Yen Carry Trade, Recession odds grow, Buffett cash pile, Google ruled monopoly, Kamala picks Walz

0.249 - 18.289 Jason Calacanis

Sorry, everybody. I wasn't here last week. So what's your bid, J. Cal? Jump into your bid. No, there's no bid. I'm just, you know, triple vaxxed. I took the Paxlovid and I'm back, everybody. I know everybody was very concerned about me. Thank you to everybody. But I can take my mask off, right, Freeberg? Do I need a mask in 2024?

18.81 - 19.731 Freeberg

You're good. You're clear.

20.638 - 21.799 Jason Calacanis

Okay, so let me take one of these off.

22.579 - 25.58 Freeberg

Let me get that off. Okay, good.

25.6 - 32.143 Jason Calacanis

It's getting uncomfortable. You're in the clear for one. Okay, you know what? I'll take the third mask off. Totally free. Mask free.

32.163 - 43.028 Chamath Palihapitiya

I hope I don't get you guys- The CDC says we can treat COVID like the flu now. I mean- You see that? They finally admitted after two years of shutting down schools, the economy, everything. Like, oh, it's just the flu. We can treat it like the flu.

43.628 - 52.393 Jason Calacanis

Yeah. Well, it's interesting. I got the COVID. Just to explain to everybody, I went to Billy Joel's final concert with my daughter. We had a great time. It was his final MSG.

52.834 - 57.056 Sacks

Nick, timestamp the end of it so everybody can just skip to the end of it. Sorry, go ahead, Jason.

57.216 - 71.986 Jason Calacanis

There's no bit here. I'm just saying, I'm letting people know that I think I got COVID at the last Billy Joel show. It was a great show. Shout out, Billy Joel. But it was 48 hours. That was very intense. And then I took that Paxlovid and I came right out of it. So apologies to everybody. But man, it was no joke.

73.018 - 73.879 Sacks

It's a great story.

74.18 - 75.801 Jason Calacanis

Great story.

75.821 - 78.344 Freeberg

Well, I mean, listen, a lot has happened since I've been gone.

78.364 - 79.285 Jason Calacanis

I sneezed earlier today.

80.046 - 81.027 Freeberg

Did you guys sneeze? Oh, my God.

81.288 - 88.096 Jason Calacanis

Yeah. The Olympics happened. Are you guys taking the Olympics at all? Freeberg, you seem like a guy who would watch obscure Olympic sports.

88.925 - 92.628 Freeberg

I think there's a lot of sports that should be regular. It's like the pistol shooting guy.

92.928 - 111.223 Jason Calacanis

Anyway, it's all moot because, you know, the paparazzi were there and they took pictures, Chamath. Do you know this big paparazzi in Paris this year because of all the celebrities there? Yeah, the paps are all over the place in Europe. They're everywhere. They're everywhere. I'm sure you saw them in Italy. It's getting crazy. But they got you when you were getting your gold medal. Nick, pull it up.

111.383 - 140.963 Jason Calacanis

This was, I think, in Us Weekly. Here it is. Here's Chamath getting his gold medal. Okay. Oops. Whoa. Now, this is in the category of being the biggest prick. Now, just let people know, Chamath has been the biggest prick. Other people were there, too, by the way. It wasn't just Chamath. Freeberg was also there. Here's Freeberg. Most likely to fight a girl. Yeah, there it is.

141.023 - 143.145 Jason Calacanis

He was in the... Am I the Syrian...

145.051 - 149.092 Freeberg

Yes, that's you in the women's category of boxing. In the women's boxing? Right.

149.332 - 150.473 Jason Calacanis

Thank you.

150.593 - 151.353 Freeberg

Thank you, J. Cole.

151.893 - 164.757 Jason Calacanis

Sax was there too, though, by the way. Here he is. He won silver for the least Olympic body. Well done, Sax. Look at that. The least. Look at that pasty white. I think you got robbed of the gold. There you go, Sax.

164.797 - 170.699 Chamath Palihapitiya

Look at that form. I like that guy.

170.859 - 192.507 Jason Calacanis

At the very least, the Ozeptic and Wegovy, you lost the weight, but you didn't add any muscle definition. That's known, right, Friedberg? It's known. You lose the muscle, right? That's right. Fat and the muscle. I was there too, by the way, and I'm very, very proud to say, in a photo finish, you can see me there. You guys know this one, right? This is the 100-meter virtue signal.

192.927 - 207.494 Jason Calacanis

So you see there, Reid Hoffman just edged me out, and I'm right ahead of Paul Graham. So virtue signaling, 100 meter dash. It was pretty grand. It was pretty grand. But congrats to Reid Hoffman also coming on the pod to debate you, Sext.

207.674 - 208.915 Chamath Palihapitiya

Hard to beat them at virtue signaling.

209.415 - 219.12 Jason Calacanis

I know. Very hard. I felt like silver in this case was a gold, given the competition, right? If you meddle in that group of virtue signals, you're good.

223.413 - 231.801 Jason Calacanis

All right, everybody, welcome back to the All In podcast. Of course, the number one podcast in the world.

243.491 - 265.365 Jason Calacanis

and i'm back daddy's home and we've got a very full docket sacks will get his red meat at the end for all the maga lunatics in the comments don't worry he's gonna get his red meat but we got bigger fish to fry in the markets markets were down big on monday due to something called the yen carry trade The Dow was down 700 points. NASDAQ was down like 6%. It was unsettling.

265.745 - 285.584 Jason Calacanis

Social media went crazy on Sunday night that it was going to be the end of the world, the beginning of a recession, maybe a depression. And this all happened because Japan's central bank raised their interest rates by a whopping... 15 to 25 basis points. And we'll explain why that's important in just a moment. We'll get Chamath to give us a little overview here of the yen carry trade.

286.184 - 310.563 Jason Calacanis

But this is a big deal because Japan has had its interest rates at near zero, even negative since 1999. So this little blip on the chart is the interest rate going up there in Japan. So quick explainer, and then Chamath will have you go deeper. The yen carry trade is a pretty basic concept investors borrow at 0% interest or close to it due to this 0% interest rate.

311.283 - 330.934 Jason Calacanis

And then you convert your yen into another currency or perhaps a stock like Nvidia and you take the spread. So the goal is obviously to return a higher rate than the cost of borrowing the yen. And so here's an example of it. If you just want to look at the flow, you borrow some yen at 0%, you invested in stocks, whatever,

332.332 - 338.058 Jason Calacanis

You get some appreciation, and then you liquidate the stocks, and you pay back your bill. Of course, this could all go horribly.

338.479 - 353.736 Chamath Palihapitiya

Yeah, but a safer way to do this is just to invest in a US T-bill that's paying 5%. You don't have to take the risk of the market going down. You borrow yen at 0%, invest in T-bills at 5%, and you pocket the difference.

354.226 - 373.797 Jason Calacanis

Yeah, and you just have to pay back the loan. Of course, Chamath, this can all go very wrong if a number of things happen. So maybe you could give us an overview of this kind of trade. Have you ever done something like this? What do you think of these type of trades, these quote-unquote free money trades, picking up free money off the ground trades?

375.318 - 392.948 Sacks

I mean, I think these kinds of things... So I've never done them. And part of the reason why is I think these things... look genius and they work until one moment in time where they stop working and it stops working so severely that it becomes almost impossible to unwind yourself.

393.729 - 395.33 Jason Calacanis

Okay, explain unwinding, yeah.

396.411 - 418.762 Sacks

Yeah, so I think typically in these situations, the thing you have to remember is you don't really make a lot of money in this trade. The way you make a lot of money is by leveraging this trade up. So meaning it's not like borrowing a million dollars in yen and then swapping it to US dollars and then putting it in T-bills is a real moneymaker. You're talking about 50K.

418.902 - 446.241 Sacks

That's not really going to move the needle. So what people try to do in these situations is do it on a billion dollars and then lever it up five or 10X. The problem with that is that you're posting all kinds of collateral as margin to these banks to give you that leverage. Because then all of a sudden capturing 150 basis points on 10 billion or 15 billion, now we're talking about real money.

447.882 - 460.28 Sacks

And so when these things go wrong and they happen very suddenly. What it does is it puts pressure on all other asset classes because people are scrambling to make sure that they don't get margined out.

461.281 - 492.184 Sacks

And what you saw over the weekend was it mostly a lot of that happening, which was a lot of these folks were putting this trade on to the tune of tens or probably even a hundred billion plus dollars of which they had maybe five or 10 billion of equity and $80 to $90 billion of just margin. And that's what caused this very quick cycle. Then it looked like it unraveled itself.

492.264 - 511.858 Sacks

And so people thought, oh, we're probably mostly past this. I actually think we're not. I've said this before. I think one of the most interesting things I've learned in the last few years about the stock market is the stock market is owned by and large by these algos, meaning there is these large

512.699 - 543.552 Sacks

kind of murky grayish hedge funds that have these computer trading algorithms that are allowed to be levered to the tune of 13, 15, 20 times about $50 billion. These folks are swinging around a trillion dollars each. We all just live in their world because when these algorithms make a decision, and they react to these kinds of events, that's when the real volatility starts.

543.992 - 565.706 Sacks

So I think the most important thing was summarized by friends of ours, Goldman Sachs. Nick, if you want to just throw up the picture that they sent me. They sent some really good market insights whenever these things happen to a bunch of their clients. One of the interesting things that they observed is a couple of facts.

566.206 - 590.195 Sacks

The first is the algorithms in the middle of all of this chaos sold about $41 billion of global equities. Okay, no big deal. except that it actually causes everybody else to have to react. And then they sell billions and billions more. The other thing that they noticed though, is that we're in a moment in time where you can see how these algorithms will behave over the next month.

591.136 - 616.451 Sacks

And right now, if there's relatively minimal volatility and not much changes, the algorithms will have to sell another 160 odd billion dollars of equity. And that'll pull through many hundred billions more from everybody else. So I think we're in a little bit of a delicate moment where the preponderance of the market action will be to continue to sell.

617.311 - 624.993 Sacks

And I think it's just going to be, when we look back in hindsight, another reason why getting levered on these things is very dangerous. There's no free money, basically.

625.293 - 643.027 Jason Calacanis

Yeah, there is no free money in this free money trade. And just to translate a little bit of this on the margins for the audience who's not familiar with it, margin is a loan. Fancy way of saying a loan, margin call, you have some asset that backs it up. In your case, it might be a civilian, it might be your house, whatever, your bank account.

643.447 - 665.94 Jason Calacanis

In these cases, these big companies, these hedge funds might have cash or equities. And if they come down and they have to pay the loan, they are forced to liquidate it. And in some cases, those assets are controlled by the person giving the loan, and they will just start programmatically selling your shares in whatever, Apple, Google, whatever, Nvidia, you own- Whatever you own.

665.96 - 690.294 Jason Calacanis

... to pay down that margin. And this is called a margin call, thus the name of the movie. And so it's incredibly dangerous. And the leverage is You and I can, or like any civilian, could borrow $500,000 against their $2 million house and home equity. Rich people in these big banks, they can borrow 10 or 20 times the value of the assets, which then could lead to absolute chaos.

690.374 - 706.739 Jason Calacanis

Freeberg, let's go to you next and just talk a little bit about what's going on in Japan because they have had a rush of people buying their stocks, the population declining. It's a very unique situation. economy, maybe you could talk a little bit about it.

707.34 - 739.264 Freeberg

One of the biggest challenges facing Japan is the level of debt that they've accrued their debt to GDP ratio is currently 263%. They have about 1.3 quadrillion yen of public debt on an annual GDP of about 591 trillion yen. They're currently at the federal level, spending about 20% of GDP per year, 5% of GDP is being spent per year, just on servicing the existing debt.

739.944 - 761.201 Freeberg

And that's at interest rates set by the central bank of roughly 0%. So you know, or whatever the market is trading it at, so slightly above 0%. But if the central bank had to start to raise rates, because inflation started to run away, because there's so much again in circulation, there's so much debt outstanding, the federal government would not be able to actually service this debt.

761.922 - 774.911 Freeberg

So as of March of 2024, the Bank of Japan, the central bank actually holds 53% of Japan's outstanding government bonds. which is equal to about 100% of Japan's GDP.

775.251 - 787.577 Freeberg

So their central bank has bought the debt that's being issued by the federal government to fund their budget, a large chunk of which right now is being spent just on paying the interest on the debt, while interest rates are close to 0%.

788.437 - 810.504 Freeberg

So imagine if interest rates bumped up to one, two, three, four, 5%, as we're seeing with US treasuries, we were recently at a nearly 5% handle on the 10-year treasury. it would become an unsustainable debt burden for the Japanese government to be able to handle that. And a large part of this is being driven by a number of crises that Japan has faced since the early 90s.

811.164 - 828.883 Freeberg

So there was the financial crisis in 08, there was the nuclear meltdown, there was a couple of earthquakes, tsunamis, and a lot of debt has been taken on to support the country after those crises. But really importantly, and Nick, if you could just pull up this age chart, is the aging of the Japanese population.

829.303 - 852.499 Freeberg

So this chart shows that, and you can kind of see back to 1950 when the average age in Japan was 21 years old. And today the average age in Japan is around 48. You know, in the next decade, it'll be 50, then it'll be 52. So that means more and more people are relying on public pension. Today, 33% of their government spending goes towards their social security programs.

852.739 - 870.253 Freeberg

In the US for comparison, social security is about 20% of federal spending. So that number is only getting bigger and bigger. As the population ages, the Japanese government has to continue to service their older population And they've had to face several crises. Their debt has ballooned to a level that is well beyond any other industrialized nation.

870.633 - 888.999 Freeberg

And the only way to continue to service that debt economically is to keep interest rates low. And the problem with keeping interest rate low? Inflation. And that's the big driver that caused them to say, let's uptake the interest by 15 bps or 25 bps is to try and tackle the inflation problem they're facing, just like our central bank recently tried to do the same.

889.699 - 912.612 Freeberg

But clearly the market can't have it. So Japan is in a real pickle. And I think that it shows how much having a large amount of federal debt can impact the ability for a nation to maneuver itself during difficult times. And ultimately, debt payments come due. They come due either in the form of economic contraction or massive taxes or inflation.

913.293 - 915.814 Freeberg

And currently, Japan is paying for it in terms of inflation.

916.054 - 918.616 Sacks

Sorry, you're saying Japan has inflation? Japan has no inflation.

919.076 - 932.585 Freeberg

The government raised rates to tackle inflation. I'll pull up the inflation chart. Japan's inflation hit a 40-year high, and this just shot up in the last 18 months. Inflation is running at close to 4% a year.

932.705 - 946.44 Jason Calacanis

And so they're setting, Friedberg, the interest rate in the country and they own the debt. So they're basically in control of, or they're manipulating the economy and trying to control it. Correct, Friedberg?

947.121 - 955.31 Freeberg

Well, their central bank has to buy most of the debt and their central bank sets the rates. So they have a large amount, 53% of their public debt is held by their central bank.

957.933 - 966.942 Jason Calacanis

And if they don't pay a high interest rate, then people don't buy future bonds. If they do raise it, they have to pay that rate. So this is the conundrum, Friedberg, if I were to summarize it.

967.122 - 981.136 Freeberg

Well, yeah, while rates are low, you see this, you know, particularly in a market like we're facing today where there's global inflation, they need to raise rates in order to reduce inflation. The problem with raising rates is this, you know, this currency problem.

982.005 - 990.251 Jason Calacanis

But also buying the debt, Chamath, who's buying debt if you're not getting anything on the coupon, correct? That's another challenge they face in Japan is that.

991.151 - 1007.117 Sacks

There's a famous quote from an economist, Simon Kuznets, who said, there's four kinds of countries in the world. There's developed countries, undeveloped countries, Japan, and Argentina. And I think the reason he said that is that Japan has been in this state since the 90s.

1007.197 - 1028.816 Sacks

So they had a massive property and equity bubble collapse, and they've not had to deal with anything that looked like typical economic issues since then. And part of it is because the government plays a very big hand in the Japanese economy. There's a lot of price controls there. So I don't know. I'm not sure what it is that we can learn there that you can extrapolate to the rest of the world.

1030.529 - 1042.013 Jason Calacanis

Yeah, it is a very unique SACS geography and economy. So SACS, your thoughts on this overall and what we can expect. Maybe you could take the future looking, forward looking and prediction crystal ball. Go ahead.

1042.353 - 1063.982 Chamath Palihapitiya

So I think Freeberger is right that the reason why the Japanese central bank tried to raise rates, I mean, just by a tiny amount, was because they are dealing with inflation. If you look at that inflation chart and you go back to when their inflation was zero, roughly in 2020, the exchange rate ratio between the US dollar and the yen was about 100 to 1, meaning one US dollar could buy 100 yen.

1064.382 - 1081.371 Chamath Palihapitiya

Now it's at roughly 150 yen to the dollar. So their currency has massively depreciated over the last several years. And a big part of the reason why is because, again, they're central bank is offering roughly zero, and you can earn 5% in UST bills.

1081.871 - 1103.282 Chamath Palihapitiya

So people are basically moving their money to countries that pay a lot more on their bonds, and they're even borrowing yen, like we talked about, selling the yen to then buy Australian dollars or US dollars to invest the money there. So there's huge downward pressure on the value of the yen. And the way this creates inflation is that

1104.921 - 1123.353 Chamath Palihapitiya

Japan is obviously an island that has very few natural resources, and it has to import all of its oil. So it has an advanced economy, but it needs to import a lot of resources. And so as its currency depreciates, the price of all those commodities goes up. And this is why you're seeing inflation in Japan.

1124.094 - 1146.768 Chamath Palihapitiya

Now, when the central bank tried to solve this, it created huge jitters in the financial market because it was starting to unwind the whole yen carry trade, which is something like $20 trillion. And so the Bank of Japan backed off. And you heard the Japanese central banker said, we can't raise rates while it would create instability in the global markets. We have to wait until it's stable.

1146.828 - 1164.597 Chamath Palihapitiya

But the problem is that raising the rates and unwinding the yen carry trade creates the instability. So what they're saying is we're never going to be able to raise rates. And the result of this is going to be more inflation in Japan. Their currency is going to continue to depreciate. They've been unable to defend it.

1165.077 - 1175.479 Chamath Palihapitiya

And so what I would expect is that the US dollar is going to keep buying more yen. It's going to go from, I don't know, 147, 150 to some bigger number.

1175.979 - 1177.499 Jason Calacanis

It's one huge upside to the SACs.

1177.919 - 1182.78 Chamath Palihapitiya

And who's going to pay the price here is the Japanese consumer, because everything's going to cost a lot more.

1183.544 - 1197.53 Jason Calacanis

Yeah, and obviously when you get 158 yen to the dollar, this is extraordinary. I was talking with Tucker and we just took our Niseko ski trip this year from four days to seven because it is just such a great deal.

1199.071 - 1217.789 Chamath Palihapitiya

It'll be good for tourism because, yeah, you'll be able to travel to Japan much more cheaply. But if you're actually Japanese and you live in that country, you're going to see your purchasing power continue to erode. So I would expect big domestic problems in Japan, and eventually they may conclude that this system does not benefit them. Now, who does it benefit?

1217.989 - 1246.083 Chamath Palihapitiya

You could argue that it benefits the United States because it has subsidized the purchase of our debt, right? Because again, so you have this yen carry trade of 20 trillion, and a lot of that has gone into U.S. bonds or U.S. T-bills, right? And so it basically is a huge subsidy to the U.S. Treasury's need to continuously issue more and more debt. We're issuing, what, a trillion dollars of

1246.784 - 1260.336 Chamath Palihapitiya

net new debt every 100 days. So having the Japanese consumer subsidize all of this by taking it on the chin, you know, in terms of inflation in order to provide this yen carry trade, you could argue has been very beneficial to the U.S. Treasury.

1260.979 - 1289.566 Jason Calacanis

And Chamath, at some point, the percentage of your debt to GDP, we've talked about it so much on this show. You've said previously, hey, we can have a little bit of this because we're a very strong dollar. So when you look at Japan, is there some lesson here for the US or maybe some warning here that we shouldn't necessarily follow them too far down this road? Nope. Okay. Keep printing money.

1289.646 - 1290.167 Jason Calacanis

Got it. Okay.

1290.207 - 1297.248 Chamath Palihapitiya

Well, I don't know. I mean, I tend to agree with Freeberg here that when you have massive amounts of debt, it definitely limits your flexibility.

1297.828 - 1307.81 Freeberg

It's just arithmetic. You're going to pay for it with either economic contraction, higher taxes, or inflation. Those are the three places it goes. Yeah. And they did test it. They've stress tested now. Yeah.

1308.01 - 1318.028 Chamath Palihapitiya

One of the reasons why Japan can't raise rates is because the their debt will become even more expensive, right? I mean, Freeburg isn't that part of the problem?

1319.109 - 1333.113 Freeberg

Yeah, that's exactly right. And then their federal spending gets compressed because now they have to service that debt. Again, they're already spending 25% of their federal budget on servicing existing debt with the low interest rates. And they've got to support an aging population.

1333.908 - 1339.912 Chamath Palihapitiya

Okay, so to analogize this to the US, our debt service costs are, what are they at now? Like well over a trillion.

1340.032 - 1361.524 Freeberg

We're about a trillion a year with a proposed 7.3 trillion budget. So we're at 13.6%. And Japan is at 25%. Over the next 10 years, isn't our debt service supposed to rise to... Yeah, as all of the low interest bonds mature, and we issue new debt at a higher interest rate, our debt service cost is going to continue to climb.

1361.564 - 1364.666 Freeberg

It's already higher than discretionary military spending at over a trillion a year.

1365.746 - 1370.648 Jason Calacanis

Well, just buy Bitcoin. And when it goes to a million dollars a coin, we can just pay it all down. So problem solved.

1370.668 - 1389.393 Chamath Palihapitiya

Just one other point is, I think it shows... the fragility of the global financial system. I mean, the market snapped back. As soon as the Bank of Japan backed off, basically capitulated, said, okay, fine, we can't defend our currency. We're just gonna let it keep depreciating. We're gonna let inflation keep raging.

1389.714 - 1411.722 Chamath Palihapitiya

As soon as they declared that, then the market snapped back, but it just showed in that 24 hours, Putting aside all the panic porn that was on social media, because I think that was overdone, it still showed how fragile the global economy is. The yen carry trade has injected roughly $20 trillion of liquidity into the global economy, and that is propping up all sorts of things, right?

1411.762 - 1428.937 Chamath Palihapitiya

And that is subsidizing U.S. government debt. And you just wonder if... the yen carry trade were to end, because let's say, for example, the Japanese people don't want to experience hyperinflation, then what would that do to the global economy? It just showed how rickety the whole system is.

1429.337 - 1433.84 Freeberg

I think it shows how much leverage there is in this. Totally. That's what it is. It's all about leverage.

1434.141 - 1434.341 Jason Calacanis

Okay.

1434.361 - 1435.982 Sacks

Let's talk about leverage for a second, Shama.

1436.583 - 1437.944 Freeberg

Leverage on leverage on leverage.

1438.806 - 1450.818 Sacks

So for example, like if you take something like Citadel runs about $50 billion and they have extremely precise risk management systems, they're the best in the business.

1451.741 - 1468.254 Sacks

But as a result of that, they are so systematically important to make the financial machinery run properly that as they're inspected and as they prove that they have very good risk management, they're allowed to lever up to incredible levels, 15, 16, 17 times.

1468.294 - 1488.055 Sacks

So I think that Citadel with the 50 billion of capital that investors have given them is probably running a trillion dollars on a daily basis in the markets. Renaissance Technologies, same situation. Millennium, same situation. A bunch of these funds that sit inside of the large banks, same situation.

1488.115 - 1502.466 Sacks

So when you add it all up, you're probably talking about a few hundred billion dollars of notional capital. That's enormously levered. That's what causes that sensation, as Zach said, that things are ricking.

1502.486 - 1511.253 Jason Calacanis

So should we have more increased regulation or increased scrutiny on this, Chamath? You've talked about it before when we had some of these hedge funds flip and we talked about maybe some regulation, yeah.

1512.096 - 1532.666 Sacks

We have a lot of regulation on banks. Essentially what happened is after all of the chaos of the great financial crisis, the thing that we don't talk about is what we really did was keep running the same, if not more risk. We just took it off balance sheet. So the banks were able to structure business lines to work with these hedge funds.

1532.786 - 1557.56 Sacks

And these hedge funds in turn were able to show over time that they're so tightly managed that there are no black swan events that could happen. that they can run highly levered. So I think we are in this moment where there'll be these fissures from time to time. So here's this Bill Hwang, that's an example. The Cary trade is another example.

1558.08 - 1575.617 Sacks

There've been examples a couple of times a year, but at some point, these folks will have taken too much risk. And we'll look back on it and we'll think that hedge funds should probably have been more regulated than they are with respect to their leverage ratios, not with respect to their strategies.

1575.897 - 1600.851 Freeberg

With this particular trade, JP Morgan yesterday or a few hours ago said that they think about... 75% of the yen carry trades have now been unwound. And it was at 50% a little over a day ago. So the market has moved to kind of unwind these trades, it seems, and we're pretty much at the end of the levered fallout of this particular activity. So I put the link here.

1600.871 - 1617.201 Jason Calacanis

And so people at home understand when we move on to the next phase of the financial markets, All of those people had to cover those trades, which means they all have to sell assets at the same time as buying in or covering the end. And that's what causes this acute chaos in the markets where you saw the NASDAQ go down 6%.

1617.881 - 1623.985 Jason Calacanis

Or in some cases, maybe people wanted to take some chips off the table since things were- Yeah, but they're just going to put that trade back on.

1624.83 - 1639.69 Chamath Palihapitiya

In fact, now's an even better time to put that trade on because the Bank of Japan's basically just capitulated and said that they can't raise interest rates while things are so unstable. So we know they're just going to keep rates where they are. So if I was one of these traders, I'd just put the trade back on now.

1642.921 - 1665.405 Jason Calacanis

So let's talk about the landing here in the US. Let's get US-centric now. And it looks like maybe it's going to be a bumpy landing rather than a soft landing, as one might suspect. And as we talked about here, that we think this could be bumpy to soft. July's job reports was pretty bad, which is good in some ways when you're thinking about inflation. So the new jobs added were way down.

1666.324 - 1681.688 Jason Calacanis

Growing 114,000 in July. And a bunch of these estimates have been reported downward over the past year, just so we make a note of that. And this was below the Dow Jones estimate of 185,000. There's your chart. It just keeps ticking down.

1683.707 - 1708.839 Jason Calacanis

Since the Fed started hiking rates, and you hear anecdotally about all of your friends, 88% of millennials right now are actually preparing to be laid off, according to a recent survey. Unemployment is way up in the short term here. We're at 4.3% in July. That's the highest since October of 2021, up from 4.1%. last month and 3.5% in July.

1708.859 - 1726.54 Jason Calacanis

So you take that July number to now, it's pretty significant. Here's your chart on the jobs. Obviously, historically, it's low, but it's ticking up pretty quickly, which is what you would expect with the rate hikes. And we had this great moment of hourly earnings growth going up. So how much people make on average

1727.341 - 1755.524 Jason Calacanis

per hour was going up, and I think that was causing a decent amount of the consumer enthusiasm in the economy. Here it is. It's coming way down from almost 6% down to 3.5%. And so that means Fed rate cuts are coming. Here's your chart from a prediction market of the chances of how much the Fed cuts rates this year. Looks like 75 to 100 basis points is the majority.

1756.084 - 1766.892 Jason Calacanis

About 60% of people believe it will be one of those two numbers. I'll stop there. There's a lot more to talk about here and we'll get into specific companies and the NASDAQ. Let me pull up this last chart before I go to you, Chamath.

1767.273 - 1785.727 Jason Calacanis

It's been a strong year for the market, S&P and NASDAQ, both up 11% year to date as of Thursday morning, but obviously a massive, I guess, do we call it a correction when it's, yeah, 20% is correction territory, Chamath. So your thoughts on the wider US market and the sell-off?

1786.229 - 1807.242 Sacks

I think we're in a low-key recession. So I think that we're going to probably go through a couple of very difficult revisions of old data. The thing to remember about non-farm payrolls isn't as much what the number is, but if you actually look to the number of times it then gets revised, the reality is that these things get revised constantly.

1807.302 - 1829.631 Sacks

And right now we're in this trend where we are overestimating and revising down. Sachs mentioned this, that that was the same with GDP. So we are, I think, in a tough situation. And then what you're seeing is folks that run very cyclical businesses are telling us in very plain spoken English that demand isn't there.

1829.891 - 1844.426 Sacks

So the one that was interesting this past week, Jason, you mentioned millennials, but like Airbnb, where you think all these young people are running around, YOLOing whatever cash they have. Airbnb had a massive warning on demand.

1844.886 - 1871.091 Sacks

So when I think the excess capital, whether it's the steamy check or what have you, has been exhausted, you're now starting to see it bear out in these cyclical businesses. I don't think the demand is there. I think we're in a recession. It probably becomes more obvious in Q3 and Q4. And so Powell's going to have to cut. The question is, will he overreact to the pressure

1872.577 - 1877.04 Sacks

and cut 75 to 100 versus 25 and take it slow.

1877.84 - 1900.434 Jason Calacanis

Okay. Freiburg technical definition of a recession is two quarters in a row of negative GDP. We haven't had that, but we're sort of bouncing along that possibility. Is the recession baked in or if they cut rates at the extent the prediction markets are predicting and they're signaling, do you think we have a nice rebound? How do you feel about the overall US economy?

1901.081 - 1928.995 Freeberg

Obviously, you have to account for inflation and government spending. How much of government spending is driving economic growth? Today, the U.S. is proposing to spend $7.3 trillion next year out of $25 trillion GDP. So the US federal government is roughly 30% of GDP, and we obviously still are tackling inflation.

1929.676 - 1945.709 Freeberg

The real question is how much of the economy is growing because of productivity gains in the sector of the economy where people are making things and doing things versus the government using its ability to tax and borrow

1946.81 - 1969.013 Freeberg

drive growth in the economy by inflating numbers, by pushing revenue onto businesses, by pushing capital into the markets, by creating levered trades in the markets using their borrowing capacity and their taxing capacity. So that's the thing I remain concerned about. I mentioned this last week. I remain highly concerned about many sectors of the economy that are deeply challenged right now.

1970.066 - 1987.618 Freeberg

particularly the industrial sectors, the manufacturing sectors, the agricultural sectors, but services and software sectors where you can raise prices and you have a nice high margin business, you can continue to grow and look good. But there are many parts of the global economy and the US economy that are pretty challenged right now.

1988.737 - 2006.951 Jason Calacanis

Sachs, let's talk about this soft to bumpy landing. Consumers are definitely weakening on the low end. Airbnb and Amazon are an example of bargain hunting, people who are looking for discounts, who want to save money with those services. Higher end services that have a bigger price tag like Uber and some of the

2007.631 - 2023.304 Jason Calacanis

high-end retailers are showing actual growth, and they're saying the consumer's strong. So it was a tale of two cities during this earnings season with a bunch of the high-end folks saying strong consumers on the high end, weak consumers on the low end. What are the chances we go into a recession?

2023.324 - 2040.522 Jason Calacanis

And a second question for you, Elon was recently on Lex Freeman for, I think, eight days or something. It was like a record podcast of how long he was on. But one of the things he talked about was that he had discussed with Trump And Vivek has been very strong about this on our podcast and other places.

2041.103 - 2064.638 Jason Calacanis

And he was a leading VP candidate of making the government more efficient and radically cutting the amount of spending. But there would be a reaction. So does the potential GOP administration have a platform to cut costs massively or not? And do you think that would have been maybe too unpopular to sort of unveil that plan now as a presidential candidate in either party?

2065 - 2083.168 Chamath Palihapitiya

I don't think they have that plan specifically because I just think that you would need a supermajority in Congress to do something like that. And I just think that this election is going to be too close regardless of who wins to provide that kind of mandate. I mean, sadly, I think we do need to get government spending under control. But I think it's a long-term political problem.

2083.228 - 2103.358 Chamath Palihapitiya

And I just think our political system doesn't have the will. to fix it. I do believe Republicans would be better than Democrats on that, but I think that's the truth of it. To go back to your first question on the state of the economy, I had lunch with a very prominent investor yesterday who's very plugged in with the hedge fund community. And he said that the sentiment shift

2104.885 - 2130.647 Chamath Palihapitiya

I'd say, again, within hedge funds, professional investors, public market investors, it had been very sudden that people were now very worried about the risk of a recession. And I do think that the Airbnb revenue that Chamath cited is a big factor. Airbnb stock went down 15% in one day on soft demand. And what's driving all of this is consumer weakness, or at least fear of consumer weakness.

2131.786 - 2154.058 Chamath Palihapitiya

You mentioned the rise in unemployment. It went from 4.1% to 4.3% month over month. So 4.3% is still a pretty low number by historical terms, but to jump so much in one month, that's a pretty big increase. And then, of course, it's up from 3.5% a year ago. So we're seeing pretty big increases in unemployment.

2154.078 - 2156.62 Jason Calacanis

10% year over year, 5% month over month is very significant, yeah.

2156.94 - 2177.168 Chamath Palihapitiya

Yeah. So these are big changes. There's real evidence of consumer weakness. And I think professional investors are getting quite worried about the risk of a recession. And I guess this one last point on this is that If you were to remove the impact of government spending, it's pretty clear the private sector is in a recession.

2177.608 - 2197.378 Chamath Palihapitiya

I mean, like we've been talking about, government's been going hog wild with spending. The government is running 6% of GDP deficits. The latest Q2 growth number was something like 2%. So if you force government to live within its means and to cut its way back to balance, we would definitely be in a recession. We'd have a negative growth rate.

2198.459 - 2206.051 Chamath Palihapitiya

So I do think that the economy is looking pretty shaky all of a sudden. Whether we actually tip over into recession in the next few months, I'm not sure.

2206.63 - 2226.359 Jason Calacanis

All right. Well, listen, I want to corner everybody here with a question. You got to answer the question. You can't avoid the hard questions here on the All In podcast. Chamath, sitting here a year from now, mark it up or we experience a recession defined as two quarters of negative GDP. Which one is the more likely scenario? Mark it up or a recession.

2227.32 - 2230.721 Jason Calacanis

Give it a percentage or just which is more likely? Freeberg, you're next.

2230.761 - 2242.847 Sacks

Well, those are not... Those are not opposing things. So you're saying a year from now? I don't honestly know. Okay. But I do think that we'll probably be in a technical recession.

2242.867 - 2246.748 Jason Calacanis

Okay. So you lean towards... I'll just go recession, no recession in the next year.

2247.668 - 2250.989 Sacks

But I also think that there's a pretty decent chance the market will be up.

2252.088 - 2265.622 Jason Calacanis

Ah, got it. Okay. So we could have a recession, but the market goes up. So to unpack that, I am with you on that same prediction, because I do think people are addicted to efficiency. They're going to lay people off and earnings are going to keep ripping as these companies become managed so well.

2266.062 - 2281.232 Freeberg

That's a small percentage of the economy, J. Cal. That's a few tech companies. but much of the manufacturing sector, the industrial sector, the ag markets, like there's a lot of markets where you don't have this option to just cut knowledge workers. The knowledge worker economy, the software economy has the ability to do that.

2281.252 - 2290.778 Freeberg

The tech economy can do that, but much of the rest of the economy doesn't have a lot of maneuverability like we do in this fast growth. high margin kind of industry we work in.

2290.959 - 2303.216 Jason Calacanis

I think it's a good point, but I do see McDonald's, Starbucks, and some of those consumer retailers are taking steps right now to right-size their businesses and offer $5 meals or $3 coffee. So I do think there's a

2304.474 - 2314.736 Freeberg

shift in management and how they run these companies. That's about reduced forecast, right? So when their revenue decline, when their revenue forecasts have to be cut, they have to cut headcount. That's different than creating more efficiency.

2314.756 - 2323.677 Jason Calacanis

Well, but they're also cutting stores and they're cutting things and projects that are inefficient. So I just think there's going to be massive efficiency in all sectors. That's going to be the theme for the next year.

2323.737 - 2338.483 Freeberg

But I mean, it's obviously- That's a loss of jobs and a loss of growth, right? So just to be clear, when you cut stores, you have less growth. When you cut jobs, that's because you don't have as much revenue growth. So those are about- But earnings can go up, right? They can be supported, but you're still facing contraction.

2339.064 - 2351.232 Freeberg

And one of the challenges right now, a lot of food companies, a lot of retail companies have been raising prices to try and keep earnings going up, but there's hitting this natural inflection point where consumers no longer buy, where you find this tipping point.

2351.252 - 2372.165 Freeberg

I don't know if you guys have been to the supermarket lately, but man, it is crazy expensive how prices have gone up like 50 to 100% on everything at the supermarket. And this is like, it's basically impossible. We can deal with it, but like a large percentage of people, this is a big deal in terms of like, now you have to budget your life and you spend less.

2372.425 - 2391.604 Sacks

Nat and I, when we're here in Portofino, we go in the morning to the fishmonger and we'll buy, you know, fish for the family. It is unbelievably expensive. And we always think to ourselves, how is it possible that folks can actually choose to eat healthy and local if they want to? It's next to impossible. What was a Branzino?

2391.624 - 2392.765 Jason Calacanis

What was a whole fish? Tell us.

2394.787 - 2428.41 Sacks

You know, if you want to have locally caught sole, it's like 48 euros a kilogram. Wow. And it's expensive. Wow. It feels like more than a restaurant. Yeah. To feed a family of seven, which is what we are, you'll have to spend $150, $200. It's not sustainable. It's not something that makes sense for enough people anymore because that probably used to be $40 or $30. But Freeburg is right.

2428.45 - 2448.54 Sacks

We're in a real serious problem because it's like these systems have remained the way that they have been for a very long time. And while other industries like the tech industry have captured all these incredible efficiencies, but the problem is that then these other industries are what supports everyday people's everyday lives.

2449.181 - 2456.785 Sacks

And in the absence of a way to actually reduce cost and improve quality, you end up where we are today. And I don't think that that's sustainable.

2457.585 - 2466.083 Jason Calacanis

Freiburg, greater chance of a recession in the next year or not a recession? You have to give an answer. Yeah, I think there's a great chance of a recession. Yeah, majority chance of recession, got it.

2466.837 - 2487.35 Freeberg

But I do think that there's going to be government programs to mitigate the effects, meaning you could see the markets, the equity markets continue to rally on some of the government programs and government activity, which has become kind of like the learned behavior. It's like Pavlovian. It's like we have an economic problem. The government steps in and spends money.

2487.55 - 2488.651 Freeberg

Let me get an answer from Sachs.

2488.771 - 2511.839 Chamath Palihapitiya

The reason why the markets could rally in the midst of a recession is because interest rates get cut. We've already seen that the expectations of rate cuts have now grown substantially. The markets are starting to price in 100 to 150 basis points of rate cuts this year, where before it was more like 25 to 50 basis points. So obviously, lower interest rates make stocks go up.

2512.439 - 2520.662 Chamath Palihapitiya

So I think that's the main driver of the rally you're seeing right now, J. Cal, not the prospects for increased efficiency, because I think those prospects were already there.

2520.962 - 2525.423 Jason Calacanis

So are you majority case recession or majority case not recession in the next year?

2525.723 - 2541.847 Chamath Palihapitiya

I've been predicting recession for like three years now because I just think when you jack up interest rates so suddenly, so violently, you get recession. So I guess if you pin me down, I'd say recession. And I'll tell you one of the reasons why- Interestingly, I've just checked the notes, Sachs.

2541.967 - 2545.448 Jason Calacanis

You predicted nine of the last five recessions.

2545.888 - 2556.68 Chamath Palihapitiya

I know, I know. Look, it's the same recession that I've been predicting. It's very simple. When you jack up interest rates from near zero to five and a half percent, that makes everything much more expensive.

2557.14 - 2566.41 Freeberg

Unless the government spends money, which has been the counterbalance, right? And that's a lot of why governments – and by the way, I have a theory on this. I think this is also why we have an open border policy.

2567.071 - 2583.657 Freeberg

or why the current administration has pushed an open border policy, because that can also be deflationary to counteract the effects of the interest rate accrual because it lowers wages overall and fills jobs. It increases the workforce, et cetera, creates more competitive workforce. But no one's allowed to publicly say that.

2583.677 - 2587.638 Freeberg

And I do think that that's one of the primary motivating factors of having an open border policy.

2588.238 - 2604.829 Chamath Palihapitiya

Well, people have been saying it. I think you just did. If you look at job creation over the last four years, there's been no net new job creation for native-born Americans. All the job creation has been foreign-born or... Because native-born Americans have too high of a wage expectation.

2604.869 - 2607.29 Freeberg

That's the fundamental problem, right? They're too affluent.

2607.35 - 2608.671 Chamath Palihapitiya

I agree. I don't think it's too high.

2608.811 - 2613.614 Freeberg

Right. And I'm not making an argument one way or the other. I'm just highlighting, I think that this is one of the motivators for the policy.

2613.634 - 2631.524 Chamath Palihapitiya

I think it'd be a lot better to let their wages rise. But in any event, let's not get political on it. Just to the point, about recession, Jason. I mean, yeah, look, I've been predicting the same recession, but I think one of the reasons why it might finally come now, first of all, you've got a lot of investors are suddenly worried about it. There's been a big sentiment shift.

2631.964 - 2635.106 Chamath Palihapitiya

I think the other thing is I don't think we know all the bad news yet.

2635.526 - 2636.967 Jason Calacanis

Unknown unknowns. Yeah.

2637.335 - 2658.219 Chamath Palihapitiya

Well, none of us were tracking the yen carry trade. I mean, it was something we may have heard of, but it's not like we were actively thinking about it until this past week. And the question is, how many more things are out there like that? And I also think that the pattern with this administration has been to hide the ball. They hid by insinuity for years. Not to get political, though.

2658.699 - 2660.721 Freeberg

Zach, you just said not to get political.

2660.741 - 2662.442 Chamath Palihapitiya

Not to get political. Biden, Biden, Biden.

2662.462 - 2667.486 Freeberg

Zach starts out by saying, yeah, not to get political, but Biden. This is just a fact. It's just fact.

2667.546 - 2668.127 Chamath Palihapitiya

It's not political.

2668.147 - 2672.23 Freeberg

I was about to give him an award for saying not to get political and moving on.

2672.931 - 2688.402 Chamath Palihapitiya

I'm making an economic point here, actually. And you guys can decide if I'm just being partisan or whether I have a good point here, which is, look, I think the MO of this administration has been to hide the ball. And any good news they would have reported. Do you think that they're reporting all the bad news? I don't.

2688.862 - 2693.685 Chamath Palihapitiya

I think there's more bad news that's going to come out after the election because there's too many incentives for people to hide it.

2693.925 - 2711.955 Jason Calacanis

And for people who don't know, we're talking about the concept of black swans. In order to have a black swan, it has to be something you're not aware of and it has to have a dramatic impact. The yen trade would not fall into this because people were well aware of it, even if it wasn't front page news and it didn't have a dramatic impact. But there could be black swans sitting there

2712.435 - 2731.569 Jason Calacanis

Obviously, the black swan that you can think of recently would be in the great financial crisis, the subprime mortgage. That truly was massively impactful, and it was not known. Dotcom was known and was massively impacted. You need both of those categories to define a black swan. And there could be black swans, right, Sax? Is what you're saying.

2731.849 - 2740.576 Chamath Palihapitiya

When you said that the yen carry trade didn't have a big impact, that's because the Bank of Japan backed off. So if they kept going with it, we don't know what the impact would have been.

2741.305 - 2759.833 Jason Calacanis

Correct. But it didn't. So just so people who are tracking the Black Swan tracker, just the more you know. Let's talk about Apple. Chamath, I'll give you your flowers right now. They're coming to you. Just look to your left. Here comes a huge bouquet because you predicted... I didn't actually send you flowers. He looked to his left. But here's your virtual flowers.

2760.173 - 2786.876 Jason Calacanis

You predicted, I think absolutely correctly, that the less Berkshire Hathaway and Buffett talk in their documents and their letters and at their events about a trade, the more they're falling out of love with it. And I understand Berkshire Hathaway has sold half of their largest position, which is Apple. Some people are saying because they don't have faith in the company.

2787.437 - 2802.085 Jason Calacanis

Some people are saying because they're over... other people saying because they, Freiburg, want to get more cash on the books to make other acquisitions. So Chamath, maybe just take your victory lap and then we'll, I think Freiburg double clicked on this and did a deep dive.

2802.806 - 2812.411 Sacks

I don't have much to say. I mean, I think it's been a trend in their letters when he stops mentioning a company in his letter, it's because he's selling.

2813.203 - 2815.045 Freeberg

It's a great, great read. There it is.

2815.105 - 2817.186 Sacks

Yeah. And that's what happened here. Okay.

2817.827 - 2838.804 Freeberg

So Freebark, take us through this. Well, so it looks like since the start of the year, they've sold 55% of their holdings in Apple. And if you look at the end of the year, Nick, if you could pull up this image with the pie chart, this is what Berkshire's stock holdings were in their non-majority owned businesses. So businesses that they don't own the business outright. Right.

2839.364 - 2865.836 Freeberg

and 50% of their portfolio was in Apple at $174 billion. We obviously saw Apple's stock price peak, highest level ever just a few days ago. But it has since come down as it was reported that since the start of the year now, Berkshire sold 55% of this position. So some people are arguing that they've got a point of view on the company strategy and competitive kind of landscape.

2866.776 - 2889.05 Freeberg

Some folks have argued that the valuation multiple has gotten too high, trading at nearly 30 times earnings. The stock has risen 900% since Berkshire bought the stock in 2016. Nine bagger. Nicely done. And some people would argue that the percent of the portfolio is too high at over 50%, as you can see here, at the start of the year. But I'll kind of provide some of the counter arguments.

2889.491 - 2906.391 Freeberg

Warren Buffett does not do much analysis on corporate strategy when he provides reviews of the stocks that he's picked. He often finds and talks a lot about great managers that generate great returns and he sticks with them. And he sticks with them sometimes for many, many decades. The management in this company has not changed.

2906.691 - 2925.282 Freeberg

The return profile on cash invested and cash returned has only improved since he put money in. They're generating more cash flow. They're offering more dividends. They're doing more stock buybacks. And he's happy to be concentrated. Over the years, he's made large bets on single companies to the point that sometimes he just outright buys the entire company like he did with Geico. in 1996.

2925.862 - 2946.408 Freeberg

He always talks a lot about finding a company that is run by great managers, that has a premium product with a nice high margin and a durable moat, strong brand value. As I look at kind of what's really gone on here, it feels to me like the difference between Apple and some of the other big holdings in its portfolio is that many of those other businesses are regulated monopolies.

2947.108 - 2965.304 Freeberg

So BNSF Railway is regulated by the Federal Railroad Administration. Berkshire Energy, which owns MidAmerican, is a regulated utility. The prices that they charge consumers are set by the government. So they have a market that's locked in. The prices are set, they have locked in distribution, they have locked in utility value. And the same is true in the insurance business.

2965.364 - 2980.071 Freeberg

Geico's rates are approved and set effectively by state regulators. Berkshire has a moat because they've got the largest capital base and they've got this machine that just keeps generating cash. And the rates are publicly set by government. Apple, however, is not regulated.

2980.431 - 2997.739 Freeberg

And it is very clear that Apple is facing very deep and severe financial impact from the regulatory authorities that are overseeing the business. So if you look at the Google antitrust, we're going to get into the Google deal in a second. Yeah. There's a real regulatory risk there because Google's paying Apple $20 billion a year to be the default search engine.

2998.16 - 3016.749 Freeberg

Apple also has a very deep relationship with China. They have a lot of manufacturing being done in China, and they sell a lot of product into China. So as regulators start to take a harder look, as they've said they're going to, at companies' relationships with China, that's a real risk to Apple. advertising, tracking users, and then the subscription fees that are charged to consumers.

3016.789 - 3034.623 Freeberg

And most importantly, we've talked a lot about the 30% VIG that Apple takes on their app store and how regulators are now stepping in and take a look at this. So because this business is not yet a regulated monopoly, it may be a monopoly in many senses of the word, it's not regulated yet. And that transition could be financially painful for Apple.

3035.063 - 3044.031 Freeberg

Once they get to the other side, it starts to look a lot more like a large scale Berkshire type business. So that's my kind of summary take on what's going on with Apple. I don't know if you guys agree.

3044.051 - 3062.026 Jason Calacanis

I don't know. I think it's pretty deft. Sachs, your thoughts on this massive increase in cash and what Berkshire Hathaway is thinking. What is Warren Buffett thinking here? Is it he became overweight, Apple, or that he's building up cash because the recession is coming and he wants to buy things on the cheap? Or regulation, to Freiburg's point.

3062.226 - 3073.71 Chamath Palihapitiya

When we had this global sell-off on Sunday, Monday, a lot of people were sharing this chart online and pointing out that Buffett was sitting on this gigantic cash pile, by far the biggest cash pile that he's ever sat on.

3073.87 - 3094.598 Chamath Palihapitiya

We then had a market recovery, so people aren't really talking about this, but it does stand to reason that Buffett is building up a war chest here, and he's somewhat defensively positioned. You can see that, you know, was it like 20, 21, 22 years? the cash pile went down because he started making a bunch of investments. Now the cash pile is really high.

3094.718 - 3107.967 Chamath Palihapitiya

So it seems logical to infer that he thinks that the risk reward right now is not great on public equities. And again, he's just a little bit more risk off.

3108.367 - 3112.79 Jason Calacanis

What do you think of the regulatory risk argument Freeberg is floating here, Chamath?

3113.19 - 3135.802 Sacks

I think that David is right that Freeberg is right that China thing could have impacted it, because he also sold a lot of BYD, which they've owned since 2008, I think. So that's a Chinese EV company. And so it could be just that that could have played a part. To be honest, I don't know.

3136.062 - 3142.787 Jason Calacanis

So what you're saying, China dependency, both of those have a China dependency. So he maybe felt the overall portfolio had too much China dependency.

3143.008 - 3170.163 Sacks

Maybe, yeah. I could buy that. That seems like reasonably logical. I think the thing to remember, though, is that these decisions, I think, have been stewing for at least a couple quarters. Remember, that letter that he writes was not written yesterday, right? That was being drafted months and months ago. So these decisions were made even longer. So I think these decisions were made a while back.

3170.884 - 3193.137 Sacks

Another reason, if we're going to play kind of conspiracy theorists is like, you know, after the death of Charlie Munger, maybe what he's starting to do is consolidate the book so that it can transition elegantly to Greg Abel when Buffett passes away. Let me unpack that for a second.

3193.317 - 3206.982 Jason Calacanis

When you say that, you're saying he wants to hand it off with less risk in it. Dependency on one stock would be risk. Dependency on China would be risk. He wants to make it really clean so the handoff is smoother. He wants to hand off a very organized book.

3207.282 - 3233.72 Sacks

Or maybe he and Greg Abel have already talked about the kind of risk book that they want over these next five to 10 years, and it reflects a discussion about what the incoming CEO wants. So there could be all kinds of reasons why. I don't really know. I just think that Apple, just back to Freeberg's core thesis, I agree with many of his general points.

3233.78 - 3258.264 Sacks

I'm not sure that they affected the Berkshire strategy, but Apple is sort of a little bit wayward. It is a company with an effective and unregulated monopoly or duopoly that doesn't really know what to do. And I think that that's the biggest problem with that company. And that's independent of Buffett selling now or selling a year from now or having not sold a year before.

3259.324 - 3273.696 Freeberg

Once you're regulated, you know what the prices are, you know what you can do, you know where you can go, and all that risk is off the table. That's what is a feature of all of those other monopolies he owns, is that the government has a role in it, so it's a highly predictable business.

3274.653 - 3303.507 Sacks

By the way, you mentioned the Google thing, but this clearly was not part of his calculus. I think he just got very lucky. But if you're holding Apple today, I think you have to take the $20 billion that Google pays you every year, which comes in at 99% margin, and you should probably sensitize the value of Apple We're not having that 20 billion if this antitrust ruling against Google stands.

3304.487 - 3311.21 Sacks

That alone could be worth upwards of half a trillion to a trillion dollars, depending on what multiple you want to put on that 20.

3311.811 - 3328.844 Freeberg

Well, I mean, what's crazy is that Apple is still up to 214. which is 11%, 12% higher than it was at the start of this year at 185. The stock is just coming off of its all-time highs at 230 a share. So it's just barely off the all-time highs.

3328.864 - 3351.377 Jason Calacanis

I mean, this is just an extraordinary amount of cash to be held by both Apple. Apple also has over $100 billion in cash now. Warren Buffett has close to $300 billion. Allocators want to make trades, and obviously he's got a better trade I think he can make on this, whether that's the 5% he's going to get on the $300 billion, or maybe there's something he wants to buy. That's another possibility.

3351.437 - 3373.087 Jason Calacanis

So great job wrapping this all up. And let's pivot to the federal judge that ruled that Google has an illegal monopoly in search and advertising. This is huge news. Perhaps this is the biggest news in the tech industry for a couple of years. On Monday, a judge ruled that Google had acted illegally to maintain its monopoly in online search.

3373.927 - 3396.355 Jason Calacanis

If you remember, this was filed under the Trump administration in 2020 by the DOG. The 277-page ruling agrees that Google abused its search business monopoly by paying billions of dollars to third-party platforms like Apple and Samsung in order to be their default search engine. So it's not just that you have the monopoly, it's how you maintain the monopoly.

3396.955 - 3417.861 Jason Calacanis

This is called TAC, Traffic Acquisition Cost. We've talked about it here many times. According to the suit, Google conducts around 90% of web searches. I think we all know that. Companies disputing that claim. The ruling doesn't contain remedies yet for Google's behavior. They're going to decide that in a subsequent ruling. Obviously, Google is going to fight this.

3418.561 - 3432.913 Jason Calacanis

It could result in a change in business practices, i.e., they cannot pay Firefox, Samsung, Apple to be the default search engine anymore. That will lead to many interesting possibilities. Chamath and I were discussing them on X.

3433.974 - 3459.127 Jason Calacanis

and so this is huge news uh this is going to be great i think for the search engine market i know apple from my time doing mahalo a human powered search engine over 10 years ago when i sent it to steve jobs he opened it up in the middle of the night and started playing with it and there were many reviews of or many rumors of apple wanting to be in the search business because they had a contentious relationship with google obviously

3460.287 - 3486.135 Jason Calacanis

When Google competed with Android, that upset Steve Jobs greatly. And also Google created Chrome, which also Safari and Chrome competing with each other. It's not out of the question, I think Chamath, that you could see Apple when they lose this $20, $30 billion deal for TAC, to start their own search engine by DuckDuckGo. Brave has an amazing search engine and a search API.

3487.296 - 3504.931 Jason Calacanis

And they've obviously, they've got a crawler. So people don't know this, but Apple has a crawler. My prediction is Apple buys a search engine and they go it alone and expand their advertising network like Amazon, Uber, and other companies have. What's your take on this and what we're going to see in the future? Will this ruling stand up? And then what are the downtree market impacts?

3506.277 - 3536.964 Sacks

I think that this Google thing is the most important thing that's happened in tech since the Microsoft DOJ decision in 2000. Internet Explorer, yeah. Yeah. Because if you go back to that consent decree in 2000, it essentially handcuffed this incredibly foreboding company. more than a decade while all kinds of innovations happened. So they missed out on two huge waves, right?

3537.125 - 3550.872 Sacks

Microsoft essentially missed out on social and then they missed out on mobile, largely as a result of that consent degree. And then they were able to catch up and embrace SaaS and the cloud. Amazing. Amazing. But there is this small

3553.11 - 3574.87 Sacks

O outcome here, which is essentially a consent decree where Google gets handcuffed for some number of years and it creates a couple of big waves of innovation of new companies that can succeed that may not have otherwise been able to succeed in the absence of such a consent decree.

3575.51 - 3601.85 Sacks

And a good example of this would be the AI-powered search experiences that you're starting to see, whether it's from OpenAI or Perplexity or a few of these other folks. The big O outcome though is more if you go back to the Ma Bell kind of thing where the company gets broken up. I think that the odds of that are extremely unlikely. So I think the big O outcome