E163: Market rips, Media RIFs, Texas defies Biden, Fintech reckoning, ARkStorm 2.0 & more

(0:00) Bestie intros! (1:37) Markets rip on strong economic data (17:05) Media's broken business model, death spiral (35:47) Texas defies the Biden Admin on the Southern Border after SCOTUS votes in favor of the federal government (1:04:18) Ethics of publishing non-public financial data (1:13:07) Fintech's reckoning (1:26:27) ARkStorm 2.0 Follow the besties: https://twitter.com/chamath https://twitter.com/Jason https://twitter.com/DavidSacks https://twitter.com/friedberg Follow the pod: https://twitter.com/theallinpod https://linktr.ee/allinpodcast Intro Music Credit: https://rb.gy/tppkzl https://twitter.com/yung_spielburg Intro Video Credit: https://twitter.com/TheZachEffect Referenced in the show: https://www.cnbc.com/2024/01/25/gdp-q4-2023-the-us-economy-grew-at-a-3point3percent-pace-in-the-fourth-quarter.html https://www.barrons.com/livecoverage/stock-market-today-012524 https://abcnews.go.com/Business/dow-closes-above-38000-record-high/story?id=106576234 https://www.cnbc.com/2024/01/11/cpi-inflation-report-december-2023-consumer-prices-rose-0point3percent-in-december-higher-than-expected-pushing-the-annual-rate-to-3point4percent.html https://www.nytimes.com/2024/01/05/business/economy/jobs-report-december-2023.html https://finance.yahoo.com/news/gas-prices-national-average-hit-by-mid-winter-blahs-on-way-to-3gallon-165833984.html https://www.cnbc.com/2024/01/24/tesla-tsla-earnings-q4-2023.html https://www.federalreserve.gov/newsevents/pressreleases/monetary20240124a.htm https://www.bloomberg.com/news/articles/2024-01-23/china-mulls-stock-market-rescue-package-backed-by-278-billion https://twitter.com/paulkrugman/status/1750529905627128154 https://fiscaldata.treasury.gov/americas-finance-guide/national-debt https://twitter.com/RealEJAntoni/status/1750537238578930101 https://news.gallup.com/poll/266807/percentage-americans-owns-stock.aspx https://fred.stlouisfed.org/series/FEDFUNDS https://www.forbes.com/sites/bradadgate/2023/12/19/media-companies-have-slashed-over-20000-jobs-in-2023 https://twitter.com/maxwelltani/status/1750507633247678531 https://www.nytimes.com/2024/01/23/business/media/los-angeles-times-layoffs-newsroom.html https://www.nytimes.com/2023/11/01/business/media/conde-nast-business.html https://www.cnn.com/2024/01/23/business/conde-nast-staffers-walkout-layoffs/index.html https://www.latimes.com/entertainment-arts/business/story/2024-01-18/la-times-guild-calls-for-one-day-walkout-to-protest-looming-staff-cuts https://www.nytimes.com/2024/01/19/business/media/sports-illustrated-mass-layoffs.html https://www.npr.org/2024/01/18/1225446347/pitchfork-faces-layoffs-and-restructuring-under-conde-nast https://fortune.com/2023/11/30/yet-another-media-company-is-laying-off-workers-as-the-industrys-retrenchment-hits-vox-media-for-the-second-time-this-year https://variety.com/2023/digital/news/jezebel-shutting-down-go-media-layoffs-1235785877 https://www.npr.org/2023/05/15/1173260377/vice-media-bankruptcy https://twitter.com/BillAckman/status/1750537848447533207 https://trends.google.com/trends/explore?date=today%205-y&geo=US&q=wsj.com,Businessinsider.com,twitter.com,nyt.com&hl=en https://trends.google.com/trends/explore?date=today%205-y&geo=US&q=wsj.com,Businessinsider.com,twitter.com,nyt.com&hl=en https://www.latimes.com/california/story/2021-08-20/recall-candidate-larry-elder-is-a-threat-to-black-californians https://www.cbp.gov/newsroom/stats/nationwide-encounters https://www.wsj.com/us-news/illegal-immigration-record-border-6db29cad https://www.cbsnews.com/news/migrant-crossings-u-s-southern-border-record-monthly-high-december https://www.scotusblog.com/2024/01/court-allows-border-patrol-to-cut-texas-razor-wire-along-rio-grande https://www.texastribune.org/2024/01/22/texas-border-supreme-court-immigration https://gov.texas.gov/uploads/files/press/Border_Statement_1.24.2024.pdf https://nypost.com/2023/08/19/biden-sells-border-wall-parts-to-thwart-gop-push-to-use-them https://www.nytimes.com/2023/09/07/nyregion/adams-migrants-destroy-nyc.html https://www.cbsnews.com/news/cbs-news-opinion-poll-americans-border-crisis https://www.foxbusiness.com/politics/california-offer-illegal-immigrants-free-healthcare-deficit-soars-population-shrinks https://einvestingforbeginners.com/average-gross-profit-margin-by-industry https://twitter.com/TexasLindsay_/status/1750427983448256552 https://twitter.com/WhidbeyWXGuy/status/1750006365790282175 https://twitter.com/US_Stormwatch/status/1749669643634233384 https://twitter.com/Weather_West/status/1750619800840110131

Speaker names marked ? are inferred from speaking time and the show’s known hosts — they are not voice-verified.

• 0:00Jason Calacanis?

  Is this a real picture? Is this how you? Come on, stop. No, no, no. This is how we last year.

• 0:09David Sacks?

  I recognize the gut. Very, it's like a fingerprint.

• 0:15Jason Calacanis?

  You gut printed him? Oh my God. Look at this picture.

• 0:24Jason Calacanis?

  No.

• 0:31David Friedberg?

  I don't think you guys know, there's a treasure trove. You go to Google Images, you type in Phil's name and WSOP.

• 0:36Jason Calacanis?

  Which is the last thing I would ever do.

• 0:37David Friedberg?

  Dozens of these, dozens. Every year he dresses up in some outfit.

• 0:42Jason Calacanis?

  Oh my God.

• 0:43Chamath Palihapitiya?

  Let me see which ones I like.

• 0:44David Sacks?

  Yeah, the plunging V lines a little much. I could do without the plunge.

• 0:48Jason Calacanis?

  He does have a perky C cup, so sometimes you're gonna use your assets.

• 0:55Jason Calacanis?

  Oh my Lord. Nick, pull this one up.

• 1:04Jason Calacanis?

  Oh my God.

• 1:06Chamath Palihapitiya?

  It's just incredible.

• 1:08Jason Calacanis?

  It's Poseidon.

• 1:09Chamath Palihapitiya?

  Incredible. It's incredible.

• 1:11Jason Calacanis?

  Oh, no, wait. It's Poseidon's whale. It's no, no, it's Poseidon.

• 1:14David Friedberg?

  Oh, oh, Phil, we love you. We love you.

• 1:17Jason Calacanis?

  We love you, Phil. And Phil loves attention.

• 1:37Jason Calacanis?

  All right, everybody. Welcome to episode 163 of the All In Podcast. With me, of course, Sultan of Beeep Science. We'll find out his crop soon. David Friedberg and David Sacks, the Rain Man himself. And of course Chairman Dictator, Jamar Piyapatiya. Let's get to work, boys. Tons and tons of interesting topics on the docket. Markets are ripping, jobs and inflation looking good as the Dow hits an all time high. Forget about soft landings, boys. Sentiment is now flipping to a market meltup in 2024. The GDP numbers that just came out smashed it 3.3% year over year in the fourth quarter. Expectations were just 2%. Dow and S and P 500 both hit all time highs in the past week. Dow's above 38,000 for the first time in history.

• 2:21Jason Calacanis?

  CPI number reasonable, up 30 basis points month over month. 3.4% from last year, getting close to that 2% target. And the jobs data beat expectations. 2023 jobs, not so bad at 2.7 million. It's the fifth strongest year for job increases since 2020. Real test will be, of course, this year. We've seen a bunch of layoffs. We'll get to that later. Gas prices plummeted 40% from $5 a gallon in the summer of 2022. Now just $3 a gallon. And consumers are apparently feeling great about the economy. University of Michigan, which is the most respected report on consumer sentiment, said it increased in the past two months, the most since 1991.

• 3:05Jason Calacanis?

  And the Federal Reserve Bank of New York survey found that Americans inflation expectations have reached their lowest point in three years. Kalshi is a prediction market I like to use, and it says 37% chance of a cut by March. That's dropped, so people are thinking the rate cuts are going to get pushed back. And prediction markets also think 4 to 5 rate cuts still in 2024. But again, people seem to think they're going to get pushed towards the spring or second half. Chamath, you alluded to this meltup. I don't know, was it like three or four episodes ago? That we might have a chance of a market meltup. Everything seems to be aligning here. What do you think?

• 3:42Chamath Palihapitiya?

  I think the important thing to note is that Tesla put out a pretty important missive at the end of market close yesterday, which essentially said that expect a very different demand curve in Q1. And you have to understand that Tesla has done the best job of understanding supply, demand, and their pricing power and the pricing elasticity of their cars. And so the fact that they put this out to me says that we are now really in the belt tightening phase.

• 4:24Chamath Palihapitiya?

  Of this kind of like economic process. So I think that the next probably six to nine months are more of these kinds of things where folks realize that the amount of discretionary income that people had is less, they will either lower prices or lower expectations. And so the thing is then what happens to the market? This is sort of why about a month ago, when we on the pod, I was kind of like, we're going to be in a melt up. And it's because the economy will cool, demand will cool, inflation cools, rate cuts come in. Again, it's not really worth debating whether it happens in six months or nine months. But

• 5:07Chamath Palihapitiya?

  when we look back 18 to 24 months from now, the market will probably be materially higher because there's just so much money on the sidelines and that just continues to grow and grow and grow. So trillions of dollars on the sidelines, cooling economic consumption actually on the ground meets reasonable to resetting to lower expectations for some of these companies. I think that all roads lead to a continued melt up.

• 5:34Jason Calacanis?

  Sack, you were just on the prediction show saying, hey, maybe it's going to be a little bumpy. So and again, this isn't, none of this is investment advice, we're four dudes talking. But what are your thoughts on the economic data and the melt up scenario versus the soft landing versus the rocky landing?

• 5:50David Sacks?

  Well, Jason, we're only three weeks into the new year. So there's plenty of time for bumps here. But this report was good. I mean, the GDP growth was good. Inflation continues to come down. So, you know, we are on track here for a soft landing, it seems like. But yeah, there's definitely potential storm clouds on the horizon. Like Jemath mentioned, there's some data points out there suggesting that the consumer may not stay as strong as the consumer has over the past year. There's a few other things though that are kind of going on. The Fed has announced that they're going to end BTFP, the Bank Term Funding Program on March 11. That could reveal weakness in the regional banking system. Remember, we had a banking crisis in March of last year that BTFP sort of papered over.

• 6:35David Sacks?

  You also have what looks like a crash happening in China. The Chinese government took some actions to prop up the stock market there, which is a pretty negative signal. That mainly impacts the Chinese economy, not us, but it will have an impact on the global economy if China has a big crash. And then we still have a lot of geopolitical risks. I mean, I still think we could get an oil shock in the Middle East. If this situation broadens into a larger regional war, maybe with Iran, you could get a shock in the price of oil and then that could have a big impact on the economy. So, look, I think the baseline is that the economic outlook is good, but there's definitely potential for things to still go wrong.

• 7:17Jason Calacanis?

  Free break. We've talked about the debt here in this country, 35 trillion now or so. What are your thoughts in terms of how politicians are going to look at the future now and spending? When they keep spending and markets keep going up? And maybe it's good for elections and getting votes as well?

• 7:39David Friedberg?

  I put a chart from Paul Krugman here. He put out this tweet analyzing unemployment against inflation over the last 20 years and plotted on a graph how they're related. And as you can see, there's a pretty linear relationship between unemployment and inflation, except for the last couple of years since COVID, where inflation has spiked completely off the charts while unemployment has remained low. And I think if you look at what's happened from a federal debt perspective over this period of time, we've seen US federal debt climb from $22 trillion at the end of 2019 to $34 trillion, which is where it sits today.

• 8:24David Friedberg?

  An extraordinary increase in federal debt in the last couple of years, which largely explains what happened. We effectively took this massive hole in the economy that arose from the pandemic and the shutdowns around the pandemic, and we filled that hole with money. And we took on debt to fill that hole. And as we filled that hole, assets inflated, financial assets inflated. So the stock market went up even as core...

• 8:54David Friedberg?

  Inflation and economic growth meant that we were paying more for less. So things look good. The stock market as an indicator looks good, but it's largely been filled by the capital that we've now taken on into the economy through fiscal and monetary policy over the last couple of years, which has driven up inflation over this period of time. And now at some point, we're going to have to pay the cost for the hole in the economy over the last couple of years. So we bridge the gap, but we've got a bigger problem looming on the horizon. If rates don't decline fast enough, I think I tried to do the math on this. Every day that interest rates are off, are 1% higher, based on the current federal debt level, we're paying an incremental billion dollars in interest payments per day. The US is.

• 9:38David Sacks?

  That makes sense. I mean, actually, let's pull up this chart real quick. I think the average interest rate on our debt is now around 3%. That's up from about 1.5% in 2020. So during the ZERP period. And the 10-year is still at, what, 4, 4.1%? So there's still room for that number to move up, even with rate cuts on the front end of the curve. And you can see that if you annualize the Q4 interest that we paid, it's around a trillion dollars. Which makes sense, right? You got about 34 trillion of debt, about to be 35 trillion. 3% is 1 trillion. And so, Free Bird, to your point, 1 billion a day, 365 billion

• 10:20David Sacks?

  a year. Yeah, that's basically 1% of a $35 trillion debt number. So yeah, that makes sense.

• 10:26David Friedberg?

  You know, it's pretty scary because it's already consuming a large chunk of the federal outlay, and we're still running $2 trillion deficits. I'm not a single person is talking about how we end that. Why is it important? We have to keep the stock market up. We have to keep financial asset prices up because we're so heavily levered. And if they fell down, pensions, retirement funds, everyone's housing value, where most people have most of their net worth tied up, collapses, it creates a cataclysmic effect. So we have to inflate all these assets. And that's what happened. We filled that hole over the last couple of years. Now we've got the quandary of how do we get out of the hole, that we're going to have to pay back over time.

• 11:02Jason Calacanis?

  Yeah, and we cut these rates to lower our interest payments. What's going to happen? People will take money that's sitting in cash, as you've pointed to, Chamath, there's trillions of dollars sitting in cash, and they want to look for some returns, some alpha, they're going to put it into markets. And so then we have a rush into the magnificent seven and maybe even, you know, the next tier of stocks.

• 11:25Chamath Palihapitiya?

  That's what's going to, I think that's what's going to exacerbate all of this because you can't correlate stock market returns with the number of people that are actually making money. So even though the top seven stocks are going up, those holdings may actually be concentrated enough that it's not the case that the millions of market participants are actually seeing those gains, it's just that a smaller percentage. That's going to further exacerbate this sense of FOMO that everybody has because they own all of these other stocks. Let's just take the top 500. So even if you own the S and P 500 or some component of it,

• 12:06Chamath Palihapitiya?

  there are 493 other companies that people just don't care about right now. And that's crazy. So all of that pressure is just going to create a lot of psychological necessity in people's minds at some point where they just see these things going up, where they say, I need to be a part of this. And I think that's what unlocks a lot of this money on the sidelines. And then as long as you have rate cuts and reasonable inflation and reasonable growth, there's no reason to think that the, that people will not reinflate risk assets.

• 12:38Jason Calacanis?

  And just so people know, about 60% of Americans own equities. It always goes between 50 and 60%. Interestingly, it kind of parallels the homeownership in the country, which is also low 60%. It went as high as, I think, 67, 68% homeownership right before the Great Recession. So 2006, 2007, it kind of peaked. So now everybody, Chamath, runs into equities. Those go up and then consumers, maybe some percentage of them feel affluent. They feel rich again and they start spending again. And then the inflation might kick back up. Is that the cycle we might see here?

• 13:14Chamath Palihapitiya?

  I don't think so. I think that rates are probably, I think that we're in a much more interesting. And non-obvious trend that I think is worth talking about, which is that for most of us, forget boomers for a second. So take people that are 50 years and down. We've spent 20 years of our productive economic lives. So for us, Jason, that's two thirds of our productive economic life as workers. For younger people, it's 100% of their productive economic life as a worker in a zero rate environment. And we adjusted and we made decisions because of some variables that were true that may fundamentally no longer be true.

• 13:57Chamath Palihapitiya?

  And one of the things that I think we've never really understood is how to build a business in the face of sustained rates that are not zero, that are not always getting cut, that don't have trillions of dollars of stimulus because of governments stepping in, as Reberg well said, to fill these holes. If that doesn't happen over the next 10 or 15 years, we're in a different phase, which we've not really seen for our generation. And I think that's really what is worth debating is are we at this inflection point where rates will always be between 2 and 4% for a very long time? And then, you know, we said this last week. This is why there will be gross margin decay. This is why governments will step in to make sure that winners don't get much, much bigger.

• 14:41Chamath Palihapitiya?

  All of these things are about using the tools of capitalism to basically reallocate who the winners and losers are and to reallocate what the risk-free rate of return will be in a world where it's just very different than what it was. And I think that that's, that's the really big question that I have in my mind.

• 14:57Jason Calacanis?

  Yeah, and if we were to look at the Fed funds rate, we've lived since 2010 with almost no, yeah, 0% interest rates essentially. But if you go back to the 80s and 90s, when we were first starting our careers, it was a much different situation for mortgages and for, this is the Fed funds rate. Mortgages, you can add a couple of points to this to get the equivalent. So what do you think that'll be, Sax? If we're going to be operating businesses differently in this environment, what is the new discipline going to be here? Or do you think we're going to get right back to? You know, when interest rates come down to 3% or 2% or whatever, we're going to just get back to the party.

• 15:34David Sacks?

  I don't think it's ever going to be quite the party that it was in 2020 and 2021, where both the Fed and the federal government were just airdropping money into the economy. At that beginning of COVID, the economy was contracting at an annual rate of about 30%. And we ended up adding, what, 7 trillion or so to the national debt to basically paper over that problem that we largely created through the lockdowns.

• 15:58David Sacks?

  So in any event, it's never going to be like that again, because we're never going to have that magnitude of money airdropped on the economy. But will things get a little bit frothier if rates go down? Absolutely.

• 16:09Jason Calacanis?

  Yeah.

• 16:09David Sacks?

  But I think that just because short rates come down, meaning the Fed drops the Fed Funds rate from, where is it now, like 5.5 to, I guess, suspect come down to 4, doesn't mean that the long-term rates, call it the 10-year, will come down much. I mean, normally, the yield curve is upward sloping. So, you know, in a normal economy, it's not clear that the 10-year is going to be going back down to 2%, 3% where it was during the ZIR period. It probably will be around 4%, plus or minus. So just capital will be a little bit scarcer and valuations will be lower, more normal. But things could pick up for sure, relative to where they've been the last couple of years.

• 16:54Jason Calacanis?

  Last couple of years have been brutal, but yeah, I'm with the rest of the panel here. I don't think we're going to see, I don't think in our lifetime, we're going to see that 2020, 2021 again. I don't think that's happening for 20 years or so.

• 17:05Jason Calacanis?

  All right, listen, speaking of like the economy, layoffs have continued, not just at tech companies, but I wanted to point out just how brutal this has been for media companies recently. In 2023, 20,000 job cuts, that's on top of 30,000 during the COVID era, and it's not stopping. Business Insider just announced 8% cuts. LA Times cut over 100 people. The billionaire owner of the LA Times says he's getting close to a billion lost owning that asset. Use air quotes on the term asset. Conde Nast, cutting 300 people. And all of this is happening while unions are hosting what I'll just call meaningless protests. Sports Illustrated and Pitchfork, two really well-respected brands, obviously.

• 17:50Jason Calacanis?

  They're done, basically. They're cutting 100% of Sports Illustrated, Vox cut another 4%, Jezebel shut down, Vice went bankrupt last year. It's just absolute, complete chaos and Bill Ackman is loving it. "Business Insider is a sleazy, unethical defamer of some of our greatest heroes. It's a worthless P O S rag run by the lowest of the low in journalism. It is a stain upon humanity", was his quote today, his commentary on the press.

• 18:17David Friedberg?

  Jason, you've run like these media businesses before. Like, what's the underlying economic condition here that's changed in the last couple of years that's causing all these layoffs to happen? Like, what do you think's actually going on, like financially with these businesses? Is it advertisers running away or what is it?

• 18:38Jason Calacanis?

  Advertising and classified businesses got gutted and obviously print got gutted over the last 20 years. Google and Facebook, all the gains in advertising have gone to those two firms and now TikTok, obviously. And Amazon, Uber, building respectable ad businesses as well. So, all of that takes ads out of publications and puts it closer to the point of purchase, right? You're on Amazon, you're right there with the buy button. So, would you advertise? And the New York Times are there. So, if you were to look at, like, say, a journalist's salary, pick 100,000 all in, fully baked, most journalists are at 50, 60K in the United States, you know, get up to 80, 90, 100K, would not be abnormal. Well, your overhead's going to typically be two or three times that. So, you can put that journalist at 200,000 or 300,000 dollars in

• 19:23Jason Calacanis?

  cost. You look at that, what can a journalist do in terms of the number of stories a week? If you had them as a beat reporter, maybe two stories a week, you do two stories a week.

• 19:34Jason Calacanis?

  If you're, you know, 100K salary and you have like maybe 200 or 300, fully baked with overhead and managers and salespeople, that means each story is costing about 1,000 bucks. If you were to do a $10 CPM or RPM on that, that means every story, to break even, In today's market, we need 100,000 people, 150,000 people to read it. Obviously, that's not happening. So these publications are just hemorrhaging cash. If you were to put that same journalist on a subscriber platform, that means they gotta get like 15, 20 subscribers per story for a year to hit their, just their salary. So the economics are just hugely broken, except for subscription businesses. There's a ton of other nuance, but I could drone on and on about it. But the, the math basically does not work.

• 20:18Jason Calacanis?

  At the same time, Saks, you have experts, right? Who are now going direct. So if you want Draymond Green and J.J. Reddick to tell you about basketball, you can watch them talk about it. Yeah, I did a tweet on this the other day. Or if you want, this is, you know, just not to toot our own horn here, but we're the number one business and tech podcast. And we do this as experts in the field. We're not journalists, obviously. So that's probably, I would say, experts encroaching and people going direct to sources. That's probably taking 20 or 30% of an already crippled business. So it's gonna get worse and worse. And of course, having unions and going on strike for your work at the same time is like literally the kitchen staff on the Titanic. You know, like going and doing a walkout after Titanic's hit iceberg. Like it's completely meaningless.

• 21:01David Friedberg?

  I think that there's this like slow attrition over time away from centralized sourcing of data and centralized analysis of that data to a more decentralized sourcing of data and then distributed analysis of the data, which is the evolution of the internet has enabled that. To compete, traditional media has largely had to create sensationalist approaches to taking the data that's out there and creating stories around it that are more sensational, that bring emotion, that make people upset, that make people happy, that drive an emotional reaction. If you look at the New York Times and you can look at these archives online from the 1960s, the articles are so damn boring.

• 21:44David Friedberg?

  Like you read them, it's like literally just reading a ticker tape of information. There's nothing that we see today represented in the media of old, which was really the source of data. And now it's had to have become a narrative, it's had to have become a storytelling operation in order to keep people's attention and to drive clicks. The problem with that is that over time, the media businesses have lost the trust and faith of the viewership and the readership. Because they see how much of this is biased and opinionated, and they don't just get pure analysis and pure data. So in the current model, which you've described well, I think it's more about the fact that you've got all these crowdsourced citizen journalism type systems, whether it's Wikipedia or WikiLeaks or Twitter, or YouTube, people are putting direct video, direct evidence,

• 22:29David Friedberg?

  direct data, direct documents on the internet. And then analysts, like we're a good example of four people on a friggin podcast that just talk about stuff that we're reading and data that we're picking up. And we analyze it in a way that people then choose which analysts do they want to go to for which understanding of data that's out there. And that model totally breaks the old media model, which unfortunately has evolved into this like untrustworthy, biased and opinionated source to keep the business alive. So it's definitely a breaking that's happening. I think it's very hard for that model of centralized sourcing of data and centralized analysis of data to happen in one place to continue in that old form. And this is definitely the breaking of the old.

• 23:06Chamath Palihapitiya?

  I went to trends.google.com and I just compared wsj.com to bi.com to twitter.com to newyorktimes.com. And what's incredible is two takeaways. The first is that media is really the least relevant it's ever been, and they really are on a lifeline. That's number one. And second is if you just scroll down a little bit, Nick, Twitter is really like a universally relied upon resource in the United States. The WSJ actually also does a pretty good job. But if you look at, for example, Business Insider, it's really three states, Texas, California and New York. And if you look at the New York Times, a little bit further down, it's a bunch of the traditional democratic states.

• 23:51Chamath Palihapitiya?

  So what you have is this regional kind of segregation that's happening in terms of information. But for the most part, nobody cares about these print outlets. And I think that that explains why you're forced to lie. If telling the truth, which is basically a commodity...

• 24:11Chamath Palihapitiya?

  It's weird, but it actually is a commodity. It's just there. The truth is there. And you can't build the business by telling the truth. You have two choices. One is to opine on the truth.

• 24:24Jason Calacanis?

  Opinion.

• 24:25Chamath Palihapitiya?

  But that then is a function of, frankly, to be honest, your intellect and how interesting you are as a person and how you relay that information. And you see the people that do that well. You can debate the truthfulness of all of these people, but the Rachel Maddows and the Ben Shapiro's of the world.

• 24:41Jason Calacanis?

  Tucker.

• 24:42Chamath Palihapitiya?

  Tucker. They're just extremely eloquent, interesting arbiters of the information. They may take spicy takes on the truth.

• 24:51Jason Calacanis?

  Yeah.

• 24:51Chamath Palihapitiya?

  But they don't outright lie. And then you have everybody else who's frankly, not nearly as good as them. And the choice is to lie. And that's why Ackman can say this about Business Insider, because Business Insider doesn't have a Rachel Maddow, nor do they have a Tucker Carlson or a Ben Shapiro. And so what choice do they have except to lie? And so for all of us, it's a very simple litmus test. You're better off trusting a really opinionated, articulate person. Why? Because the thing that they probably don't want to lose is their fame. But the anonymous person at Business Insider has gone into a totally different direction. They've decided to lie as a service.

• 25:35Chamath Palihapitiya?

  And so you just have to ignore it all.

• 25:37Jason Calacanis?

  Yeah.

• 25:37Chamath Palihapitiya?

  Because you can't rely on it.

• 25:40Chamath Palihapitiya?

  That's my simple takeaway, looking at this.

• 25:42Jason Calacanis?

  Yeah, I like it. It's a good take, hot take, spicy.

• 25:44David Sacks?

  Yeah, I mean, look, I think there's several things going on here. One is that outlets like Business Insider have an incentive to be sensational and to either lie or to cherry pick in the way that Chamath is saying. And basically, they put out a lot of clickbait defamation. I mean, that's basically what Ackman is saying. Um, second, I think there is a glut of a lot of mainstream media publications all putting out the same thing. And it's not the truth. It's the official narrative. So, you know, how many political reporters do we need just being stenographers for the White House kind of party line? And if you're not gonna actually dig deeper to expose how the official narrative they're

• 26:26David Sacks?

  telling you is not the truth, if you're simply gonna print whatever they tell you to print, then why do we need so many of you? So I think that there's a glut of publications that's all putting out the same official narrative. I think the third thing is there is a go woke, go broke dynamic going on. I mean, you talk about like the LA Times. The reason why they're losing so much money is that family that bought it, they put their woke daughter in charge of it. This is basically like a woke Nepo baby on steroids, basically an Alexander Soros type who's made the LA Times the most radical woke publication, you know, within the range of the mainstream media. Remember the ones who put out that ridiculous story on Larry Elder called the new face of white supremacy or something?

• 27:09Jason Calacanis?

  Yeah.

• 27:10David Sacks?

  In the case of Sports Illustrated, they, they basically pulled a Bud Light and they lost a lot of subscribers when they put a trans person on the cover. I mean, look, the swimsuit issue. I mean, look, they had a formula that worked there. What their audience wants is Christie Brinkley on the cover, not Dylan Mulvaney. Okay? I'm not mean to offend anyone by saying that, it's just the truth. And then I think the last thing is, Jason, what you're saying about the experts, I do think that the gel man amnesia effect may be wearing off. Remember what Michael Crichton said about the gel man amnesia effect where you read one part of the paper where you actually know something about the subject matter and you realize it's all just lies or lazy reporting, but then you turn the page to some other part of the paper you don't know as much about, you just assume it's true.

• 27:55David Sacks?

  I think because experts are able to go direct for every section of the paper now, people are realizing that the whole thing is bogus. And I think gel man amnesia is starting to wear off and people are realizing that they should just go around these official channels and get their news direct. So it's not because these publications are telling us the truth in a boring way that they're losing readership. I think they're losing readership because they're just not telling us the truth at all. And I think a boring version of the truth would sell better than what they're doing right now.

• 28:24Jason Calacanis?

  This is why I think subscriptions are starting to work. People are doing subscription podcasts, subscription newsletters. You know, it's a little bit of Back to the Future, but you can lower your overhead, have one person doing real journalism and there you could actually thread the needle. You could get 1,000 people to give you 100 bucks. You can get 2,000, 3,000 people to give you 100 bucks or 200 bucks. And that's enough to cover a couple of solid legit journalists doing legit journalism.

• 28:49Chamath Palihapitiya?

  I have a question for you. Jack, you think there's a business opportunity to actually build like an AP News, which is just basically like there's no byline and they just write the truth and they make it super cost effective for anybody else to just license the truth so that they know it.

• 29:07David Friedberg?

  But why do you need an arbitrator?

• 29:09Jason Calacanis?

  Well, somebody got to be boots on the ground to go.

• 29:10Chamath Palihapitiya?

  Somebody has to be boots on the ground to just tell the truth.

• 29:13David Friedberg?

  Doesn't the distributed model work for that? That people just post?

• 29:16Jason Calacanis?

  You don't know. I mean, listen, we, we all the time have this when we're building the docket like Kane Cola, you know, random Twitter account or, you know, Tyler Durden, you know, Zero Hedge. Like who are these people? What are their motivation? You don't even know their names. That doesn't mean they don't get stuff right, but you may want to have somebody actually go check that this person exists in the real world. So to your answer your question, you know, you would need people to subscribe to that service. And Economist, AP News and Reuters are the closest to what you described. The Economist doesn't use people's bylines. They have people work on the story together and the Economist is the brand. AP and Reuters obviously do typically have the journalist names on it. But you're describing Newswire, they're, they're not great businesses.

• 30:00Chamath Palihapitiya?

  I think AP and Reuters are just as bad as everything else. I think what I'm saying is like, you know, maybe Twitter should have like a news service, which is just like, here's the truth.

• 30:07David Friedberg?

  I'll argue that PageRank, which is Google's algorithm for determining which sites to rank higher or lower and the protocol for Bitcoin and other systems that operate on the internet have all kind of followed the same model where there's some system for scoring or for voting the quality of the site. In, in PageRank's case, it's how many links come in. In Bitcoin, there's a voting system. That determines whether or not the transaction should be approved. And I think in Twitter, the number of followers seems to be a proxy for the quality of the account. There's some version of that chumot that I think just naturally evolves on the internet

• 30:47David Friedberg?

  versus saying, let's pick the arbiter of the data and let that be static versus let it be dynamic and let the system of consumers dynamically vote on what is the arbiter of the data, which seems to be working with Wikipedia, seems to be working with PageRank and other systems fairly well.

• 31:02Jason Calacanis?

  Well, unless you look at your own Wikipedia page and you realize it's completely biased and, yeah, is the function of the people you fired.

• 31:10David Friedberg?

  Are you trying to say something? What happened to your, was there something bad on your Wikipedia page?

• 31:13Jason Calacanis?

  I went to the early Wikipedia conferences in the first couple of years of Wikipedia and the BIOS of living people, BLPs, were the biggest problem they had because you had people like, let's say, you know, you had a company fail or something, somebody was an investor in it, you know, they're motivated to write something on your Wikipedia page. You fired somebody, whatever. And so the people who have the wherewithal to edit your Wikipedia page, if you are a human alive today, sometimes is your detractors and that's just...

• 31:43David Friedberg?

  Yeah, but over time, if you're doing that and you get downvoted, you no longer have authority on Wikipedia. That's part of how that system works. I think that...

• 31:51David Sacks?

  It doesn't work very well. It's been totally, it's been totally weaponized.

• 31:54Jason Calacanis?

  Yeah, it's weaponized.

• 31:55David Sacks?

  I don't think it's been weaponized by people with money. I think it's been weaponized by interest groups.

• 32:00Jason Calacanis?

  Yes.

• 32:01David Sacks?

  Mainly left-wing interest groups, activists who are well-funded and it's their full-time job to basically disseminate their propaganda on sites like that.

• 32:09David Friedberg?

  Ideally, that becomes a temporal phenomenon that they're, because if you picked an arbiter and you said, this is my source of news, my source of data, my source of truth, over time, that source becomes hacked, it becomes biased in some way. And so I think having a system that's dynamic where those who are doing the editing, those who can be voted up and down and ultimately the system can be voted on by the consumers of the system. So anyway, I just think that's naturally how the internet's going to evolve anyway.

• 32:35David Sacks?

  I think it's crazy to rely on one source, especially Wikipedia, although I do use Wikipedia for some things. But I guess what I do is I try to triangulate to the truth based on having a number of sources.

• 32:46Jason Calacanis?

  Yeah, that is the best technique.

• 32:48David Sacks?

  And that's why X, you know, formerly Twitter, is the best way to get news. It's the main way I get my information is because I can triangulate towards the truth by looking at my feed and I'm following a couple hundred people who I take seriously and you can kind of figure it out.

• 33:02Jason Calacanis?

  Well, yeah, because if you saw a Business Insider story over here and then you hear Bill Ackman give his side of the story, now you've got the principal in the story going direct. And I think that's where going direct and experts have created that triangulation. You could listen to this podcast, you go to direct to Wikipedia and check our facts. You could look at people criticizing us or creating derivative podcasts of this one, of which there are many, and like you can kind of get all these different vectors and angles to kind of find the truth. But to your answer, Chama, rich people, you can't get rich doing what you're describing and running a company. So, smart people are looking for opportunities to maximize their compensation. And that's, it's kind of like teachers. It's, we don't pay teachers enough.

• 33:46Jason Calacanis?

  You can't pay journalists enough because the system is broken. Therefore, you're just getting lower and lower quality people in the profession, who the smartest people leave and become venture capitalists, marketing communications people, developers, whatever, or they do solo stuff. So, I think the solo journalism, the independent voices is going to wind up being the solution because nobody's going to want to try to hire a thousand journalists for a hundred K each. And then if they get really smart, what do they do? They get hired by somebody like you, right, Chama? To come work for one of us or come work for one of our companies. When they get to the ceiling of what they can do at Business Insider or Vice or wherever, they're going to go try to look for a $200,000 a year job.

• 34:24Chamath Palihapitiya?

  I think this is important for the following reason. I think that society, if society doesn't have a good way of getting to the truth, it just ends up really decaying in very bad directions. And there's all kinds of truths that are out there that we ignore because people can actually just totally change it. Where I would rather be in a place is there's the truth, then there's the opinion on the truth, and then there's fiction. And I'm fine with all of it existing. It just needs to be better arbitrated because I think there's a lot of people who don't know any better.

• 35:01Chamath Palihapitiya?

  Who should know better and who will just make an assumption and then that's a very limiting, limiting decision for them.

• 35:10Jason Calacanis?

  The whole process has gone super messy, but that's actually a good thing to happen. The reason it's getting messy is because people are challenging the sources of the news. So you don't just believe a politician about what's happening at the border. You don't just believe a publication about what's happening at the border. You see citizen journalists going to the border, whether it's Elon or RFK went to the border. People are going there and saying, well, I'm going to go check it out for myself and see what's happening there. Actually, I'm not just going to trust a publication. I'm not just going to trust a politician. I'm going to go myself. And that messiness is now led to a more vibrant

• 35:45Jason Calacanis?

  system, but it's messy.

• 35:47Chamath Palihapitiya?

  I think it probably also led in part to Texas suing the federal government.

• 35:50Jason Calacanis?

  Yeah, which we'll get to in a moment. Yeah, for sure. And, you know, if you think about that, we were trying to parse the numbers here. Remember we had the number and we were trying to parse the number of encounters. So we never were able to get a number. We still don't have a number.

• 36:04David Sacks?

  No, that's not true.

• 36:05Jason Calacanis?

  No, no, I didn't finish my sentence. We don't have a number knowing how many people have gotten past the border. We know how many people got intercepted. We don't have the number of the people who didn't get intercepted. By definition, we don't have that. We only have the ones that are encounters. That's why they call it an encounter sack.

• 36:21David Sacks?

  You've been running interference on this point for like a year on this pod. Like saying that we don't know the numbers and Fox News is providing, you know, biased footage and it's not really a crisis at the border.

• 36:35Jason Calacanis?

  No, I said, I said, I wanted to know the numbers, but the only numbers we can get was encounters, not how many people were actually getting through.

• 36:41David Sacks?

  Something like 6 million encounters since Biden took office.

• 36:44Jason Calacanis?

  They finally updated those numbers, Zach.

• 36:46David Sacks?

  The numbers are increasing like a hockey stick. Show the chart of it. It's looks like a hockey stick.

• 36:50Jason Calacanis?

  But last year, last year it wasn't. That was the point. When I showed it last year, it was flat.

• 36:54David Sacks?

  Every week, every month, every year is a new high.

• 36:58Jason Calacanis?

  When we looked at it last year, it was flat. I'll pull up the episode.

• 37:00David Sacks?

  No, it wasn't.

• 37:02Jason Calacanis?

  At the time it was flat. It was, it was only in the last year that it started to spike.

• 37:06David Sacks?

  Like a rocket since COVID.

• 37:07Jason Calacanis?

  Okay, well, we'll pull it up. We'll pull it up. So if you look at this chart, this explains it perfectly. So I'll explain this chart.

• 37:13David Sacks?

  Where's that from?

• 37:15Jason Calacanis?

  This is from the CBS, the Border Patrol. So this is the exact chart that we pulled up last time. And as you see, yellow 2022 was essentially flat and then the dark blue 2023.

• 37:30Jason Calacanis?

  2021 spikes. See, this this chart is not correct. And then if you look, the one thing that does look like a massive spike is 2024. So there was, and I said at the time-

• 37:39David Friedberg?

  It's showing from June to December, a 50% spike.

• 37:42Jason Calacanis?

  Yes, that's what I'm saying. But if you look, when we looked at this last year in 2023, it was it was right there. June, when we started talking about this last year at this time, it started to spike. But the other years, it was flat, is my point. It was flat, and then it just started to not. And that's why I think even trusting the numbers is my point. Like, these numbers weren't changing at that time.

• 38:04David Friedberg?

  From October of 21, there was 100,000 encounters at the border to this last month, 300,000.

• 38:10Jason Calacanis?

  Look at the, look at the yellow line, 2022.

• 38:13David Friedberg?

  It's like tripled since, in the last two, two years. That's crazy.

• 38:18David Sacks?

  Look, here's another chart from the Wall Street Journal. This goes back a long way. This is from, I believe, October, so it's already four months old. But zoom in on 2020. Like I said, it was at a low there, you know, under half a million. Well, yeah, and then, but even if you go back, it looks to me like since about 2010, we've been holding it to under half a million. And since 2020, basically since Biden took over, it shot up like a rocket. And what I've been reading in recent articles, again, is since October, every month, every week, every day is a new high. It's not a stable number because obviously, there are millions, hundreds of millions of people all over the world who'd like to come to the United States if they could.

• 39:01Jason Calacanis?

  Yeah.

• 39:02David Sacks?

  So as the word gets out that we have an open border, they're going to come. And that's what's been happening.

• 39:06Jason Calacanis?

  It's gone viral, is what's basically happened. And also, what went viral was, there are YouTube videos now of how to claim asylum. So everybody's kind of hacked it. It's completely, I guess we could go, which way do you want to go? Do you want to go right to the border now, since this has come up?

• 39:23David Friedberg?

  Yeah, we're already talking about it. Is Texas going to secede from the Union South?

• 39:28Jason Calacanis?

  All right. What's gonna happen? Do you want to just go, you want me to tee it up? You want to just start talking?

• 39:31David Sacks?

  Well, I think we should explain it.

• 39:33Jason Calacanis?

  Let's just talk about it. Last year, as everybody knows, Texas started installing razor tape, razor wire along the Rio Grande near Eagle Pass. Federal border agents, the feds, removed it in October. Texas sued the federal government to stop them from removing it in December. A federal appeals court temporarily banned the border patrol agents from removing the razor tape. Then the Biden administration asked the Supreme Court to intervene. Then last week, Biden's office told SCOTUS that a couple of migrants tragically died, a woman and two kids, near that same area. We got a ruling on Monday. Roberts and Amy Coney Barrett actually voted against party lines and supported the feds. The justices didn't explain their decisions, but this basically upheld a prior ruling that

• 40:16Jason Calacanis?

  gave the federal government sole responsibility for border security. Governor Abbott has responded and he is saying that he's going to challenge the Supreme Court ruling and that Texas is under invasion and it's going to defend itself. That authority is the supreme law of the land and supersedes any federal statutes in the country, he said. So, Sacks, what are your thoughts here? Is this, I guess there's two things I'll ask you about. Is the ruling a good ruling? And is it in terms of law and constitution? But is it a bad implementation, given the circumstance of the border?

• 40:49David Sacks?

  Well, I think Governor Abbott here is probably gonna lose in a court of law, but he's gonna win in the court of public opinion. The public, by a huge majority, wants this border enforced. They want to have border security. They can see the photos and the videos and the numbers and the charts of record-breaking illegal immigrants streaming into the border. And again, it's not stopping, it's growing. So I think that Governor Abbott is on his way to being a national hero for standing up to this. And it's outrageous that the border agents are actually removing the border security that Texas has added. We're supposed to have a border wall.

• 41:32David Sacks?

  You know, I'd rather have a wall than barbed wire, but if we can't have a wall, then you take the barbed wire and they're actually cutting it down. And this is following in a pattern of the Biden administration. Remember, when Biden first came in, there were pieces of Trump's wall that hadn't been finished. And they basically stopped construction and they sold off these large pieces of wall that were just laying on the ground as scrap metal for two cents on the dollar. And remember that Robert F. Kennedy flagged this when he went to the border at the beginning of his campaign and said that it was petty and outrageous that Biden had done that. Then Biden changes the whole Remain in Mexico policy and he starts granting asylum to, um, to what are basically

• 42:15David Sacks?

  economic migrants who are streaming into the country. And what the asylum rules say is that the immigration officials are required to detain asylum applicants who are not what's called, quote, clearly admissible. So if you're not clearly admissible, you're supposed to be detained. You're not supposed to just be let into the country. And the Biden administration has basically paroled millions and millions of these economic migrants who are not clearly eligible for asylum into the country. They just hand them a ticket and say, show up in court in three years. We know that's never going to happen. It's gotten to the point where the mayors of blue cities like New York and Chicago have tapped out and said, we can't handle this. We've run out of space. We run out of hotel rooms.

• 42:59David Sacks?

  We've run out of budget to accommodate all of these migrants. And these are sanctuary cities. And yet the Biden administration has persisted in this policy. And now they're actually removing border security. They're actually cutting the wire. It's unbelievable. And when Texas has tried to reinstitute it, they've actually gone to the Supreme Court. I mean, to do that, Biden has to send his Solicitor General to the Supreme Court to take on the state of Texas. So, look, at the end of the day, Governor Abbott may lose this case, but I think he's going to win over the American people. And I can't understand why Biden, in an election year, is pushing this, this losing argument. I mean, I think

• 43:38David Sacks?

  this is his worst issue. Maybe inflation is slightly worse, but there's not a worse issue for Biden and the Democrats than border security. And to actively be fighting Texas on this, when Texas is just merely trying to reinstate a border, just seems to me like a crazy political strategy. And it just shows you how fanatically wedded the Biden administration is to this policy.

• 44:03Jason Calacanis?

  Yeah, and the country is not. If you look at the CBS News poll.

• 44:10Jason Calacanis?

  This is just from September to now, should be tougher, 55% to 63%.

• 44:14Chamath Palihapitiya?

  Just, just one second here, which is just, it's important to note that I don't think Biden's contesting Texas has anything to do with their desire to actually keep the border open. I think what they were saying, again, we can debate whether it's right or wrong, but what they were saying is the federal government needs due access to all of these places. And we need to get, we need to cut through this concertina wire to get access. And we can't now because this wire is there and the Texas National Guard and all of these folks are there. And so just give us the due authority that, that we have to do what we need to do. That was what they were saying in the lawsuit.

• 44:54David Sacks?

  Now, that sounds like total nonsense to me.

• 44:56Chamath Palihapitiya?

  The byproduct, David, is what you're saying, which is it does then facilitate more illegal migrants to be able to cross in the intervening time because I think that then what the government, federal government, isn't saying is here's our plan to secure the border. They're just saying we need access in order to render critical aid if one of these folks gets sick or drowns or what have you, and that's why these three people died. So cut, get, you know, remove this wire so that we can do what we need to do. That's what they're saying.

• 45:23David Sacks?

  Yeah, so on the migrants who drowned point, what Governor Abbott says is, look, if you actually had security along all of these points where you've put in the wire, it forces the migrants to go to the 20 something checkpoints where you actually have an organized process, which is where you want them to go. They wouldn't be trying to swim across the Rio Grande and enter through all these different areas if you could funnel them through border security to the checkpoints. And the federal government does control those checkpoints. And I'm sure that, you know, if Republicans could control it, Republicans like Abbott, they would be detaining asylum seekers that weren't clearly admissible, but they don't control those checkpoints. So the federal government can still implement the policy at once.

• 46:07David Sacks?

  I actually think that fewer people would be drowning in the Rio Grande if they were actually to, again, push everyone to these checkpoints. So I don't really buy that argument. And it looks to me like the Biden administration has now crossed over from failing to do its duty, because again, it is a federal responsibility to enforce the border. And the president has a constitutional duty to enforce the laws of the land. So he's moved now from failing to do his duty to active sabotage.

• 46:38David Sacks?

  I mean, this is actual sabotage where what little border security that we have in these parts of Texas, they're taking down, they're cutting the wire. I think to most Americans, they can't fathom that this is Biden's policy.

• 46:50Jason Calacanis?

  What is the reason that this, if Biden wants there to be free flowing immigration, which he says he doesn't, but if he did, why would he want that? What's the, what's the reason?

• 47:03David Friedberg?

  There's some arguments I've heard from economists that the fundamental value the US can gain from the flow of immigrants across the border at an accelerated rate is to lower the cost of labor. And so you get low cost labor to participate in the labor market. We have skyrocketing costs for, you know, basic goods and services, many of which are tied ultimately to the cost of labor in the US due to the tight labor market. And so if you can open up more manual labor roles in the US or fill those manual labor roles with a lower cost of labor, you can bring inflation down, you can bring the cost of goods and services down. So there's an economic argument for doing that. And it also grows

• 47:45David Friedberg?

  the economy because fundamentally, when you have more productivity through more participation of the labor force, you see the GDP grow and you also increase the consumption of goods and services in the US by the immigrants that are coming across the border. So the, there's, there's an economic argument that

• 47:58Jason Calacanis?

  That's a theory.

• 47:59David Friedberg?

  That's a theory that folks don't want to say out loud. They don't want to be very public about it. But there is kind of an underlying kind of economic story that behind closed doors, folks are making about why you want to see this happen particularly now.

• 48:11Jason Calacanis?

  So Chamath, what do you think of that theory as proposed? I'm not saying that you're endorsing that free bird, but I have also heard people say that that's the reason. And why would Democrats be in favor of that over, say, Republicans? Wouldn't both of them want to see the economy grow and have more labor available in record low unemployment? You know, whether you agree with her or not. So, or has it just become a political weapon now? Yeah. What do you think?

• 48:37Chamath Palihapitiya?

  I think that theory is stupid. If that theory were to be valid, let's, let's try to steel man why that theory could be true. Yes. Even though it's, was probably thought up by a nitwit.

• 48:50Chamath Palihapitiya?

  You would want to know, first of all, all of the different types of labor shortages that exist.

• 48:58Chamath Palihapitiya?

  And then you'd want to know all of the different types of labor inputs that these people can provide. And then you'd need to know all of that labor demand by geography. And then you could sort of like do a reasonable job of allocating that supply and demand. So if that was really the case, it's even more reason to have an organized border. Why? Because as David said, you get them through very specific points that allow you to actually enumerate these details about these people. And then actually send them to the places where they are actually needed, so that then they can become a productive part of the economy, where they can lower labor costs, etc.

• 49:43Chamath Palihapitiya?

  What that explanation does is actually tell, put a nice lie in front of what is the actual truth. I think that there are a lot of people who feel fundamentally guilty because a lot of the quality of their life, they didn't earn necessarily. And so they have this self-loathing that they feel like they can appease by allowing all of this other stuff to happen. And one of them, in this weird way, is immigration. But if you actually ask an immigrant, somebody like me, I kind of feel that it is very unfair for those of us who actually stood in line, who waited

• 50:28Chamath Palihapitiya?

  years, and in some cases, I know, decades, highly skilled individuals to try to actually fill this labor gap that you talked about, who are prevented or who are slowed down from actually doing what you say that theory is all about. So I just think that this is just frankly like a lot of folks that live in a very, very comfortable way, who...

• 50:50Speaker 04

  Feel fundamentally guilty. And so they're like, let me share my largess and riches with other people. And maybe that comes from a good place. But the manifestation of that is bankrupting all of our major cities. And it's creating an enormous security vulnerability for this country.

• 51:08Jason Calacanis?

  Yeah, I mean, you could. Describe it to having an open heart and wanting more people to come into the country. But it's crazy because you have to have at least some control over this.

• 51:18Speaker 04

  Forget about even control. What about just documentation and awareness?

• 51:22Jason Calacanis?

  Of course, yes. I mean, terrorists could be flowing across the border right now.

• 51:26Speaker 04

  But Jason, what about, what about something even as simple as like communicable diseases?

• 51:32Jason Calacanis?

  I mean, yeah.

• 51:33David Sacks?

  Crime, gang members, the cartels.

• 51:35Jason Calacanis?

  Gang members and criminals also like we should, we, we've talked about this before. Point based systems and merit based immigration.

• 51:42David Sacks?

  Yeah, we could have a skills based system. But that wouldn't get in as many people as quickly as just having an open border. And look, I think there was. An economic rationale for this a while ago.

• 51:53Jason Calacanis?

  Yeah, we talked about that. Yeah, Republicans were in favor of it 20 years ago.

• 51:56David Sacks?

  The Wall Street Journal editorial page like 30 years ago wanted to have support a constitutional amendment to have an open border. I mean, they just saw the world purely in economic terms. And having free trade, free movement of capital and free movement of labor was all part of that conception. I think it was naive in a lot of ways. And I think now. If you're still supporting it, it, I don't think it's for economic reasons. I think it's mostly for political reasons. And. Look, there's this clip from Tucker that would just went viral today. Explaining it, I mean, if you want to play it.

• 52:28Speaker 04

  The numbers you need to understand. Yale University released a study last week by three researchers, all liberal, I believe, who concluded that the actual number of illegal aliens in this country is not 11 million. It's north of 22 million, 22 million. Fact one, fact two. The Democratic Party is now, as a matter of policy, calling for the legalization of all illegals in this country, citizenship voting rights, 22 million new voters. Fact three, the overwhelming majority of first time immigrant voters vote Democrat. Fact four, the largest margin in American presidential history was 17 million votes, 1980 election. Rather, 1984 election between Mondale and Reagan.

• 53:06Jason Calacanis?

  And Reagan, yeah.

• 53:07Speaker 04

  Seventeen million. You would add to our voter rolls twenty-two million, at least, permanent electoral majority in perpetuity. That's what this is about. It's not about making the country better, serving our labor needs, helping the population. It's about putting Democrats in power forever.

• 53:22David Friedberg?

  Chuck, how do you react to that?

• 53:24Jason Calacanis?

  How do I react to it?

• 53:26David Friedberg?

  Yeah.

• 53:28David Friedberg?

  Could you ask the question, like, why would the Democrats want to do this?

• 53:31Jason Calacanis?

  Yeah.

• 53:32David Friedberg?

  That's a theory.

• 53:32Jason Calacanis?

  To get votes, basically.

• 53:33David Friedberg?

  That's a theory to get votes, is what he's saying.

• 53:35Jason Calacanis?

  We just had a conversation here that, just, I think it was on the predictions episode, that we all felt that more immigrants, people of color, were going into the Republican Party. So, there's only that. I don't think all twenty-two become magically liberals. We talked, or Democrats here. So, I don't know if that part of the argument holds up.

• 53:54Chamath Palihapitiya?

  I think what Tucker is saying that if you... I think what Tucker is saying effectively is that if twenty-two million people are converted to US citizens by a given political group, they will be rewarded by the vast majority of those people with at least one cycle vote in their favor.

• 54:10Jason Calacanis?

  You believe it, Chuma? You believe that that's why Biden's has an open border, is to get votes?

• 54:13Chamath Palihapitiya?

  No. I think that, actually, my opinion is what I just stated, which is, I think that highly overeducated liberal elites have a certain amount of self-loathing about their lifestyle that they believe is not earned. And so, they have this weird thing of, like, they need to feel better. Well, instead of just, like, looking at the truth, which is, yeah, they didn't earn it, and a lot of it was given to them by their rich parents, and just move on and do something good with their life. They want to just destroy everything.

• 54:46Jason Calacanis?

  Sax, you believe it? You believe Tucker's argument there, that this is a Democratic vote-getting conspiracy?

• 54:52David Sacks?

  Well, I don't think it's a conspiracy. I mean...

• 54:53Jason Calacanis?

  Or strategy.

• 54:54David Sacks?

  Democrats have actually said, on a number of occasions, that this type of immigration is good for the country because, A, diversity, and B, these people will eventually vote Democratic, or, you know, when they get citizenship, or they'll have kids, and because of birthright citizenship, they are more likely to be Democrats. Democrats will say this, and say it's a good thing, but then when someone like Tucker says it, they'll basically say it's great replacement theory, it's a conspiracy, it's racist. No, he's saying the same thing that you're saying. He's just saying it's a bad thing, and you're saying it's a good thing.

• 55:25Jason Calacanis?

  I never said it's a good thing. I didn't say it's a good or a bad one.

• 55:28David Sacks?

  No, I'm talking about other people.

• 55:30Jason Calacanis?

  Oh, okay.

• 55:30David Sacks?

  So...

• 55:31Jason Calacanis?

  I didn't get my opinion yet, yeah.

• 55:33David Friedberg?

  What do you think, Jason?

• 55:34Jason Calacanis?

  Well, I wanted to hear Sacks. Sacks, do you agree with him that this is a strategic move by Biden to get more votes?

• 55:39David Sacks?

  I think it's like a lot of things. It's an issue where the party that's championing it can claim that it's kind of like doing well and doing good. They think that they're doing good, but it's also highly motivated by their own desire to benefit themselves.

• 55:55Jason Calacanis?

  Dual function, yeah. Yeah, I'm the rest of the country. We should have an orderly process here and it should be merit-based. I've said that 1,000 times on this podcast, that we should be a point-based system and we should be recruiting people. We should have some compassionate slots and then everything else should be a waitlist and we can, we should pick a number of how many people we could absorb based on the labor markets and do it very thoughtfully. Maybe we need a half million teachers.

• 56:20Chamath Palihapitiya?

  No, you've described your solution many times. We're asking for your opinion on what Tucker just said.

• 56:25Jason Calacanis?

  I would go with Sacks's position that it's probably convenient that you, it might go 60, 40, 70, 30 for votes. I don't think it's 100% of them are going to vote there. I think this could blow up in Democrats' faces if it is their strategy because a lot of people who are coming here, immigrants, don't want to be part of the Democratic, the liberal, woke Democratic Party. They want to be part of the Republican hard-working Party.

• 56:50Chamath Palihapitiya?

  I want to go two for two. Last week, Sacks, I mean, Friedberg pulled up stats that showed that a bunch of people got really angry and quit the pod when I said that Andreessen basically put in the money to generate AUM. And we were joking in our group chat that it was all the VCs that stopped listening.

• 57:10Jason Calacanis?

  At once? They all hit the stop button at once?

• 57:14Chamath Palihapitiya?

  Yeah, because it was, again, the truth, the uncomfortable-based truth. So I want to ask you guys, just a reaction to my comment that there is an amount of self-loathing amongst liberal elites that causes them to embrace some of these ideas that are not rooted in actual logic.

• 57:30Jason Calacanis?

  But are rooted, I think, in their own insecurity. Can I just get your reaction to that? You guys think that's true?

• 57:34David Sacks?

  I think that among this elite, this call it woke elite, who defines their politics in terms of social justice, which basically means you divide the world into oppressor and oppressed groups, and you try to figure out with every issue, who the oppressed group is, and you take their side. That's basically how politics works for this group. So in their view of the world, all these poor migrants who are streaming across the border, they're the oppressed group, and so we should help them. We should let them in. And you saw Gavin Newsom in California just extended healthcare to illegal immigrants. So all these government services basically being provided, and they think that's a good thing. That's official policy. So I do think that there is this

• 58:18David Sacks?

  ideological view that we should be doing as much as we can to provide help and benefits to these people. I think that at a certain point, it gets to a place where the system breaks. And again, you have mayors of New York, Chicago, other blue cities saying, it's breaking. We can't afford this. There has to be some common sense around what we can afford. You know, can we afford the social services, the hospitals, the schools, the infrastructure? Do we have enough housing for all these people? And I think we've just like, become completely unmoored from common sense. Now, I think that's the ideological people in the party, but I don't know if that's Biden and the Biden administration. I do think that for the administration, they think more about some of these other

• 59:03David Sacks?

  calculations. But even so, I don't really understand their motivations and their actions because recruiting more Democratic voters is more of a long-term proposition. It's something that they can achieve over the next couple of decades. But Biden could lose the election this year over this issue. I mean, this is his worst issue.

• 59:22Jason Calacanis?

  Yeah, that's the crazy part. This is where I agree with you.

• 59:24David Sacks?

  And he is shining a spotlight on this. I mean, he's actually sending his Solicitor General to this in court to get permission to cut the wire at the border, right? And, you know, again, he's shining a spotlight on an issue where the vast majority of the country, and even I think half of Democrats, don't agree with this policy. So I just don't, I don't get it.

• 59:47Jason Calacanis?

  That's what you're 100% right on, Sacks. This is like, for Republican, this is abortion is to Republicans as the border is to Democrats. You have to solve this problem. Look at this chart. To be so disconnected from the populace. Only 7% of people reported, and this is a recent poll. This is from this year, that it's not much of a problem, the situation at the border. 45% and 30% very serious or a crisis. That's 75% think it's a crisis or very serious. And then 18% think it's some serious. That is the majority, overwhelming majority of Americans. And you just have to change your policy here. This is, uh, just too many people flooding across the border, period, full stop.

• 1:00:24David Sacks?

  Right.

• 1:00:25Jason Calacanis?

  Just like for Republicans, like they shouldn't have overturned Roe v. Wade. And we should shut down the border, you know, on the Democratic side. But I come from a blue collar family. I can tell you, there are two Democratic Parties right now. There's the, the working class Democratic Party that totally doesn't understand what Biden is doing with the border. Because they want to see wages increase. They want to see low unemployment. They want to see their wages increase and not have to deal with illegal immigrants, you know, fighting for jobs. That's a real thing. Wages have gone up in this country because of low unemployment. That's great for the bottom half of the country. And, and they live in New York and New Yorkers want to see services for their families, not for families that are streaming across the border.

• 1:01:10Jason Calacanis?

  It's that simple. And so what you're saying, Chamath, about like woke liberals, that's not the majority of people in New York. That's like a really elite class.

• 1:01:18David Sacks?

  But they control the Democratic Party. That's the thing.

• 1:01:20Jason Calacanis?

  They control it for now. They control it for now, but I think they're losing control.

• 1:01:24David Sacks?

  And this is why Biden did that huge debt forgiveness program that the Supreme Court found unconstitutional is because

• 1:01:29Jason Calacanis?

  Yeah, of course.

• 1:01:30David Sacks?

  professional elites, college graduates, and specifically Ivy League graduates, are the people who run the Democratic Party, as well as the media and all these other professional institutions. They're the center of gravity and the power within the party. And the blue collar, the lunch pail type Democrats, the union rank and file, not the leadership, they are starting to move to the Republican Party, the working class, in bigger and bigger numbers. And I think that's Trump's appeal, is he actually knows how to appeal to those, those people.

• 1:01:58Jason Calacanis?

  Absolutely, he does.

• 1:01:59Chamath Palihapitiya?

  Knowing a lot of both, my experience is there's a lot less self-loathing amongst Republicans right now than, than there is among Democrats.

• 1:02:06Jason Calacanis?

  100% of my middle-class family does not want an open border.

• 1:02:09David Sacks?

  They may move to the Republicans one day, Jason.

• 1:02:11Jason Calacanis?

  Oh, I, no, they are. They, they, there are literal people in New York.

• 1:02:14Chamath Palihapitiya?

  Proving my point.

• 1:02:15Jason Calacanis?

  In Brooklyn, in, you know, the burrows who are looking at it, saying like, I, I don't understand this woke crazy ideology. I don't want any part of it. And they might, they might vote Republican.

• 1:02:26David Sacks?

  Shabbat is right, it is self-hating, it's self-destructive. It's the same thing that we have with these DAs. You know, who are letting all the criminals out of prison? You know, the decarceration movement?

• 1:02:36Jason Calacanis?

  No, Democrats want law and order.

• 1:02:38Chamath Palihapitiya?

  Jason, you keep saying, nobody wants that, but I think the people that are making these decisions live in high rises that are 50 stories up where there's doormen and security, or they're living behind a gate with private security. And so they can make these decisions because they don't feel the impact.

• 1:02:53Jason Calacanis?

  Not yet.

• 1:02:53Chamath Palihapitiya?

  This is why what's happening in these elite cities is so important. Because for the first time, the broad infrastructure of a city is getting crippled in a way where these folks have to live with the implication of their decision and actually understand for themselves, why did I endorse something that is so fundamentally destructive to me and the people around me? And this is the first time. And so in many ways, what the southern states have been doing by sending migrants to all of these major cities is it is actually can allow the leadership of the liberal elite in these cities to confront, why have I been proposing these programs and these solutions in this way? They've never had to feel the consequences.

• 1:03:37Jason Calacanis?

  It's the exact same thing that's happening to the Republican Party as well. Their leadership, Nikki Haley, et cetera, the neocon war mongering Republican Party is now losing to Trump as well. Everybody's going populist now. And you need only look at the statistics. The majority of people want the border closed. That is across both parties. The majority of people don't want to be involved in foreign wars. That's across both parties. And that's why, you know, Trump and RFK are just crushing it in the polls. And that's why they're both having such a great show, because they're appealing to the majority of Americans, and the majority of Americans don't want to be involved in foreign wars. It's not a Republican position. Republican position is the opposite. They're neocons, they want to go to war.

• 1:04:18Chamath Palihapitiya?

  Let's go to fintech.

• 1:04:19Jason Calacanis?

  On the topic of fintech and more journalism, a bunch of news has been leaked recently. We can get into that aspect of the story as well. Confidential financial data from Brex and Anthropic were leaked this week. If you don't know Brex, they offer credit card and expense management software. It's pretty dope, actually. Very hot startup. They raised a billion five between 2017 and 22. And they were last valued at $12 billion. Earlier this week, it was reported that Brex was burning 17 million a month, 200 million a year on net revenues of 280. These are select leaks. We don't have like the full P and L here, so we can't tell you exactly what's reality or what parts of this are true.

• 1:05:01Jason Calacanis?

  But later that same day, after the leak, Brex announced it was cutting 20% of its staff, 300 jobs, which it said would help it extend its runway by two years. Anthropic, one of the breakout AI companies that's building a proprietary large language model called Claude, it's really dope actually as well, another cool product. They've raised over $7 billion at a $19 billion valuation recently. And their gross margin was leaked this week. Two anonymous sources said it was between 50 and 55%. Obviously, we talked here about SaaS software being a 70 to 80% margin business. So Freebird, you want to maybe, I don't know which way you want to go with this. Stuff being leaked by the press or the finance side?

• 1:05:41David Friedberg?

  I wanted to ask you guys your opinion. Do you think it's almost like the gossip version of business when you get private companies' financials and report on it with like an angle of being effectively disparaging towards the business? Look how much they're burning. Look how bad the business is. It hurts employees. It hurts shareholders. Any one of us who have been investors in or involved in or on the board of a company where the press then writes an article where they got a hand on confidential financial information about the business always hurts the business. It's almost like taking photographers outside of celebrities' homes and taking photos of them through their windows. I don't understand the true newsworthiness. And I'd just like to take a step back because we always kind of dive into these conversations

• 1:06:26David Friedberg?

  and treat it as totally appropriate when private confidential information about businesses is leaked and discussed like this. And we kind of have accepted it as the standard. But, you know, do we really identify the newsworthiness in this? Or is this really just like the gossip fodder for hurting businesses? And it's the kind of sensationalism that we've kind of gotten used to in the news in general? Who does the reporting benefit?

• 1:06:50Jason Calacanis?

  What the journalist would say is it gives the public the ability to understand business and trends at a deeper level, and that's good in a free society. That's what they would say. But you could argue like, what's the point of this?

• 1:07:02David Friedberg?

  Isn't it a sensational story? It's like, oh, look how much money this company is burning. Oh, wow, that's why we should all talk about it like.

• 1:07:08Jason Calacanis?

  They would say maybe it speaks.

• 1:07:09David Friedberg?

  It's like, look at the mega yacht that the billionaire is on, you know, or like, look at the.

• 1:07:13Jason Calacanis?

  Yeah.

• 1:07:13David Friedberg?

  Look at the celebrity at the beach, you know, like, look at how they're dressed.

• 1:07:16Jason Calacanis?

  The journalists who reported this would say it's no different than us talking about the Zerp era or overspending and it's just part of the reporting on that trend.

• 1:07:24David Friedberg?

  That's a general framing of like where the market is at. I don't know, I just think like going in and getting confidential financial info, it hurts the employees. It hurts the shareholders, it hurts the board, it hurts the company and the customers of the company that ended up questioning the business. From a journalistic perspective, there's nothing about this that to me seems to benefit the public at large by revealing all of this salacious information. It's a private business that's not required to disclose their financials and all of their shareholders privately own the stock. And someone took some private company data and leaked it.

• 1:07:52Jason Calacanis?

  I can tell you in, you know, when we ran Engadget, 90% of the leaks, 95% of the leaks were calls from within the building.

• 1:08:00David Friedberg?

  So this is disgruntled employees.

• 1:08:02Jason Calacanis?

  Well, I think in this case, it's actually an investor who doesn't want to see them burning 17 million a month and wants the runway to go further and they leaked this because that's who would have access to it. The accountants and lawyers would have access to it, but that would be the end of their careers and their firms if they did leak it. So somebody who has a financial interest in this, typically an earlier stage investor or an investor who's frustrated with the management that they won't cut the burn, leak this in order to create pressure. So in other words, the press is just a tool being used by the insiders. And that's how this went down 95% of the time.

• 1:08:34David Sacks?

  I think it's more likely to be a low level employee. I think that's typically where this comes from. A board member has a fiduciary duty to basically keep proprietary data secret. I really don't see most investors wanting to take the chance of it coming back on them by, again, violating their Delaware obligations, their fiduciary duties.

• 1:08:58David Sacks?

  Furthermore, I think even passive investors who aren't on the board generally don't want to hurt their investments. I think it's generally disgruntled employees who do this. I'd say lower level disgruntled employees. And the reason they do it is that either they feel like the management of the company is asking them to do something unethical or is non-responsive to their concerns. So I think it is the motivations you're talking about, J Cal. But my view on it is that lower level employees have less to lose.

• 1:09:28David Friedberg?

  But what about the newsworthiness of X? Like, what do you think the journalists' objectives are besides sensationalist headlines on, like, what's the newsworthiness to the public on reporting these stories?

• 1:09:39David Sacks?

  Well, I mean, you talk about how damaging these stories are, and they hurt the company. So why would the reporters do it? And the reporters are like, right, they're not there to help companies. They are there to hurt companies and sell clicks by doing it. So now, is it newsworthy? What I would say is, it's annoying when the media gets a hold of proprietary information and puts it out. But it's hard to argue that it's not newsworthy. I wish the media would do it in a non-clickbait way. Like, if they're going to put out some numbers, don't cherry pick one or two of their worst ones.

• 1:10:12David Friedberg?

  These are private companies. So by that vein, shouldn't a journalist go out and try and get the private financials of every private company in Silicon Valley?

• 1:10:19David Sacks?

  They would if they could.

• 1:10:20David Friedberg?

  And just publish it on our website?

• 1:10:22Jason Calacanis?

  Okay, but if they did ask for that explicitly, that would be illegal. So they can take inbound, but they can't go out and try to steal it themselves, obviously.

• 1:10:29David Friedberg?

  Right. So why wouldn't someone just set up a WikiLeaks for private financial information?

• 1:10:33Jason Calacanis?

  If you look at every journalist now, they have a PGP key or whatever. They have a phone number. They say anonymous. Hit me on these anonymous services. And that's how this is done. Having been on the other side of it, it's back in the Engadget days, people used Yahoo. I think they used Proto Mail or something now.

• 1:10:48David Friedberg?

  I just reacted kind of negatively when I see these stories. And I'm always like, what's the point here? Why are we reporting and hurting companies based on, like, reporting their financials?

• 1:10:57David Sacks?

  That is the point. That is the point, to hurt them. But the media has a different incentive than you do.

• 1:11:01Jason Calacanis?

  It's to get a subscriber. If you put this behind a paywall, and you have all the salacious details, and you have one story like this every week, then, you know, the fifth time somebody comes to the paywall, they're like, you know what? Yeah, this is great insider information. I'm getting smarter because of it. I'll pay the 25 bucks a month.

• 1:11:15David Sacks?

  Right.

• 1:11:16Jason Calacanis?

  If people in our industry didn't want to see this happen, they shouldn't subscribe to the publications that do this. Friedberg, did you read the article?

• 1:11:23David Friedberg?

  Yeah, it's just got some numbers. I mean, I got it.

• 1:11:26Chamath Palihapitiya?

  So you did read it?

• 1:11:27David Friedberg?

  Yeah.

• 1:11:27Chamath Palihapitiya?

  Yeah, so they accomplished their goal.

• 1:11:29David Friedberg?

  Oh, I read it because you guys sent it to me. But I hate all these articles that I see on the internet that people-

• 1:11:33Jason Calacanis?

  Do you subscribe to the publications that do this?

• 1:11:35David Friedberg?

  No, no. No, I don't subscribe to any of that.

• 1:11:38David Sacks?

  No, I don't either.

• 1:11:38David Friedberg?

  I don't want to read about, every startup is a challenge. Every startup is a disaster until it's suddenly not. Like, that's reality. And it's really awful for years to have seen, like, tech reporter after tech reporter who's supposed to be kind of covering the news, the innovation, the progress in the industry, target and focus on the inevitable failure that every business is dealing with on a frequent basis, and make that the headline story, which just ultimately hurts the business, hurts the employees, hurts the ecosystem, hurts progress, doesn't really benefit anyone except their viewership.

• 1:12:09Chamath Palihapitiya?

  I thought you wanted to talk about the quality of these businesses.

• 1:12:12David Friedberg?

  Let's talk about the quality of the businesses.

• 1:12:14David Sacks?

  I think it's hard to have a conversation about the quality of these businesses based on a couple of these data points, because I think they could be cherry picked. I think one of the problems with these articles is you don't get the P and L. You just get, like, one or two numbers. I can't tell you based on-

• 1:12:26David Friedberg?

  Yeah.

• 1:12:26David Sacks?

  I mean, look, seventeen million a burn is not good. That's almost always a red flag. But I don't know if that was one month or, like, the steady state. I need to see the P and L. I could tell you in five minutes if it's a good business or not by looking at the P and L.

• 1:12:40Chamath Palihapitiya?

  Yeah. In the Brex case, if we, for those of us that know the the founders, they're really sharp guys. Enrique's a really, really sharp guy, so.

• 1:12:49David Friedberg?

  Are you guys investors in that company? Anyone?

• 1:12:51Chamath Palihapitiya?

  I'm not. No, but I'm friends with Enrique, and I think he's wonderful.

• 1:12:54Jason Calacanis?

  If they are cutting the burn by twenty percent, who knows? We don't, like, Sacks is saying, we don't know the denominator here. We don't know the total spend. We don't know how net revenue is defined. It's just impossible-

• 1:13:04Chamath Palihapitiya?

  What are your views on fintech? Go ahead, Freebro.

• 1:13:07Jason Calacanis?

  Is fintech a great business or not? I mean, is it a tech-based business? Do you believe in the category?

• 1:13:12David Friedberg?

  So I started Metro Mile, which was an online auto insurance business with a telematics device that plugged in the cars back in 2010. And the term fintech wasn't used at that time. And in the years that followed fintech became a term where it was like technology companies or software companies reinventing financial services in different ways. And, you know, so we're now 14 years past that. And a lot of quote fintech businesses are looking like fin businesses without the tech, meaning their margins and their LTV to CAC or their return on invested capital. It looks the same or in some cases worse than the traditional financial services businesses that they're meant to disrupt.

• 1:13:52David Friedberg?

  And so this spans insurance to lending to banking because the technology advantage was meant to accrue either a better margin or, you know, better return profile or a better, call it LTV to CAC, meaning you can acquire customers for less or you can get more money from those customers by retaining them longer and get more money over time. I always used to sit at the board meetings at Metro Mile and I would scream, guys, if if we don't demonstrate margin advantage, the business will eventually trade like the market trades, which is one times revenue. And if we trade at one times revenue, we're already overvalued and we've burned so much money. It was always a challenging conversation about pulling up the margin, pulling out the LTV to CAC numbers.

• 1:14:34David Friedberg?

  The truth is, over the years, a lot of fintech companies fell into the same trap that D to C businesses did, which is to grow. They started acquiring customers through Facebook and Google and Facebook and Google became all the page views on the internet and they ultimately got competed away and the price went up and the conversion rates went down. And so the CAC went through the roof. There was a lending company I was involved in early on as a main shareholder and we were spending $4 to acquire a customer, making 12 bucks a month in gross profit. Fast forward 24 months and it was costing north of $30 to $60 to acquire a customer and gross profit per month declined to $2 to $4. So, you know, this this margin advantage went away as the business scaled and the

• 1:15:19David Friedberg?

  CAC went up. And so the LTV to CAC ratio started to look worse than traditional lenders. So what do the fintech companies do in response when this happens, which many of them faced, is they had some inherent margin advantage or some inherent growth advantage that over time got competed away. Well, they start giving product away for free. In fintech, it's really easy to grow by giving away a dollar for 90 cents. So you could drop the price of auto insurance and suddenly everyone buys your auto insurance and your revenue growth goes through the roof. But your margin profile is terrible. You'll lose money over time because you'll have higher loss ratios. And same in lending. In lending, you can offer people a lower rate. Revenue goes through the roof. Everyone signs up for loans from you. And over time, you end up having defaults that eat away your gross profit and you end up losing money on that product.

• 1:16:02David Friedberg?

  So many of these fintech companies, it takes a couple of years for those economics to play out, are now starting to run into that headwind, which is they couldn't just grow through some unique margin or CAC advantage, they acquire traffic. And when they couldn't acquire traffic with a good LTV to CAC ratio, they have to start doing this, giving stuff away. And then the margins get eaten up over time or the business gets unprofitable and they can't get out of that cycle. So I think we're in this kind of like realizing the truth, which is that a lot of fintech businesses or just fin businesses, there are a few that are doing great, but many of them, for many years, I think masqueraded as having some unique tech advantage until those numbers started to play out, which demonstrated that in fact, they did not.

• 1:16:40Jason Calacanis?

  Yeah, and you can understand the customer acquisition cost. That's what CAC stands for, for those of you who don't know. Very easily, because I was an investor in Robinhood and one of the genius things they did was a give to get program. It's called in the referral space. If you, if I get you to sign up with my referral code, they would give me a share of a company and they would give you a share of a company. So you get a free share, but you have to then sign up, you know, and put your bank account in and all that kind of stuff. They'll pay a referral program, a couple of hundred bucks, E-Trade's, et cetera of the worlds, to get a funded customer. Robinhood was able to do it for giving away two fractions of a share and you weren't getting like a $300, you know, Tesla share. You were getting a whatever, 1% of that. You get $3 worth of Tesla shares or whatever.

• 1:17:23Jason Calacanis?

  And they did it with a little device, like a mystery box. So it was quite addictive. And in the mystery box, they would have dollar shares, $2 shares, whatever. And they would, and they would net that out to be well below tens of dollars instead of hundreds of dollars. And I, I maxed out the program because I tweeted it and got 250 people. Now they're doing one where if you move your money into the account, they give you 1%. So if you remove a million dollars of shares in, they'll give you like $10,000 to build up their assets under management. So you need to have something that is cheaper than what's in the market. Like TV is very expensive, too.

• 1:17:54Chamath Palihapitiya?

  I'll say two things which are build on what I've said before, and maybe I'll try to make the point clearer. Do you guys know what the average gross margin is of the S and P 500 and how it's changed over time?

• 1:18:05David Friedberg?

  My guess is gross margin?

• 1:18:08Chamath Palihapitiya?

  Yeah.

• 1:18:08David Friedberg?

  My guess is 28%.

• 1:18:14Chamath Palihapitiya?

  Wrong, but it's a good guess. It's about 43% over the last kind of 25 years, except in two years. And those two years were on the tail end of the Web 1.0 bubble bursting. So the average is about 43%. In 2002, it went to 30%. 2003, it went down to 23%, so a half, right, of the steady state average. That's one comment. But the second comment is when you actually look at the S and P 500, right? So it has all of these different sectors. But this is the 500 best companies in the world, right? Everything else is much worse than this.

• 1:18:55Chamath Palihapitiya?

  And you look at who has the highest probability and the highest correlation over long periods of time of generating high gross margins? It's actually the companies in the markets with the lowest gross margins. So if you put these two things together, what is it saying? It's saying that high gross margin companies are rewarded for growth, but they generally speaking have a very poor track record of two things. One is generating profitability and two is actually doing it in a consistent manner. And so I think this is just a way of saying what I said last week. But I'm just going to keep harping on this because I think this is a huge trend over the next decade is

• 1:19:36Chamath Palihapitiya?

  technology, free bird to your point, is no longer a definable sector. I know that we want to point to a company and say it's the tech company. But I think it's much, you'll be much safer if you say this is a tech-enabled version of X. And X is all of these other historical sectors of the economy that have existed. Energy, consumer staples, consumer discretionary, materials, IT, industrials, real estate, utilities, whatever it is. It's actually that company. And those companies have a prevailing gross margin, a prevailing gross profitability, a prevailing ability to convert gross margin to gross profit. And that has not changed that much.

• 1:20:19Chamath Palihapitiya?

  And so all of these companies that are massive outliers to these trends are going to go through a process of getting refactored. And maybe your example of fintech being more fin than tech is a very early sign of what may be happening to the rest of all of these companies that we point to and say, that is a tech company. Actually, that may just be a real estate company that's tech-enabled.

• 1:20:43David Friedberg?

  Yeah, it it used to be the case that tech companies sold technology to traditional companies. And now traditional companies are getting rebuilt, quote, as technology companies, but maybe don't have as big of an advantage as the incumbents who can easily adopt technology themselves. So it becomes ubiquitous that technology is, you know, the way the market evolves.

• 1:21:03Chamath Palihapitiya?

  But could you imagine if we have a mean reversion to the average gross margin profile? Oh, by the way, the other thing was a gentleman made a very, I think misguided comment when we posted the pod last week about how gross margins can never change, and this is crazy. And I just wanted to explain that for a second. Let's just say you have a software company that has 80% gross margins. But you have an accounting rule now, all of a sudden, that changes the capitalization of R and D. I think Sax, you said it last week, but I'll reiterate it. If all of a sudden these companies go totally pear weight pear shaped because of these kinds of accounting rules, where you can't capitalize these investments over five years, but now you can only,

• 1:21:47Chamath Palihapitiya?

  you pay for them upfront, but you can deduct them over 15 or 20 years, which is what is happening right now. Companies will lobby the standards bodies to change the definition of gross margins so that those gross margins look very different because they'll want to deduct them immediately. And now you'll see gross margins decay by 1,000 and 2,000 basis points. All of this is to say that

• 1:22:11Chamath Palihapitiya?

  This may not be new and different. It just may be a rhyming version of the past. And we know what that past looked like. And the new, the numbers are kind of unavoidable.

• 1:22:22Jason Calacanis?

  Sax, any thoughts on this fintech reckoning? Bubble or some other perspective you might have?

• 1:22:30David Sacks?

  I think you're right. It is a reckoning. And the reason for that is because fintech is one of the hottest spaces during the bubble. I have the saying that the hotter they are, the harder they fall. And so when a space gets really frothy and speculative, obviously the reckoning is going to be that much bigger. In terms of your question about revenue multiples and how to think about that. I agree that it's a big mistake to think of fintech revenue as having the same quality as say SaaS revenue. I mean, the gross margin profiles of fintech businesses typically are very different. A good software business, 70, 80% gross margin. Fintech businesses typically have transaction costs on every transaction that are pretty high.

• 1:23:14David Sacks?

  So like Friedberg mentioned, if you're making loans, you're going to have a loss rate on that portfolio. If you're doing insurance, you're going to have claims payouts. If you're doing payments, you're going to have transaction fees that you pay to say Visa, MasterCard. And certainly we saw this at PayPal where the margin on any particular payment was pretty low. And I do think that investors who are putting hundred times plus multiples on fintech revenue definitely were not taking the, the margin profile into account. You know, another mistake that I think investors make is they'll think in terms, this is certainly true with the payments companies. I mean, I could, I saw this all the time after PayPal is that

• 1:23:59David Sacks?

  people will confuse gross payment volume and revenue with a payments company. What you have to understand is, you know, take a payments business that's doing maybe a billion dollars in payment revenue. That sounds like a lot, right? But if they charge two and a half percent transaction fees on that, that's only 25 million in revenue. Okay, now, let's say that of that two and a half percent, one and a half percent on average goes to Visa or MasterCard and another 50 basis points is fraud losses. And another quarter point is customer support costs on transactions where there's a problem. Okay? Now, your real margin, your real gross profit on that transaction is 25 basis points, 10%.

• 1:24:41David Sacks?

  So really, of your 25 million of revenue, you only have two and a half million of true net revenue. And then you have to use all of that revenue to pay off all the overhead of the company, all the R and D, all the sales and marketing, all the G and A, the overhead. Kind bars. Yeah, exactly. So you very quickly shrink from a company that's doing a billion dollars in payment volume to one that really is only doing two and a half million of net revenue. So, I mean, unless you're a company like, I don't know, like OnlyFans is able to charge 10% transaction fees, but they're rare. You know, and they tend to be kind of in these, you know, subprime or kind of sketchy spaces.

• 1:25:22David Sacks?

  So people just don't really understand that the scale that you need to make a payments company work. I mean, it needs to be, not just like a billion is not enough. You need to be doing trillions or hundreds of billions of volume to make these businesses like exciting at all. And I think there's something probably pretty analogous with some of these other areas like loans of various kinds or insurance. Because of the losses, the margins are just way smaller than people think and therefore you just need huge volumes to make them interesting. Yeah. So I think that's part of what's going on here.

• 1:26:00Jason Calacanis?

  Yeah, and people conflate the numbers, especially in the early stage of startups. People were referring to Airbnb and Uber and DoorDash's revenue as the gross market, you know, transactions and like, well, yeah.

• 1:26:13David Sacks?

  Airbnb is taking what, like a 15% rate and it's all margin.

• 1:26:17Jason Calacanis?

  Yeah. But, you know, people would take the whole, you know, five day stay and attribute that to like, oh, this is the revenue of Airbnb. It's just intellectually dishonest. All right, Friedberg, I've been seeing a bunch of tweets about this arc storm hitting California. Is this going to be amazing snow? Is this going to be floods and disasters? Is this the day after? What's reality here?

• 1:26:40David Friedberg?

  Yeah, there's this like rumor that is, you know, not corroborated by science that this arc storm event is going to hit us in the next week or two in California, which is this massive storm. Nick, if you pull up that tweet that I sent you last night, so this is the 200 mile cross Pacific jet scream.

• 1:27:02Jason Calacanis?

  Oh, yeah, I saw that.

• 1:27:03David Friedberg?

  With the, you know, very hot and moist Pacific, so a lot of energy, the ocean temperatures are hotter than they've ever been on record. So this causes the air to move more quickly. It causes more moisture to go into the air and then it gets moved and pushed all the way to the Western United States. And so some people have said, wait, this is going to lead to an arc storm event. So what's an arc storm event? In 1861 to 1862 in California, there was an atmospheric river event for 43 days. So water poured down for 43 days straight, completely flooded the Central Valley, Sacramento, Los Angeles. All of these regions were underwater for six months at the time, causing $100 million

• 1:27:45David Friedberg?

  in damage. And the USGS, the United States Geological Survey, did a analysis on what they projected would happen if such an event were to happen again this day and age. These sorts of events are predicted historically to happen every 150 to 200 years, but based on the warm temperature in the oceans, we see it's now predicted that these will happen every, call it 25 to 50 years or much sooner. And these high temperatures are driving a higher increased frequency and severity of these sorts of events. So the most recent model called Arc Storm 2.0, which was an analysis done. By the USGS showed that if this sort of an event were to occur again would drive over a trillion dollars in damages in California. So based on the image that you just saw, which

• 1:28:28David Friedberg?

  showed this massive 200 mile an hour, hot, wet jet stream plowing towards the Western US, a lot of people on Twitter started speculating it's arc storm 2.0, it's coming our way. And a lot of meteorologists have looked at the ensemble, which is the simulation model forecasts and said, you know what, it's not going to be arc storm 2.0, it's going to be wet over the next couple of weeks. It could be very wet, but this isn't the big mega flood event that everyone's been worried about. So rest assured, it's not imminent. I know a lot of people are talking about it, saying it is imminent, but I do think it's worth being aware of and cognizant of this arc storm 2.0 type scenario. And you know, it's the kind of thing that folks are waiting for and now, you know, predicting every other week is about to happen when these sorts of things happen.

• 1:29:08Jason Calacanis?

  Last year, they referred to the storms we had in California as atmospheric river and the arc, the AR in arc storm is for atmospheric river, I see. So last year, we had flooding, we had damage to our house, I think like $50,000 in damage.

• 1:29:23David Friedberg?

  Tahoe was nuts. Yeah, the snow in Tahoe, the floods in the Bay Area. It was crazy.

• 1:29:28Jason Calacanis?

  It was, it was bonkers. And how many days was that? It was only like 10 days?

• 1:29:31Chamath Palihapitiya?

  So basically, it's going to be like wet, warm, moist. But it's really not going to be like dripping and like, I got it.

• 1:29:45Jason Calacanis?

  It's not going to be drenched?

• 1:29:46Chamath Palihapitiya?

  It's not going to be drenched. It's going to be wet, but not drenched.

• 1:29:50Jason Calacanis?

  It's going to be wet for 25 days.

• 1:29:53David Friedberg?

  There you go.

• 1:29:54Jason Calacanis?

  25 days.

• 1:29:55David Friedberg?

  There you go. Anyway, it's worth being cognizant. We talked about the hurricane event in the Pacific a couple of weeks ago. These sorts of events, more frequent, more scary, more significant, hotter oceans are driving these events. But this doesn't seem to be the mega flood event. But it could happen at some point. Got to be cognizant. That's the reality.

• 1:30:15Jason Calacanis?

  There are, people are buying like sandbags and stuff like that and putting things around their homes these days to, to prevent this kind of stuff. So yeah. And then hopefully it hits.

• 1:30:23David Friedberg?

  I got a leak in my office here right now. I got a tarp on my roof.

• 1:30:26Jason Calacanis?

  You got a tarp on your roof?

• 1:30:28Chamath Palihapitiya?

  This is at your house or this is at your office?

• 1:30:30David Friedberg?

  It's my house. My office at my house. Your home started leaking, it's like water was pouring in through the roof.

• 1:30:35Chamath Palihapitiya?

  Do you have wood, do you have wood shingles or do you have other?

• 1:30:38David Friedberg?

  No, I've got composite shingles, uh, but apparently underneath it, there's some holes, they gotta redo the roof. Anyway.

• 1:30:45Chamath Palihapitiya?

  I have to take, I have to take the wood shingles off because we can't get the insurance people to.

• 1:30:50Jason Calacanis?

  Yeah, shake roofs no longer allowed because of fires in California and you can replace up to 30% of them is what I was told. And so you can do like patchwork Chamath, but if you wanna, at a certain point, they won't let you do it and you just have to replace the whole damn thing. This happened to me in Brentwood and those wood shakes that you have, the sun dries them and they become like tinder basically. So you actually don't want to have those, those shake roofs anymore.

• 1:31:13Chamath Palihapitiya?

  No, no, no, I think that, I think they're treated to be fire retardant.

• 1:31:18Chamath Palihapitiya?

  But they look so beautiful and now we have to replace them with composite shingles or like, you know. Yeah. Anyways, we're, we're about to start, but we don't, we can't even get five days straight of good weather for the folks to come in. So that's what's so crazy about this thing is we could be sitting here six months from now.

• 1:31:31Jason Calacanis?

  And have 25 days of moisture, yeah.

• 1:31:34Chamath Palihapitiya?

  I mean, 40 days, I'm gonna tell them that 40 days straight of wet moisture, wet and moist.

• 1:31:41Jason Calacanis?

  Yeah.

• 1:31:42Chamath Palihapitiya?

  Uh, but not dripping, not drenched. Uh, for 40 days.

• 1:31:45Jason Calacanis?

  Consistently 40 days of moisture.

• 1:31:47Chamath Palihapitiya?

  Consistent 40 days of just.

• 1:31:49Jason Calacanis?

  Yes.

• 1:31:50Chamath Palihapitiya?

  Wet and warm moisture.

• 1:31:53Jason Calacanis?

  And listen, if you were up in Tahoe, it would be. Flurries and yeah, soft powder, which is what I'm hoping for. All right, everybody, for the dick, why is he laughing? Keep it together, please, uh, for the dictator, Chamath Palihapitiya. Uh, and is there, when we look at these atmospheric things that occurred, is any way, does this have any kind of, um, gravitational pull?

• 1:32:20Chamath Palihapitiya?

  Multiplanetary effects.

• 1:32:22Jason Calacanis?

  Any planetary effects that might pull the oceans out, like the gravity of the moon or?

• 1:32:27David Friedberg?

  I'm turning off my microphone.

• 1:32:29Jason Calacanis?

  Mars. Uranus, nothing, none of those would cause this. All right, everybody.

• 1:32:34David Friedberg?

  Goodbye.

• 1:32:35Jason Calacanis?

  For, for, for Sultan of Science, David Friedberg, the dictator, Chairman Dictator, Chamath Palihapitiya and David Sacks.

• 1:32:43Chamath Palihapitiya?

  Love you, man.

• 1:32:44Jason Calacanis?

  Yeah, love you besties. We'll see you next time.

• 1:32:46Chamath Palihapitiya?

  See you next time. Bye bye.

• 1:32:47Jason Calacanis?

  Bye bye.

• 1:32:56Speaker 05

  And instead, we open sourced it to the fans and they've just gone crazy with it. Love you, Wes. I'm the queen of Kinoah.

• 1:33:09Speaker 05

  Besties are gone. That is my dog taking a notice in your driveway.

• 1:33:20Chamath Palihapitiya?

  We should all just get a room and just have one big huge orgy because they're all just... It's like this like sexual tension that we just need to release somehow.

• 1:33:28Speaker 05

  What? You're the bee. What? You're the bee. What? You're a bee. Bee? What? We need to get merch. Besties are back.