E24: Markets trend down, political pandemic manipulation, stimulus breakdown, biological Patriot Act

i got accounted the other another billion dollars i lost i've lost two two billion dollars in the last two days are you guys recording please record this looks like we looks like we need a poker game tomorrow can you imagine how tilted chamath is gonna go yeah he's gonna be he's gonna be in the markets he's gonna buy in for two million just to try and get even let your winners ride rain man david sacks and they've just gone crazy with it hey everybody hey everybody welcome to another episode of the all-in podcast we took a week off and boy that was sad i missed you guys i missed my best we should tell we should tell people we had a we had a small medical procedure for one of the besties and uh but everything's good and uh it was planned so you know nothing nothing out of the ordinary but we just needed to take a week off so we're gonna go ahead and get started and we're gonna go ahead and get started and we're gonna get started and we're gonna go ahead and get started and we're gonna go ahead and get started that's why we missed a week and that's why we're back yes and one of the besties uh god i got so many jokes i'm not going to tell all the jokes that came into my mind right now would get canceled really i just literally had seven jokes i can't tell any of them based on the amount of money that i've lost in the last two days i'm ready to get canceled so it's fine put them in the chat and i'm just gonna let them rip all right everybody david sacks the rain man is here calling in from an undisclosed compound freiburg the queen of quinoa back in action and the dictator himself licking his wounds two billion dollars per billion a day keep it going checking the apple stock app hitting refresh and going thank god these companies have fundamentals because i haven't seen this much blood since game of thrones jason honestly at this run rate i can lose a trillion dollars how do you feel today compared to last march when the same thing was happening you know every day the market was down 10 percent well this is what's important we made a joke it was like it could only go down 10 so many days in a row march march uh 31st you you guys have to remember that march 31st of 2020 the headlines all over the press and you can you know go to the way back machine and look at these things but the dow was down you know the stock price was down and the dollar was down 20 some odd percent the s p was down 20 and it looked like the world was going to end and then we had our first big stimulus bill um and things started to look china started to reopen slowly and things started to look better and what's interesting is you have this rotational sort of deleveraging that's happening right now people are repricing in inflation people are moving into sort of these you know overlooked stories getting out of growth a little bit and it's a bloodbath um but i would just i would just encourage us all to remember that we were in some pretty dark days in march of last year as well and you know when you looked at it by the end of the year it looked amazing so i would just add to that the markets are looking pretty grim for tech stocks right now but this all started because of a really great jobs report showing that the economy is roaring back so we added 379 000 jobs in february which beat expectations by 200 000 they also revised the january gains up one hundred and sixty six thousand so now the unemployment rate is going to be down to six point two percent remember it was at like fifteen percent you know last summer during the the lockdowns for covet so i mean all of this is fundamentally due to i think really great news in the economy because covet is ending and which kind of begs the question of why we need another 1.9 trillion dollar stimulus bill but but i think that ultimately there's a lot of good news in the real economy and what investors are doing is figuring out how to now put price or reprice uh all these different stocks in light of the economy roaring back so just a little just a little math lesson to build on what you're saying you know everybody has a risk-free rate and all stocks are priced according to that risk-free rate and when you know for the many for the last sort of year particularly when risk-free rates were essentially zero to negative meaning you know that's that's the riskless money where you that you get from the government um it was hard to do anything except belong growth stocks in a big big way um but david to your point if we get two or three more quarters of these kinds of jobs numbers you're going to have a you know low single digit unemployment number and what that means is wages will have to go up for businesses to compete and that's the kind of traditional form of inflation that actually reprices things because you then you lever up rates to kind of control inflation when you lever up rates and you you know all of a sudden they're not zero but they're two three four five six percent and you're going to have a low single digit unemployment number and you're going to have a low single digit unemployment number and you're going to have a low single digit unemployment number and you're going to have a low single digit unemployment number and you're going to have a low single digit this is sort of what brought the tech bubble to a halt in 2000 which is that you know you had six percent real rates and so you can't own businesses that are projecting revenues let alone profits in 2026 um when you can invest your money in a bond and make six percent six percent and that's what i like so just for folks that don't know this week started with this big bond sell-off and what that means is bonds that used to yield zero percent when you sell them they're now yielding ten year treasuries i think are at one and a half points right so you're you're you're going to have a lot of and so as an investor if i can make one and a half percent with no risk by owning us treasuries over the next 10 years that may feel like a better bet than owning some risky asset um some speculative company now the other thing that that it has done and chamath correct me if i'm off on this but what i'm hearing is that that higher rate because bonds sold down because people are expecting inflation to come back up the interest rates to borrow money are going up and so if you're a hedge fund or a institutional money manager over the last year or so you've been able to borrow money for zero percent you can lever up your portfolio and and and buy as many stocks as you want without paying any interest on it and now that rates are creeping back up people are de-levering they're they're taking risk off and that's causing a sell-off in both bonds and stocks and especially on the speculative end of the market where you know there's been um obviously unchecked kind of investment capital no you're you're you're you're absolutely right like look at the at the at the end of the day the cost of borrowing for a company goes up what that's really saying is the investor that's lending them the money um you know has other alternatives um and so then they're willing to charge you more and more for this for this capital and as that happens you'll see some companies get into potentially some real trouble because you know they're going to be borrowing money at rates where they can't necessarily generate the cash flows in the future to pay those things back at the same time as you said if you look at sort of like you know the spas market has taken a real beating um what are what are spax really well you know in many ways spax are synthetic bonds right and and the reason is because you know if you go and buy a if you go and buy a spac one share of any spac you have the ability to redeem that if you don't like the deal that it does and get back your coupon so you know you're notional rather so if you were to buy a government you know german bond at negative one percent you know you're not going to be able to buy a government loan at negative one percent or buy any spac where you can put that same you know ten dollars to work and get back ten dollars well you do that versus getting back nine dollars and ninety cents so in many ways like you know the spac market benefited from rates at zero because you could synthetically be long spax as almost a way of being synthetically long fixed income now as rates go up that's not true so what that leaves in the spac market are actually people who want to own long-term equity and if you combine that with what we just said which is the cost of capital going up and the discount rate going up now all of a sudden companies need to be really real and you're seeing that because if you look at the companies that have just announced back deals just in the last few days their stocks have gotten absolutely obliterated and they're right on the knife's edge going into the redemption period so if you have one or two more months of this where all of a sudden bonds look better and you know some of these spax post announcement but pre DS backing go through you know ten bucks a share people just redeem for ten dollars and you'll have a you'll have a bunch of busted IPOs or by the way by the way another thing we're seeing sorry Jason but another thing I think we're seeing right now is in the near term is a feedback loop so as selling takes place what happens is market participants are jumping in and short selling and participating in the trend of that stock and so there are these these kind of experiences that are underway where it's not just about a sell-off of owners but it's also about a momentum trade that a lot of people are playing into and so there is a very short-term extremely competitive compounded effect of the de-levering that's happening and the cycling that's happening in these markets and so it's super volatile and probably will be for a little bit of time here right I think so I think we need to figure out whether there's really whether there's a real inflation risk dragon cooking someplace if there if there really is inflation like again you have to think like the trillions of dollars we put into the economy eventually has to come out in productive goods and services and the all of that excess capital will probably inflate prices now it begs a different question which is we maybe we've just actually been missing inflation all along because if you ask somebody who lives in a city you know what the cost of rent has been that that thing has been inflating by feels like 20% a year for years so and health care and education costs and health care and education so maybe we've just done a really terrible job in the last few years of actually measuring inflation the way it should be you know it's calling this whole basket of you know you know CPI X energy like I don't know what the hell is going on with the economy right now and so I think I mean it's kind of nutty maybe the whole thing just made no sense a few years ago to David's point and David gave me just a huge bag of red pills while we were off this week so I've been just I've been on a bender on these red pills but if you look at those three categories what do they have in common education health care and housing massive regulation uh and then if you look at the things that have gone down consumer goods electronics food Etc or have stayed flat in terms of inflation those are things that the free market participates the government's not involved and it's not just the fact there's a lot of government regulation in things like health care and education it's also that the government pays for a significant portion of it and so there's no reason for the people you know who are billing the government to keep costs down I mean this is why the price of education of a college degree keeps going up is because the government's paying for a lot of it I I I David you probably I I think you you may have seen this but when you know when we announced um our merger with Clover for ipoc one of the first slides I put up there was the only place in the market since 2010 where you would have made more money than being long Facebook and Google and Apple and Amazon was being long United healthcare Cigna Wellspring and the reason is because health care was this incredible thing post Obamacare nobody wants to talk about it on the left because it makes it look terrible but we created massive price inflation and United health care was a 30 billion dollar company narrative violation be careful right before right before Obamacare passed today it's a 330 billion dollar company um and the level of growth that they and Etna and you know Cigna and Wellspring these con these companies have have seen is astounding so these highly regulated you know systems of societal infrastructure that's where all the gains have been regulatory capture writ large right well as soon as the government is paying for it all the suppliers are going to increase their prices why wouldn't they so it's what happens is the government tries to make something free for people and all they end up doing is making it really expensive well they make it they make it now they make they make it expensive in this very in this very convoluted way which is hard to track right because it's like you know uh who's actually paying well you know the insurance companies want to just book more revenue even if they're you know even if their gross aggregate profit grows much much more slowly they'd rather make the same amount of profit on a billion dollars versus a hundred million dollars so what do they do their incentive is to just Jack prices up who are paying those prices companies pay those prices who bears those costs all of this stuff is really not clear because ultimately downstream somebody has to pay for this stuff taxpayers and it's all obscurified I mean look I mean look at the tent story that we were sharing on our group group thread 61 000 for San Francisco to put people into tents with a no for for you all um is if we look back the last time we were at six percent unemployment July 2014 we look at the unemployment graph it's spiked up to as we discussed 15 and it has plummeted back down now to uh the six percent rate if we look back on this moment in time and how quickly the economy is recovering from this disaster that we've never experienced before it looks like this recession is going to be recovered and we're gonna we're already back in business in such a short period of time compared to what happened in the Great Recession and the dot-com boom so is America and the U.S dollar and the economy anti-fragile now to use a teleb term what how do we look at what happened with the economy did Trump do everything right with the stimulus this is a this is a complete outlier in the following way in a typical recession what what has to happen is so you have a contraction in the economy but you don't know when the bottom is right the bottom is some number of months in the future and government policy is basically trying to create a soft landing where all of a sudden the cost of capital is low enough now where people say ah on the margin now this incremental dollar I would rather borrow and invest which drives growth which can then gets the economy growing going and so you know how does a government deal with that they are looking at economic data and saying okay you know what let me cut rates I'll cut rates again I'll cut rates again and that's really the one thing that's going to be a problem because if you look at the economic data and saying one tool that they have in their toolbox because they're trying to predict in the future, how many rate cuts do I need to get or have rather?

How big do they need to be until I get to that place where you bottom out? The pandemic was the exact opposite because in many ways, we actually hit the bottom in month one because we said, "Everything go to zero right now." When you shut everything down, you technically can't have less economic activity than zero.

In many ways, you price the bottom on day one. Boom. In hindsight, the real insight would have been to see that and say, "I'm buying this moment because it only gets better from here." In one way, it's like all of the tools are actually now we need to think about them in opposite.

I don't think we have that training to do that well. We're still going back to the same toolbox, which is why what David said is so true. We're thinking about incremental stimulus as a way to get to a soft landing, but we've already actually taken the hard medicine a year ago.

Let's tackle that. Sax, should we, and let's take virtue signaling and populism out of this discussion just on an economic basis. Is it necessary to send every American another 600,000, 2,000 knowing what we know today with the unemployment rate going down? Would we be better off taking that capital and deploying it in education, unemployment, or something else?

Right. First of all, it's 1.9%. Right. It's $3 trillion that we don't have. We're borrowing it. I would extend unemployment for people in those hard hit sectors that haven't come back yet, but most of this money is going for blue state bailouts of cities that are totally mismanaged. This is not going to help states like California or cities like San Francisco get their house in order because this is going to bail them out and defer that day of reckoning from their chronic mismanagement.

We're borrowing money we don't have to bail out people, cities and states that don't really deserve it. I do think we should help the people who've been impacted, but it doesn't require 2 trillion. And look, here's the thing. We're already down to 6% unemployment. We're going to be down to, I'd say probably three or 4% in two quarters.

I mean, the economy is coming roaring back. And the reason it's coming roaring back is because COVID is ending. Right? So the biggest announcement recently, and I think this is playing into what's happening in the stock market as well, is that Biden announced that every American who's over the age of 16 who wants a vaccine will be able to get one by the end of May.

I mean, we're going to have 300 million doses. Yeah, what happened to the fall? Yeah. Right. Well, he was- Cut six months off this. Yeah. When he came into office in January, he's saying the worst is not over. I mean, that was clearly sandbagging. The worst was over. And we're going to have 300 million doses by the end of May.

And the only reason why everybody won't be able to get one is because of states that are creating these ridiculous hoops to get through. Confiscating them. Yeah, exactly. Like California right now has 3 million doses sitting on a shelf. Because of COVID. Because of all the crazy hoops that Gavin Newsom has everyone going through because he wants to score brownie points on equity, right?

So if the government would just get out of the way, let everyone who wants to get a vaccine get one without worrying about making sure the exact right person in the exact right line gets one first, this thing will be over by Memorial Day. Over. Now, look, there'll still be a case here or there.

For sure there'll be, I'm not saying there'll be zero cases of COVID, but there'll be zero pandemic understood as such. By the way. I'll say one other, you know, important point about the stimulus one that that Saks made. Yesterday the CBO put out a projection. This is the the budget office, I think Congress and they said that the US national debt is likely to reach 202% of GDP by 2051.

So the amount of debt that the US government will own is 2x the amount of all the revenue generated by all of the industries in the US. In about 30 years. That's an insane statistic. And the reason that people look at, you know, GDP or debt to GDP is because you have to pay your debt down at some point, you owe some interest on that debt, you have to pay it down.

And every year you have to generate revenue to pay the bondholders. And how do you how does the federal government generate revenue to either issues more debt or taxes. And in order to meet a 202% level of debt relative to GDP, you end up raising taxes so significantly as a percent of GDP to cover the entire GDP.

So that's a huge statistic. And the reason that people look at, you know, GDP or debt to GDP is because you have to pay your debt down. And every year you have to pay your debt down. And every year you have to pay your debt down. And every year you have to pay your debt down.

And every year you have to pay your debt down. And every year you have to pay your debt down. And every year you have to pay your debt down. And every year you have to pay your debt down. And every year you have to pay your debt down. And every year you have to pay your debt down.

And every year you have to pay your debt down.

E24: Markets trend down, political pandemic manipulation, stimulus breakdown, biological Patriot Act

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