Skip to main content

All In Podcast Episode 104 Notes November 12 2022

 

November 12 2022

  • Bestie Game show
    • Milley or Sacks
    • 3-3
    • If Russia faces prospect of total defeat they will escalate more
    • Top US officials urge diplomacy with Russians
  • Elections
    • Trump backed candidates lost
    • Red wave became puddle or eye-dropper
    • Some of them did win - JD Vance
    • Trump is a weight on the neck of the republican party
    • Sacks got it wrong
    • Sacks was looking at RealClearPolitics poll
      • They were adding a factor based on underweighting on what happened in the last cycle - so RCP overweight was wrong
      • He was looking at only fundamentals - 75% were thinking country is on the wrong track, Biden popularity at historical low - 42%
      • So what went wrong
        • 2 days before election Trump said he’s running - so it became a referendum - who do you want Trump or Biden - he is even more unpopular than Biden
        • Dobbs - twice as significant as early polling was showing - 28% said significant vs 15%
        • Roe v Wade - 15 weeks is maybe a reasonable compromise - DeSantis said this and won - Purple state compromise
        • Pro life ballot initiative in red states that lost - like Kentucky - so Republicans went hard on this issue and lost
        • DeSantis, YoungKin, Kemp are in the middle
        • If people go for total ban, it will go up in flames
        • Dem strategy of propping up extreme MAGA candidates worked - they all lost to Democrats
        • So extreme right nor extreme left did well
        • Winning strategy is messy middle - this is where most of the country is
        • Tax the rich policy in blue state nor full abortion ban in red state won
        • Kathy Hochul lost in NY because of AOC and extreme dems
        • Georgia Senate run off race in 2020 cost the country $10T - because Dems won all this fiscal stimulus was passed - allowed a lot of loose behavior that will cost the country for a very long time
        • So having a balance of power is very important in the country
        • Things went against Perdue in last runoff because of Trump hissy fit - will probably lose runoff again
        • Trump is loved by 40% - but he is capped at 40% - who your messenger is in politics is very important
        • Republican candidates for office have to be perfect - like DeSantis/Youngkin - don’t give your opponents anything to work with - see how Dem Fetterman won - trust fund kid without a real job till 40 - but his image is covered favorably
        • DeSantis won Miami Dade county that went for Hilary by 30 points
  • FTX bankruptcy
    • Brian Armstrong joins the pod - Bestie Guestie
    • Coinbase is public company - assets are backed 1to1
    • Regulated like traditional financial services company but crypto part is not clear so all the business goes offshore - like FTX in Bahamas
    • Spoke to Sam and CZ also - and others
    • FTX had a market maker Alameda was doing risky stuff
    • Terra Luna, Voyager, Celsius, 3AC went down so seems Alameda was also at risk
    • SBF owns FTX exchange and also hedge fund Alameda
    • Alameda had solvency issue - should have let it blow up - but instead apparently committed fraud by moving funds from FTX to Alameda
    • So bought up Voyager, BlockFI, etc
    • Are customer accounts’ coins and exchange’s coins not matching?
    • If you are a financial company you have to hold customer assets 1-1
    • If you are an investment fund or a hedge fund, etc - you can take positions in various coins, investments
    • Some firms had money in FTX but now bankrupt - MultiCoin had 20% of their funds in FTX
    • Coinbase had no exposure to Alameda, FTX, FTT token
    • You cannot use customer deposits to finance operating costs of your business - if you do that you basically directly go to jail
      • Sacks also knew about this in Paypal 22 years ago
    • So there was also a bank run on FTX because FTT price was going down due to CZ rumor and apparently FTX had borrowed $6B of customer funds but backed by FTT - their own token
    • Apparently FTX didn’t have a real CFO or a Board
    • Head of compliance at FTX was Head of compliance at some Poker site a few years ago
    • So apparently intl business, us business, alameda research all in 1 entity - so how do people get their money back - who will go after them
    • They filed bankruptcy in the US - not sure why
    • Sam owns 9% of Robinhood
    • Seems way more like ENRON situation - used customer funds to backstop their own business - committed fraud
    • 95% of crypto trading volume is outside US
    • Centralized (coinbase, exchanges, etc) vs Decentralized (wallet, defi, web3)
      • There is no clarity - SEC or CFTC - security vs commodity
      • Coinbase has been trying to talk to regulators, not making progress
      • Howie test - security is investment in common enterprise with expectation of profit
      • There should be regulation for centralized
    • Actual utility of exchange tokens is questionable
    • Seems Gensler isn’t excited about the idea of this industry existing
  • SBF and red flags
    • Maybe only thing Brian felt was how could FTX have so much liquidity when they had $1B of revenue but Coinbase had $7B in revenue
    • He was going to donate $1B to Dems - he was reputation laundering and doing protection donations
    • He pitched $17B round to Chamath - so Chamath’s team tried to ask for diligence and they were asked to go away
    • Why isn’t SEC motivated?
    • It is a political issue at this point
    • Effective altruism = stealing other people’s money while claiming you will save the world and take some for yourself
    • Addiction studies show smartest people are most addicted - because smarter you are, you can more easily convince yourself that you can figure out the solution
    • Clearly lot of VCs didn’t want to do any due diligence in this case
    • So there isn’t a lot of governance in investing in SV
    • FTX has no board - might have been a problem
    • Lot of venture firms in SV created classes on how to create such tokens
      • Get a team, create a token, buy equity at crazy valuation, equity locked up, tokens were not, put it on an exchange, gullible people bought them, then dump it
    • People should have known better - FTT is not going to be the last token that will go to 0 that was engineered by SV venture firms
    • There are videos today by well known venture firms on how to do this - its part of the deal flow
    • Citadel, Jane Street and Susquehanna, etc are able to front run retail trading by ms - payment for order flow
    • What SBF did is on a different level - he took customer’s money
    • This will become political asap - mom and pop lost money so they will drop the hammer and not do regulation that helps normal people participate
  • Macroeconomic picture

    • Bunch of very positive news

    • 1 - Inflation ticked down

      • Sacks was right - double dip recession is coming - they think there is a double hump in inflation is coming
        • Ticking down to come back up

    • 2 - Federal judge stayed Biden’s attempt to do student loan relief

      • Would have been $500B
      • Now its deflationary

    • 3 - Heading towards split govt so no stimulus over next 2 years

    • 4 - Ukraine wins in Kherson

    • 5 - US said no to Ukraine’s requests for advanced drones and asked them to negotiate end of conflict

    • 6 - Xi Jinping changed covid policy to be more relaxed

    • (Maybe 7 - Big tech cutting jobs like Facebook 11000 jobs)

    • So market might trend up - lets see

    • Friedberg quoting Carl C graph



    • So maybe inflation is going to come down

    • Counter narrative from Gordon Johnson -



      • Maybe not out of the woods yet

    • All Chamath’s startups are being told to have money through Q1 of 2025 - 8-9 quarters of cash - ideally 9 - have to have to have it

    • Because there is still a lot of time left and double dip recession

    • Inflation might come back in next 6 months

    • We are just starting to see draw downs - which will take time to drive behavior change

    • Since 2018-2021, incl estimate for 2022 - we have injected $1T into VC



      • So maybe $500B of this is going to be destroyed

      • $100B+ of older vintages - there will be unfortunate pieces of bad news maybe still coming

      • Lot of people are shutting companies down, giving up on their startup - people are trying to get a real job

      • Lot of acquihires are happening

      • Consolidating talent into startups

      • Someone makes $140K for tech startup, $280K for Meta - works about 20-22 hours a week combined!

      • It used to be 60hr weeks - maybe 80hr weeks - 20 years ago

      • Early days of facebook, executive meetings didn’t start until 9pm

      • Massive rotation away from tech industry

      • People are long healthcare, defense, oil - banking on oil, war, health vs ecommerce

      • If we will have double dip recession, and rates go up, then value of dollar you have now is more than dollar later - so can’t invest in tech

      • 18 months is not enough - 24+ months is the new normal

      • Employees should ask - how much money do you have and what decisions are you going to make to survive?

Comments

Post a Comment