WEBVTT - Chamath Palihapitiya Says A Reckoning Is Coming For Big Tech 0:00:11.039 --> 0:00:14.560 Hello, and welcome to another episode of the Odd Lots Podcast. 0:00:14.600 --> 0:00:18.640 I'm Joe Wisntal and I'm Tracy Halloway. So, Tracy, I 0:00:18.640 --> 0:00:21.639 don't know, you're just waking up in Hong Kong. But 0:00:21.960 --> 0:00:24.000 we had a little bit of market volatility to day. 0:00:24.040 --> 0:00:26.080 Do you see that, you know what? I woke up 0:00:26.120 --> 0:00:29.479 to an alert on my phone. Something It's never good. 0:00:29.560 --> 0:00:31.760 Have you ever noticed whenever you get those alerts on 0:00:31.800 --> 0:00:34.600 your phone, it's never anything good. It's always something bad. 0:00:34.640 --> 0:00:38.440 But yes, something about stocks falling. Yes, there's never been 0:00:38.440 --> 0:00:41.960 a good push, that's safe to say. But it is 0:00:42.240 --> 0:00:46.520 June eleventh. We just had this market volatility. Nonetheless, even 0:00:46.560 --> 0:00:49.279 with the volatility, there is this sense that people have 0:00:49.360 --> 0:00:51.760 and maybe it'll change by the time people are listening 0:00:52.000 --> 0:00:54.920 to this episode. Is that the sort of the most 0:00:55.040 --> 0:00:59.040 intense periods of the crisis at least, you know, it's 0:00:59.040 --> 0:01:01.440 not as intense as it was back in early April 0:01:01.520 --> 0:01:04.840 or late March. Yeah. Absolutely, I think that's true. And 0:01:05.000 --> 0:01:08.199 certainly earlier this week we did get another alert, which 0:01:08.319 --> 0:01:11.440 was so I guess sometimes you do get good alerts, 0:01:11.440 --> 0:01:15.520 but the alert was smid regains all its losses for 0:01:15.560 --> 0:01:17.840 the year and basically went back to the highs that 0:01:17.920 --> 0:01:21.480 it was seeing before the coronavirus. So we do have 0:01:21.520 --> 0:01:23.759 a sense, and I think a lot of people will 0:01:23.800 --> 0:01:26.240 attribute it to either the federal Reserve or some of 0:01:26.319 --> 0:01:29.600 the fiscal stimulus measures by the government, that these have 0:01:29.680 --> 0:01:33.440 combined to at least save the stock market, if not 0:01:33.600 --> 0:01:38.480 the real economy. Right, it's still very tb D on 0:01:38.520 --> 0:01:40.040 all that. One of the things, and you and I 0:01:40.120 --> 0:01:42.160 have talked about this tracy, is that in the middle 0:01:42.200 --> 0:01:44.560 of a crisis. One of the things that makes crises 0:01:44.680 --> 0:01:48.480 interesting is it new ideas can emerge. And so often 0:01:48.520 --> 0:01:50.840 when things are growing, people don't want to rock the boat. 0:01:51.120 --> 0:01:53.600 But in the middle the acute phase of a crisis, 0:01:53.720 --> 0:01:56.760 it always feels as though there's openings for sort of 0:01:57.040 --> 0:01:59.880 new ideas, new approaches, and a sort of wide range 0:02:00.120 --> 0:02:03.240 discussion about what the future should look like. Yeah, I 0:02:03.240 --> 0:02:06.360 think that's right. It's funny how there's nothing like losing 0:02:06.400 --> 0:02:10.639 money to make everyone reevaluate their capitalist model. But yes, 0:02:10.680 --> 0:02:13.040 there does seem to be an opportunity in crisis for 0:02:13.080 --> 0:02:17.280 people to start thinking about deep seated issues in their 0:02:17.280 --> 0:02:20.640 respective markets, or the way the economy works, or even 0:02:20.800 --> 0:02:23.000 the political system which is something that we're sort of 0:02:23.040 --> 0:02:26.120 seeing now. Yeah, that's exactly right. So today we're going 0:02:26.160 --> 0:02:28.840 to be talking to a guest who actually got a 0:02:28.840 --> 0:02:31.840 lot of attention. He had this interview when totally viral. 0:02:31.919 --> 0:02:34.160 I think it was back in early April. That had 0:02:34.200 --> 0:02:38.079 to do with Bailouds, and it was very opposed to Bailouds, 0:02:38.280 --> 0:02:40.079 but it was a sort of good example of how 0:02:40.120 --> 0:02:42.600 in the most intense period there is this sort of 0:02:42.680 --> 0:02:45.919 yearning for people uh to offer different ideas than the 0:02:46.000 --> 0:02:48.079 sort of standard approach where we just sort of try 0:02:48.120 --> 0:02:51.040 to u put everything back together again. Yeah, and can 0:02:51.080 --> 0:02:53.520 I just say that this interview was so viral that 0:02:53.639 --> 0:02:57.240 even I in Hong Kong without access to US cable 0:02:57.280 --> 0:03:00.880 TV saw clips of it exactly. So today we're going 0:03:00.919 --> 0:03:04.399 to be talking to Chamath Poli Hapatia. He's the founder 0:03:04.480 --> 0:03:08.760 and CEO of Social Capital. He's the chairman of Virgin Galactic. 0:03:09.080 --> 0:03:11.320 I think he owns a steak in the NBA team, 0:03:11.600 --> 0:03:13.920 the Golden State Warriors. I think there's our there's our 0:03:13.919 --> 0:03:15.919 second time now we've talked to someone who owns part 0:03:15.919 --> 0:03:18.799 of an NBA team, Having talked to Mark Cuban, as 0:03:18.880 --> 0:03:22.120 you mentioned back in April, he uh did this interview 0:03:22.120 --> 0:03:25.760 on CNBC talking about the airline bailouds it's been very 0:03:25.800 --> 0:03:29.600 critical of share buybacks bailouts that, in his view, prop 0:03:29.680 --> 0:03:33.320 up the rich while failing to protect everyday people. Things 0:03:33.360 --> 0:03:35.640 are a little bit less severe right now than they 0:03:35.640 --> 0:03:37.680 were back then, but nonetheless, I think there's still a 0:03:37.720 --> 0:03:39.800 lot of space to be talking about these ideas. So, 0:03:40.160 --> 0:03:43.240 without further Ado Chama, thank you very much for joining us. 0:03:43.560 --> 0:03:47.480 Thanks guys, thanks for having me on. So let's go back. 0:03:47.520 --> 0:03:51.440 I mean, I remember that interview. It absolutely blew up 0:03:51.680 --> 0:03:56.960 all over social media. What was your main message, like, 0:03:57.000 --> 0:03:59.800 what was the thrust of what you saw we were 0:03:59.840 --> 0:04:03.200 doing wrong, both in terms of an economy and in 0:04:03.280 --> 0:04:05.840 terms of the political approach to addressing the crisis that, 0:04:05.880 --> 0:04:09.000 in your view is misguided. Well, I mean, I think 0:04:09.080 --> 0:04:12.920 that we've probably known for a long time that the 0:04:12.960 --> 0:04:18.320 tools that we give politicians to help society function probably 0:04:18.560 --> 0:04:22.080 have never been duller. They typically have a lot of 0:04:22.160 --> 0:04:26.120 unintended consequences, and so my commentary was more of a 0:04:26.120 --> 0:04:30.360 frustration in realizing that this thing was going to meaningfully 0:04:30.400 --> 0:04:35.160 exacerbate what was already a very very skewed economy and 0:04:36.000 --> 0:04:38.159 that the people that needed the help wouldn't get it, 0:04:38.360 --> 0:04:40.240 and that you would see the emergence of a lot 0:04:40.279 --> 0:04:43.520 of perverse incentives that wouldn't really fix the system properly, 0:04:43.960 --> 0:04:45.440 you know, just to know that now we're going to 0:04:45.560 --> 0:04:49.800 deal with the tail many years long of the activity 0:04:49.839 --> 0:04:52.840 of Treasury and the Fed over just you know, what 0:04:52.880 --> 0:04:55.480 was basically four to six weeks of a of a 0:04:55.560 --> 0:04:58.520 drunken binge will play out in ways that will have 0:04:58.600 --> 0:05:01.360 just a lot of unintended consequence, I think. So I'm 0:05:01.360 --> 0:05:03.760 going to declare an interest here, which is that my 0:05:03.880 --> 0:05:07.360 dad is a former pilot, and he was a pilot 0:05:07.360 --> 0:05:10.240 for Southwest Airlines for a long time, and I remember 0:05:10.320 --> 0:05:14.159 distinctly in the early two thousand's after the nine eleven attacks, 0:05:14.160 --> 0:05:17.320 when a bunch of his competitor airlines were getting bailed out, 0:05:17.360 --> 0:05:19.560 he used to get really annoyed and say, why are 0:05:19.720 --> 0:05:23.920 his taxes going to pay his competitors. Of course, fast 0:05:23.960 --> 0:05:27.440 forward to now he's retired, but he still takes a 0:05:27.440 --> 0:05:30.400 big interest in Southwest and of course Southwest Airlines is 0:05:30.440 --> 0:05:33.320 one of the airlines getting a bailout. But what do 0:05:33.360 --> 0:05:36.800 you say to people who will argue that this is 0:05:36.839 --> 0:05:40.719 a short term cash flow problem, and just because people 0:05:40.880 --> 0:05:43.479 have been ordered to stay inside for you know, the 0:05:43.520 --> 0:05:47.760 foreseeable future revenues are drying up. That shouldn't mean that 0:05:47.880 --> 0:05:52.760 companies that are essentially viable should go out of business. Yeah, 0:05:52.800 --> 0:05:55.600 I agree with that. I just think that the incentives 0:05:55.600 --> 0:05:57.880 that the government creates to make sure that those things 0:05:57.960 --> 0:06:01.800 don't happen can be very different um them just giving 0:06:01.800 --> 0:06:04.520 a hand out. And the reason is because that the 0:06:04.560 --> 0:06:06.760 handcuffs that we put on companies when we give them 0:06:06.760 --> 0:06:09.560 these handouts are very brittle. And so what happens in 0:06:09.560 --> 0:06:12.240 the case of airlines specifically, is that, you know, we 0:06:12.360 --> 0:06:14.680 made them sign a pledge that essentially said that they 0:06:14.680 --> 0:06:19.080 wouldn't lay anybody off until I think September, and I 0:06:19.120 --> 0:06:21.400 think what you're going to see is a wave of layoffs, 0:06:21.440 --> 0:06:23.360 and I think American has already announced that it's going 0:06:23.400 --> 0:06:27.200 to happen essentially October one. And so, in no event 0:06:27.279 --> 0:06:29.760 did any of this capital do anything other than just 0:06:29.839 --> 0:06:32.600 dilute the actual problem at hand and confuse us all 0:06:32.680 --> 0:06:35.120 into thinking what the problem was. Because you create a 0:06:35.120 --> 0:06:38.520 problem where you've inflated the money supply, you've you know, 0:06:38.600 --> 0:06:41.799 created more debt all of that debt. It gets spread 0:06:41.839 --> 0:06:45.040 across every single American citizen, and none of us are 0:06:45.080 --> 0:06:47.479 necessarily better off for it. So I think the better 0:06:47.560 --> 0:06:50.600 question to ask is, actually, what could we have done 0:06:50.640 --> 0:06:55.440 to actually help Southwest Airlines or American Airlines, or United 0:06:55.560 --> 0:06:58.560 or Delta and the panoply of other companies that needed 0:06:58.560 --> 0:07:02.719 help to bridge the time between the coronavirus and a 0:07:02.760 --> 0:07:05.440 normal resumption in business. And I think you would have 0:07:05.520 --> 0:07:08.640 come up with a whole bunch of different answers than 0:07:08.680 --> 0:07:10.360 the ones that we came up with, which which is 0:07:10.440 --> 0:07:13.240 essentially was here's a check, Please at least don't do 0:07:13.280 --> 0:07:15.360 anything until near the election, so that we can at 0:07:15.400 --> 0:07:18.680 least look, you know, semi competent. Well, what does that 0:07:18.760 --> 0:07:21.120 look like to you? So we've kind of as a 0:07:22.000 --> 0:07:24.840 if you look at the Federal Reserve and the Treasury combined, 0:07:25.280 --> 0:07:27.960 we've sort of taken a dual track approach, which is, 0:07:28.400 --> 0:07:33.360 provide a lot of liquidity loans to small businesses, loans 0:07:33.400 --> 0:07:36.960 that could potentially turn into grants to keep the corporate 0:07:37.000 --> 0:07:40.280 infrastructure alive. And then for the layoffs that have happened, 0:07:40.400 --> 0:07:44.040 is sort of expanded unemployment insurance so that households can 0:07:44.080 --> 0:07:46.880 maintain their income and buying power during the acute phase 0:07:46.880 --> 0:07:50.440 of the health crisis, and the idea in theory is 0:07:50.480 --> 0:07:54.680 that as the health crisis phades, the businesses were kept 0:07:54.680 --> 0:07:58.600 alive with access to sort of cheap financing, households were 0:07:58.600 --> 0:08:00.880 able to keep their buying power, keep their homes, keep 0:08:00.880 --> 0:08:03.960 paying their rent, keep putting food on the table during 0:08:04.000 --> 0:08:08.520 this period, and then ideally go back to their old jobs. 0:08:08.600 --> 0:08:11.840 And we sort of do that bridge from the past 0:08:11.880 --> 0:08:13.880 to the future. Well, so what is what is the 0:08:13.920 --> 0:08:16.560 ideal of what would the idea of approach been do? So, 0:08:16.760 --> 0:08:18.600 you know, for you and your listeners, how I would 0:08:18.640 --> 0:08:22.160 imagine this is a two two dimensional grid and the 0:08:22.320 --> 0:08:26.880 X axis is something that says short term and long term, 0:08:27.480 --> 0:08:31.360 and the y axis is bottoms up, top down. Look, 0:08:31.400 --> 0:08:34.240 for the last forty to fifty years, we've always believed that, 0:08:34.640 --> 0:08:37.680 you know, a top down reallocation of wealth was the 0:08:37.720 --> 0:08:40.480 only way trickle down economics that was really you know, 0:08:40.559 --> 0:08:43.400 started by Reagan and frankly hasn't changed very much since 0:08:43.559 --> 0:08:47.000 in any presidency thereafter, to be completely honest, um, and 0:08:47.040 --> 0:08:49.719 we've never believed that bottoms up actually works. What I 0:08:49.720 --> 0:08:53.240 would have advocated for was a lot more short term 0:08:53.600 --> 0:08:56.880 bottoms up help, and I think what that looks like 0:08:57.360 --> 0:09:01.520 is guaranteeing wages for basically a lot of individual people 0:09:01.600 --> 0:09:03.559 that would have been put out of work and making 0:09:03.600 --> 0:09:07.320 sure that they have complete financial security to at a 0:09:07.360 --> 0:09:11.760 minimum pay their ongoing repeat bills and at a maximum 0:09:11.800 --> 0:09:14.600 to actually be able to pull forward some amount of 0:09:14.640 --> 0:09:17.600 spending that they would otherwise not do. And the reason 0:09:17.720 --> 0:09:20.160 is because you know, we are not a country that 0:09:20.240 --> 0:09:23.439 relies on government spending to drive the economy, although now 0:09:24.040 --> 0:09:26.440 after these last four or five weeks, you know the 0:09:26.480 --> 0:09:30.520 government is responsible for probably fifty of GDP, which is 0:09:30.880 --> 0:09:33.520 you know, a little crazy. So in the short term 0:09:33.559 --> 0:09:35.199 I would have done something that was a lot more 0:09:35.240 --> 0:09:37.960 bottoms up. Some people would call it u B I 0:09:37.960 --> 0:09:39.800 I don't think we need to label it, but I 0:09:39.800 --> 0:09:42.960 do think that hand money in the hands of consumers 0:09:43.040 --> 0:09:45.559 would have been a much smarter strategy. And then over 0:09:45.600 --> 0:09:48.800 the long term, I do think that top down really 0:09:48.840 --> 0:09:52.240 works and long term change. Top down is all about 0:09:52.240 --> 0:09:55.440 incentives and tax policy, and I think the right thing 0:09:55.480 --> 0:09:57.880 to have done there would actually be to make it 0:09:58.360 --> 0:10:02.960 uh much more profitable and credible for companies to spend 0:10:02.960 --> 0:10:05.600 on things like R and D to you know, not 0:10:06.080 --> 0:10:10.520 fritter away the cash profits they have today via buy backs. 0:10:10.880 --> 0:10:13.920 You know, all these idiotic basically activities, which is the 0:10:13.920 --> 0:10:16.559 tool kid of the dumb CEO. And if you actually 0:10:16.600 --> 0:10:20.040 force some intelligent long term planning and thinking at the 0:10:20.080 --> 0:10:23.600 board level and at the CEO level and tie compensation 0:10:23.679 --> 0:10:26.880 to things that are truly long term versus EPs, you 0:10:26.920 --> 0:10:28.920 would change those incentives as well. So if I was 0:10:28.960 --> 0:10:32.120 the government, I would have spent trillions of dollars on 0:10:32.200 --> 0:10:34.520 giving money to individual citizens, and then I would have 0:10:34.600 --> 0:10:39.240 spent several trillion dollars of tax incentives that told companies, hey, listen, 0:10:39.280 --> 0:10:41.560 I'll give you a short term loan, but in return 0:10:41.960 --> 0:10:44.560 you must sign up for the following idea. You must 0:10:44.600 --> 0:10:47.000 spend at least fifteen or twenty percent of your profits 0:10:47.000 --> 0:10:50.240 on R and D. You must actually say fifteen in 0:10:50.280 --> 0:10:53.240 a rainy day account for the future. You must guarantee 0:10:53.280 --> 0:10:55.400 the pensions. There are all these things that you could 0:10:55.400 --> 0:10:57.600 have done. None of those things were done. You know 0:10:57.679 --> 0:11:00.520 two thirds of the SMP five hundred do have an 0:11:00.600 --> 0:11:04.400 R and D budget. How is that possible? I definitely 0:11:04.400 --> 0:11:06.760 want to talk about the idea of the idiot CEO 0:11:06.920 --> 0:11:09.880 manufacturing short term EPs growth, but just before we do. 0:11:10.120 --> 0:11:13.040 When it comes to government policy, it did feel like 0:11:13.400 --> 0:11:15.920 there was a sense that in the worst of the crisis, 0:11:16.400 --> 0:11:19.760 people were trying to act relatively fast. And when people 0:11:19.800 --> 0:11:22.080 like that are trying to act relatively fast within a 0:11:22.200 --> 0:11:25.800 very defined political system, they tend to reach for things 0:11:25.880 --> 0:11:29.640 that already exist, or they reach for fiscal tools that 0:11:29.679 --> 0:11:35.400 they've used before. How would you encourage politicians specifically to think, 0:11:35.760 --> 0:11:38.640 you know, slightly more creatively when they faced this sort 0:11:38.679 --> 0:11:42.400 of time sensitive crisis and start thinking about new ways 0:11:42.720 --> 0:11:46.600 of tackling the idea or tackling the problem. Well, the 0:11:46.640 --> 0:11:49.080 things that we did were actually completely novel and new. 0:11:49.520 --> 0:11:52.480 U b I wasn't a concept that existed until you know, 0:11:52.520 --> 0:11:56.760 we decided to give to every uh, every American. You know. 0:11:56.880 --> 0:11:59.600 We we had no concept that the FED would be 0:11:59.640 --> 0:12:02.400 impowered or to basically use a bunch of cash, lever 0:12:02.520 --> 0:12:05.240 it up and enter the capital markets and by debt 0:12:05.320 --> 0:12:07.719 of all kinds of maturities to be able to pick 0:12:07.760 --> 0:12:10.560 off you know, debt that's actually you know, degraded in 0:12:10.720 --> 0:12:13.760 quality and credit worthiness to buy e t s. These 0:12:13.760 --> 0:12:15.679 were all new things that none of US had ever 0:12:15.679 --> 0:12:19.560 seen before. So I think that they know clearly invented things. 0:12:19.640 --> 0:12:35.400 I just wish they would have invented smarter things. When 0:12:35.480 --> 0:12:39.240 I ever I saw your your interview a Railian against 0:12:39.240 --> 0:12:43.320 the bailout, I tweeted something kind of cynical, but I 0:12:43.360 --> 0:12:45.840 also kind of wonder what the deal is. So you're 0:12:45.920 --> 0:12:50.320 the chairman of Virgin Galactic. The ticker is SPC, which 0:12:50.400 --> 0:12:53.600 kind of sounds like space, except that you've said in 0:12:53.640 --> 0:12:57.120 the past that the sort of at least medium term 0:12:57.240 --> 0:13:01.200 likely business model is something that can heat's not actually 0:13:01.200 --> 0:13:04.800 going into space, but terrestrial travel that could be like 0:13:04.840 --> 0:13:10.520 a much better version of business class, much faster, potentially 0:13:10.960 --> 0:13:15.160 more economical than traditional business class. Do you feel that 0:13:15.240 --> 0:13:19.200 you have a incentive or that you the company of 0:13:19.320 --> 0:13:22.640 which your chairman is a competitor of these companies that 0:13:22.760 --> 0:13:25.920 you were calling out against their bailout. You know, we 0:13:25.920 --> 0:13:28.000 we have a lot of work to do before we 0:13:28.040 --> 0:13:30.280 build a hypersonic airplane. And just to give you a 0:13:30.320 --> 0:13:33.160 sense of it, um, a hypersonic airplane is something that 0:13:33.200 --> 0:13:36.160 flies at nine to a hundred and ten thousand, hundred 0:13:36.120 --> 0:13:38.440 and twenty thousand feet. The spaceship that we have today 0:13:38.480 --> 0:13:42.480 flies up to three fifty feet. So we're in the 0:13:42.520 --> 0:13:44.920 business of spaceships, and we will be for a very 0:13:44.960 --> 0:13:48.000 long time. It's just that when you're in space, the 0:13:48.040 --> 0:13:51.080 physics are such that flying from here to Beijing is 0:13:51.080 --> 0:13:53.360 not nearly as troublesome as when you're flying at thirty 0:13:53.360 --> 0:13:56.880 thousand feet. And so obviously long term, you know, we 0:13:56.960 --> 0:13:59.880 can enable a different form of travel that's not possible 0:14:00.360 --> 0:14:03.960 by basically going so high into the into the atmosphere 0:14:04.240 --> 0:14:07.640 that a lot of the practical difficulties of traditional planes 0:14:08.080 --> 0:14:10.440 are not the problems that we would face. But I 0:14:10.520 --> 0:14:12.640 really do firmly believe we're in the business of spaceship. 0:14:12.640 --> 0:14:15.200 It's just that those spaceships can be used for a 0:14:15.240 --> 0:14:18.800 whole host of different applications, including point to point what 0:14:18.880 --> 0:14:20.680 you call that. I guess we can get sonantic and 0:14:20.760 --> 0:14:23.680 call it an airplane if you want. So you are 0:14:23.800 --> 0:14:25.760 kind of in I mean in theory in terms of 0:14:25.760 --> 0:14:31.600 like a revenue model, they would be your competitive Maybe 0:14:32.520 --> 0:14:35.120 just on one more cynical note, but you're talking about 0:14:35.600 --> 0:14:38.840 government policy. Sorry, sorry to throw this all out at 0:14:38.840 --> 0:14:41.200 you at the beginning, but um, you're talking about government 0:14:41.200 --> 0:14:46.360 policy and central bank policy distorting economies and potentially distorting markets. 0:14:46.760 --> 0:14:50.040 A lot of people would say that venture capital has 0:14:50.160 --> 0:14:54.600 benefited enormously from the kind of central bank liquidity that 0:14:54.640 --> 0:14:57.680 we've seen in recent years, and that because of it, 0:14:57.720 --> 0:15:00.800 you've had a lot of money that can continuously fund 0:15:00.840 --> 0:15:04.520 a lot of loss making tech enterprise. How do how 0:15:04.520 --> 0:15:08.760 do you respond to that? Yeah, you're right. I mean 0:15:08.880 --> 0:15:11.720 there's there's no point putting lipstick on a pig. Like 0:15:11.880 --> 0:15:14.960 let's let's be honest about what's happened. You know, starting 0:15:15.000 --> 0:15:17.040 in two thousand and eight and two thousand and nine, 0:15:17.440 --> 0:15:20.960 we printed an enormous amount of money. The United States 0:15:20.960 --> 0:15:26.360 government stepped into financial markets and basically told investors, listen, 0:15:26.680 --> 0:15:28.880 I'm going to take the things that you have and 0:15:28.960 --> 0:15:32.520 give you U S dollars in return. Those investors, in 0:15:32.560 --> 0:15:35.960 turn took those US dollars and said, well, I can 0:15:36.000 --> 0:15:39.440 do three things with it. One is nothing, two as 0:15:39.480 --> 0:15:41.800 I can buy bonds, or three as I can buy stocks. 0:15:42.800 --> 0:15:45.400 And what has happened is we've had the most incredible 0:15:45.480 --> 0:15:49.640 market that we've ever seen. Along with that, what that 0:15:49.720 --> 0:15:54.160 gives investors is an enormous amount of confidence because they 0:15:54.160 --> 0:15:57.400 will conflate luck and skill. They think that they were 0:15:57.440 --> 0:16:01.960 geniuses in picking stocks, and we don't really you know, 0:16:02.320 --> 0:16:04.920 take into account is we we have this huge behemoth 0:16:04.960 --> 0:16:07.920 behind us, you know, giving us a massive tail wind 0:16:08.840 --> 0:16:11.320 in that. What happened was a bunch of you know, 0:16:11.600 --> 0:16:15.560 um investors decided that they needed more liquid exposure to 0:16:15.600 --> 0:16:18.520 get even better returns, and so they pumped enormous amounts 0:16:18.520 --> 0:16:21.400 of money in private equity. Now what did those private 0:16:21.440 --> 0:16:23.960 equity companies do. They went back and issued more debt, 0:16:23.960 --> 0:16:28.120 bought companies, fired people, you know, pillaged balance sheets. They 0:16:28.160 --> 0:16:31.440 also then decided that venture looked interesting, and they tripled 0:16:31.440 --> 0:16:33.760 and quadrupled the amount of money that's gone into venture. 0:16:34.160 --> 0:16:36.640 What do venture capitalists do? They respond to those market 0:16:36.680 --> 0:16:40.000 dynamics and they raise larger and larger funds, doing dumber 0:16:40.000 --> 0:16:42.000 and dumber things so that they can get the money 0:16:42.000 --> 0:16:46.320 while the getting is good. I mean, this, this problem 0:16:46.360 --> 0:16:51.440 of people very quickly reverting to lowest common denominator behavior 0:16:51.760 --> 0:16:54.320 in search for money is tried and tested and true 0:16:54.360 --> 0:16:56.560 and has been true for hundreds of years. And you know, 0:16:56.600 --> 0:16:58.840 I don't think venture capitalists are any more virtuous than 0:16:58.880 --> 0:17:02.120 anybody else. And so that's absolutely what they did. But 0:17:02.200 --> 0:17:03.880 if you trace it all back. How did it start? 0:17:03.960 --> 0:17:07.280 It started with the United States government deciding to print 0:17:07.280 --> 0:17:10.880 trillions of dollars. Now, ask yourself, what happens in two 0:17:10.960 --> 0:17:13.239 thousand and twenty five when you look back at two 0:17:13.320 --> 0:17:17.600 thousand and twenty and realized that, you know, we printed eight, nine, 0:17:17.640 --> 0:17:20.280 ten trillion dollars. When it's all said and done, almost 0:17:20.280 --> 0:17:23.359 fifty of a year's worth of GDP UM. So, whatever 0:17:23.400 --> 0:17:26.080 has happened in the last ten years, I suspect in 0:17:26.119 --> 0:17:31.760 the absence of some cataclysmic market realization, um, we are 0:17:31.800 --> 0:17:35.000 we are going to go to heights that you didn't 0:17:35.000 --> 0:17:39.400 think were possible from you Well, let's talk about right now. 0:17:39.480 --> 0:17:43.280 So obviously you have a lot of different purchase via 0:17:43.359 --> 0:17:48.800 which you see the economy. Early June, most people would say, okay, 0:17:48.840 --> 0:17:52.440 things are not as dire looking as they were in uh, 0:17:52.560 --> 0:17:55.959 early April. But how from your various businesses and your 0:17:56.040 --> 0:17:59.320 various roles including sports and so forth, what's your assessment 0:17:59.440 --> 0:18:02.080 of the economy me and its trajectory? And you feel 0:18:02.119 --> 0:18:05.080 like we're on a path regardless of the incentives that 0:18:05.119 --> 0:18:10.480 policies created towards something resembling the pre crisis economy, or 0:18:10.520 --> 0:18:12.000 were still a long way from that in your view. 0:18:12.320 --> 0:18:15.399 So the first thing to remember is that typically the 0:18:15.400 --> 0:18:17.679 way that markets behave in the face of a recession 0:18:18.280 --> 0:18:20.359 is can be can be sort of seen over about 0:18:20.480 --> 0:18:23.919 six quarters. I'm just gonna make the math simple. Six quarters. 0:18:24.000 --> 0:18:26.160 And in the first two to three quarters the markets 0:18:26.200 --> 0:18:29.600 trade down, and they trade down because people are trying 0:18:29.600 --> 0:18:31.879 to figure out when the bottom is, and you know, 0:18:31.920 --> 0:18:34.600 the economy is contracting, and then it's contracting a little 0:18:34.600 --> 0:18:36.840 bit more, and then it contracts yet a little bit more. 0:18:37.520 --> 0:18:40.080 But it's that last quarter where we have been taught 0:18:40.119 --> 0:18:43.119 as normal traditional market participants in the middle of a 0:18:43.160 --> 0:18:47.199 recession to buy and that's the term. And then you 0:18:47.240 --> 0:18:49.639 get the next two or three quarters of massive ripping 0:18:49.640 --> 0:18:52.600 equity prices, and then the economy returns to normal and 0:18:52.600 --> 0:18:56.160 then you get back to judging companies based on normalized elearnings. 0:18:56.320 --> 0:18:59.080 If you had said a priority this event, how would 0:18:59.080 --> 0:19:01.280 people react to our session, That's what they would have said. 0:19:01.320 --> 0:19:03.200 They would have said, Okay, we are in for two 0:19:03.240 --> 0:19:05.560 to three quarters of a draw down and then uh, 0:19:05.600 --> 0:19:07.400 you know, the markets will turn and rip back over 0:19:07.400 --> 0:19:10.280 two to three quarters. Instead, what we did was shut 0:19:10.320 --> 0:19:12.439 down the economy and we took it to zero. So 0:19:12.520 --> 0:19:15.280 from a very basic level, it actually couldn't get any 0:19:15.320 --> 0:19:18.560 worse than the first quarter. And you know when then 0:19:18.600 --> 0:19:20.480 you again supercharge it with all the money that the 0:19:20.520 --> 0:19:22.439 Fed gave us. This is why we've had such a 0:19:22.880 --> 0:19:26.960 such an indiscriminate rally going into early June. Now all 0:19:27.000 --> 0:19:31.200 of that said, my large and more broader market framework 0:19:31.400 --> 0:19:34.320 still applies, which is at their thrip, typically three phases 0:19:34.320 --> 0:19:36.560 of a market. And the way that I think about 0:19:36.600 --> 0:19:40.240 it is, at first, you reflect the worst and everybody 0:19:40.280 --> 0:19:42.840 assumes the worst, and you have to basically manage to 0:19:42.880 --> 0:19:48.200 the absolute worst case scenario. But that's all psychological, and 0:19:48.440 --> 0:19:50.800 in all of that, what happens is people realize that 0:19:50.840 --> 0:19:54.080 they overreacted, as they always do. And then what happens 0:19:54.160 --> 0:19:56.399 is you start phase two, which is you priced the news, 0:19:57.240 --> 0:19:58.920 and what that means is you become a little bit 0:19:58.920 --> 0:20:01.879 more sober, you become a little bit more thoughtful, You 0:20:01.920 --> 0:20:04.240 take a little bit more time, and you try to 0:20:04.280 --> 0:20:07.560 really understand what's happening and try to really weigh the 0:20:07.600 --> 0:20:09.920 balance of things that are happening and be a little 0:20:09.920 --> 0:20:13.159 bit more judicious in your decision making. And then you 0:20:13.240 --> 0:20:15.480 enter the third phase, which is then you harvest profits, 0:20:15.880 --> 0:20:18.280 and you can be harvesting profits for a year, for 0:20:18.400 --> 0:20:20.680 ten years. You know, you could wait till the last 0:20:20.800 --> 0:20:22.560 month of the tenth year. But the point is that 0:20:22.600 --> 0:20:25.480 then you're really in a position where markets are trending 0:20:25.560 --> 0:20:28.439 higher and you can safely be a holder and a 0:20:28.520 --> 0:20:31.480 net seller and make money. I think where we are 0:20:31.560 --> 0:20:33.320 is we're in the middle of phase one and two. 0:20:33.960 --> 0:20:37.560 We reflected the worst in March, and what we're still 0:20:37.560 --> 0:20:40.520 trying to find is our version of the truth, and 0:20:40.600 --> 0:20:43.400 so we're testing theories in the marketplace right now. We're 0:20:43.440 --> 0:20:46.159 pricing the news, trying to see how people react. So 0:20:46.280 --> 0:20:49.000 we just spent the last six weeks pricing the news, 0:20:49.880 --> 0:20:52.000 which is that there's a v shape recovery and everything 0:20:52.080 --> 0:20:55.240 is going to be great. Uh, then you know, George 0:20:55.240 --> 0:20:59.520 Floyd happened, and it's unlocked a level of discomfort in 0:20:59.560 --> 0:21:02.520 the in the again, the real world, we've had a 0:21:02.560 --> 0:21:05.320 spike in coronavirus cases in the last two to three weeks, 0:21:05.359 --> 0:21:06.960 and I think now the market is going to price 0:21:06.960 --> 0:21:09.159 a different kind of news, which is that this is 0:21:09.160 --> 0:21:11.679 going to be tumultuous and that it's not going to 0:21:11.720 --> 0:21:15.040 be a clean recovery and that there's a lot more 0:21:15.160 --> 0:21:18.200 uncertainty to come. And I think that over the next 0:21:18.200 --> 0:21:20.320 probably two to three weeks, we're going to play around 0:21:20.320 --> 0:21:23.080 with that model of how the market should work to 0:21:23.160 --> 0:21:26.640 see if that works. In general, my perspective is that 0:21:27.160 --> 0:21:30.360 unfortunately for us, the amount of money that the Fed 0:21:30.520 --> 0:21:35.719 is printed mutes and masks any of these things, and 0:21:35.800 --> 0:21:40.200 so the tendency will be for the markets to trend 0:21:40.280 --> 0:21:44.720 higher going into the fall, into the election, just zooming 0:21:44.720 --> 0:21:48.640