL bar, hit Go, and then you go to their search box and you type in your result. What happened around the mid-2000s, 2004, 2005, is you suddenly were able to type in a couple of words into the URL bar of a browser and hit Go, and it would give you search results. The question is, what search engine did it give you those results from? And that's what this lawsuit is about. Google started to pay companies like Apple to make Google the default search engine when you would type in a couple of words and hit Go into the URL bar, because search became the primary way of surfing the internet, not typing in a URL and going to it. And then when they started doing that, they started to see more search traffic. Now, the real question from an antitrust perspective is, did Google leverage its monopoly to pay to continue to be the default search engine to lock in the search market and prevent competition by doing this?

Chamath Palihapitiya 1:15:47 Well, the judge, the judge already said yes.

David Friedberg 1:15:49 The judge said yes. Google is monopolizing search because they're paying to lock in the ability to type in to get the default on the search bar. By the way, you can go into the settings and change it. But what would the other default be? So now, if Apple created their own-

Chamath Palihapitiya 1:16:05 I think, David, I think you're being, you're being too narrow. Hold on one second. You're being too narrow. The initial complaint in the Microsoft Internet Explorer thing that kicked off the whole DOJ thing versus the consent decree were two totally different things. I think that you're underestimating the scope of the remedy.

David Friedberg 1:16:23 I get it. Let me finish. So like-

Chamath Palihapitiya 1:16:24 Okay.

David Friedberg 1:16:24 ... if they were to then say, like, "Let's get... Let's make sure Google can't do that again," what's the search engine? Is it Bing? Is it Apple's search engine? Because then there would be an antitrust claim to say that if there is a default search engine without the consumer having to actively choose what their search engine is, someone is monopolizing the, uh, the install base that Apple has or the install base that whomever has where they are becoming the default search engine. Now, to your point, like the ability for the judge to then say, "You know what? This is one action of many that you are taking to monopolize search. Let's go ahead and figure out how we can prevent you from monopolizing search." And this is really focused on search. It becomes a very hard leap to say, "Let's break up the company. There's bias in the news feed that you guys are ranking." This has nothing to do with search engine rankings.

Chamath Palihapitiya 1:17:10 No, I agree.

David Friedberg 1:17:10 It has nothing to do with owning YouTube. It has nothing to do with, like, owning cloud. It has everything to do