Sorry, everybody. I wasn't here last week. So what's your bitch, Ike? I'll jump into your pit. No, there's no bit. I'm just I'm, you know, triple-vaxed. I take the packs low of it 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? I'm asking for a mask. Totally free. No, mask free. I hope I don't get you.
I mean, you see that finally admitted after two years of shutting down schools, the economy, everything. Like, oh, it's just the flu. Yeah. Well, it's interesting. You know, I got the COVID just to explain to everybody. I went to Billy Joel's final concert with my daughter. She we had a great time. It was this final MSG.
Time's at the end of it. So everybody can just get to the end of the go. Sorry, go ahead, Jason. 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 shows. Great show. Shout out Billy Joel. But it was 48 hours that was very intense and then I took that packs low bit and I came right out of it. But so apologies to everybody, but man, it was no joke. Great story. Great story. Good story.
Well, I mean, listen to the lot has happened since I didn't see earlier today. Did you guys make on the Olympics happen? I know you guys taking the Olympics at all. Freeberg, you seem like a guy who would watch obscure Olympic sports. I think there's a lot of sports that should be regular. It's like the pistol shooting guy. Anyway, it's all moved because, you know, the paparazzi were there and they took coke pictures.
You know, this big paparazzi in power. So here goes all the celebrities there. Yeah, the pops are all over the place and 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 out. This is this was I think in a sweet here it is. Here's Chimoff getting his gold medal. Oops. Whoa. Now this is in the category of being the biggest prick. Now just let people know. Chimoff has the biggest.
The biggest. Other people were there too, by the way, it wasn't just Chimoff. Freeberg was also there. Here's his freeberg. Yeah, most likely to fight a girl. Yeah, there it is. He was in the. Am I the Syrian? Yes. That she went to win the women's category of boxing. The women's boxing. Right. Thank you. Yeah. He's all June. Thank you, Jacob. Sax was there too, though, by the way. Here he is. He won silver for the least Olympic body. Well done. Look at that. The least.
I think you got robbed of the gold. There he goes. Look at that forum. I like that guy. I think at the very least the ozephick and wagovie lost the weight, but you didn't get any muscle definition. That's a known. That's known, right? Freeberg. It's known. You lose the muscle. That's right. You didn't fat end 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 hundred meter virtue signal. So you see there. Half minutes. It's edge me out. And I'm right ahead of Paul Graham. So we, uh, virtue signaling. 100 meter dash. It was pretty great. It's pretty great. But congrats to read Hoffman also coming on the pod to debate you sex. Hard to beat them in virtue signaling. I know. I felt like I felt like silver in this case was a gold.
You know, given the competition, right? You can just if you meddle in that group of virtue signals. You know, like your winners ride. Rainman David. And it said we open source into the fans and they've just got crazy. WS. All right, everybody. Welcome back to the all in podcast. Of course, the number one podcast in the world. And I'm back daddy's home and we've got a very full docket. Sax will get his red meat at the end for all the Magal lunatics in the comments.
Don't worry. He's going to 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 end carry trade. The doubt was down 700 points. That was down like 6%. It was unsettling social media when 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 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 some off to give us a little overview here of the end carry trade. But this is a big deal because Japan has had its interest rates at near zero even negative since 1999. This little blip on the chart is the interest rate going up there in Japan. So quick explainer and then Shibarath will have you go deeper.
The end carry trade is a pretty basic concept investors borrow at zero percent interest or close to it due to this zero percent interest rate. And then you convert your yen into another currency or perhaps a stock like Nvidia and you take the spread. So you know 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 zero percent you invested in stocks whatever.
You get some appreciation and then you liquidate the stocks and you pay back your bill. Of course this keep all the goal probably. But yeah, but a safer way to do this is just to invest in a US T bill that's paying 5%. People were doing yeah people were doing the work going down. Yeah, so you have you borrow at you borrow yen at zero percent invest in T bills at 5% and you pocket the difference.
Yeah, you just have to pay back the loan. Of course, Tremapis 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 what on quote free money trades, you know picking up free money off the ground trades.
I mean, I think these kinds of 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 and so you get on. Yeah, 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 money maker. You're talking about 50k 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. 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.
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 dollars of just margin. And that's what caused this very quick cycle. Then it looked like it unraveled itself and so people thought, oh, we're probably mostly passes. 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, right? Meaning there is these large kind of murky grayish hedge funds that have these computer trading algorithms that are allowed to be levered to the tune of, you know, 13, 15, 20 times. About 50 billion dollars. So these folks are swinging around a trillion dollars each.
Okay. And 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. So I think the most important thing was summarized by friends of ours from Goldman Sachs. I just want to Nick, if you want to just throw up the picture that they sent me so they sent.
They sent some really good market insights whenever these things kind of happened to a bunch of their clients and one of the interesting things that they observed is a couple of facts. The first is the algorithms in the middle of all of this chaos sold about 41 billion dollars 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 notice though is that there were in a moment in time where you can see how these algorithms will behave over the next month. 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. And I think it's just going to be when we look back on hindsight, another reason why getting levered on these things is very dangerous. There's no free money basically.
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 alone, fancy way of saying alone, margin call, you have some asset that backs it up. You know, in your case, it might be a civilian and it might be your house, whatever your bank account 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 starts programmatically selling your shares and whatever Apple, Google, whatever your Nvidia, you want to pay down that margin. And this is called a margin call bus 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, you know, $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 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.
People buying their stocks, the population declining. It's a very unique economy. Maybe you could talk a little bit about it. 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. And that's at interest rates set by the central bank of roughly 0%.
So, you know, or whatever the market is trading at that 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 yen and circulation is so much debt outstanding, the federal government would not be able to actually service this debt.
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. 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%. So, imagine if interest rates bumped up to 1, 2, 3, 4, 5%, as we're seeing with US treasuries, we were recently at a nearly 5% handle on the tenure treasury.
It would become an unsustainable debt burden for the Japanese government to be able to handle that. At a large part of this is being driven by a number of crises that Japan has faced since the early 90s. So, there was the financial crisis in a way, 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, a neck if you could just pull up this age chart is the aging of the Japanese population. 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 needs more and more people are relying on public pension.
Today, 33% of their government spending goes towards their social security programs 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. 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 bips or 25 bips is to try and tackle the inflation problem they're facing, just like our central bank recently tried to do the same. But clearly the market can't have it.
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 nation to maneuver itself during difficult times. And ultimately debt payments come due. They come to you either in the form of economic contraction or massive taxes or inflation. And currently Japan is paying for it in terms of inflation. Sorry, you're saying Japan has inflation? Japan has no inflation.
The government raised rates to tackle inflation. I'll pull up the inflation chart. Japan's inflation hit a 40 or high. And this just shot up in the last 18 months. Inflation is running at close to 4% year. 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. 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 federal of their public debt is held by their central bank. 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.
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 currency problem. But also buying the debt, Tremoth, is, you know, who's buying debt if you're not getting anything on the coupon? Correct. That's another challenge they face in Japan is that.
There's a famous quote from an economist Simon Kusnet 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 the state since the 90s. So they had a massive property and equity bubble collapse.
And they've not had to deal with anything that look 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.
Yeah, it is a very unique, sacks, geography and economy. So, sacks your thoughts on this overall and what we can expect. Maybe you could take the future looking forward looking and prediction crystal ball. So I think freeberg is right that the reason why the Japanese central bank tried to raise rates. I mean, despite 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 ratio between the US dollar and the yen was about 100 to 1, meaning one US dollar could buy 100 yen. Now it's that 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, their central bank is offering roughly zero. And you can earn 5% in US T bills.
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 money there. So there's huge downward pressure on the value of the yen. And the way this creates inflation is that Japan is obviously an island that has very few natural resources and it has to import all of its oil.
So it hasn't 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. 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 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. 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 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. And so what I would expect is that US dollars going to keep buying more yen. It's going to go from, I don't know, 147, 150 to some bigger number. It's one huge upside to the sacks. And who's going to pay the price here is the Japanese consumer because everything's going to cost a lot more.
Yeah. And that was, you know, obviously when you get 158 yen to the dollar, this is extraordinary. I was talking with Tucker and we just took our Naseco ski trip this year from four days to seven because it is just such a great deal. It'll be good for tourism because yeah, you'll be able to travel to Japan much more cheaply.
But if you're, if you're actually Japanese and you live in that country, you're going to see your purchasing power continue to a road. 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? You could argue that it benefits the United States because it has subsidized the purchase of our debt.
Right? Because again, so do you have this yen carry trade of 20 trillion? And a lot of that has gone into US bonds or US T bills. Right? And so it basically is a huge subsidy to the US treasuries need to continuously issue more and more debt. We're issuing what a trillion dollars of net new debt every 100 days.
So having the Japanese consumer subsidize all of this by taking it on the chin in terms of inflation in order to provide this yen carry trade, you could argue it's been very beneficial to the US treasury. And Chimoff 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, you know, 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, you know, maybe some warning here that we shouldn't necessarily follow them too far down this road. Nope. Okay. Keep printing money. Got it. 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.
It's a 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 and they did test it. They've stressed it now. Yeah. One of the reasons why Japan can't raise rates is because their debt will become even more expensive.
Freeberg is in that part of the problem. 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 a support and aging population. Okay. So to analogize this to the US, our debt service cost or what are they at now? Like well over a trillion.
We're about a trillion a year with a proposed 7.3 trillion budget. So we're at 13.6% and Japan is 25% over the next 10 years isn't our debts are 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. It's already higher than discretionary military spending it over a trillion a year.
Well, just by Bitcoin and when it goes to a million dollars of coin, we can just pay it all down. So problem solved. This one other point is I think it shows the fragility of the global financial system. I mean, the market snapback as soon as the bank of Japan backed off basically capitulated said, okay, fine, we can't.
We can't defend our currency. We're just going to let it keep depreciating. We're going to let inflation keep raging as soon as they declared that then the market snapback, but it just showed in that 24 hours. Putting aside like all the panic porn that was on social media, because I think that was over done. It still showed how fragile the global economy is the the end carry trade has injected roughly 20 trillion dollars of liquidity into the global economy.
And that is propping up all sorts of things right and that is subsidizing US government debt and you just wonder if the end carry trade work to end. Because let's say for example that 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. I think it shows how much leverage there is in this is totally that's what it is. It's all about leverage. Okay, let's talk about leverage for a section.
Leverage on leverage on leverage. So for example, like if you take something like citadel runs about 50 billion dollars and they have extremely precise risk management systems, they're the best in the business. 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, you know, 15, 16, 17 times.
So I think that citadel with the 50 billion of capital that it 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.
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 the that sensation as sacks said that things are rich. So should we have more increased regulation or increased scrutiny on this, Tomat, you've talked about it before when we had some of these hedge funds flip and we talked about maybe some regulation.
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 and these hedge funds in turn were able to show over time that they're so tightly managed that there are no blacks want events that could happen that they can run highly levered. So I think we are in this moment where there'll be these figures from time to time. So here's this billhung that's an example, the carry trade is another example.
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 the market.
They are with respect to their leverage ratios, not with respect to their strategies with this particular trade JP Morgan yesterday or a few hours ago said that they think about 75% of the young 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 from people at home understand when we move on to the to the next phase of the financial markets.
All of those people have 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 the secute chaos in the markets where you saw the nest that go down 6% or in some cases, maybe people wanted to take some chips off the table since things were.
Yeah, but there's going to put that trade back on. In fact now I mean better time to put that trade on because a 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 that's right back on now.
So let's talk about the landing here in the US let's get you a 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 as 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 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.
This was below the Dow Jones estimate of 185,000 there's your chart. It just keeps ticking down. You know 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 late 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 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 taking up pretty quickly, which is what you would expect with the rate hikes and we have this great moment of hourly earnings growth going up so how much people may by average. For 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 prediction market of the chances of how much the Fed cuts rates this year looks like 75 to 100 basis points is the majority about 60% of people believe 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 Jamal. 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 Jamal so your thoughts on the wider US market and the sell off.
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 payroll 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 and right now we're in this trend where we are over estimating and revising down.
So I think we're in a talk 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 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. 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.
So I think we're in a recession it probably becomes more obvious in Q3 and Q4 and so Powell is going to have to cut the question is will he over react to the pressure and cut 75 to 100 versus 25 and take it slow.
Okay freeberg technical definition of 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.
Obviously you have to account for inflation and government spending how much of government spending is driving economic growth today the US is proposing to spend. $7.3 trillion next year out of 25 trillion dollar GDP. So the US federal government is roughly 30% of GDP and we obviously still are tackling inflation 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 to drive growth in the economy by inflating numbers by pushing revenue onto businesses by pushing capital into the markets by creating. Lever 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.
So particularly the industrial sectors 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 and look good but there are many parts of the global economy and the US economy that are pretty challenged right now.
So let's talk about this soft to bumpy landing consumers are definitely we can on the low end Arabian B and Amazon are 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 high and retailers are showing actual growth and they're saying the consumer strong so it was a tale of two cities.
During this earning season with a bunch of the high end folks saying strong consumers on the high end we consumers on the low end what are the chances we go into a recession and you know second question for you. Elon was recently on Lex Freeman for I think eight days or something is like a record podcast about how long he was on 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 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 you know that would have been maybe.
To unpopular to sort of unveil that plan now as a presidential candidate in either party I don't think they have that plan specifically because I just think that you need you need a super majority in Congress to do something like that and I just think that the selection to meet too close.
And I think that's the thing that I think is really important to be aware of is that the government is going to be able to provide that kind of mandate. I mean sadly I think we do need to get a government spending under control. But I think it's a long term political problem and I just think our political system doesn't have the will to fix it.
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 you know I'd say again within hedge funds professional investors public market investors had been very sudden that people are now very worried about the risk of a recession.
And I do think that the Airbnb revenue that Chimau side is a big factor Airbnb stock went down 15% in one day on soft demand and what's driving all this is is consumer weakness or at least fear of consumer weakness. You mentioned the rise in unemployment 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 100% year of a year 5% month over month is very significant. 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.
I mean like we've been talking about government's been going hog wild with spending we have 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. 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.
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 online podcast. Chimoff sitting here a year from now market up or we experience a recession to find us to quarters of negative GDP which one is the more likely scenario market up or a recession. Give it a percentage or just which is more likely.
Free burger and access those are not those are not opposing things so you're saying you're from now I don't I don't honestly know. But I do think that will probably be in a technical recession. Okay so you lean towards I'll just go recession no recession in the next year. But I also think that there's a pretty decent chance the market will be up.
Oh got it okay so we could ever 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 often earnings are going to keep ripping as these companies become managed so well.
That's a small percentage of the economy Jake how 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 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 in this fast.
Well high margin kind of industry we work in I think it's a good point but I do see McDonald Starbucks and some of those consumer retailers are taking steps right now to right size their businesses and offer five dollar meals or three dollar coffee so I do think there's a.
Ship in management and how they run these companies that's about reduced forecast right so when they're revenue decline when the revenue forecast have to be cut they have to cut head count that's different than creating more efficiency well but they're also cutting stores and their
business and yeah yeah 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 but I mean it's obviously that's a lot of jobs and a lot 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 earnings can go up right they can be supported but you're still facing contraction and you know 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 I don't know if you guys have been to the supermarket lately but man it is crazy expensive how like prices have gone up like 50 to 100% on like 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.
Matt and I when we're here in Portofino we go in the morning to the fish monger and we'll buy fish for the family it is unbelievably expensive and you know 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 not to know what was a whole fish tell us. You know like if you want to have like locally caught soul it's like 48 euros a kilogram and like it's expensive and it's expensive for all the restaurant.
So to feed a family of seven which is what we are you'll have to spend you know $152 it's not sustainable it's not. Something that can that makes sense or enough people anymore because that probably used to be 40 bucks or 30 bucks.
But freeberg is right like we're in a real serious problem because it's it's like these systems have remained the way that they had 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 every day people's every day lives 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 sustainable. Great 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 and majority chance of recession.
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 a we have an economic problem the government step the government steps in the space let me get an answer from sacks 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.
100 150 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 so I think that's the main driver of the rally you're seeing right now j cow not the prospects for increased efficiency because I think the you know those prospects were already there so are you majority case recession or majority case not recession in the next year 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 I had if you put me down I'd say I recession and I'll tell you one of the reasons one of the reasons why I just checked the notes sacks you predicted five of the nine of the last five recessions I know I know it look it's the same recession I've been predicting it's very simple when you jack up interest rates from your zero to five and a half percent that makes everything much more expensive unless the government spends money which has been the next.
Which is the counter balance right and that's a lot of why government stay and by the way I have a theory on this I think this is also why we have an open border policy 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 increases the workforce etc creates more competitive workforce but no one's allowed to publicly say that I do think that that's one of the primary motivating factors of having an open border policy.
People have been saying it I think you just did.
To all set 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 to have a wage expectation that's the fundamental problem right to affluent I agree I know the it's too high right and I'm not making an argument with the other I'm just highlighting I think that this is one of the motivators for the policy I think a lot better to let their wages rise.
But in any of that let's not get political on it just to the point about recession Jason yeah look I've been pretty in the same recession but I think one of the reasons why it might finally come now at first all you got a lot of investors are suddenly worried about it there's been a big sentiment shift I think the other thing is I don't think we know all the bad news yet.
And I'm not an honest yeah well none of us were tracking the end carry trade like very 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 questions 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 had
by and sonility for years not to get political that you just said I'm just to get political not to get political by the way yeah not to get political but this is just a fact look at the fact is not the fact to give them an award for saying not to get political I know I mean the end 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
M.O. 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 I think there's more bad news is going to come out of the election because there's too many incentives for people to hide it and for people who don't know we're talking about the concept of black swan's in order to have a black
swan it has to be something you're not aware of and it has to be have a dramatic impact the end trade would not fall into this because people were well aware of it even if it wasn't in front page news and it didn't have a dramatic impact but there could be black swan sitting there obviously the box one 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 dot com was known
and was massively impacted you need both of those categories to define a black swan and there could be black swans right sacks is what you're saying when you said that the young 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 correct but it didn't so just some people who are tracking the black swan tracker just the more you know let's talk about apple
chamapa give you your flowers right now they're coming to you just look to your left here comes huge bouquet because you predicted I didn't actually said flowers you look to his left but here's your virtual flowers you predicted I think absolutely correctly that the less Berkshire Hathaway and but that 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 some people are saying because they're overweight it other people saying because they freeberg want to get more cash on the books to make other acquisitions so chamapa your maybe just take your victory lap and then we'll I think freeberg double clicked on this and did a deep dive
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 it's a great great there it is yeah and that's what happened here okay so freeberg 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 can pull up this image with the pie chart this is what Berkshire's stock holdings were in their non majority own businesses so businesses they don't own the business outright and 50% of their portfolio was in apple at $174 billion we obviously saw apples 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 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 9 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 you know I'll kind of provide some of the counter arguments you know 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 the return profile on cash invested in 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 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 mode 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 so BNSF railway is regulated by the federal railroad administration
Berkshire energy which owns mid-American 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've locked in utility value and the same is true in the insurance business 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 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 anti-trust right when we get into the Google deal in a second yeah there's a real regulatory risk there because Google's paying apple 20 billion dollars a year to be the default search engine 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 said they're going to a company's relationships with China that's a real risk to apple advertising tracking users and then the subscription fees that are charged to consumers and most importantly
we've talked a lot about the 30% big 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 many senses of the word it's not regulated yet and that transition could be financially painful for apple once they get to the other side it starts to look a lot more like a large scale Berkshire type business so that that's my kind of summary take on what's going on with apple
well I don't know I think it's pretty deafed sacks your thoughts on this massive increase in cash and what Berkshire halfway is thinking what is Warren Buffett thinking here is it this became he became overweight apple or that he's building up cash because the recessions coming
and wants to buy things on the cheap or regulation to pre-Berks point when we have 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 is ever sat on 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 a
war chest here and he's somewhat defensively position you can see that you know was it like 20 21 22 the cash pile went down because he started making a bunch of investments now the cash piles really high so it seems logical to infer that he thinks that the risk or award right now is is not great on public equities and he is again he's a little bit more risk off what do you think of the regulatory risk argument freeberg is
floating here chama I think that David is right that freeberg is right that to China thing could have impacted it but because he also sold a lot of B.Y.D. which they've owned since 2008 I think so you know 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 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 maybe yeah I could buy that that seems like reason is logical I think the thing to remember though is that these decisions I think have been stewing for at least a couple quarters remember like you know that letter that he
writes was not written yesterday right that was being drafted months and months ago so these decisions were made or even longer so I think these decisions were made a while back another reason if we're going to play kind of conspiracy theorists is like you know after that with 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 and so that could be another
second so when you say that you're saying he wants to hand it off with less risk in it so dependency on one stock would be risk a dependency on China would be risk he wants to make it really clean so the hand office smoother wants to hand off a very organized book or maybe he enable in Greg Abel have already talked about the kind of that they want over these next five to ten years and it reflects a discussion about what the incoming CEO wants.
So there could be all kinds of reasons why I don't I don't really know I just think that Apple just back to freeberg's court pieces I agree with many of his general points 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 do obli 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 the year before once you're regulated you know what the prices are you know what you can do 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.
By the way and 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 twenty billion dollars at Google pays you every year which comes in at ninety nine percent margin and you should probably sensitize the value of Apple we're not having that twenty billion if this antitrust ruling against Google stands yeah that alone could be worth
upwards of half a trillion to a trillion dollars depending on what multiple you want to put on that twenty.
Well I mean what's crazy is the Apple Apple still up to two fourteen which is eleven twelve percent higher than it was at the start of this year at one eighty five the stock is just coming off of its all time highs at two thirty a share so just barely off the all time highs I mean this is just an extraordinary amount of cash to be held by both Apple apples you know also has over a hundred billion cash now warm but it has close to three hundred billion.
Allicators want to make trades and they got a better obviously he's got a better trade I think he can make on this whether that's the five percent he's going to get on the three hundred billion or maybe there's something he wants to buy that's another possibility 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 years on Monday a judge ruled that Google had acted illegally to maintain its monopoly in online search if you remember this was filed under the Trump administration in twenty twenty by the DOG the two hundred seventy seven 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 this is called tech traffic acquisition cost we've talked about it here many times according to the suit Google conducts around ninety percent 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 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 such a lot that I were discussing them on x and so this is huge news 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 ten 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 are many reviews of or many rumors of apple
wanting to be in the search business because they had a contentious relationship with Google obviously 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
chamaugh that you could see apple when they lose this twenty thirty billion dollar deal for tech to start their own search engine by duck duck a brave has an amazing search engine and a search api 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 you're take on this and what we're going to see in the future with this ruling stand up and then what are the
down tree market impacts I think that this Google thing is the most important thing that's happened in tech since the Microsoft DOJ decision in 2000 Internet Explorio yeah because if you if you go back to that consent decree in 2000 it essentially handcuffed
this incredibly or boating company for more than a decade while all kinds of innovations happen so they missed out on two huge waves right 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 sass and the climate amazing but there is this small oh 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 and a good example of this would be the AI powered search experiences that you're starting to see whether it's from open AI or perplexity or a few of these other folks the big oh outcome
though is more if you go back to the mobile kind of thing where the company gets broken up I think that the odds of that are extremely unlikely so I think the big oh outcome is probably something that you can pretty safely take off the table I think it's going to be a
little low outcome but the point is that there's a distribution here between these two things that this judge will be in control of and I think that again again I'm just guessing I think both the Democrats and the Republicans will really support whatever happens here
and because necessarily because I don't think that's necessarily because they have a bone to pick with Google I think that you know they have bones to pick with other companies more than Google but I think that it starts to set the tone for being able to check big tech in a very meaningful and productive way and I think that that has important ramifications for Washington.
Okay, Saks not to make it political but this is the government stopping corporate America so it can't not be political what you take here and what we see in the future more regulation more rulings like this slap on the wrist break up is this more to come or this is peak regulation in your mind of big tech.
Well I think this is a good decision I mean Google clearly is a monopoly in fact it's at least two three monopolies they have monopoly in search of monopoly in advertising and they at least have a dominant position in video with YouTube and I think that it would be great if the government broke up this company it should be at least three or four companies I mean there should be search should be its own company advertising should be its own company YouTube should be spun out
and then I don't know if G-suite should be a separate company or should get lumped in with search I don't know but I think this should be at least three or four companies and I think Republicans will be on board with that because frankly Google is a threat to democracy if you go to Google and search for search results of anything related to the election it is clearly so biased. Explain that yeah. Give an example.
If you want to get the latest info on Kamala Harris to search for Donald Trump I mean compare the search results and I've done this and I post the results online if you search for Trump you'll get a bunch of negative articles on Trump and you'll get positive articles about Harris and then conversely if you search for Kamala Harris you'll get positive articles about her and it's like Trump doesn't exist.
It's clearly they have put their thumb on the scale here in favor of the candidate they prefer as ninety-something percent of their donations indicate. Here's a real time search I just did Donald Trump as you can see the first one that came up was a Harris story about Trump and Harris Google has actually addressed this issue the issue is actually I think I'll take a little bit of the other side of it not bias in the algorithm but bias in media the
over one majority of media is left leaning and there's a very small amount of Republican right leaning media when compared to the left obviously and so when you do a search for Donald Trump you know you've got the first three choices New York Times left leaning Washington Post left leaning news week left leaning CNN left leading Delhi be super left leaning five of five are left leaning that really is the issue is that there isn't enough GOP or right leaning media to actually make this work
that's at least my take on what you're taking well well that's their explanation yeah okay fine but the public is yeah yeah they're waiting the publications they want to wait why is daily beast like some authority on the election they're the most partisan ridiculous untrustworthy publication when it comes to the elections so why should they be top four I mean why isn't Fox News in there why isn't York Post in there why isn't substack in there is a lot of great publications on substack
so they are very selectively choosing the publications who you're right are in the tank for the Democrats so that they are reflecting the bias of the mainstream media but they are being very selective about what media they show and even so here's Kamala Harris and let me just give
a statistics here hold on Kamala Harris I just did a search first five New York Times NBC the hell CNN is the hell right or left their left would you say sex it's left and then Forbes which I think would be considered right and then Fox obviously right so I mean it's just
the percentage of news sources here yeah the guardians often rank right so there's another two yeah so it would be like three of either way I want you to put on the screen this yeah glad you can do it I tweeted some receipts please click on the screen shots I can show you the side
by side and you'll see what I'm talking about okay I search for Donald Trump what do I get news about Harris the first I've this on my phone so this is mobile the articles are all basically about Harris criticizing Trump okay then the second carousel is about the project
2025 director stepping down which is pretty tangential Trump it is a major Democratic line of Trump so this whole thing seems rigged to support the DNC point of view on Trump same thing you searched on Trump latest news same thing there's some weird story about Donald Trump's nephew I
didn't even know he about this person but somehow they're elevating it to be a major story and again of course carousel is all about Harris now keep going please yes ma'am okay now we look at Kamala Harris top stories just Harris no news about Trump kind of next one same thing
okay so the point is that when you search for Trump you get news about Harris and Chris is not Trump when you search for Harris you get positive news about Harris there's no way you can tell me that this is fair or this is the result of an algorithm that hasn't been tampered
with this is very clearly programmed I mean you okay I'm gonna take the cells okay which can you search for I'm gonna take the complete other side of this but freeberg I want to give you a chance because you worked at Google I think you know a lot about the algorithm what is there
an explanation for this that makes technical logical sense given what you know about the algorithm and then I'll give my position then to Matthew yeah there's very little kind of editorial ization going on with respect to showing the rankings of the new sources the ranking of the
new sources is typically set by some ranking algorithm the algorithm is usually around click throughs views popularity of the sites how many visitors there are so there are other metrics that drive the order so for example if NBC CNN Fox News all have kind of higher rankings
than some smaller publication they're gonna end up higher in the the ranking algorithm because they have a higher quality score there's also measures on how often people click through and come back the bounce back rate so if they click through an article and then come back that can
actually reduce the ranking versus if they click through and stay on the site so there's a lot of factors that go into the ranking algorithm the thing that probably upsets people is that there isn't any transparency into this so there's no understanding on how these things are ranked
how they're set and it's probably very good guidance and feedback that there should be more transparency and openness and I'm not necessarily trying to defend anyone's product or behavior I'm just saying that there's certainly a lack of understanding on why one thing is
being shown versus another I'll also say sacks is probably the case or there might be the case that there's many more sites potentially putting out pro Harris articles and there are putting out pro Trump articles which can start to overweight the algorithm as you know or
overweight the rankings that are showing up so that might also be feeding into this that the general news media bias is what you're actually seeing versus a Google bias correct I don't want to get to my hold on let me get you're off and ball here on this issue and then I'll give my attention to having I do I do I come on this generally speaking I do want to come back to the antitrust really in a minute.
Okay absolutely sacks thinks the the fixes in for a bird thinks this is explained algorithm me but that Google could do a better job explaining and being more transparent and about the algorithm I agree with that 100% of the company is always considered a black box go look and I agree
100% as I have these are the number of independent journalists what left leaning publications is like 30 to one and places like Fox News which is largely talking about this kind of large there are so many there needs to be more investment in journalists by Republicans there are so
many more liberal journalists and there's so many more liberal media outlets out there 20 to one is a big at least it's probably 20 to one yeah yeah of course I understand the mainstream media is hopelessly biased please remember you said that when we discuss it no no no
no no no no hopelessly out of time and say buy it's a sexy got to stop you there he didn't say biased what we said was it's 20 or 30 to one it's outnumbering so if the pool of things the search and come up with is 30 to one it's of course going to appear bias which is
what they need to do is they need to show who's in the ranking what percentage are left what percentage are right what percentage are committed middle of the road show that at the top the mainstream media is bias we all know that you can defend it however you want to defend it you can
do it nobody's the point okay fine so we agree on that I don't know why you're making you five time taking you in a points okay my point about Google is there reinforcing the bias because they uprank the mainstream media sources and they downrank the sources that
provided dissonant opinion or an alternative opinion again why is vanity fair upranked above the New York Post I don't know if that's right is that because of their journalist equality I don't think so one way to think about why is it that that Kamala Harris search result does not say
anything about Trump but the Trump search result has a carousel on Kamala Harris that looks good to me yeah that looks okay I'll tell you the also answer this was the week Kamala or this the last 10 days or so of Kamala taking the position raising tons of money hiring
her VP and Trump disappearing from public life for 10 days so there's also a on top of the 30 to one ratio let's say left leaning journalists to write you also have this was Kamala's coordination week so therefore it's going to be I don't think Google is in the bag with
our algorithm anyway I think it's the source material they're indexing trim off what are your thoughts one of the things that I like to do when I'm in port of you know is when you see these thoughts in the bay I like to figure out what they are okay and so I use Google for like
a vessel finder and two of the top three links send me the spyware and I think to myself every time every year this happens how is it that in 2024 Google hasn't figured out how to take these links in a sandbox isolate the ones that send you to spyware and just take them
out of the index and of course they can do it they have you know 100,000 people and two trillion a market cap so I think that there's like just the level of technical naval gazing at some level that I think this sets every big company and so there are other examples
here that you can look at that are a lot less charged than politics I think freeberg is right that it's largely algorithmic but I think David is right in that there is a quality problem I think the solution here is that for certain extremely important moments there needs to be
a little bit more intervention and there needs to be a little bit more curation so that it passes the smell test I mean the the version of this that I that I also experimented with and Nick you can find the tweet that I had was when I was searching for the assassination
of Donald Trump on Google it just that it didn't show up it does show up now so I think they got the message and they fixed it so clearly somebody's listening and I think clearly then the index changes so I think that both things are possible which is the algorithm can improve
and also that certain things before people start to complain loudly about this perceived bias there should be enough intervention to make sure that the algorithmic results pass a smell test and if they're not to add some amount of reinforcement learning or something else some human be that allows that allows you to get to a good answer that's unbiased. Before we leave this topic kind of show this chart okay look this is a chart show.
All of tech all of tech is deeply biased towards the Democratic audience may not know okay employee donations take to party are again is well over 90% of Democrats this basically represents the constituency of Silicon Valley okay inside these companies we also know that
Google search results use more and more manual interventions freeberg you agree with that right there's a man yeah there's definitely again there's there's meant to not be an editorial process but there certainly is tweaking of ranking okay so all the people doing this stuff are Democrats
they're liberal and you're telling me that this does not have an influence is not great bias come on you can see the bias in a common sense search for Trump versus Harris I'm just saying like you've you've we've all made a huge leap in this conversation from talking about an antitrust
ruling which I will speak to very specifically in a minute to oh my god tech is biased that's what's driving the you know the sense of the nation I don't know if you've noticed sex but more than half the nation is going to vote for Donald Trump more than half like nearly 60%
I think it would be like I think it would be like 70 or 80% if it weren't for the bias of the mainstream media being boosted by big tech well call it balance in the force then I guess but like no second maybe maybe not maybe not quite that percentage but if you look if you look at
if you look at issues pulling on issues the Republican position on most issues is like a 60 to 70% winner and yet the elections are a nail-biter and I think a lot of it has to do with the influence of the mainstream media and big tech okay well let's come back so I think
that everyone has what sex is speaking to is a deeply rooted feeling held by politicians held by regulators on one side of the aisle or the other when Democrats feel shunned by the search engine or by Twitter or by Facebook they raise their hand and they say let's regulate
these guys when Republicans feel shunned because they're not showing up in the news rankings or the algorithms they feel let's regulate these guys when it actually comes down to the court case here is what is being described when you go to Apple and you type in a couple of words in the
URL bar that you want to search for because we've all gotten used to this you guys may not remember this but nearly 20 years ago when browsers first came out on desktops and on mobile phones you would not be able to just search by typing into the URL bar you would have to
type in a web search engine in the URL bar hit go and then you go to their search box type in your result what happened around the mid 2000s 2004 2005 is you suddenly were able to type in a couple of words into the URL bar of a browser and hit go and it would give you
search results the question is what search engine did it give you those results from and that's what this lawsuit is about Google started to pay companies like Apple to make Google the search engine when you were type in a couple of words and hit go into the URL bar because
search became the primary way of surfing the internet not typing in a URL and going to it and then when they started doing that they started to see more search traffic now the real question from an antitrust perspective is did Google leverage its monopoly to pay to
continue to be the default search engine to lock in the search market and prevent competition doing this the judge the judge already said yes the judge said yes Google is monopolizing search because they're paying to lock in the ability to type in to get the default on the
search bar by the way you can go into the settings and change it but what would the other default be so now if Apple created the right I think you're being you're being too narrow hold on one second you're being too narrow the initial complaint in the Microsoft Internet
Explorer thing that kicked off the whole DOJ thing versus the consent decree were two totally different things I think that you're underestimating the scope of the remedy I get it let me finish so like if they were to then say like let's get let's make sure Google can't do that again what's the
search engine is it being is it Apple search engine because then there would be an antitrust claim to say that if there is a default search engine without the consumer having to actively use what their search engine is someone is monopolizing the the install base that Apple has
or the install base that whomever has where they are becoming the default search engine now to your point like the ability for the judge to then say you know what this is one action of many that you are taking to monopolize search let's go ahead and figure out how we can prevent you
from monopolizing search and this is really focused on search it becomes a very hard leap to say let's break up the company there's bias in the news feed that you guys are ranking this has nothing to do with search engine rankings it has nothing to do with owning YouTube it has nothing to do with
like owning cloud it has everything to do with Google monopolizing the search business which is the biggest business on the internet I do think that they go that's where that consent I agree it's narrowed and where there's a lot of path but I question what happens is not going to be
it's not going to be a deep trust right no no no I don't think that's a narrowing again the big go outcome of breaking up the company like what happened in mobile I don't think that's going to happen you a little oh outcome that is a consent to three similar to the one that
Microsoft had to sign is very likely but what I want you to understand is the way that that started which was literally around internet explorer and bundling versus the consent degree was meaningful orders of magnitude broader so what I'm saying is this little oh outcome is going to be much
bigger than the scope of this lawsuit and if they don't man they have dodged an enormous bullet and all I'm saying is the I think if you had to be a betting person they settled on that right like with with Microsoft if I remember right it was an agreed settlement like ultimately they sign
they there was a consent degree basically what happened is for 10 years the DOJ became the became the product managers of all critical projects inside of Microsoft right the point is this which is that when Microsoft went through this the government and they had broad support use
that consent degree as a way to essentially hobble this company so that other competition could come in that competition was it wasn't just it wasn't just in the narrow scope of where that initial focus started I hear what I'm saying is this judge will read that for sure
and I would and if and if Google gets away with just having to do something around tack and search yeah they have dodged an enormous bullet no I think you're look I think you're right and I think the reason you're right is because of how inflamed sex is because the way that
sacs feels I think is the way that every no I think if I think if sacs gets its way it'll be a big ol come and they're going to know I know I know I think that's where everyone wants it to actually want to know what I'm what I'm saying is the little oh outcome is meaningfully worse
than where this lawsuit is I'm going to make my final statement there's a strong I agree with you and I'm not trying to defend Google and I'm not trying to defend some outcome here I think you guys are correct I think that because of how inflamed people are at the influence that
these companies have meta and Twitter and Google there is going to be a strong push to do a lot more than what the narrow focus of the ruling in this particular case to do something much more significant to hurt these companies and make them less influential and less powerful facts
anything to add I'm not inflamed I have a point of view that I think is informed by facts and evidence the fact the matter is the vast vast majority well over 90% of the employees at Google are liberal Democrats and the Google search does rely on manual actions and that people
performing those actions are again overwhelmingly from one side of the political aisle furthermore we can see in the search results that they do appear to be hopefully see bias in favor of one candidate the expense of another I mean you're asking me to deny the evidence
my own eyes and ears I can see what's happening I think most people can see what's happening I do not think that Google should be putting its thumb on the scale on one side of the election here and Jason you may have a point that is reflecting the bias of the mainstream media
I don't think that makes it okay I think that Google should have to work a little harder to be neutral and they could do that use they could do that easily by balancing their new sources okay I feel like sax and I got to the perfect place I agree Google's filled with obviously left
leaning don't deny that I agree that the left the my the media is biased they all picked aside and then I just want to show you one chart super important for you to understand the number of people in journalism this is from 1971 to 2022 who say that's a great
identifying for a public and has just absolutely plummeted I know this and this is what I'm trying to explain to you sax is a incredible opportunity for your party since you know your passionate about this is to invest in more journalism invest in more journalist
because I don't buy this independence the fact that they're claiming they're independent in journalism I believe that's cap I believe they say that but the gap is 33% now between people who say they're Democrats and people who say they're Republican in journalism that is a key piece to this problem
and layered on top of it I agree with you that Google is filled with liberal people and I agree with you Shema that they need to intervene and put at the top of the search results in news these are the you know this is what we're indexing this is the percentage that's left leaning this is
the percentage that's right leaning and there are a lot of organizations that examine and rate publications on their bias left and right and that's something that Google could do that's very unique and that could move the whole country you're saying which is they could showcase that up top
so to my friends at Google who are listening do a better job of just being more transparent so we don't have this tension in society okay it's time for sacks is red meat sacks we have a VP candidate you have been absolutely waiting for this moment the race is a dead heat
here's your second course of red meat I brought you that giant this you know what this is this is the state for two this is the state for two for one you ordered the state for two for one sacks get in there medium rare you got your cowboy cut
what did you think when you saw Kamala Harris enter VP pick move ahead in almost universally all polls and prediction markets to the lead over your boys Trump and Vance what did you think of the pick go ahead enjoy your stay well I was very happy with the pick I mean so first of all I think I said last week or two weeks ago that I thought the pick was would be Shapiro Josh Shapiro the governor of Pennsylvania it was such an obvious choice for a Harris
because this whole election could easily come down to 10,000 votes in Pennsylvania it is the tipping point state and Harris probably has to win that state in order to win the election and you have a very popular governor of that state like 63% popularity in that state he's also perceived as a moderate so he would have helped Harris position the ticket more towards the center which apparently is her goal since she's repudiated all of her
far left positions so it just seemed to be so perfect and then what happened is there was a smear campaign by the progressive left against Shapiro he was the only one of the VP shortlist candidates that seemed to get all this pop-up dumped on him before the pick and that campaign against Shapiro seems to have spooked Harris who seems to be fairly risk averse and she went with this guy Tim Waltz from Minnesota who is a darling of the radical left
and I think that he's already presented many opportunities for attack by the right there's three big issues that I think Waltz is going to have to address because Republicans are already landing blows on him number one stolen valor he has clearly and on several occasions overstayed the extent of his military record look obviously I've never served but I know that among people who have this is a very big deal
big issue campaigns have imploded over this so that's number one he's got the stolen valor problem number two on trans he seems to have bought into every aspect of the trans agenda and he's made Minnesota sanctuary state for miners who want to come there for puberty blockers and sex reassignment surgeries even without parental consent the law that Gavin Newsom just passed or signed that drove Elon out of the state
Tim Waltz got there first in Minnesota so he is he is not a centrist he is very far on the cultural left and then I'd say like a third issue that I don't even know if people have really gotten to yet but I think it will eventually come up
is that Waltz was was insanely authoritarian on covid I mean this is a guy who told us that minnesota's lived by a motto of mind your own damn business but he set up a covid stitch hotline so people could rat out their neighbors for leaving the house or having dinner parties
or walking their dog without a mask and it was it was real I mean violators could be punished by 90 days in jail so again this guy has been to the left of Gavin Newsom on cultural issues and I think that's going to be a big problem for the Harris campaign and I don't really understand why she went with him when there was such an obvious alternative who was available who could have given her a swing state who could have position you don't know why
you're a threat to your thoughts and you want to speculate your chance to bash the democrats and speculate go Chimam no I have no bashing to do I will say two things one is that I think his stance on this trans stuff is a little problematic in these swing states I say a little only because I think it matters more what common sense on all these topics are but I do think that where there's going to be a big judgment issue around her selecting him
is if there is veracity to the stolen valor claims and so when Sean Ryan has an example incredible podcast if you guys don't listen to it it's great but like you know when he gets to the bottom of this and he will Tim Walts better hope that he told the entire truth okay freeberg your thoughts were dancer on the issue here you had talked a couple of weeks ago about an organization that didn't want to put a Jewish person in the top position or in a top position do you think that this is
or there are any concerns of Shapiro being Jewish that caused him not to be selected or do you think maybe he bowed out because he wants to run for president of some people are saying and maybe he his star shines a little too bright for the second position
what are your thoughts let's go right to the anti-Semitism claims I'm not going to make that proclamation I don't know what vice president Harris's decision making process was I don't know who you talked to what she cared about if she cared if she was even in charge I have no idea
all I know is that there have been other conversations I've been privy to behind closed doors where senior people have been passed over because they are Jewish and because of the concerns of someone Jewish being viewed to be in a leadership position in an organization and the impact that that might have that there is a brewing this crust as a result of the conflict in Gaza let me say something about this issue frankly in defense of comular Harris I don't think she's anti-Semitic
and I don't think that accusation should ever be made without real evidence okay that being said van Jones who is in a position to know because he's an important political pun to in the Democrat party said that one of the reasons why Shapiro was passed over is because of this issue
and he said that anti-Semitism had become marbled into the Democrat party I don't know exactly what he meant by that I saw that quote that was really jarring actually so marbles is an interesting term yeah it's like absolutely in the fabric of the yeah yeah so I don't know I don't think Harris is
I think she's risk averse and didn't want to alienate certain factions within the Democrat party I agree with that statement right but in the process of being risk averse she chose this guy wallets who I think has got much bigger vulnerabilities than Shapiro does
and I think the question now is whether wallets is even going to make it to the convention I think he might have to drop out I don't understand by the way I saw the dating process that Donald Trump had with his VP candidates right Saxon I saw some of it really up close yeah it's funny
well I can only speak to what I saw but it just seemed to me that there was this month's long audition where I think they were just trying to figure out I'm guessing you completely guessing where these folks stood on things but also he was trying to get a sense of the person
and whether they got along and whatnot but what I also suspected is that this person was being highly highly scrutinized behind the scenes on everything that they've said or done where the person who's going to make the pick in that case Donald Trump was deciding can I live with these issues or not
what the articles about the VP process on the Democrat side was more painted along the lines of there was a meeting and she kind of liked him and so she went with him and I agree I don't think there's an anti-Semitic bone in her body to be totally honest with you I don't get that sense at all
no no I yeah that's not the issue but the calculus right but what I would say is this is the number two person I mean maybe you should spend more than a day and then maybe people should be really vetting this person behind closed doors on all of the things that could go wrong
and I mean you have to assume that that happened yeah let me make a couple of points there so it's number one is Trump had a lot more time to vet and get comfortable with his VP candidate because he's been the presumptive nominee for many months
whereas Harris inherited the nominee ship without a primary battle right Biden just abdicated less than three weeks ago so that's the reason why she didn't really have time to go through a court your process for her VP now as to the vetting process I agree with you I think it's someone inexplicable
because these stolen value claims have been out there for a long time when Walt's ran for governor there were former soldiers who came forward and said yeah he was supposed to be the commander of our national guard unit he was supposed to go with us and he quit right before we got deployed to Iraq
and so these complaints amount there for a while moreover he has many public statements saying that he was deployed to operation and during freedom which I think was Afghanistan and he simply wasn't I mean at least that's what I understand to be the case
so he was deployed during that time I think this sounds like a lot of cat he was deployed during that time but he wasn't in combat right is that he never saw a combat and he said that he carried a weapon in combat in war so this isn't like a use of sloppy language once or twice
this has been around circling him for many years now and there's been many examples of him saying these things on video so my point is to say one thing I think the vetting was very poor I think the vetting was very good this is what I was going to say so there's there was there was a great quote
and I don't know if this ever made the light of day but there was a moment where was thought of as a potential VP nomination he was like a real big Democrat stalwart and I don't exactly know the claims so and but I'm not going to go there but the phrase that I was told is doesn't vet and what it was was a way of saying look we take our time we understand everybody's background we know what skeletons are in folks's closets and in that example whatever was going on was sufficient enough where he
would never really get nominated for something very very big and I think that's sort of what comes up here which is that in this impassioned desire to make a decision quickly I still think the Democratic Party had an extra two or three weeks to make sure
Tim Walts really vets now I don't know if whether these claims are true or not again somebody will get to the bottom of it but it creates a pile over this campaign too early and where I think Kamala probably wants all of that noise away so that she can define what she stands
for sort of what we said last time go after these five big issues that people care about go into the five states on these five issues and try to win this election she can't do that if this is like oh what is your decision making like why did you pick this person why did this person lie
so they have to nip this in the blood very quickly look in my view this was an easy choice even if she didn't like Shapiro she could have gone with Bashir or she could have gone with Markelli remember the astronaut Markelli was one of the top two contenders
you know at least that was what was reported in other words she could have gone with a moderate CNN CNN reported that Kamala thought that Shapiro was too ambitious so okay so why not Markelli he would have outshined her for sure Shapiro is really good at speaking
and the way she's not Shapiro Shapiro is really sharp I mean that guy unbelievable he's on the ball I'm not saying it has to be Shapiro but the remit here was really clear just strategically you want to choose a moderate from a swing state that's it because this whole election come down to one state
and you want to basically portray yourself as a moderate so this is a very easy assignment find me a moderate from a swing state and what do they do they choose a radical from a safe state safe for Democrats they got Minnesota locked up
why do they need to take on this baggage there's no reason for it and Jamal I do think they rushed the vetting but I think it wasn't because of passion or something like that I think they're running out of time because remember Biden was supposed to be the nominee
Harris was supposed to be on the ticket as VP they weren't supposed to do this process and then all of a sudden it happened three weeks ago because Biden abdicated look I think I think that advice presidential pick matters but only so much and I think more than helping
I think what VP's do on balance is if you pick the wrong person it can meaningfully hurt a campaign I think the you know Dan Quail potato thing comes to mind you can become a little bit of a laughing stock which just becomes baggage that you have to overcome
and so this is again where it's a little bit of a head scratcher I would just that thought that this would have been a little bit more buttoned up Totally and let me tell you if if if walls doesn't drop from the ticket I predict they'll be gold star families protesting all of their events
and that's going to be a real headache from now till the election Here is the quote in question Harris campaign and this is from the New York Times had promoted this on social media just so we're clear when we're making all these claims that he did steal valor
that he has not been convicted of stealing valor which is a natural crime just so we get things right here on the pod Here's the quote that he said we can make sure that those weapons of war that I carried in war is the only place where those weapons are at and so Mr. Walls never served in combat
and that quote that he made I guess people are now weaponizing to say that he's saying those here's a quote those weapons of war that I carried in war is the only place where those weapons are so he was not in war technically he was a reserve and he is battalion was going to be called he claims
so that's a guess what we are questioning and Van said I'd be ashamed if I was him and I lied about my military service like he did this I could see where people might be a little bit I guess he's both sides of this issue so actually want to dunk on him or yeah
I'm not going to dunk because this is still an unfolding story and it's going to play out over the next couple of weeks and we'll see where it lands but it's pretty clear that he had a minimum exaggerated his service and he exaggerated his rank I would like to thank both JD Vance and Walls
for their service I appreciate both of their service I'll leave it at that from my perspective Listen whenever I meet a vet I always think them for their service but those vets will tell you you can never exaggerate what you did Of course not You can't say you were in war when you were not in war
Of course yeah so I guess we'll see how this plays out All right everybody this has been another amazing episode of the all in podcast to recap Google's big news the markets are in flux the end trade is off and Combo Harris leads the race We got eight weeks left We'll be here for you every single week and we will be seeing some of you at the I believe sold out all in summit Are we sold out right now?
Friedberg Master of ceremonies Friedberg Executive Producer Friedberg We are sold out we might do a little overflow Just because we know people don't show up So we might do a little bit of a last minute Kind of overflow ticket sale But we are sold out What do people need to know about their party outfits? Everybody is asking me what party outfits do I need?
The first night's party We're going to have top gun beach volleyball And we're going to have back to the future All the scenes from back to the future For the second party I can't wait to take out work I'm going to work on my BIFT Get your damn hands off her BIFT BIFT BIFT You should go ahead
You should go ahead And your hands off her BIFT McFly McFly McFly All I know is Trombot's wearing a speedo No, no fly Anybody over Anyhow BIFT Get your damn hands off her I love you guys I gotta go Okay, enjoy Italy We'll see on the lake everybody For the Sultan of science
The architect, the dictator I am the executive producer And we're all its greatest moderator Executive producer for life We'll see you next week Bye bye Love you boys, bye bye We're like your winners ride Brain man David Sack We open source it to the fans And they've just got crazy with her
I'm going to swim I'm going to win What your winners ride Besties are gone Go for it Besties are gone Go for it That's my dog Take it away Wish you a drive away Sit next Oh man I'm the gesture we meet We should all just get a room And just have one big hug Or because they're all It's like this like
Sexual tension But we just need to release that out What your B What your B B What We need to get merged Besties are gone Go for it I'm going to win I'm going to win I'm going to win I'm going to win I'm going to win I'm going to win I'm going to win I'm going to win And now The plugs
The all in summit is taking place In Los Angeles September 8th, 9th and 10th You can apply for a tickets Summit.allinpodcast.co And you can subscribe to this show on YouTube Yes, watch all the videos Our YouTube channel Has passed 500,000 subscribers Shout out to Donnie from Queens Follow the show
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And see what all the excitement is about Follow sex at x.com slash David Sachs And sign up for glue at glue.ai Follow freedberg x.com slash freedberg And all hollow is hiring Click on the careers page at All hollow genetics.com I am the world's greatest moderator Jason Calcannis if you are a founder And you want to come to my Accelerators and my programs Founder.University
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Number one podcast you can help By telling just two friends That's all I ask Forward this podcast to two friends And say this is the world's greatest Podcast you got to check it out And we'll make you smarter And make you laugh laugh while Learning we'll see you all next time Bye-bye Pull up this clip of Help me because he loves When we talk about him on the Shep.
Even though he's banned from the show Like to him off for life He's like, oh, sacks The battery pack of the log He got this guy had Package acts to his eight Queen I think he hits his Queen or his ace And he loses his mind But he's in good spirits for the First half of this play this clip Jack's having to test 38 Out of six What's the odds on that?
We have a card Jack look out Under for Don't cover me don't cover me Let's go One time Come on Yes, because he ever covered What Buddy I told you All right, steaming I'm gonna I don't mind losing the flip I really don't I'm on I ask you You do that You're You have been more Out of line to me than
Any other person No, you've been Out of line to me than Any other person You've been out of line to me And a year and a half Oh man I don't know who you are You just lost to me You just lost a big putt No, I don't give a Cherbee You just I don't give a You know I ask you Not to do it You've been
A guy who was a All day yesterday Let's play Oh Oh You're ready I'm with this guy I asked you I don't know what you're talking about What you're talking about What you're thinking about I don't know what you're talking about I could play with the I'm saying I have chips I could play with people
And Palo Alto I love and I have fun with That's what I'm playing with He called up He called up Palo Alto One of them is His net worth is 1.2 billion One of them is David Sachs The gay code to his house is 1,2,3,4 pound I mean it is crazy I want to think so for the Shout out