All In Podcast Episode 84 Notes - June 23 2022

• Why Besties were out for so long
  • JCal thought the AllIn pod was his and then he realized it wasn’t
  • JCal wanted to kick off Friedberg
    • He said Brad Gerstner and Bill Gurley would have higher ratings
    • Because Friedberg was apparently complaining all the time
    • He said he could replace any of them
    • He thinks Chamath is not
    • He told Friedberg’s wife and mom he could be replaced
    • They all thought it was 25% each - JCal thought it was more
    • No more summits and businesses, just the pod
  • Intros are 1% each 😛
  • They are back!
  • Brad Gerstner episodes were higher rating 🙂
• AllInSummit all episodes released
• Markets
  • SPY down
  • May CPI up 8.6%
  • Think about the Great Financial Crisis (GFC) - US stepped in and Fed Reserve bought stuff
  • Pseudo scientific economists came up with MMT - print money and stimulate economy and drive long term growth and governments fell for it
  • Govts around the world printed $35T into the economy that should not have been there
  • So we have been artificially doing this since 2008 artificially - all that money needs to get destroyed to get economic equilibrium in absence of government stimulus due to vote buying
  • $85T is world GDP - so 1/3rd of World GDP has to be removed - so we are the beginning of beginning of something that is going to be long and drawn out - a microcosm of a longer trend
  • So fake money is coming out, but it will happen more
  • It will take 24-36 months - so bottom might not happen for another 18 months
  • 3 asset bubbles being impacted - Stocks, Crypto, now record high inventory for homes so real estate will be hit
  • Milton Friedman - nothing quite so permanent as a temporary govt program
  • GFC they did QE - program was still continuing till 2021-2022 - Europe is still doing it, they are still buying bonds inspite of 9% inflation - it was break glass in case of emergency program during 2008 GFC
  • Fed is the #1 culprit and Jerome Powell
  • #2 culprit is Joe Biden
    • Canceled Keystone pipeline
    • Pushed through last $2T of stimulus - economists in his own party like Larry Summers said don’t do it
    • Could have found off ramp in 2021 to avert Ukraine crisis
      • Asked his cabinet what to do and they said fight the Russians
    • Janet Yellen is going around asking people to not ban Russian oil
    • Rouble is at 5 time high
    • So they are saying they want to fight proxy war
    • Republicans are also hypocritical about this
    • Thank god for Joe Manchin saving us from spending another $4T
  • Long term target is 2% inflation
  • Stan Druckenmiller said last year don’t buy bonds and don’t inject cash into the economy
  • Economy was growing robustly and low unemployment, inflation was high - so should have eased off - Fed made bad judgement call to not pull money out of the system sooner, now they are pulling back too much too soon - rate of pulling out is too much - can cause recession
  • Fed mandate
    • Max employment
    • Max GDP growth
    • Price stability
  • Inflation rate is calculated by 477 government workers walking around with iPads and asking questions of people - instead of using raw feed from visa, mastercard, etc
    • So data is bad
  • Buckle your seat belts because next 3-4-5 months of CPI are going to be bad - 7, 8, 9%
  • Rent is going to go up a lot
  • Oil will be $500 per barrel
  • Russia will mess with Europe on Natural Gas prices
  • So we will have rampant runaway costs with no way to get back them in check
    • What is Ukraine Russia war policy
    • China conflict resolution
  • No credibility for Fed - they will over correct
  • So things will get worse
  • Example - private equity leveraged buyouts will make things really bad - contagion in debt and commodity markets
  • Real Estate will die - 30% correction with rising interest rates and inability to refinance will make things very bad
  • Consumer confidence had biggest drop in 40-50 years
  • Only 24% of people think we are on the right track right now
  • 70% republicans, 50% democrats think we are already in a recession
  • Psychological and they are changing behavior also
  • So its reflexive - very hard to put the horse back in the barn
  • Either we get recession or stagflation
  • Read Ray Dalio blog
  • Need to change how Federal Reserve operates - can’t have humans apply subjectivity to how we change rates
  • We should have continuous real time monitoring of data and react in real time - should be adjusting rates daily basis like 1 basis point at a time
  • Silly that we are operating like this in the digital age
  • Fed has dual mandate of considering employment and inflation
  • Administration has been politicizing Fed - let them do what they want
  • Real time could also be bad
• One of the canaries in the coal mine - what happened recently to Facebook
  • Facebook was down 400 points - everything was up but they were down
  • Why? Look at who is buying
    • Most informed buyer is hedge funds, poorly informed buyer is retail
  • Facebook is mostly owned by hedge funds and poorly by retail
  • Smart money sold it a lot even though rest of the market was up
  • So now others will also drop
  • Wall St has this year expected record earnings and next year even more
  • Chamath thinks wall st is wrong and earnings will drop this year and next year
  • So equities will drop
  • Cash burning non profit tech companies will drop a lot
  • We do have 10 million job openings but that number is coming down fast because of layoffs
  • We need 2M people entering the labor force
  • Have to fix supply chain and improve the economy
  • Transportation, housing, healthcare, groceries are highest part of daily living
  • Auto loans delinquency has spiked a lot
  • S&P 500 went up with M2 money supply - 0.92
  • So if money is taken out of the system, stocks have to fall also
  • Job openings are dropping 400K per month
• Startups
  • Need to adjust their behavior
  • Coatue summit takeaways
    • 3-4 years is the new 2 years for runway, so 2 years means you’re raising in 1 year when you will raise in a recession - so you will get bad valuation or less money
    • So you need 3-4 years of runway - which is really unrealistic
    • Survey of founders revealed they know recession is coming but also they think that will not cut and think they will out-accelerate their competitors
    • Survival of the quickest graphic from Sacks
    • For those that lived through 2000, it was 4 years of hell and grinding
    • Don’t give up cash in your bank account right now, will leave lots of options if you use it
    • Tiger Global has $17B hit
    • Valuations of best of the best is 20-30X ARR
    • So Snowflake is 8X for best public SaaS companies - 40% growth
    • So think you’re spending the next round’s money and you will spend less
  • People have been long tech stocks - 80% down, long crypto, down 65%
• Crypto
  • BTC price is down 71%
  • bottomed out at 17K
  • Three Arrows Capital closed
  • Terra Luna collapsed - founders and employees not allowed to leave South Korea
  • Solana down and Solend Whale was frozen
  • Price action was decoupled from progress in the space
  • Crypto space was heavily leveraged up - so crash was worse
  • Token sales will be looked into - so many ponzi schemes
  • A16Z did lot of crypto - Chris Dixon - their marks last year vs this year must be crazy
  • People don’t even know who to sue when they wanted to sue Binance - US investor lost $1.2M and couldn’t find corporate entity to file lawsuit against - in trillion dollar market with such lack of oversight, regulation is coming
• Sacks took out disparagement clause - JCal will do intros next week
• Ukraine War
  • Russian mainland to Kaliningrad goods being stopped - Lithuania is stopping Russia to Russia - instead of Poland they are doing it - they are a member of NATO
  • So there is low upside to stopping coal, gas, etc and downside is that we are into WW3
  • US has to instruct NATO allies to not do this
  • Cannot play cops and robbers on the global stage
  • Its not good or bad, its about smart vs dumb
  • US pulled us into war and forced Europe to do it also and they are suffering
  • A contingent went to Ukraine to figure out how to organize a detente - a Lehman like contagion could happen soon
  • By and large, Russia has won - they are selling it everywhere
  • Russians have won 20-25% of country, won Donbass, with help of Russian separatists in Ukraine - Ukraine is running out of ammunition
  • Francis Fukuyama is always wrong - he said in March / April US will win war - he is wrong
  • Russian economy is effectively thriving - they are selling gas, and phospate and prices have doubled and tripled and rouble is at record high
  • $572B wiped from European stock market and went into Russian market - we ripped the stock out of retirement funds and gave all the securities to the Russians for free
  • Sanctions were a restriction on the free market - Russia was able to sell to restricted partners and Putin is making a lot of money
  • Oil is now settled in not US dollars, but in Chinese Yuan
  • Nuclear and energy independence was not popular and they made a mistake - Environmental groups highly affected popular opinion
  • In the US it was elite opinion
  • This winter Ukraine issue will fracture western alliance
  • Germany and France will question US leadership
  • Lithuania would not poke big Russian bear without US behind them
  • European countries debt to GDP ratio is very high
  • Western alliance is more than just military
  • China is going to be happy about this
  • China is releasing battery technology that can go 1000 miles on 1 charge
  • China’s input price has been capped
  • China never involved itself in other countries’ issues
  • EU GDP compares to US and 10x of Russia - they can defend themselves - why is the US not letting them defend themselves
  • US has to stop being world’s policeman - best policing is community policing - boots on the ground
  • Circles run around us in innovation by China
• Biden and 2024
  • Biden will be lame duck if economy is so bad
  • Newsom vs DeSantis 2024
  • When ideologues lose they say their message wasn’t communicated enough
  • Newsom went on TruthSocial and is positioning himself as someone who is fighting for progressive values
  • Democratic bench is bad
  • DeSantis has eclipsed Trump in Republican voters
    • Influencers have already from Trump to DeSantis
    • Newsom > Trump
    • DeSantis > Biden
    • DeSantis ~ Newsom