#974 Chamath Palihapitiya on How To Invest Through A Crisis (2020 Replay)

Today's episode is a replay of the most listened to "Pomp Podcast" ever with Chamath Palihapitiya. This episode was recorded during the height of the 2020 Covid crash that sent the markets into a tailspin and investors panicking. Given today's macro environment and current market lows, I thought it would be a good idea to revisit this episode to help you and I navigate this market instability. This episode is filled with timeless investing principals that will help anyone in any scenario. Whether it's your first listen, or a repeated listen, you will find tremendous value here. I hope you enjoy this world-class education from one of the best entrepreneurs and investors in the world! ======================= Choice is a new self-directed IRA product that I'm really excited about. If you are listening to this, you are likely part of the 7.1 million bitcoin owners who have retirement accounts with dollars in them, but not bitcoin. I was in that situation too. Now you can actually buy real Bitcoin in your retirement account. I'm talking about owning your private keys and using tax-advantaged dollars to do it too. Absolute game changer. https://www.retirewithchoice.com/pomp ======================= Imagine coinmarketcap - decentralized. 3X in valuation is 15 billion dollars from the current price. Cryptotoday.com starts at zero, at fair launch on 7th of March. No VC. No pre-sale. Team tokens locked. For the people, by the people. For decentralized crypto. Visit http://cryptotoday.com and read the whitepaper for the details.

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

• 0:02Anthony Pompliano?

  What's up everyone, this is Anthony Pompliano. Most of you know me as Pomp. You're listening to the Pomp Podcast, simply the best podcast out there. Now let's kick this thing off. Today's episode is a special one. We're doing a replay of my interview with Chamath Palapattia, the CEO and founder of Social Capital. The reason why we're doing this is this is the single most popular podcast episode we've ever had, and we recorded it during 2020, in the middle of the pandemic, the recession, and the liquidity crisis. People love this episode because it gave you insight into how one of the great investors thinks about liquidity, thinks about recessions, and also how they position themselves to potentially benefit when we come out on the other side. Given the current market conditions, I thought a lot of people may want to rehear this exact episode and kind of apply some of those lessons to today's

• 0:47Anthony Pompliano?

  market. Before we get into this episode, though, I first want to talk about our sponsors. This episode is brought to you by BlockFi. BlockFi provides financial advice for crypto investors. Those products include the BlockFi Wallet, a US dollar loan collateralized by your crypto, and a no-fee trading product. BlockFi also released the world's first crypto rewards credit card. It's a Visa credit card that gives you crypto back as your rewards, instead of cash back or airline miles. They recently introduced Rewards Flex, so customers choose which crypto assets they receive from their credit card rewards from the BlockFi Rewards credit card. For people in the US who own or are interested in owning crypto or stacking more sats, the BlockFi Rewards credit card provides the easiest way to earn more crypto, because you earn 1.5%

• 1:28Anthony Pompliano?

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• 2:10Anthony Pompliano?

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• 2:52Anthony Pompliano?

  if you want to hold your private keys, Choice lets you do that, too. Start stacking tax-efficient satoshis today and visit choiceapp.io/pomp. This episode is brought to you by cryptotoday.com. Exchanges got decentralized, money got decentralized, and the only bottleneck is the very sites listing them all. cryptotoday.com is like decentralized coin market cap. It's the first of its kind. There's no bribes, no connections, or heavy fees are needed to get listed like on the centralized sites. You can simply request on the blockchain and disperse the prize on-chain to the community and get fact-checked by thousands of eager crypto users. cryptotoday.com

• 3:33Anthony Pompliano?

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• 4:00Speaker 01

  Anthony Pompliano runs Pomp Investments. All views of him and the guests on his podcast are solely their opinions and do not reflect the opinions of Pomp Investments. You should not treat any opinion expressed by Pomp or his guests as a specific inducement to make a particular investment or follow a particular strategy, but only as an expression of his personal opinion. This podcast is for informational purposes only.

• 4:23Speaker 02

  Alright guys, bang bang, I've got Chamath here with me. You need no introduction, but you've done everything from incredible investing career to also running the Growth Team at Facebook, built a number of companies, etc. Thanks for coming to do this.

• 4:41Speaker 03

  Thanks for having me on.

• 4:42Speaker 02

  For sure. Let's, uh, let's start it off with a fun question. I feel like nobody ever gets asked this anymore, but you're a billionaire. You, I think, actually made like a billion and a half dollars last year alone. What was the moment that you realized, wow, I have a billion dollar net worth?

• 4:59Speaker 03

  Um, wow. Um, well, I mean, it's kind of a gross answer, but it was a while ago.

• 5:07Speaker 03

  In my early 30s, as it happened to be, but that was, I mean, pure luck. Like, it's not as if that, that was sort of the plan when I started. It was just sort of what the outcome was.

• 5:19Speaker 03

  And the feeling was pretty cool because I, for a while, all I really wanted to do, especially in my teens and my twenties, was be rich, just because it was the solution to being poor. And I had spent the first 20 years being poor and I didn't like it.

• 5:34Speaker 03

  So it was a, it was a good feeling, but to be honest with you, it also ended up being a little destabilizing because, and ultimately better, the destabilizing part was just going through a process of realizing that it didn't really solve any of my problems. And for a while, it amplified most of my insecurities. Uh, and then it took me a while to just become a more kind of, you know, normal person and less of a insecure person going through, you know, their bouts of inferiority.

• 6:09Speaker 03

  So, uh, it was, it was, I guess now 10 years ago, I'm 43, so it was, I guess, about a decade ago. It was, it was great. I mean, it was, it was a real notch in my belt. Now, what I'll tell you though is it's been a crazy journey because the last 10 years it's gone up, way, way up, then it's gone down, you know? I've been, I've had to rebillionize a couple of times. It's been fucking great.

• 6:30Speaker 02

  I feel like when you start playing with big sums of money, people forget not only can you compound it faster, but you can also lose it faster.

• 6:37Speaker 03

  Swings are really big and you know, you really have to, this is why I kind of like have really tried to migrate to a much more patient model of doing my job. First, I was trying to figure out what should my job be. And I don't think there is a job that is an investor. I actually don't think that job exists. I think that, you know, if you're going to allocate capital well over decades, what you really are better than anybody else is just a good observer of the current moment in time. And it's taken me a long time to sort of practice and refine a toolkit, which all comes back to my psychology. And so, you

• 7:18Speaker 03

  know, in deconstructing myself over the last 10 years, I've become a better person. The byproduct is I think I make better investing decisions because I'm less prone to the wild swings that I went through. But in that process, I've been going through wild swings. Now, I think the swings that I go through, I can tolerate better because they're less psychological and they're more the result of bad structural decision making versus bad emotional decision making. So that's been an interesting process.

• 7:50Speaker 02

  For sure. And obviously, there's a bunch of chaos and kind of uncertainty in the world today. I listened to the recent podcast you did with Kara Swisher and if I got this right, you know, billion and a half or so last year, that's what you guys made. You've got three public positions.

• 8:03Speaker 03

  1.7, yeah.

• 8:05Speaker 02

  1.7, okay. You've got Slack, Virgin Galactic, and Amazon in the public markets, and then mostly sitting in cash, I'm assuming, other than whatever illiquid investments you've made. You know, you keep talking about, hey, we're only four weeks into kind of this drawdown. If you look historically, that's pretty earlier, kind of the beginning of the beginning, I think is a quote you used. What are some of the things that you're paying attention to that you're like, when I see X, that's when I'll start to get excited and start getting a little bit more aggressive and kind of switch from an all cash mindset to aggressiveness?

• 8:36Speaker 03

  Yeah, so I think the setup is important here. So yeah, last year we were lucky. We put about 1.7 billion on the balance sheet. I had been trimming all this year. And so I'm not, I'm not going to be the one here to tell you that I've been trimming at the top. I haven't been. I've been methodically selling more and more every day. I had four positions coming into this year, Virgin Galactic, Tesla, Amazon and Slack in the public markets. We have a large portfolio of private equities. I don't really know where the market on that is. I tend to think it's probably down at least 30% and ours is a pretty good portfolio, I would say. And so I think many companies could be down 60 or 70, if not completely out of business.

• 9:22Speaker 03

  So my mindset has been to position myself defensively, build up a cash base that we can very aggressively put to work. And so what signals am I looking at? Well, first is the signals that maybe what we're doing is the right thing.

• 9:41Speaker 03

  The best way that I think about this is just put yourself into the mindset of any company. Right? So pick a great company that, you know, you've admired. So I'll pick one that I've admired for a very long time, for good reason. Workday, simple example. You know, that's a company that's basically like 10x their market cap and, you know, the six or seven years they've been public. Trading at an incredible valuation, cheap now, in terms of sort of like what they've done historically. But then I put myself into, and this is not to pick on Workday, but it's a perfect example of, of what other companies will go through, because I think this is one of the best positioned companies.

• 10:21Speaker 03

  So they were before all of these, all of this craziness, going to companies, the Global 1000, and basically saying, listen, like, you need to upgrade two big parts of your legacy infrastructure, right? One part is about how you do all of the human capital planning and human resources management of all the people that work for you. The second piece is how you actually count all the money that you make, your general ledger. Right? And so the first product would compete against PeopleSoft. The second product competes against Oracle Financials. Okay? Now, why am I telling you this story? Because it's kind of like, who cares? Boring enterprise software. Well, Now you put yourself into work day for a second and ask yourself, who are their customers today?

• 11:05Speaker 03

  April 1st, 2020. Well, whatever segment of their revenue came from oil and gas just went to zero. Right? Oil is at 18, 19 bucks a barrel.

• 11:21Speaker 03

  There are a lot of very smart people that are telling you now that oil probably gets to 15, if not 10 dollars a barrel. Some could go to zero. You've had the tar sands effectively trade to zero in Canada. You've had your first bankruptcy filing this morning when we woke up, which was a multi-billion dollar company in the Bakken Shale in North Dakota. So if you're an oil and gas company, you're no longer thinking about your general ledger because you have no revenue. And you're no longer thinking about upgrading your, you know, HR software because you may not have any employees, right? So that whole segment stops buying. If you're an airline company or a transportation and logistics company, that whole segment has stopped buying. If you're a hospitality business, that whole segment has stopped buying.

• 12:06Speaker 03

  If you're in the banking sector, that whole segment has stopped buying. Now, the spectrum of decisions are different. On the one end, these companies are bankrupt. At the closest end in banking, your market cap has been shaved by 30 to 40%, which means that you have to now start and figure out how you save from an OpEx perspective, a lot of money to basically try to get profitability in line so that you can grow out of this thing. And so decisions that you could otherwise live without, you stop. And decisions that you could otherwise stall, you stall. Now, this is for one of the best-run companies in the world.

• 12:48Speaker 03

  So then if you take that trace route that we just did, and trace route a bunch of other companies, random companies, pick a retail business, let's take a retail business, Macy's. Okay, well, what was Macy spending money on? While they were spending money on people, they just furloughed 200,000. They spent money on physical plant, they're going to stop paying their rent. They spent money on point-of-sale software, that's going to go to zero. They spent money on merchandise, that's going to stop. And now you look at their customers. Well, the customers, the point-of-sale manufacturers, right? Let's look at those companies as an example.

• 13:27Speaker 03

  I think there's about $15 billion of public market cap in folks that sell POSs. POSs used to stand for point-of-sale. It may now stand for piece of shit. The entire category has gone to zero. The entire category. $15 billion of market cap has been eviscerated. Nobody's buying point-of-sale software, or hardware, or terminals. Right? If you think about all the OpEx that those companies spent, five, six billion a year in running their businesses, they've stopped. So my point is that when you start to follow the trail of breadcrumbs, for any company in any sector,

• 14:06Speaker 03

  what I am slowly realizing is that we're a very interconnected web of businesses. And that as much as you thought you were insulated from what's happening, I tend to think that what is going on is not a sector-based drawdown in leisure, hospitality, banking, and a couple of others. But this is a... There are implications for every single business. So why that's important is for a company to reset, I think you're going to start to hear the term "zero-based budget" a lot. So what is zero-based budgeting? Zero-based budgeting means you start with a clean sheet of paper, and you say, "Well, this company is worth nothing.

• 14:51Speaker 03

  I have no revenue. Let me build it back up, bottoms up, line by line, excruciatingly line by line." And when you do that, you'll understand what you're willing to bear in your expense basis, right? So I tend to think in that process, that takes six or nine months to unfold. People will not be in a position to buy things that were nice-to-haves. People will not be in a position to actually even spend on must-haves. So if you think about like, you know, if you're in energy business and you're thinking about, you know, look at even Buffett's businesses. I mean, the craziest thing about Buffett's letter this year was how economically capital intensive and unproductive his energy businesses were. Their negative ROE. Well, in a world where, you know, you have energy consumption falling,

• 15:36Speaker 03

  I think the average power consumption has fallen by about 15% for the regional utilities. You know, but you're forced to price within a band and you're also forced to do certain capital upgrades, especially in the, you know, in the case of what just happened in California, where you could get sued because you have faulty equipment, you start a fire, blah, blah, blah. Every single company is going to be under an enormous amount of pressure to re-baseline their expenses. And in these next six to nine months,

• 16:09Speaker 03

  they're going to figure out what they're willing to spend and then they're going to start spending cautiously, I think. So I tend to think this is a multi-year.

• 16:20Speaker 03

  And I don't want to become too alarmist, but I do think it's something that is sort of akin to a depression. Like this is 15 to 25% unemployment and it's going to take a long time for us to sort through all the damage.

• 16:37Speaker 02

  Yeah, you bring up a really good point. I saw a stat yesterday that the US domestic box office, so kind of just movie theaters in general, this time last year, in the week, March 20 to 26, they made $200 million. Last week, they made $5,100. I mean, literally 99% just decimation. Now, that immediately brings the idea of like, hey, are you going to see an industry basically evaporate, right? Will people ever go back to the movies with the virus, et cetera? And a buddy of mine said to me, well, that's the movies and that's kind of a nice to have, right? People have Netflix or other ways that they could get some of that content. Because what about all the startups that were built that just service other startups? Right? That was the rage for a number of years. And so it

• 17:19Speaker 02

  sounds like you're making the argument like this isn't just hospitality or movie theaters. This could be kind of across industries, depending where you are. And what your balance sheet looks like, there could be disappearances.

• 17:30Speaker 03

  You're bringing up some really good examples. So let's follow those examples. Let's traceroute those, right? This is a key word, traceroute. Fucking follow the trail of breadcrumbs. We have, this is now the time where honestly, like, the propensity to action should be avoided at all costs. Like, this is where you sit down, you tape your hands to your hips, your lap, you don't touch the fucking keyboard, and you just learn and you study. You know, you're not supposed to be day trading in moments like this. You're supposed to be learning. Um, but let's take your examples. So, you know, the, the, the major movie company studios were forced essentially to go day and date. Now, the problem with that is that you can't put that genie back in the bottle.

• 18:13Speaker 03

  And the other problem with it is that they may have gotten the pricing wrong. They have no time, they had no time to really do a pricing elasticity and release these movies for a hundred dollars a ticket on iTunes. They, they released them for twenty dollars. Um, and so it's going to be very difficult for Disney and, you know, Universal and Warner Brothers and Sony Pictures to all of a sudden come back and say, A, we're going to try to give the movie theaters back their window of exclusivity. I think that's, that, that's basically very difficult, if not impossible. And then the second thing that's going to happen is that they're not going to have the same pricing power that they would have had with the online distributors. Now, all of that has one really important implication, which is the cost of the movies that they make are going to change.

• 18:57Speaker 03

  And then, as a result, the cost of what they're willing to pay is going to change. As a result, the cost of what they pay their unionized employees is going to change. What the CGI maker, you know, charges, changes. What the caterer charges, changes. And so, this is why in, when you have these big, sort of cataclysmic economic events, what you have is a period that's very deflationary. Right? You have a period where prices fall and fall and fall. Now, in the Great Depression, the only way that we could buck that trend is to basically get rid of the gold standard. You know, in 33, I think it was. And so we're going to have to have some version of that, which is to basically create a bottom on pricing and to create a bottom on price stability. So the movie theaters more than likely go BK.

• 19:43Speaker 03

  And in that, if you were a REIT or if you were a tenant or if you own the land, you're going to have to figure out how to repurpose that, how to try to pay your debt obligations. Otherwise, you're going to go bankrupt or you're going to go default or you're just going to hand the keys over to those facilities,

• 20:00Speaker 03

  to banks, at which point, you know, probably the beneficiary is Amazon or some other sort of like physical retail that needs last mile distribution. And some of these movie theaters represent the right size and the right physical location. Okay, so that's, that's one. Then you talked about startups. That's another great example. You know, for a long time, I think in 2015 or 16, I started to become very bearish on enterprise software. And the reason was because we shifted much more towards SMB than we did towards mid-market and enterprise. And the reason was because the money cycle was faster. It was, you could put small amounts of dollars to work. The companies would sell online via credit card

• 20:44Speaker 03

  to other SMBs who would buy very quickly. You would show revenue traction and then you were able to use that to then go and raise an up round. So venture capitalists loved it. The entrepreneurs loved it. They used it to attract employees because the equity looked like it was accreting very quickly. But then you realize how brittle your customer base is in a moment like this because they are the first to stop paying. They are the first to not honor their contracts. They're the first to go out of business, unfortunately, because they don't have the cash cushion. And so there's going to be, unfortunately, a lot of carnage in the SMB space that there won't be in the enterprise space. So now go back to a company like Workday or, you know, ServiceNow or SAP

• 21:30Speaker 03

  or some young startups that have explicitly chosen to sell into the Global 1000. NetScope is one, as an example, that sells security software into the Global 1000.

• 21:41Speaker 03

  They consumed enormous amounts of capital to build their go-to-market. But in many ways, that capital becomes a protective moat that will keep them safe in a moment like this because their customers have a higher probability of staying in business. Now, their business may slow down, their business may get rerated, but their business isn't going out of business. But if you were selling mostly to SMBs, there's a very good chance that 50% of your revenue is impaired. And at that point, again, if you're already money-losing, which most of these startups were, selling to SMBs at price points that didn't make sense because you were trying to get out of a J-curve, it's going to be next to impossible.

• 22:25Speaker 03

  The other strategy that startups also employed was being monoproduct, right? It was not only go to SMBs, charge something small, if anything at all, but do it for one single-point solution, create a wedge, and then expand. Well, again, you go back to this problem that when companies are rebuilding their expense base, what they're doing is making decisions about what costs to bear. The company that has a monoproduct solution is last in line to be considered because it doesn't solve enough of the CEO, CFO, CIO's problem. So then, all of a sudden, you start to make substandard decisions, meaning you'll take Microsoft because it's a whole stack of things. It's one person, it's one sale. They can now discount,

• 23:08Speaker 03

  and you have this increasing returns of scale property that benefits Microsoft disproportionately, right? So you have to be very unique. You have to be a Zoom or a Slack or Okta in that environment to be able to defend yourself adequately.

• 23:25Speaker 03

  So that's also a very problematic dynamic. A monoproduct company is going to be very challenged. A SMB-focused go-to-market sales strategy is very challenged. So to your point, like, the examples of contraction, I think are numerous. The examples of green shoots exist, but they're harder to find.

• 23:52Speaker 03

  And to be quite honest, they're speculative because they're not about adoption. They're now more about valuation. Like, everybody loves Zoom, everybody loves Slack, it's fabulous. You have to be able to right-size valuation in moments like this as well.

• 24:07Speaker 02

  Yeah, one of the things that I keep saying to people is, a lot of companies thought about, are we recession-proof? Nobody had ever thought, are we pandemic-proof? Right? And the easiest example is, take like a barber in New York City. They would say all day long, oh, I can last through a recession, everyone needs a haircut. Now, all of a sudden, literally, the government has mandated, go home. Right? And revenue goes to zero, and can they pay their rent, etc. And you kind of, again, do that tracing back. And you saw, like, Tom is a big real estate guy who's got a bunch of hospitality real estate. And he came out pretty early and said, look, I need help because I can't give the rate of rent abatements, the things that you want me to do for these companies, because I've got people that I owe money to. And you kind of go through the circle of that flow of cash.

• 24:51Speaker 02

  And you realize, like, almost every industry is now turning to the government and saying, hey, I need a bailout. Right? I mean, literally, the movie theater, the reason why that data came out is because they're asking for a bailout.

• 24:58Speaker 03

  And this is where the rubber meets the road. Because, you know, right now, before all of this happened, the government was already a third of GDP. And, you know, we are now, after all of this is going to be said and done. Because I think the odds that we're going to be sort of in the eight to 10 trillion dollar range is probably very high, which essentially means that, you know, this year, at a minimum, 55 to 60% of GDP is going to be government-sponsored. But for the foreseeable future, we're going to basically be very reliant on the government, the federal government. And then, you know, there's another impeding, sort of cataclysmic wave that we have to deal with, which is not just all these companies, but all the states,

• 25:39Speaker 03

  and all the municipalities and counties and cities that are just going to be completely upside-down on debt. But they have dramatically less flexibility than the federal bureaucracy does in basically, obviously, just printing money. So, we have a very difficult moment here where what we have realized is that in the search for efficiency, we have abandoned resiliency. And we have to pivot our economy to resilience. There was an article today that the Chinese government was basically metering out PPE equipment, so masks, gowns, gloves, etc., evenly.

• 26:19Speaker 03

  And why I think that's interesting was, I think it was interesting that, you know, there was a moment where the president about two weeks ago started to back down from naming coronavirus the China virus, or the Chinese virus. At some point, I think that there was a political gambit inside the government that said, "We should try to label this as a foreign scourge." And I suspect that what probably happened, not to be conspiratorial or anything, is that, you know, they needed a lot of things from China, and China said, "Listen, not only do you need to back down and never say this again, you need to apologize to all the Asian-Americans in the United States." And by the way, he did it. And he's never said it since. But since then, the Chinese government is still not flowing PPE into the United States at the same velocity as they should relative to other countries.

• 27:04Speaker 03

  So it goes to show you that, you know, in our, in our, sort of, this hell-bent desire for efficiency, we've empowered certain countries and economies to have incredible leverage over us. These fulcrum, you know, it's, it's kind of like, you know, when you look at the debt stack of a company, you look at the fulcrum asset, right? You look at the fulcrum security. That's what, that's what we call the pivot security, the thing around which everything crumbles. And it turns out that our Achilles' heel are simple trading goods from countries like China that they can hold back from us. It's just incredible. And so, we have to pivot to a much more resilient economic model.

• 27:48Speaker 03

  And in that, by the way, that's, I think, how we countered the deflationary pressure of, you know, the 1930s. Because inherently, what it allows you to do is actually see a world of rising wages and rising prices if we sort of in-source more of the production, or at least the last mile completion of the things that America needs to run its economy.

• 28:10Speaker 02

  Yeah, it's the whole idea that the supply chain is a national security concern, right? And I think that as we see this deflationary environment now, you know, the average American has no clue, you know, kind of the balance between, as asset prices go down, the dollar strengthening. And obviously, the Fed's gonna have to step in, they're gonna have to do the quantitative easing, expand the balance sheet. Where do we go with that, right? And obviously, I know that you're a big kind of schmuck insurance as Bitcoin proponent, but is this a thing where seeing, you know, the Fed balance sheet, the latest chart I saw was literally, it's just a vertical line, right? They're adding hundreds of billions of dollars. I mean, it literally just looks like it just shot straight up in the air. And part of this goes, let's say we go to eight, $10 trillion on the Fed balance sheet.

• 28:54Speaker 02

  What is the fear around higher levels of inflation? Will that even be enough to get us out of the deflationary environment? Like, where does this take us? Because I think that the writing's on the wall, like, we have to go there. But I guess, like, what's the second and third order effect of going in that direction?

• 29:08Speaker 03

  If it's the status quo, I think that we already have the example, which is Japan, which is like, look, you know, the crazy thing is like, you know, in 1971, when we formally abandoned the gold standard, the reality was every country realized that all of a sudden, they had infinite power. And it lied in each of their central banks, and the ability for those central banks to print fiat money. And so ever since then, we've just basically been printing ad nauseam, effectively. And what Japan has really shown over the last 20 years is, as long as I keep buying my own debt, everything's going to be okay, because, you know, I'm paying myself back. And so I'm just round tripping money constantly. I could keep this whole thing afloat for a very long time.

• 29:53Speaker 03

  So the idea that the typical rules of, you know, debt to GDP matter, they kind of matter, but they don't. Now, America has a different problem in that it has always been the reserve currency. And there's a lot of foreign entities, governments, and otherwise, that own American debt, which is a little bit less typical than in Japan. It's true that other people own the Japanese debt, but overwhelmingly, it's the Japanese government.

• 30:22Speaker 03

  You know, the United States can go and play this game for a while. But eventually it comes home to roost because you're going to have to start issuing paper at a higher and higher risk premium.

• 30:34Speaker 03

  The question is, how do you do it?

• 30:37Speaker 03

  And this is where things become very complicated. And so unless you find a way to break this deflationary cycle. So one can be an explicit decision to just refactor your economy. And I would advocate for that, which is, you know, we decide that, you know, the way to sort of create inflation, meaning how do you grow your way out of this? So not how you issue debt to drive GDP higher, but how you actually grow your way out of this is by putting enough money in the system to actually create incentives to do things differently that actually cause prices to go up.

• 31:18Speaker 03

  And I think the only way to do that is to economically incentivize and essentially mandate things to be much more domestically created and produced. Because it gets us closer to full employment and it allows people to be more competitive in the job market and it forces companies to pay employees more. It forces companies to then charge more for their products. And we break the back of these deflationary cycle because we were already on it after 2008 with QE. I think we're going to go faster and faster towards this wall. And the only way you can slow down and veer away from this wall, and I'll tell you what

• 32:00Speaker 03

  the wall is in a second, is by basically forcing some kind of inflation. In the absence of that, the wall is debasement. It's basically just saying, okay, it's not worth as much anymore, sorry. And, you know, I mean, to be very honest, and I can, I don't, I don't mean to say this as flippantly as it's going to come off, but that's what third world countries do.

• 32:22Speaker 02

  It's a dictator playbook. Get all the assets and just print money.

• 32:25Speaker 03

  And it's not, but it's not what the American economy should do. It's not what America should do. And it's not what the reserve currency of the world can really afford to do. So I think the only solution is path one.

• 32:39Speaker 03

  And it's going to require us to really look at competition, corruption, regulatory capture, economic incentives in a very different way. We're going to need a new deal.

• 32:54Speaker 03

  We're going to need a massive stimulus package that incentivizes building things, creating things,

• 33:03Speaker 03

  repatriating supply chain back to the United States. And in that, I think there's a way out of this.

• 33:09Speaker 02

  Yeah, it's interesting because what it then leads to is there's a lot of quantitative easing that goes on. And to avoid that debasement, I think that you're directionally correct. Right now, the strategy has been let's buy every credit product we possibly can stuff into our mandate. Right. And they're doing everything from treasuries, mortgage backed securities, corporate credit, all the way down to one. It then leads to like, well, what else can we buy? And obviously equities is kind of this like religious topic that once you step across that line, I think there's a lot of people that start yelling and screaming. How do you just like evaluate, should they do it? Should they not? Would it be helpful? And kind of navigate that conversation?

• 33:50Speaker 03

  I don't, I don't think it's additive, to be quite honest with you. I think the debt markets are much, much more important to

• 33:59Speaker 03

  the functioning of an economic system than equities are. I think equities are much more of an individual company's game, whereas the debt markets are much more intertwined and interconnected. And they, they all live in a very complicated ecosystem, meaning, you know, Carnival's convert doesn't affect Facebook. There, these are just like not correlated things. They don't, they don't really touch each other, really. But, you know, triple B corporate credit versus triple A corporate credit live in a very interconnected stack ultimately. And those live in a That are related to munis and related to mortgage backed securities and and related to the CDS that you layer on top of baskets of all of these things.

• 34:40Speaker 03

  It's a much more complicated, important market for how capital markets and economies run. Debt, debt are, debt is. I think that before, you know, the Federal Reserve starts to try to sort of cherry pick equities, which they're not going to, I mean, at the most they'd buy ETFs, but they'd buy the index. But I think you probably have a much bigger problem, which is what do you do about pensions? And I think before you start speculating in equities, I think there's probably a massive bailout of a bunch of these pensions that have to happen. And I think that there would be more political support for that before there was political support for buying equities.

• 35:15Speaker 02

  Yeah, I mean, the pension issue is so bad in some areas, right? I mean, just, I mean, just literally, when you look at the numbers, you're like, it's impossible to get back to where they need to get. I don't care if they've got the best, you know, investors in the world running these things. Is the solution only a bailout, right? Or let it fail? I mean, is that basically it's a binary, let it fail or bail them out?

• 35:36Speaker 03

  Well, you have to bail them out. The bailout isn't going to be to corporates. I think the bailout is going to happen at the, at the city, county and state level. And here's the problem is that you can't politicize that, meaning you can't bail out, you know, the Houston Fire Department pension because the city of Houston issued these bonds or, you know, the, you know, state of Texas issued some general obligation bonds and some of it went to Houston, but then not do it for California because one's Republican, one's Democrat. I don't think that dog hunts. So this is a very complicated thing that once you start to do it, you have to do it for everybody.

• 36:17Speaker 03

  And this is where, again, I go back to like, before you go there, you have to realize that that is a never ending spiral. And you have to try everything else before you do that. But the unfunded pension obligations that sit in companies are important. But at the end of the day, you know, that is also a function of haphazard management in part. What's much more critical are the pensions of states and cities and municipalities because these are the critical workers that we rely on. These are the people on the front lines. These are your policemen, your firefighters. You know, these are the people that are working public utilities, your teachers.

• 37:00Speaker 03

  And it's wholly unfair that those folks basically get, you know, fucked over.

• 37:09Speaker 02

  I just saw a report yesterday, the MTA in New York City is saying that subway ridership is down 90%. And obviously, revenue basically disappears. And now they're worried about being able to service some of the bonds, et cetera, that they've issued. And so they're turning to the government and saying, hey, we need a bailout too, right? And you just get in this world of everyone needs help. And I agree with you, it's going to be hard to cherry pick, well, we'll help you and we won't help you because now you're playing kingmaker.

• 37:35Speaker 03

  Well, I think it's even harder than that. How do you know who to help? Meaning, okay, you can get away with it. Like, let's just say you actually try to be a kingmaker. So, you know, the stimulus bill slowed down for a few days because there was a fear from the Democrats that, you know, Mnuchin wanted essentially a half a trillion dollar slush fund. Well, let's just take the extreme and say that he had gotten it. He's only going to do one or two deals that don't work before everybody says, hey, you need to stop. And it's only half a trillion dollars in a 22 trillion dollar economy. So at the end of the day, it still doesn't do anything.

• 38:18Speaker 03

  And if you take the 22 trillion of GDP and layer on all the pensions and layer on all these other things, it's a drop in the bucket. I mean, like, we need to come up with 50, 60 trillion dollars when it's all said and done. So even if he had done it, and even if he had done it poorly, what we would realize is cherry picking doesn't work. It's an all or none problem. This is why I think, again, we have to go back to we have to spend our way and try to inflate our way out of it. And basically, what we have to do is choose the path of inefficiency. Because inefficiency creates costs, and then costs are passed downstream. And then, you know, you have to get to full employment so that people can, you know,

• 39:00Speaker 03

  switch jobs more easier for higher wages. That is the only way we can get out of this.

• 39:05Speaker 02

  Yeah. This leads to Bitcoin, right? You're famous for calling it the schmuck insurance. I'm not going to say that we're in the situation where the insurance is needed yet, but we're definitely headed that direction over a long period of time. How have your views on Bitcoin kind of changed over time? And have you bought more Bitcoins, sold Bitcoins, or changed anything in kind of from a portfolio allocation standpoint?

• 39:30Speaker 03

  So first of all, I think you said it exactly right, which is that I think that this is the setup. Meaning, I think Bitcoin needed a moment like this for it to be relevant. In 2003, oh, sorry, 2013, I bought a lot. And at one point, I think I had almost 5% of all Bitcoins. My basis is about 80 bucks a coin. I've never bought more. Most of my Bitcoin now sit with a company. And, you know, they use it for trading purposes. They use it to run a bunch of other strategies. And I did that mostly for safety and security and peace of mind. I didn't want to deal with it. I wanted to own equity in a business that equity can be hedged,

• 40:15Speaker 03

  that equity can be tax structured advantageously. And then it allows them to run a big business which generates cash and I can get a cash and, you know, dividend stream. So I have not bought since I initially basically wrote that article for Bloomberg in 2013.

• 40:34Speaker 03

  My thoughts are the following: Right now, I think what you're seeing is that it's still a speculative instrument, and it's too speculative for it to be reliable. So if you're going to make the case that it should replace fiat currency, well, one thing you have to look at is the volatility of the US dollar, and you can't replace it with something that's 9 sigma more volatile. It doesn't work. And the reason it doesn't work is that it's too, again, going back to what markets are important. The only market that's even more important than the debt markets are the currency markets. And what you see is enormous amounts of liquidity where 5% moves, so 500 basis point moves, are newsworthy.

• 41:17Speaker 03

  Well, those 500 basis point moves, in the absence of some massive exogenous event, take years to play out. And in that, there's value, because it allows more market participants to be active in that market, so that they can use it as a critical pillar of how they run their business. But now, all of a sudden, if you have 2,000 basis point moves a half hour, you can't effectively use it. And so what it does is it pushes it into this ghetto of day traders and speculators. And right now, that's where we are, we're in that ghetto. And you need to get out. And the way that it gets out is that you need to flush the speculators and day traders

• 42:02Speaker 03

  out, and you need to have still some basis of interest from long-term holders, and then you need to have it slowly look like the traditional infrastructure could really implode. So again, I go back to, we are driving, slowly, but we are driving towards a top of a cliff. And then, we're going to drive much, much faster down that cliff, or down that hill, and at the end of it is a huge brick wall.

• 42:35Speaker 03

  The way we avoid it is by pivoting to a resilient economy where we introduced inefficiency and cost and inflate our way out of it, or debasement.

• 42:47Speaker 03

  The path dependence for Bitcoin is if it looks like path two is likely, it will really emerge as a flight to safety. And over the next 10 years where this trajectory is going to take shape, and it is a 10-year trajectory, you'll have a lot of time to vector into it, to protect yourself and to hedge yourself. And I've always thought of Bitcoin as a very binary investment, whether it goes from 80 to 8,000 to 6,000 to 3,000 to 13,000, it just, it doesn't matter. This is either zero or it's millions. Because what it will do is it will create a quasi-gold standard.

• 43:32Speaker 03

  It'll create an index, except instead of having to own gold, where gold is owned by central banks, it is an instrument that has value that's determined by and between its participants, and it's owned by everybody. So maybe the correct way to say this is that it's not gold, but in gold being gold 2.0, which some people have used about Bitcoin, what it does is it replaces the, the method of value transfer that you need for fiat money to be valuable. But that only happens if the US dollar looks like it's going to careen into this wall. So I think that's the bet. So the setup is here. So before, there was no path dependence, meaning you were speculating and not really

• 44:16Speaker 03

  hoping, because you know, if you were, if you're using as schmuck insurance as I was, you were kind of hoping it would never come in. But now, if the probability, you know, was 1% that, that it would be valuable, unfortunately, the probability is now probably like 5 or 10%. And there's a real chance by 2030, we don't find a way to inflate our way out of this. And that the only way to break the back of deflation is essentially to create some quasi-form of gold standard. But it'll be almost impossible to do that between governments and central banks. They'll never agree on an instrument and they'll never agree on an exchange. But then bottoms up, people could decide to do it.

• 45:01Speaker 03

  And the minute that that happens, individuals and people, then it's a done deal.

• 45:05Speaker 02

  I broke some glass a couple of weeks ago. I basically said, look, there's a lot of people going on television and saying, I think X is happening for Y reasons and stuff. And I said, but the one thing I haven't heard anyone make the argument for is if you zoom out to the big picture, are we actually seeing the failure of the fiat currency experiment? Now, it's not going to happen tomorrow. It's over a long period of time, but once you got off that gold standard, it introduced some advantages, but it also introduced some disadvantages. And there's this guy in San Francisco, Brent Johnson, at Santiago Capital that I interviewed. He's got this theory, he calls it the dollar milkshake theory, which is all these central banks are introducing liquidity into the world and the US actually has the straw. So they get to suck all of the value into the dollar, right?

• 45:45Speaker 02

  So everyone's introducing liquidity, US sucks it in, dollar gets stronger, asset prices go down, you get the bleeding. What happens if all of a sudden Bitcoin and the currency that you're moving into is not so much the most stable, but it's actually an access play, right? If you're in certain areas of the world, I want dollars, I just can't get the dollars, right? And so the next best thing is the access.

• 46:05Speaker 03

  So I think that that will also happen. The thing is though, and I can say this because I was born in a developing third world country, those countries don't matter for shit. So, look, the reality is we're going to have a lot of failures, meaning the good news is the United States is incredibly important. It's the fulcrum security of the world, so we're not going to fail. But there's going to be a lot of pain. So for example, the eurozone is going to get stretched right to the breaking point. They're not going to break, but it's going to get stretched right to the breaking point. So they'll be okay, but then when you look at emerging markets, it's very complicated. I mean, um, so could you see Argentina fail again? Yes, in fact, they probably will.

• 46:49Speaker 03

  Um, if this, if the Southern Hemisphere sees a massive outbreak of coronavirus as they go into the fall and wintertime and they're ill-equipped to deal with it, which the odds are reasonable, uh, could Brazil fail? Yeah, possible. Could they devalue again? Probable. Um, Central and South American countries? Yes. Asian countries? Yes. So in all of those markets, you'll probably have a bid by the most astute people in those markets to basically defend their, uh, defend what they own because who wants to own, you know, pesos or bot or, I mean, you just don't want to do that. Reais, it's, it doesn't make any sense. Um, and the risk for all of those currencies and those markets is quite negative, quite, quite, quite negative.

• 47:34Speaker 03

  Um, so there, there'll probably be a bid there. It's just insufficient. Again, I go back to, we have to remember the gross tonnage matters here and they're, you know, the fucking fruit peddler, you know, in Sri Lanka, just, he doesn't matter. Uh, there's just no amount of, there's not enough fruit peddlers in the world to overcome central banks. Um, so I just think that, um, uh, there'll always be a bid, uh, for those folks. I think it'll go up on the margins, uh, because he's, there will be a lot of, I think, emerging market failures versus the developed world. Um, but I don't think, uh, beyond that, there's going to be some massive bid and that's the tipping point.

• 48:16Speaker 02

  Yeah, that is a fair argument. Uh, I want to switch gears real quick. Um, a couple of years ago, maybe two years ago now, uh, you made a pretty big, I think, strategic move in the way that you started to allocate capital and, and the way that I read it was, uh, you wanted to make much more concentrated bets where you had higher conviction and a lot of managing outside capital and things like that kind of prevented that. When you look at your portfolio today, you basically have three public securities that make up, you know, almost a hundred percent, if not a hundred percent of your portfolio. You've got a cash, you've got the illiquid stuff. Kind of looking back, good decision, happy with it? Would you do it again? And kind of where do you look at now from a just portfolio construction and, and concentration risk that you take? How are you thinking about it kind of two or three years into this?

• 49:00Speaker 03

  It was a great decision. I think the way that it happened was too haphazard. I think that if I had had the courage to believe in myself, I would have probably, instead of let it happen in, you know, four or five kind of cuts, I would have just done it all on one day and walked in and said, here's what's happening, here's everybody's severance packages, here's what you guys can make, and, you know, I wish you the best, signed this, and let's be done and shake hands. I didn't really have the courage because it was a process where I was evolving to this place over a year, and so I kind of trickled my way into the decision. Do I regret the outcome? No, I kind of regret the process. I wish that

• 49:44Speaker 03

  that was better. But, you know, my setup right now is like, I think to myself, okay, there are two big aspects of my life, and they're measurable in very different ways. So in my personal life, my whole job is to realize kind of two things. The first is, and the coronavirus has been amazing for me, which is I'm powerless. I'm just as powerless as the fruit vendor, and just as powerless as the president of the United States. We are all equal in a moment like this, and that is incredibly humbling to internalize. Okay, we're all equal, but it doesn't mean that we're irrelevant. So being powerless

• 50:25Speaker 03

  is one thing, but we are very relevant. I am relevant to my friends and my family, and I have a responsibility to be really functional for them in moments like this. So it's about maintaining clarity, making sure I realize how lucky I am, being appreciative, staying healthy, helping my family, talking to my friends, making sure that when I see them in moments where they're, you know, when you're cooped up for a month, it's tough, it's helping them. So I've realized that measuring myself in my personal life is about those things, how to stay relevant.

• 51:06Speaker 03

  But yet realize that I am powerless. How do I be functional? And measure my, measure my ability to be functional? So I have like a little, you know, a stick it pad and I write my friends' names on there and I cycle through it and I make calls. Um, you know, I have books that I try to read, passages that I try to just, just to stay focused. And then, you know, when it's time to be with my family, really be present with them. That's how I measure it. In my professional life, I have always, um, wanted to be the best at something. I just didn't know what that was and I wanted to push myself to try to be the best.

• 51:45Speaker 03

  And right now I'm in a lucky position where, you know, this is the moment, I think for me, where I can take, you know, a three, four billion dollar balance sheet and 10x it. And so, how do I do it? Um, and in doing so, it's not the money. It's proving how good I could be in these moments where I need to be clear minded. Where I need to, um, make really good decisions, where I need to manage my psychology. I'll give you an example, like as I told you, like I've been trimming where markets were down 10,000 or 1,000, where markets were up 1,000, where, you know, and, and I see all these folks who would be like, oh, I, you know, clipped the top and I, you know, covered my shorts

• 52:30Speaker 03

  at the bottom and I think, wow, I'm an idiot. I mean, I didn't do any of those things. I've just been dollar cost averaging my way to more liquidity. And it would make me feel insecure, but I had to battle through that and, uh, put myself in a position now where I have an even bigger cash pile. Uh, and I can say, okay, I can make a couple billion dollar bets here and try to 10x it. And in doing so, I can be part of the solution. I could hire lots of people. I could, you know, solve really important problems that I've always wanted to solve. And I'm putting myself to that challenge. And so I don't regret any of it. Um, but I'm really cognizant of this line because if I am dysfunctional at home.

• 53:14Speaker 03

  I will not be functional at work. And if I fail at work, I need to firewall my personal life so that I can still be functional. Because this is a moment where I've really, I'm trying to learn how to have equanimity. And I think like if you look at the best people in work, at any work, they have an equanimity to it. They are humble enough to realize they're a participant, that they're not some all-seeing, all-powerful, omnipotent presence. They wait for their moment and then they participate in a functional way. And that's a real skill, I think. Very few people have it.

• 53:58Speaker 03

  Buffett has it. Very few people have it.

• 54:00Speaker 02

  Speaking of Buffett, you and him are in somewhat similar situation. I think a little bit different size and that you have cash on sidelines. You're being patient. You kind of understand, at least generally, where we are in the cycle and having that patience will likely pay off. When you go to get aggressive, I think a lot of people are saying, you know, when's Omaha gonna move type thing? For you, where are you going to look? Is it public markets? Is it looking at kind of more the hard tech stuff that you've been talking in the private markets? Is it maybe something that we aren't expecting like real estate or other assets? Kind of how do you think about, okay, I've got a couple billion dollars. How do I 10x it? There's a lot of risk involved in that, obviously, right? So how do you kind of think through that?

• 54:41Speaker 03

  The way that I'm asking the question right now is first and foremost, what is not going to change?

• 54:49Speaker 03

  And, you know, there's a bunch of things that are not going to change. Meaning you're still going to go out eventually. You're still going to travel eventually. You're still going to buy things offline eventually. You'll still, you know, want to make things that will require energy eventually. You'll still need to eat. You'll still need to clothe yourself. You'll still need access to the internet. All what this moment is good at doing is clarifying a hierarchy of needs. And so the first thing that we're doing, and this is for us, and my team and I, a multi-week process, is just re-underwriting what are our basic needs.

• 55:34Speaker 03

  And that's what I'm doing right now, and I'm trying to ask myself just really simple kind of basic questions where I could look at my kids. And if I tell them, here are the things that will never change, they'll be like, yeah, it makes sense. From there, and we've done this because we're a little bit further ahead in some of those sectors that we identified early, they're not super complicated. But then what we've said is, which companies have now been disproportionately punished despite basic needs that should remain relatively inviolate over the long arc of time? So I'll give you an example. You know, the, one of the things that this has strained is the internet itself.

• 56:16Speaker 03

  And within that, I think one thing that we have realized is how misconfigured telecom infrastructure, wireless infrastructure, and the wireless providers functionally are. So let's think about this. They have physical wireline infrastructure. They have, you know, very complicated, very expensive wireless infrastructure that doesn't really support massive, massive throughput. They have incredibly complicated, very expensive back office OpEx to run it because they were traditional wireline carriers that tried to morph.

• 56:58Speaker 03

  They spent hundreds of hundreds of millions of dollars trying to incrementally build capacity, both in terms of spectrum as well as satellites. And then to top all of that shit sundae off, the cherry on top is that they have a physical retail infrastructure that is the only way for you to interact. If you want to switch your plan, if you want to upgrade your plan, if you want to switch carriers, you know, they've been, they've been resistant to eSIMs. Now you're sitting at home, and even if you wanted to switch, every carrier is thinking to themselves, I can't run ads, I can't switch because I can't deliver a SIM to these people because the stores are closed.

• 57:38Speaker 03

  Now, take out all that dysfunction.

• 57:42Speaker 03

  The wireless carriers will continue to be more and more important. You know, we've, we've realized that we need to have a more resilient internet. We've realized that it needs to be somewhat more homegrown as well. We can't, you know, we can't rely on Huawei or Ericsson necessarily. We have to have, you know, internal American products and solutions. We need to service the rural areas of the country as well as the, you know, cities. Cities have very different complicated patterns of density and servicing that are not done well. I mean, like you go to a place like New York City and Verizon is just complete shit.

• 58:24Speaker 03

  So we know that the outcome is, but we don't know what the path to get there is. And we have a bunch of companies that have just gotten decimated. Now then, if you take that and you overlay those dynamics in emerging markets, what you see already is a bunch of bankruptcies. So that's an example of where we've said, okay, do we step in? Is there a company here that we can buy out of, you know, the Chilean equivalent of Chapter 11 bankruptcy or, you know, Chapter 7 bankruptcy? And what would that look like? Or, you know, are there, are there companies that we could get a hold of by buying the debt? And then basically transforming it? That's an example.

• 59:03Speaker 03

  We've been monitoring very closely all sources of alternative data. So what's an example of alternative data? OpenTable has some incredible data. Yelp has incredible data. Second Measure Credit Card Panels.

• 59:17Speaker 03

  There's a company, I can't remember the name, who we use for footfall data. TomTom. And we use that to build a complexion. And what we're asking ourselves is, what does this show in terms of patterns? Another thing that we've looked at as a result of that is in commercial real estate. So I think that commercial real estate is fundamentally impaired now. Because when you factor in, just like you and I are as productive as if you and I, by the way, just think about this. You had flown to San Francisco. We could not connect. You flew back, but you stayed in a hotel. You had some meals, blah, blah, blah. Let's say roughly you spent $3,000 or $4,000 on that business trip. You and I are creating just as much value. It costs us zero.

• 1:00:00Speaker 03

  So the point for you to spend $5,000 of OpEx to generate this asset is going to be incrementally harder for you to justify. It's going to be more out of pleasure and waste than it is out of need. When you factor that into how it will flow into commercial real estate, commercial real estate is fundamentally impaired. It's essentially what Tom Berwick has said.

• 1:00:22Speaker 03

  But in a world where that commercial real estate is impaired, that's not going to be completely true. Now, there are certain REITs, for example, that only serve as big-box retailers, specifically Walmart, Amazon Distribution, and groceries.

• 1:00:36Speaker 03

  Now, they've seen 50% drawdowns as well. Because you throw the baby out with the bathwater when things like this happen. And so we've been going bottoms up in certain REITs, literally looking at property by property, trying to figure out, are these things valued fairly or reasonably? The thing with this work that I'll tell you is that it is incredibly humbling because it is unbelievably boring and super fucking tactical. I mean, you gotta be a worker in moments like this. A humble worker. Put your hat on, you know, and just grind it out. And it is excruciatingly boring, numbing, time-consuming.

• 1:01:21Speaker 03

  But in it is where you'll find, I think, the nuggets. But that's what we're doing. We're prioritizing needs. We're asking ourselves what won't change.

• 1:01:32Speaker 03

  And then we're looking at things. And essentially, what that leads us to is a bunch of offline businesses or hybrid businesses.

• 1:01:39Speaker 03

  The other part of our exercise is saying what things need to change. And all of that leads us to our portfolio of private businesses. And what we are doing there is we put out feelers. And what we've said to people is like, look, we have buying capacity here. We're willing to be the buyer, but we want control. And so, you know, I'm not interested in putting in $15 million in a Series C or a Series D extension round, but I'll buy your business for 50 million, 100 million, 200 million, and then I'll fund the rest of the J-curve to get out of it. If we think that that solution is interesting. And so, we're looking in healthcare, we're looking at climate change, we're looking at

• 1:02:21Speaker 03

  education, and those are the three areas that we think are going to change the fastest in this move to resiliency. So, that's kind of what we're doing. But honestly, dude, it's not glamorous, it's super fucking tactical.

• 1:02:34Speaker 02

  Well, it brings up two things, right? The first is, I don't know who said it, but basically, the return you get is the price you buy it at, right? And that's the work that you're doing now, is trying to figure out, you know, what are those undervalued assets that if you buy it at the right price today, it basically locks in a significant return over time? The other thing that you've done is, you've used the SPAC, and obviously, the big one is Virgin Galactic. What's kind of the thoughts there? Would you ever put social capital into a SPAC structure? Are there other things that you're kind of thinking through, seeing the success of the Virgin?

• 1:03:06Speaker 03

  I think what Virgin showed us is that there's a lot of incredible tech companies that should be public, and that when you're doing something ambitious, there's a huge appetite by retail investors, as well as hedge funds and pension funds and other things, to have direct exposure to alpha. It is a fundamentally uncorrelated business to anything else of its kind. And in that, you know, the anti-correlation, the lack of correlation, is an incredible good thing to have when you're constructing a portfolio. And this is why, you know, who knows what it'll do over the next year or two, but it's still up 40%. I mean, that's just incredible. How could you say that in a market that's down 20-odd percent?

• 1:03:48Speaker 03

  So, I think that's what Virgin shows you, is that there's a tremendous value in anti-correlation. And in that, I think that there are a lot of really good businesses, tech businesses, that could benefit by being public. And the SPAC, in my opinion, is the only way for tech companies to go public, because you're doing it via a merger, the process is dramatically simplified, it's much faster, the capital is flexible, meaning you can... Raise as much or as little as you want. You can do as much primary or as much secondary as you want. And you have huge benefits for the employees in that there's no lockup. Now, try going through a traditional IPO or even a direct listing. It's a very difficult thing and I've done the largest direct listing as well. I was the, you know, series A investor and the board member on Slack.

• 1:04:30Speaker 03

  And so what I can tell you, seeing all of these processes is that Slack and Spotify can do a direct listing. Maybe an Airbnb could do a direct listing, although the price is unclear at this point. But most other companies cannot. I think the IPO process is totally broken. And so I think SPACs make a ton of sense. The other thing that I would say is specifically around social capital. My dream is for this to be public. And my objective over the long term is to give individual shareholders the ability to be beside me and be at risk with me. I can't guarantee that I'll make great decisions all the time.

• 1:05:11Speaker 03

  But what I'll tell you is I'm on a journey to become the best that I can be. And, you know, find kind of truth and control and meaning of my psychology and that results incrementally I've seen in better and better decisions. And I was making pretty good decisions when I was completely dysfunctional. And so I kind of feel like if I'm more functional, I should be making really good decisions. And so I would love for it to be public. I would love to take a shot at building the next Berkshire publicly. I would love to have annual shareholder meetings.

• 1:05:52Speaker 03

  I would love to, you know, have conversations with you multiplied by, you know, the hundreds of thousands of people that listen to you. I would love to have that connectivity to people. I would love that. And I would love to have the honor of being in people's portfolio as a way of just being a smart, you know, next generation thinker.

• 1:06:12Speaker 02

  So we know where you are today. Let's say that that's kind of the, not the finish line, but a milestone that's in the future. What are the obstacles that you see as to why not go do that right now?

• 1:06:24Speaker 03

  That's a really good, I think it's more of my insecurity than anything else. I mean, I think that, you know, could we do something sooner rather than later? Possibly. I think that coming out of this, if we prove that, you know, our process was good and that

• 1:06:45Speaker 03

  our psychology was rewarded, I think I'll be ready. To be really honest with you, I still battle my ego all the time. And I want to be able to look you in the eye and tell you that when I get these bouts of inferiority and superiority, I know how to manage myself. Because I think that is what, like I said, that is what's required to be an incredibly astute observer of the present. And I think that is the single biggest requirement to being a great investor. Just observing, dispassionately observing what's happening

• 1:07:26Speaker 03

  around you. And I still have these, you know, follow-ups. Like I kind of trip up and I do it to myself. So I think when I know that that is largely behind, it'll never be 100% behind, but when I can like really have a grasp and I have the mental control to know, oh, it's happening, to step back, then I'll be ready. Because then I can look you in the eye and say, you know, my game is A+. It may not always going to work. You know, I may be on the wrong side, the analysis may be wrong, we may not make the right bets, but I am not going to do something that takes away from our ability to be successful.

• 1:08:06Speaker 03

  I feel like I'm pretty close. And, you know, like a process like this, like really, it tests your metal.

• 1:08:15Speaker 02

  Yeah. I want to finish up. Ask the audience for a bunch of questions. And I found some that I just thought were really interesting or fun. NBA, you obviously are a owner of Golden State Warriors, they canceled the season. Just thoughts there? Kind of how do you see that playing out? And what do you want to see happen, I guess, with the league and with the team?

• 1:08:35Speaker 03

  I think it's going to be an incredible boost to America's morale to get professional sports going. Obviously, there's a lot of

• 1:08:45Speaker 03

  Um, healthcare related issues between here and there. Um, both for the players as well as the fans. Um, but it frankly, like when it happens, I think it'll just be an enormous boost. Um, to see people playing basketball, to see people playing baseball. You know, when the NFL season starts, whenever all of these things happen. So I don't know when it's going to happen and I don't know what it's going to take, but um, I think it's going to be psychologically a very important. It's going to be a hugely emotionally important thing for America.

• 1:09:20Speaker 02

  Quarantine overlaid with no sports is killing a lot of people in the country for sure.

• 1:09:24Speaker 03

  I the the best tweet on this I saw was, uh, it was very, very early into the quarantine. And like the guy's tweet was, uh, you know, day two of no sports. Found this very nice woman sitting beside me. Turns out she's my wife.

• 1:09:40Speaker 02

  Absolutely. Speaking of quarantine, someone asked, uh, how do billionaires quarantine? Like, what's something that you think that maybe you do differently than, uh, than the average person? Or or something that people wouldn't expect?

• 1:09:53Speaker 03

  Uh, I mean, honestly, I'm doing basically the same things as everybody else. I'm cleaning my house. Um, I do it every two days, you know, mop the floors, clean the toilets, make the bed every day. What I've tried to do is, um, create myself a routine. Um, because I think that routine is very important. So, you know, I've started to have, uh, make my breakfast and then bring it upstairs. And I and I have breakfast in bed because it's like a moment to just relax and just kind of, you know, which I normally wouldn't do. Uh, but then I get up and I make the bed, I clean the bathrooms. Um, you know, make breakfast for the kids. Um, I try to get 10,000 steps a day.

• 1:10:34Speaker 03

  Um, under any circumstance, I've missed three days so far in almost a month of quarantining. But, um, so I don't work out anymore, which has been kind of shitty. But, you know, my whole thing is like, I don't want to. I was pushing myself pretty hard. I didn't want to injure myself. I don't want to do something where I have to go to the hospital in this moment. So I'm just like, I'll just walk.

• 1:10:54Speaker 02

  Do you have a cool quarantine outfit like David Sacks posted? I saw he looks like a Terminator with his hat and his gloves and goggles.

• 1:11:03Speaker 03

  No, in fact, I mean, like, I live in the suburbs of San Francisco and so Palo Alto area. And so there's not a lot of, you know, people are very kind of kind and they they respect the social distancing and they cross the streets and, um, no, but I don't do anything differently. I mean, maybe, you know, if anything, I, you know, I, I, I would only drink once a week. Now it's like I'll have a glass of wine every night because I'm like, fuck it. It could be the end. I mean, you know, you might as well go in style, but I'm not doing anything differently.

• 1:11:38Speaker 02

  Got it. Um, space, any interest in, uh, in being on one of the early flights now that, uh, you're, you're financially incentivized to see it be successful?

• 1:11:46Speaker 03

  Well, I bought a ticket, um, and, uh, but I'm 604th in line, so I don't really get any advantage. And I think that that's right. Like, it's like I should be waiting in line like everybody else. And, um, you know, the, the other thing is like, I wonder how many people will wake up and realize like, hey, listen, I've always wanted to go and become an astronaut and maybe I was himming and hawing. I mean, I don't think there's going to be any shortage of people, uh, at this point. Cause I do think that there's a, there's, there's a thing that a lot of people will go through, I suspect, when they're quarantined at home, which is just reevaluating what's important. You know, and, and I think a lot of people come out of this and they'll double down on relationships. They'll end relationships. They'll take the trips that they've always wanted.

• 1:12:29Speaker 03

  They'll, you know, change behaviors that they didn't think were healthy. They'll double down on other behaviors, maybe even if they were unhealthy because they're like, screw it, it could go all to hell anyways. But I, I think that you're going to see, um, a lot of that re-underwriting. Um, and so I think it generally helps things that are unique.

• 1:12:49Speaker 02

  Yeah. Uh, three more for you. Um, I think you and I probably spend a lot of time along with many of the people we engage with, thinking about tech companies, larger companies, uh, the Fed, finance, et cetera. Small businesses in America are getting decimated. I mean, just they don't have enough cash. They're being mandated to shut down, et cetera. Any thoughts on how small businesses, you know, what percentage survive on the other side of this or kind of what that segment of the market will look like?

• 1:13:15Speaker 03

  I think that, um, I think if you look at the percentages, I could be getting this wrong. So you can tell me if you know this, but I think the, the three-year mortality rate on companies is like 50, 60% on SMBs.

• 1:13:27Speaker 02

  Sounds directionally correct.

• 1:13:29Speaker 03

  I, I, I think that you basically have to assume within two or three years, it's a hundred percent turnover. So I think it's really bad. I think it's real this, and this is why, um, I think it's, it's unfair to be glib and like, focus on the equity markets above all else, um, or, you know, think that the quote unquote, the bottom is in. But all we've done in the stock market is, um, reprice risk. What we have not done is step two, which is trade the news.

• 1:14:02Speaker 03

  And I think the news is going to be bad because unlike 2008 and unlike, you know, a few of the recessions before it. This is going to touch everybody. You are going to know people like in your small circle that are wiped out.

• 1:14:19Speaker 03

  And I don't think that was true in 2008. And so we have a responsibility, um, I think, um, to support small businesses when they start to rebuild themselves. And I think part of the way we do it as well is that the government has to create incentives for these businesses to onshore a bunch of things that were offshore. I've said this before, even in my investor letter for 2019, I think the general trend is towards more nationalism. But this is the best reason for everybody of all political ilks to realize that we do need to nationalize large parts of our economy. It's the only salvation.

• 1:15:02Speaker 03

  And in it, you can see a rebirth and a renewal of small business, but otherwise it's a hundred percent wipeout over three years.

• 1:15:11Speaker 02

  Yeah. Uh, speaking of kind of bad situations, uh, we are not at the end. So we don't have complete clarity of the hindsight. But, uh, there's been a lot of what I'll just call bad behavior in the market that led to, uh, a lot of this. So whether it's the over-leverage of corporations or even hedge funds, I think you talked about at one point. Uh, a lot of the debt field buybacks, um, the CEO departures kind of at the top, all of these things. What's your take at this point in time, right? So we're kind of going into this situation. We're not out of it. But like, how do you view a lot of that behavior right now?

• 1:15:44Speaker 03

  So I got an email this morning, actually, from my prime broker. So hedge funds were at 99 to 100th percentile of their historical max leverage, literally February 20th. And now we're at, you know, the 20th to 30th percentile historically. So, you know, we were probably at seven or eight turns of leverage and now we're probably down to one and a half to two or three. I think that this next go around, you're going to have to realize, government will have to realize that in 2008, all they did was allow financial institutions to pass the buck. They were able to take the leverage off balance sheet.

• 1:16:27Speaker 03

  And when you subtract out debt as a function of GDP, for many years now, we have had negative GDP. So we were not growing in the absence of people issuing debt. And most of that debt, unfortunately, was not towards R and D, but it was towards things that superficially propped up stock prices, which really only benefited a handful of people. And I do think we have to restrain people from being able to do that in the future. I don't think it makes a lot of sense and I don't think it adds a lot of value. And I think that it's not that it was obviously responsible for the coronavirus,

• 1:17:12Speaker 03

  but I do think that when you look at how much devastation we are encountering and when we do the final tally on the amount of buyback, oh, sorry, the amount of bailouts we need, the bailouts are directly correlated to how stupidly run and badly run these companies were. You know, why is it that California is legally mandated, and you'll say, oh, because it's a nonprofit, but legally mandated to have a rainy day fund, but a company isn't? And then the company is the first one to knock on the door of the government and we're just waiting for the next shoe to drop where California, Mississippi, Alabama, Louisiana, do all do the same thing? And I would much rather see the money go to the states and the cities

• 1:17:55Speaker 03

  in an, in an fair, even way than the money go to a private company. I think that those private companies should be wiped out. The equity should be wiped out and they should need to restart.

• 1:18:08Speaker 02

  It's one thing, so I'm 100% in alignment with you on this, but the part that I don't understand is how do you continue to benefit from the elements of capitalism if you take out the risk moving forward? If everyone knows, I can quote-unquote, "take this like fake risk," and if anything goes wrong, I can just run to the government and get a bailout. You change the dynamic of what happens, and I actually think you incentivize even more bad behavior, right? It's almost like there was bad behavior and then there was no punishment for it, and therefore you just encourage that to continue, you know, when we get out of this thing.

• 1:18:41Speaker 03

  Well, I, it depends on what you view capitalism as. I think if you view capitalism as a game of risk, I think you're right. I've always viewed capitalism as money becomes a fulcom instrument for change. What do you want to see in the world? Okay, money's your lubricant, you decide. And the person with more money, or the person who's willing to put more money into something, and who can be more clever, basically has the opportunity to win. So I, I think it's a game that puts ingenuity and money at the forefront. That's what, to me, that's what capitalism is. And so when companies are doing things that are fundamentally not advancing that forward, they should disqualify themselves from then being able to run to the government.

• 1:19:24Speaker 03

  So it would be a different thing entirely if all the airlines had invested, let's just say 96% of free cash flow dollars on supersonic flight, failed, and then came to the government and said, "Look, I took a big bet on the future to help advance humanity, it didn't work, and I need a bailout." I would be the first one to say, "Okay." But when 96% of free cash flow dollars go back to buying back shares, and then you basically claim the same thing, I think you should be punished. And punished financially. So, you know, you, you, you took the money that you had, you refused it, you refused to multiply it by a good, smart bet on the future, and I think that there should be consequences for that.

• 1:20:08Speaker 02

  Yeah, I don't disagree with you at all. Last question for you, you've been incredible, kind with your time here. If you were the president, over the next six months, what's your playbook? So President Chamath's got full control, can do whatever, was it, within the presidential powers, what's your playbook to kind of weather the storm and get us out of this?

• 1:20:27Speaker 03

  I would, first...

• 1:20:31Speaker 03

  Stand up every single voting site that we would use in the November election.

• 1:20:40Speaker 03

  And I would schedule every single man, woman, and child to come through all of those testing facilities. And I would basically deploy a rapid test to figure out whether they had coronavirus in that moment. Okay, and families could come, you know, 10 minutes apart so that you could get back into your car and go etc., etc. In step number one, if you didn't have Corona, so you weren't shedding the RNA in that moment, you go to a second and you get administered a finger prick. And you get tested for the antibodies. And within 15 or 20 minutes and you're held in an isolation,

• 1:21:25Speaker 03

  you know, booth area where you, you know, you're on Instagram. And when you're done, you're given a wristband. And that wristband basically says one of three things. Well, if you had tested positive, you get a red band, you go home and you isolate. If you test negative and you have the antibodies, you get a green one. And if you test negative and you don't have the antibodies, maybe you get a blue one. Green and blue are allowed to go back to work right away. Red self-isolates, you contact trace, etc., etc.

• 1:22:00Speaker 03

  That's sort of the front line of getting the economy back to work. And you have some combination of the National Guard and sort of like a whole infrastructure. Then separately, I think you introduce a massive, massive, massive infrastructure bill that starts to drive the refactoring of the supply chain back into the United States. And part of that is incentives and part of that is government spending. And it has to cut across many categories from, you know, semiconductors and silicon.

• 1:22:37Speaker 03

  All the way to clean energy, to actual physical infrastructure like, you know, bridges and tunnels and roads.

• 1:22:45Speaker 03

  And in that, what I think you're mandating is a certain percentage of things to be made domestically in the United States. And you start to get people back to work. So the short-term path, I think, is to kind of baseline the disease and get the people who are allowed to be working back into a green zone of every city, every town, where people with these green and blue bands are allowed inside.

• 1:23:10Speaker 03

  And the red-banded people have to stay and quarantine themselves, so that we can start to restart this economy. And then, longer term, is an infrastructure bill that basically resets incentives towards resiliency, towards inefficiency, away from efficiency.

• 1:23:28Speaker 02

  Think that's a pretty solid plan. I'm shocked, I'm actually shocked that some of this hasn't been instituted already. The, the, the lack of testing just blows my mind. I mean, the, the stats I saw on Saturday, 895,000 people, I think, have been tested, at a 330 million in the United States.

• 1:23:43Speaker 03

  I think the other reckoning that we have to do, maybe just to finish on this, is that we've politicized things that should never have been politicized. Health should not be politicized, you know? The problem is that, starting with Obamacare, health became something that was about the Democrats versus the Republicans.

• 1:24:02Speaker 03

  And you can see how that's sort of like, you know, flowed into things like the FDA and the CDC. And history will tell what they could have done better. History will tell what the WHO should have done differently. But I think what we can see is that there are many points along the evolution of this disease where logic and open-mindedness and iteration ran into bureaucracy. And bureaucracy won.

• 1:24:32Speaker 03

  And I think that's probably the most generous way of describing it. Um, and we need to figure out where there are almost constitutional level provisions. Um, you know, you have the right to bear arms. Great. Uh, what about the right to basically not, you know, not die in a preventable scenario? Um, what does that mean for how these organizations should run? Um, you know, we at a very basic level have told the healthcare infrastructure that we must do no harm. And I think it's time to say, look, with eight billion people in the world and a $90 trillion economy that supports those eight billion people, do no harm doesn't work anymore. It doesn't scale.

• 1:25:16Speaker 03

  We need to do our best. And there's a lot of rules that could change in a scenario where you embrace do your best. Um, and I think that that, that has to happen. Um, but the, the failures of the political infrastructure and the healthcare infrastructure, to use bureaucracy as the thing that, that drives decision-making, I think is also the, uh, a domino that has to fall after this and we need to revisit because it's, uh, you know, we've, we've done a lot of unnecessary damage. Um, to ourselves, um, and some of this, some of these self-inflicted injuries, we should figure out how to prevent for the next time because it's going to come again.

• 1:25:57Speaker 02

  Yeah, I think we are living in incredibly uncertain and chaotic times. Uh, and, uh, you know, one, just thank you for your time today, but, uh, two is, uh, I think I speak for a lot of people in that, uh, we'd love to see you go public and, uh, kind of be along for the journey. So, uh, you're, you're doing an incredible job and I just appreciate you, uh, kind of going out there and sticking your neck out there, frankly, because there's a lot of people who, they, they're going to all be the armchair quarterbacks, right? We'll get two, three years from now, they're going to say, I told you that we should have done X or Y, but right now they're, they're kind of quiet. So we'll see how it plays out.

• 1:26:28Speaker 03

  Well, I really appreciate the fact that you had me on and I, I just want to say that I think you've been, um, a really good person in being out there in this moment. Um, the reality is like in moments like this, you need people to be coalescing opinions. Um, and I think that you've done that. That's a really important service because it allows people to get to ground truth. Um, so I just want to say thank you for doing that. Thanks for including me.

• 1:26:52Speaker 02

  No, no problem at all. All right, sir. We'll, we'll, we'll again in the future.

• 1:26:55Speaker 03

  All the best. Talk to you soon.

• 1:26:57Speaker 02

  Bye.

• 1:26:57Speaker 03

  Bye.

• 1:26:59Anthony Pompliano?

  Thanks so much for listening to today's episode. I really hope you guys enjoyed this one. Make sure you subscribe on Apple, Spotify, or your favorite podcast player. And if you're looking to try to transition to get a new job in the Bitcoin or crypto industry, we've got you covered. Head over to pompscryptocourse.com. We've developed a curriculum with the top teams across the industry. It's a three-week intensive training program with over 50 events packed into that three-week time period. Go to pompscryptocourse.com to learn more and I'll meet you guys for the next episode.