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    All-In with Chamath, Jason, Sacks & Friedberg

    E137: Inflation cools, market rips, Ripple/MSFT beat regulators, NATO summit, cocktails of youth

    Fri Jul 14 2023
    Vacation WeekManaging EmployeesInterest RatesSoftware CompaniesEconomyCryptocurrenciesBig Tech CompaniesEV MarketBorrowing CostsAlternative CurrenciesUpcoming EventNATO SummitArtillery ShellsNATO ExpansionReversing AgingHangover Symptoms

    Description

    The episode covers a range of topics including a disagreement about taking a vacation week, different approaches to managing employees, the impact of interest rates on software companies, stimulatory factors for the economy, regulation of cryptocurrencies, taking on big tech companies, the impact of interest rates on the EV market, the cost of borrowing and alternative currencies, an upcoming event and NATO summit tensions, manufacturing of artillery shells and NATO expansion, NATO expansion and reversing aging, hangover symptoms and personal interactions.

    Insights

    Interest rates play a significant role in the performance of software companies.

    Unprofitable software companies are unlikely to see a rally even if interest rates go down. Achieving true product market fit, eliminating churn, and driving long-term profitability are crucial for software companies.

    Consumer spending has been driven by various factors like stimulus checks and deferred student loans.

    Psychology plays a role in consumer spending, influenced by optimism and recent financial gains or losses. Consumer demand tends to be resilient even during periods of extreme shock.

    Regulatory agencies like the SEC and FTC face challenges in regulating cryptocurrencies.

    The SEC's loss in the Ripple case raises questions about their ability to regulate exchanges like Coinbase. There are concerns about whether regulatory agencies are acting in good faith or protecting fiat currency against alternative currencies like crypto.

    Taking on big tech companies requires a different legal strategy.

    Restraining anti-competitive tactics and breaking up companies could be more effective. The ultimate health of the startup ecosystem should be prioritized over the power of big companies.

    The EV market faces challenges due to a growing mismatch between supply and demand.

    Consumers are still hesitant to purchase EVs due to concerns about price and charging infrastructure. The administration's industrial policy is interfering in the free market and favoring less desirable EVs over Tesla.

    Controlling spending is crucial for economic stability.

    Interest payments on debt could be the backstop for controlling spending in the United States. Finding a candidate who will prioritize controlling spending may be challenging.

    The manufacturing of artillery shells is increasing, but there are concerns about the use of cluster munitions.

    The US is providing cluster bombs to Ukraine despite violating international law. There are concerns about Russia's potential retaliation using cluster munitions at scale.

    NATO expansion has implications for defense contractors and countries joining the alliance.

    Interoperability is a requirement for countries to join NATO. Adding more countries to NATO can be seen as both an asset and a liability for the United States.

    Research is being conducted to reverse aging using Yamanaka factors and small molecules.

    Clinical trials are underway to use Yamanaka factors to reverse aging. Small molecules have shown promise in reversing aging as well. This research could lead to pills or creams that reverse aging and improve cell health.

    Different types of wine can cause different hangover symptoms.

    Sangria, with its high sugar content, can lead to worse hangovers. The hosts discuss their plans to meet up in Italy and joke about hacking each other's YouTube channels.

    Chapters

    1. Disagreement about Vacation Week
    2. Different Approaches to Managing Employees
    3. White Water Rafting Adventure
    4. Inflation and Interest Rates
    5. Duration of Recession and Downturn
    6. Impact of Interest Rates on Software Companies
    7. Stimulatory Factors for the Economy
    8. Current Economic Quadrants
    9. Regulation of Cryptocurrencies
    10. Taking on Big Tech Companies
    11. Impact of Interest Rates on EV Market
    12. Cost of Borrowing and Alternative Currencies
    13. Upcoming Event and NATO Summit Tensions
    14. Manufacturing of Artillery Shells and NATO Expansion
    15. NATO Expansion and Reversing Aging
    16. Hangover Symptoms and Personal Interactions
    Summary
    Transcript

    Disagreement about Vacation Week

    00:00 - 07:13

    • There was a disagreement among the podcast hosts about taking a vacation week.
    • The hosts debated whether to have a skip week in July.
    • One host argued for giving everyone the week off, while another suggested having one editor work and giving the other editor the week off.
    • The show went on hiatus because of the disagreement.

    Different Approaches to Managing Employees

    00:00 - 07:13

    • The hosts discussed their different approaches to managing employees and their average tenure.

    White Water Rafting Adventure

    00:00 - 07:13

    • One host went white water rafting during the break.

    Inflation and Interest Rates

    00:00 - 07:13

    • The main topic of discussion in this episode is inflation and interest rates.
    • Larry Summers believes that interest rates will need to be higher than what the market is currently showing due to structural factors such as decoupling from China and increased energy transition expenditure and security globally.
    • Chamath believes that interest rates will remain higher for longer, but he focuses more on how it will impact the equity market and predicts a rally in growth assets once sentiment changes.
    • Chamath also mentions that those who are astute and get ahead of the market can benefit from buying before the rally starts.

    Duration of Recession and Downturn

    06:47 - 13:26

    • The average recession or downturn lasts around six quarters.

    Impact of Interest Rates on Software Companies

    13:01 - 20:00

    • Interest rates have a significant impact on the multiples of software companies.
    • Unprofitable software companies are not likely to see a rally even if interest rates go down.
    • Software companies need to focus on achieving true product market fit, eliminating churn, and driving long-term profitability.
    • Old legacy software companies are still losing money and have not achieved profitability.
    • Software as a service (SaaS) businesses face challenges in building features and keeping their head above water, which consumes significant amounts of cash.
    • Most SaaS businesses do not generate free cash flow except for a few exceptions.
    • Software businesses have high gross margins once they achieve dominance in their category.
    • There are different ways for software businesses to lock in their advantage, such as creating a platform or having the largest sales and marketing operation.
    • Not all software companies are losing money; an increasing number of them are making money.
    • Interest rates may go higher due to government spending stimulating the economy and rising wages from attracting more people to the workforce.
    • Increasing wages can lead to higher costs for goods and services, such as fast food.

    Stimulatory Factors for the Economy

    19:39 - 26:26

    • Defense spending projections are being questioned due to potential increases in defense spending.
    • The energy transition and security concerns are stimulatory factors for the economy.
    • Consumer spending has been driven by factors like stimulus checks, NFTs, crypto, and deferred student loans.
    • Consumers will need to get back to work in September as these factors come to a halt.
    • Raising interest rates aims to increase consumer spending and get people back into the labor market.
    • Consumer demand tends to be resilient even during periods of extreme shock.
    • Psychology plays a role in consumer spending, influenced by optimism and recent financial gains or losses.
    • The economy has shown resilience despite distortions and rapid rate tightening during COVID-19.
    • A chart from the Co2 Summit provides a framework for thinking about different economic scenarios based on inflation and unemployment rates.
    • The current economic quadrants are balanced with potential outcomes ranging from sustained growth to stagflation.

    Current Economic Quadrants

    25:58 - 32:50

    • The current economic quadrants are balanced, with potential outcomes of overheating, hard landing, or stagflation.
    • Disney World's traffic has significantly decreased, possibly due to a social culture war or larger consumer spending problem.
    • Consumer credit card balance as a percentage of savings or earnings is lower, but interest rates on car loans have spiked in the last year.
    • Used car demand and prices have shown signs of softness, indicating potential challenges for consumer spending and company revenue.
    • Ripple Labs won a partial victory in the SEC case over XRP currency sales, with sales on public exchanges not considered securities offerings.

    Regulation of Cryptocurrencies

    32:25 - 39:26

    • The SEC's loss in the Ripple case raises questions about their ability to regulate exchanges like Coinbase.
    • Ripple violated federal securities law when selling XRP directly to sophisticated investors, but the sales on public exchanges did not involve securities.
    • The court's decision suggests that cryptocurrencies may not be treated as securities.
    • The clarity provided by the court system is encouraging for businesses and individuals operating in the market.
    • Lena Kahn's FTC has been losing lawsuits, including the attempt to delay Microsoft's acquisition of Activision Blizzard.
    • The FTC's emotional reactivity undermines faith and trust in the organization.
    • There are concerns about whether regulatory agencies like the SEC and FTC are acting in good faith or protecting fiat currency against alternative currencies like crypto.

    Taking on Big Tech Companies

    39:11 - 45:53

    • Lena Kahn's legal strategy is not having much success in the court.
    • Big tech companies like Google and Microsoft need to be checked on their power.
    • A different legal strategy is needed to take on big tech.
    • Restraining anti-competitive tactics and breaking up companies could be more effective.
    • YouTube's banning of a video raises concerns about their authority.
    • The FTC should focus on tactics like opening the App Store to other apps and preventing product dumping.
    • The ultimate health of the startup ecosystem should be prioritized over the power of big companies.
    • Lina Khan needs to regroup and figure out how to take on big companies effectively.
    • Operation choke point could have hindered the crypto ecosystem, but a precedent in favor of XRP enables more innovation.

    Impact of Interest Rates on EV Market

    45:28 - 52:04

    • There is a growing mismatch between EV supply and demand, with not enough buyers for the increasing number of EVs being produced.
    • Consumers are still hesitant to purchase EVs due to concerns about price and charging infrastructure.
    • Many new companies entering the EV market lack charging networks, which is a significant issue.
    • People living outside of cities may be deterred from buying an EV due to range anxiety and limited charging options.
    • Tesla has managed to lower prices and increase sales, but other companies like Ford and GE are struggling to catch up in terms of producing quality EVs.
    • The administration's industrial policy, including subsidies for big companies like Ford and GE, is interfering in the free market and favoring less desirable EVs over Tesla.
    • Interest rates on auto loans have doubled, impacting overall demand for cars, including EVs.
    • The current stage of technology adoption is in the middle phase, where laggards are waiting for electric versions of popular models like F-150 or Suburban with ample storage space.
    • The economy's performance can be attributed to both innovators and consumers driving it forward. However, runaway deficit spending by both Trump and Biden administrations raises concerns about long-term economic stability.
    • Controlling spending is crucial for economic stability, but finding a candidate who will prioritize this issue may be challenging.

    Cost of Borrowing and Alternative Currencies

    51:34 - 58:18

    • Interest payments on debt could be the backstop for controlling spending in the United States.
    • There is no candidate currently who will get spending under control.
    • Larry Summers argues that the cost of borrowing will become high as long as spending remains high.
    • The BRICS countries are considering introducing an alternative currency based on gold.
    • The size and growth of the BRICS economies pose a potential threat to the US dollar's dominance.
    • Bitcoin may become a future gold standard if it gains more stability and trust.
    • If Ripple wins its legal battle, it could set a precedent for other companies to fight SEC settlements.
    • The summit has announced several speakers, including Toby from Shopify and Mr. Beast.

    Upcoming Event and NATO Summit Tensions

    1:03:58 - 1:10:42

    • GA ticket sales for an upcoming event are reopening until the final hundred tickets are sold out
    • The event will feature great content and speakers, as well as parties each night with different themes
    • The first night's party will be a Casino Royale James Bond theme
    • The second night's party will have an 80s breakfast club theme
    • The last night's party will be a Blade Runner cyberpunk rave theme
    • NATO summit tensions boiled over when Zelensky demanded Ukraine's admission to NATO be put on the agenda, despite being told it wouldn't be discussed
    • Biden resisted the demand due to the risk of escalation and potential involvement in war
    • Zelensky's sense of entitlement and lack of gratitude rubbed attendees the wrong way, including UK Secretary of Defense Ben Wallace who reprimanded him
    • Zelensky believed there was a peace deal at Istanbul but felt betrayed when he learned the US didn't have enough ammunition to support Ukraine in the war against Russia
    • The US has run out of key artillery shells used in the conflict, highlighting issues with industrial production capabilities

    Manufacturing of Artillery Shells and NATO Expansion

    1:10:29 - 1:17:40

    • The manufacturing of artillery shells is increasing, with the Pentagon aiming to produce 90,000 shells between 2025 and 2028.
    • The US is giving cluster bombs to Ukraine because they are out of other ammunition options.
    • The use of cluster munitions violates international law, but the US is providing them to Ukraine regardless.
    • There are concerns about Russia's potential retaliation by using cluster munitions at scale.
    • Finland and Sweden have joined NATO due to Russia's invasion of Ukraine, which has escalated tensions in the region.
    • The decision for countries to join NATO is a difficult one with various implications and considerations.
    • Adding more countries to NATO can be seen as both an asset and a liability for the United States.

    NATO Expansion and Reversing Aging

    1:17:11 - 1:24:21

    • NATO expansion benefits the military-industrial complex and defense contractors
    • Interoperability is a requirement for countries to join NATO
    • Clinical trials are underway to use Yamanaka factors to reverse aging
    • A new study shows small molecules can have the same effect as Yamanaka factors in reversing aging
    • This research could lead to pills or creams that reverse aging and improve cell health
    • Multiple research teams are making breakthroughs in this area

    Hangover Symptoms and Personal Interactions

    1:23:53 - 1:27:53

    • Different types of wine can cause different hangover symptoms.
    • Sangria, with its high sugar content, can lead to worse hangovers.
    • The hosts discuss their plans to meet up in Italy.
    • They joke about hacking each other's YouTube channels.
    • One host expresses appreciation for the other and acknowledges their value on the show.
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