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
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Bunch of very positive news
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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
- Sacks was right - double dip recession is coming - they think there is a double hump in inflation is coming
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2 - Federal judge stayed Biden’s attempt to do student loan relief
- Would have been $500B
- Now its deflationary
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3 - Heading towards split govt so no stimulus over next 2 years
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4 - Ukraine wins in Kherson
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5 - US said no to Ukraine’s requests for advanced drones and asked them to negotiate end of conflict
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6 - Xi Jinping changed covid policy to be more relaxed
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(Maybe 7 - Big tech cutting jobs like Facebook 11000 jobs)
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So market might trend up - lets see
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Friedberg quoting Carl C graph
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So maybe inflation is going to come down
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Counter narrative from Gordon Johnson -
- Maybe not out of the woods yet
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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
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Because there is still a lot of time left and double dip recession
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Inflation might come back in next 6 months
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We are just starting to see draw downs - which will take time to drive behavior change
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Since 2018-2021, incl estimate for 2022 - we have injected $1T into VC
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So maybe $500B of this is going to be destroyed
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$100B+ of older vintages - there will be unfortunate pieces of bad news maybe still coming
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Lot of people are shutting companies down, giving up on their startup - people are trying to get a real job
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Lot of acquihires are happening
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Consolidating talent into startups
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Someone makes $140K for tech startup, $280K for Meta - works about 20-22 hours a week combined!
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It used to be 60hr weeks - maybe 80hr weeks - 20 years ago
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Early days of facebook, executive meetings didn’t start until 9pm
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Massive rotation away from tech industry
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People are long healthcare, defense, oil - banking on oil, war, health vs ecommerce
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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
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18 months is not enough - 24+ months is the new normal
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Employees should ask - how much money do you have and what decisions are you going to make to survive?
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