Elon gets paid, Apple's AI pop, OpenAI revenue rip, Macro debate & Inside Trump Fundraiser

26:56Elon delivered what he promised, and now shareholders are upholding their end of the bargain. And certainly they didn't have to take that position. There were different groups like CalSTRS who basically took the position, what have you done for me lately? You know, yeah, you delivered, but we don't have to pay you because of the judge, so we're not going to pay you. And I think shareholders wisely approved the package because I think there was some chance that if they were neged, that Elon could leave the company. And I still think he's absolutely vital to all the innovation that's going to come in the future from Tesla.

27:28And you see this, the stock is ripping on the news is up about 3 % today in a down market. So clearly the market thinks that securing Elon's future at the company was the right decision and shareholders did the right thing. In terms of the downstream effect on this, like you said, it raises the specter of Delaware being an activist state. That's not why anyone incorporates in Delaware. The reason why you incorporate in Delaware is because you think it makes you subject to an extremely predictable body of corporate law that's been tested and become a proof over many, many decades. And now of a sudden you have to worry that maybe a judge will set aside a shareholder vote for reasons that seem incredibly spacious, especially in light of the fact that the shareholders just re -approved it.

28:22So obviously, the shareholders didn't think they needed your protection and they voted to reverse you. And moreover, Tesla could still be subject to paying the legal fees of these trial lawyers who've asked for literally billions of dollars in legal fees that the judge sluts a rule on. So imagine this, imagine that the shareholder vote gets set aside by the judge and then gets re -approved by shareholders. But the trial lawyers who brought this new since suit can now get billions of dollars. If that happens, I mean, Delaware can kind of kiss its status as the premier corporate law state away. Friedberg is to say, John Galt moment is this where capitalism, socialism, and the state collide and people now start thinking, maybe we need to create a new jurisdiction, a new framework.

29:14That's a good question. I think it's a good example for capitalism. And I think it should shine the light on how other CEOs are getting compensated at public companies where there's typically a multi -million dollar or multi -deca -million dollar pay package that has no dependency on the performance of the business. You can make tens of millions of dollars a year and not drive shareholder value. And I think that the way that this deal was structured, where Elon effectively got 10 % of the company for 10xing the stock, should be an example that other boards should actively consider when considering both candidates and their appetite for this sort of a package and their compensation packages themselves.

30:01The way executive comp typically works at the board level at public companies is you hire these comp consultants. And the comp consultants come in and they use Comperables, which basically means let's do what everyone else does. And so you have this self reinforcing system of compensation and benefits for CEOs that bumps up a little bit every year, that ultimately has not has some degree of ownership in the stock, but fundamentally has very little downside. And Elon had no guarantees in his pay package when he got this Compackage originally in 2018 and he got 10 % of the company if he 10x the stock, which is what he did.

30:40I really think that it is worth having this become the kind of beacon for all boards to consider and it seems like shareholders in aggregate are applauding the concept and look Elon is a special guy and he gets special treatment. But I think that it moves the needle and should move the needle a little bit for other CEOs and other boards to stand up and say, we should think about something that looks a lot more like this than what we typically do. And I think you would find a very different cast of people showing up to become CEOs and to drive performance out of these businesses. And a lot more risky and aggressive behavior than what I think you typically see in big companies that are in maintenance mode.

31:18What do you guys think of the organizations that initially voted yes and now voted no? They basically are saying, look, I mean, if you think about it, you're a big public company. I don't know what ISS recommended. This is institutional shareholder services. They recommended no both times. Right. And so ISS basically would a lot of big public fund managers will follow when they make their votes. And so if I'm a shareholder, that's not a matter of time. No, no, I don't want to say. But let's say that I'm BlackRock, or I'm a shareholder. I'm not going to put BlackRock. As some big shareholder Tesla stock, why would I vote to give away 10 % of the company when I don't have to?

31:55Yeah, very simple. Because he would leave. morals and ethics matter and you want to do the right thing and you want to incentivize capitalism to operate properly and want to incentivize the people who take on the burden of running these companies and the people who voted against it. I think people should just make a list of those individuals, Chema. And they should not do business with them. If somebody is going to double -cross you, they've shown you who they are. These are people who double -cross them. They got the benefit and then they stabbed them in the back. make a list exactly what they did.

32:28That's exactly what they did. It's worse if they voted yes, the first time and then they voted no. No, I'm saying and there's a wonderful. No, then maybe you're just against the deal, but if you're yes, no, then that's a reneg. Then you're a true scumbag. You're a scumbag. Is that public anywhere who did that? Yeah, there are a bunch of folks that said that they, you know, I think it was Calper that voted yes, and then when they were on trying to explain they were like tapped on dancing in like corporate jargon, but really what they are scumbags, Jason, you're right. They are morally, ethically void, and they're reneging.

33:00And this is the one rule in business you're not allowed to do. And the people that do that are these penny -pinching scumbags. I'm not saying a blacklist, but I would say making a list of people who maybe you want to consider not doing business with is how I would frame it. These are people who? Yeah, but they're public marketing investors and they're not private investors. They buy the stock on the open market, so they don't have to worry. I mean, I think the question is what are the chances that Elon leads the company if he doesn't get the pay package? The chances of the problem. I think that was a risk.

33:25I think that was a non -zero possibility. Think about it. Yeah, non -zero possibility. You made an agreement with somebody and you shook their hand. Yeah. What? Why secure whether he would have leaped left or not left? This is like to do the right thing. You have to do the right thing. You promised the guy X amount of money for doing Y amount of things. He did the Y things and then you had a judge come over the top because of somebody who own 10 shares. And all I'm saying is if you don't have the intellectual intelligence to look past that and say, wait a minute, we just paid the guy to do this work and now we're going to re -neg.

33:59They're gaming the system. I just think that like how can anyone who is capable of doing a job sign up for a payback? How could anyone? And the people that will sign up are these like middling corpoh people who will accomplish nothing and will run these companies in ways that that then speaks to organizations that have just proven themselves to be totally unreliable. The irony of the thing is that these folks thought that they were getting a 10 % free role when they voted no. And the reality is that by him getting the pay package, the certainty of him sticking around at the company caused the stock to go up by 10%.

34:39So they actually had the calculus wrong. That if they had gotten their way, the stock would have declined by more than the 10 % free role they thought they were getting. This is I think the main point 10 % being the only other company that he gets. Yeah The pay package was laughed at on CNBC by all the experts There is no way for him to hit this stuff if he does hit it He's getting a fraction of the value of it And this is why stock is such a valuable device if employees get stock and the CEO get stock and everybody in between and retail Investors get it and endowments get it and your retirement account gets it everybody rose in the right direction Is it perfect?

35:15No people can buy back their stock. They can do a little gaming on the margins But it is the most pure system we have everybody has a share of the company So if you're a socialist, you know like you should actually kind of appreciate How stock works that everybody has a chance to buy everybody has a chance to participate This is the model we should be using for all CEOs They should all get a massive package if the stock goes up into the right It's so obvious and this was so unfair. Let's see this flipper. I want to see their explanation Compensation this commence with the performance of the company.

35:50Did you vote for it in 2018? I believe we did vote for it in 2018. This is about long -term value. But hold on. Do you believe you were duked in 2018? No, I believe we used the information we had available and made the best choice. Okay, so here's what I find so interesting about this particular choice 73 % I believe with shareholders voted in favor of in 2018. A judge has said that shareholders were not informed properly. If you talk to most shareholders by the way, especially big shareholders, they say we were not, we understood completely what we were doing and we were on board with this. Now that this opportunity, almost opportunity has arrived on your doorstep to say, to actually rethink this, if you will.

36:32So there's a view that, oh, maybe we're not getting the value we thought we should. You thought you should get it, but he's worked, by the way, under the assumption that he was hitting the numbers and dealing with the contract. If I told you that you were being paid a certain amount of money in 2018 and then I called you and said, actually, you know what, we're not going to give you that money anymore. What would you do? That's a great question. And I would go to my board. You know, I would talk with my board. This woman is so smug. What is her name, Karen Frost? I don't think she smug. Sorry, Marci Frost.

37:12Oh, sorry, I thought it was Karen Frost. I think like this is emblematic of the client of person who is incapable of actually doing the right thing. And there's a lot of these people that run a lot of these organizations. That, I mean, what kind of an answer is that? I mean, it was a non -answer. That's why I said it was smug. Let me just ask each of you, you've all started companies. Some of you are still running companies. Would you take money from her and CalPERS after that statement? Hard no for me. But remember, she's not investing in private companies. She's buying stock on the open market.

37:45So CalPERS announced that it's venture firms. CalPERS announced that they're an LP and they're starting to do directs. Oh, okay. I didn't know that. Yeah, they're trying to catch up. They've been behind, Adventure. Let's call this whole thing what it is. It was a heist. You had these trial lawyers. They find a name plane if who's got nine shares and on a contingency fee basis they go after Elon's pay package. What are they looking for? $5 .6 billion. How does a lawyer make $5 billion? How's that motivated? This whole thing. They don't care about Tesla. They don't care about the company. They don't care about shareholders.

38:21They're looking for a giant multi -billion dollar contingency fee payment and they took their shot and they found a Delaware judge to basically agree with them even though shareholders approved it and then shareholders re -approved it. So my question is how much of these trial lawyers going to get is a judge going to award them billions of dollars for what was clearly now a mistake to void a pay package that shareholders wanted to stick with if they award these lawyers billions of dollars which is what they're seeking no one's going to to do business in Delaware anymore because it subjects you to the stick up high spy trial lawyers.

39:00So I think that's going to be the next big shoot a drop is what are these trial lawyers get awarded? They also wanted to get paid and tell us the shares. No, I'm serious. Here's an idea. Buy the shares yourself. Yeah, they said we don't like your management of the company, but we'll take your shares. Yeah. By the way, they got their shares and then they voted to give you a lot of the next pay package. So it's just a full on grip. They they secure the bag. But Delaware is supposed to protect corporations against this grift. That's why people incorporate there. When people ask, why does Delaware have the special place that everybody decided Delaware would be we were incorporate it was because it was predictable.

39:39Lawyers felt this was the most predictable jurisdiction. That would be the most shareholder, friendly, most shareholder, thoughtful, whatever word you want to they would defend the shareholders. And here we are. The last company I started 80, 90, we incorporated in Nevada. And I just read Domazal a couple of other companies that I own into Nevada as well. It's becoming a trend. We're having very big discussions about this in the startup community of where to domazal your company. And more to come on this one. Okay, let's keep moving. Apple had a huge announcement this week. Apple has entered the chat.

40:16They announced Apple Intelligence. get it AI and they have included a chat GPT integration from open AI. This was really I think impressive in many ways because people thought Apple was far behind. It was a banger of a demo. A lot of unapple -like future -looking demos, so none of these demos that we're going to show are coming to your phone this week. They were really I think playing catchup with Microsoft and it worked. Stock is up 10%. They added about 300 billion in market cap. Now the top three market cap companies are all driven specifically by the perception that AI is going to be the next technological wave.

40:58Microsoft Apple and Nvidia all cruising around about 3 .2 trillion dollars and this top three keeps flipping back and forth. Apple had and past Microsoft and market cap. Here's the features. I'll just give you a quick overview of what we're seeing. It's added a Grammarly -like features. Great product. Grammarly, I'm not an investor, but they added the ability to proof. Get Grammar help. AI will transcribe and summarize phone calls with permission. Obviously, double opt -in. It will prioritize notifications and I message an email that are super important. You can do smart replies and a company where an investor in superhuman or he does this kind of stuff.

41:37And they're bringing AI to Siri, and this is going to be the big win in my mind. You're going to be able to say things like you want to order something in DoorDash or Uber Eats or Instacart. And the AI Siri will be able to dip down into apps. They're building a whole app AI interface, much like the rabbit device CEO talked about doing. And I think this means that Apple is going to win the AI consumer. There is a deal with chat GPT that'll get your feedback on gentlemen in a moment. According to sources, Apple is not paying open AI. It's a non -exclusive deal. Chat GPT can be swapped out. Apple is also talking to Google about a similar deal.

42:18Obviously, it doesn't take a genius to predict that Apple is going to auction off the LLM integration. I think to the highest bidder they did that with the search deal. Google pays Apple 20 billion to be the default search engine. That's about 5 % of Apple's annual revenue if you didn't know. And it's all profit, right? So this is a huge profit moment. I'm gonna pause there for a second before I get into more of this and just get your general reaction, Chimoff. I think you nailed it, right at the beginning. The thing that I was struck by the most in this is we went from a phase where in the Steve Jobs era, these events were because you were about to unveil a product that was done and shipping as of that day.

43:07And then at some point we transition to they are talking about products that they intend to release within a year. Now we've shifted to the part where they're talking about software integrations from a third party that will happen in a year. So if you just look at it sequentially, it's a little disappointing in sense because for a company this big it's really not much of anything. You can't really touch it and feel it and it's going to take a year before we really know what the totality of all of this is. Meanwhile the economics of the chat GPT deal were leaked and there's no money on either side.

43:49So I don't know it's a little bit of like it's really not much of anything to be honest because because there's nothing we can actually play with and experience. Freeberg your thoughts on the vision here at least. And to Tremont's point, Apple used to release dope stuff. Fully baked, ready to go. And now we are increasingly see them talking about what's coming next year or at some point. Do you think Apple's going to win the consumer? Do you think Apple's falling behind? Should they have built their own LLM by this point? I'm not sure. I think what they have shown is more of a glimpse into the future of hardware where for the last two decades or so hardware has mostly been a portal to access the internet and use the internet through apps or through the browser and hardware has done a good job of enabling that But I think we're now going to see a much more tighter coupling where the hardware becomes more valuable and it's less of this kind of funnel for apps to flow through and data to flow through, but the hardware actually becomes the value crater.

44:52And you see a much more tighter integration in the hardware OS and the AI or the software that enables you to do lots of things. You're no longer just gonna use the hardware to access an app to do something. So a lot of the companies that are app developers are likely gonna end up becoming services developers that enable that hardware AI to do something for you. And this coupling between hardware and software because of the way AI works is I think becoming more apparent, not just in consumer devices, but we see it in the data center and in the enterprise stack as well. We've seen that obviously there's this tight integration between the chip and the software stack that GROC built.

45:28There's a tight integration between Google's TPU stack and then the ML instances and the tools that you can use in Google Cloud that are optimized for use on that TPU hardware. Nvidia's got a big effort obviously in continuing to build out their software stack that sits on top of their hardware and works in a more coupled way. And then Google has this ability to kind of realize, I think, a similar outcome with Pixel phones, which is a pretty sizable opportunity for them. And then all of the hardware manufacturers can probably grab more value now as they build their own AI into their OS. And you start to see more of this value realized by the hardware companies.

46:03So I think that there's this really interesting shift where we've all thought about hardware Whereas being this commodity, whether some degree of improvement or innovation made over time. But now it seems like a lot of value might actually get captured by hardware companies in all points in the value stack. So it's an interesting moment. And I think that this just shines a light on that trend that I think is gonna play out over the next couple of years. It's clear, SACS that right now, to enable these features, you're gonna have to have a pretty solid device. They announced here at the keynote at WWDC that you need to have an M1 Shipper better, iPhone 15 or better.

46:43So, and having all this local data is a huge advantage for Apple. They've got your messages, your phone, your calendar, your photos, your app behavior, the data inside of your wallet. All of this gives them a huge, huge advantage. So I guess the question is, do you think this renews the Apple franchise and people start upgrading their phones again to get all these new features, David Sachs. Well, the market definitely thinks so because Apple was up big on this news. And even if it was largely vapor, we're at this point, the market definitely liked where they were going. And frankly, Apple did exactly what I said they should do last week, which was to reinvent Siri as an LLM with the capability to reach into apps as an agent and take actions on the users just perhaps that's what they effectively announced.

47:31However, Apple took a shortcut to get here. They partnered with OpenAI. And this is something that I don't think they've ever really done before at the operating system level. Apple is famous for being vertically integrated, for being a walled garden, for being end -to -end. They control everything from the chips, to the hardware, to the operating system, and they don't let anybody else in until you're at the App Store layer. This is allowing somebody in beneath the level of the app store. This is allowing someone open AI to get access to your data and to control your apps at the operating system level.

48:06And I think, you know, Elon pointed out, wait a second, what are the privacy implications here? And I think there are major privacy implications. There's simply no way that you're going to allow an AI on your phone to take all these actions on your behalf without giving that model substantial amounts of user data. And that is a huge change for Apple. Remember, Apple in the past has been the advocate for consumer privacy. There's a whole issue of the San Bernardino terrorist where the FBI went to Apple and said, we want you to give us back to our access to their phone and Apple refused to do it.

48:41I went to court to defend user privacy. And furthermore, one of Apple's defenses to the arguments, the antitrust arguments for allowing side loading and allowing, other apps to get access to parts of the operating system, as they've always said, we can't do this because of a jeopardized user privacy and user security. Well, here they are opening themselves up to open AI in a very deep and fundamental way in order to accelerate the development of these features. In other words, they took the shortcut. They could have developed the LLM themselves. They could have developed the AI themselves, but they chose not to do that.

49:17And I think this is going to open Pandora's Box for Apple because again, they've proven that they can open up the operating system to a third party now. And who knows what the privacy implications of this are gonna be? It turns out Apple has addressed this head -on. They hear the concerns and much like when you share a photo or you share your location, it's going to ask you over and over again, do you wanna let this app do this? So they're aware that this is an issue. They brought up privacy every single time, but people don't trust OpenAI. And they do trust Apple, so this is Strange Bed Fellows to be shortch them off your thoughts.

49:52I think that Apple really cares about privacy when they're trying to hurt a company they don't like, E -Meta, and they're willing to figure out a way to work around it when they're behind it. They're behind it. They're behind it. That they clearly support. Open AI. Yeah. What were you behind? You know, you behave differently than when you're ahead and you have your monopoly. Freeberg, you wanted to add anything here before we move on to. And then next story, okay, in related news, open AI has hit a run rate. And this is kind of stunning of $3 .4 billion. That means they've roughly doubled their monthly revenue in the past six months or so.

50:32These are not official numbers, open AI is denying them. But here's a chart that somebody put together based on all the different leaks and approximations of what opening eye is making the reason this makes no sense to shorten the shows a year and then it shows a month a month a month a month a month is because there's been differently except different points in time but just to normalize this in 2022 for all of 2022 before they really had a lot of customers 28 million and now on a 3 .4 billion dollar run rate again it's pretty stunning number if you can true you can do apples to apples here because It's like 2023 Jan is 200 billion.

51:10That means that June is 300 million if they're on a $3 .6 billion run rate. Yeah. And so if we were to even look at, the number of people who work there are 770. If you put that a 500 ,000 a person, some engineer is getting a couple of millions, some people may be getting less. They've probably only got a half billion dollars in salaries a year. Who knows what they're spending on the infrastructure for this? If you were to do a valuation on this, everybody knows they sold a bunch of shares in secondary at around 80 billion, which means they're trading at. If these numbers are true 25 times for revenue, which is close to what Nvidia is trading at right now, obviously, the two very different businesses.

51:51So your thoughts on this as a SaaS company, obviously the majority of this revenue is consumption -based. Some portion of it is SaaS -based reoccurring, like subscriptions we pay for at launch, my venture fund we pay for 6 ,000 a year to have all 20, 25 people on chat GPT as a corporate account. Maybe it's 2 ,500 a year per person. So what do you think of this business, SACs, and how fast it's growing? Obviously some of its API consumption based, not reoccurring. Some of it is reoccurring. First of all, let me say that we've talked about AI, general hospital, and all the soap opera issues around open AI.

52:27And judge tax had opinions on that. But putting that aside, I mean, everyone acknowledges that their products are awesome. I mean, OpenAI makes really great products with the chat GBT40 being at the top of the list. And I talked about how when we moved from chat GBT40 turbo to 40 at glue, the speed and quality went up at least 2x and it felt like 10x. So they have the best language model as of this point in time. And they also have other products that are really great, like the Whistray API which does transcription. I mean, there's a whole bunch of tools they have that are great for developers.

53:05So nobody's taking anything away from them on the product side. And I think you're seeing that in this revenue number. Now if I was to try and take apart this business as an investor, I would separate the B2C business from the B2B business. The B2C is a consumer subscription plan, people paying $20 a month. I'm one of them. I pay the 20 bucks a month. It's probably the only LLM that I would pay 20 bucks a month for. How often do you use it? Daily, weekly, monthly? It's a handful of times. It's not, to be honest, it's not like a daily use for me, but I probably use it every week, I would say at least once.

53:43So I still use it. I have to say though that the other LLMs are catching up and if Gemini ever gets good enough or you know when Brock gets to the next level, am I going to stick with that $20 a month plan? I'm not sure. It depends whether open AI can really maintain the leadership it has or the perception of leadership. Okay, so that's half the business and then the other part of the business is the B2B, which is the API products that effectively are selling to developers. and that's where I would place the future value of this company. I mean, as somebody who invests in SaaS, when we see a business that has that beta C subscriptions and beta B, we place all the value on beta B, and the reason is because historically, the turn rates in beta C are too high.

54:29Yep. Five to 10 % turn rates are common, 50 % a year. Per month. Per month, 50 % turn a year, very common. Open AI may not be experiencing that yet, but it's very hard to avoid the down draft of consumer churn. And on the other hand, on the B2B side, a good B2B business has expansion, 120%, 150 % expansion, you're over year from same customers. In other words, they're ordering more. So you would compare this business to Amazon Web Services, Google Cloud Azure, that's really the business here. Yeah, the first thing I'd wanna know is how much of the 3 .4 billion is consumer and how much of it is developers?

55:09We'll find out eventually. Tremoff your thoughts on OpenAI's surging revenue. I'm kind of in David's camp, which is I think to the extent that the business has a large, terminal value, it's going to be because of the enterprise cash flows. The thing to keep in mind is that I still haven't seen enterprises building production level products using AI. It's all experimental, right? It's all experiments now. That's nothing against open AI. It's just a commentary on the fact that we are at a very, very early part of the cycle where when you use this term blast radius, right, what are you referring to?

55:52You're referring to this idea that you're stringing together elements of a model or multiple models that each have some non -trivial error rate. And by multiplying all these error rates together, you get your final product. But the unfortunate reality in most AI workloads is that you end up with something that's not very good. And that's not the fault of open AI nor is it the fault of Lama. It's just the nature of how these bottles work and the fact that you've gone from something very deterministic to something that's very probabilistic. And we have not found a way to create extremely high quality experiences.

56:31We as an industry that make this cost justifiable. So right now, as you said, Jason, most of that is toy apps and a lot of experimentation. Will we get there? I absolutely think so, but we're not there yet. So I suspect that most of the revenue then is on the consumer side right now, actually. And so I just looked at Google trends, and I first looked at the United States, and I just wanted to understand how is the traction. And what's interesting is is that the traffic in the United States is down about 25 -26 % since the end of the school year, which I think reinforces this belief that CHEDGPT has definitely over -indexed in that young people's cohort where they rely on it to write essays or what I have you.

57:19But then I looked outside the United States and worldwide and what's interesting about that is that's actually still growing up into the right. So I think you have then an ARPU problem, which is the same thing that we had to deal with at Facebook, which is we have these extremely valuable users in America. They asked them to at some point and then we have to grow in other markets, but those markets aren't nearly as lucrative. Right. They just can't generate nearly you per user. ARPU per year is single digits. Maybe it hits double digits. As opposed to that. States where it could be triple digits, right?

57:51So then I don't know. I would just wrap up by saying that I think that it's just... If this number is right, it's just an incredible testament to what they've been able to uncover and create in a short amount of time. That is legendary stuff. Yep. But what I can tell you in working with enterprises around these AI experiences through 8090, we have not yet seen production quality models being deployed in the wild that are dealing with very, very important business processes, which means that most of the revenue right now is probably consumer oriented. Okay, Freyberg, I don't know if you got to see Sonny's talk at liquidity last week, but he talked about how many of the CIOs, CEOs are looking for open source solutions.

58:40Here, 80 % of them want to go open source. They don't want a proprietary model to invest in, but the best model right now is a proprietary model. So what do you think about OpenAI's revenue surges that's sustainable, or are there 20 better open source projects that are going to be death by 20 open source project cuts? And Tramot's general feeling here that, hey, it's not ready for prime time yet. It will be, but we're in the AI dial -up area to use an analogy here. Hey, you can see the problem is but kind of sucks in terms of reliability. Maybe OpenAI is AOL, right? Like, I think that there's going to be a Google that'll show up, that'll maybe it's Google.

59:22That'll grab a large part of the value here. Or ultimately, the cost comes down so much with the open source tools. I do believe that these open source tools are incredible. I mean, the open source Lama instances are like, they get you 85 % to 90 % of what you're looking for. So if you're an enterprise user, why would you pay thousands of dollars for the open AI platform when you can use llama and You can tune it and you can build your own front end to it your own integration with your own data, etc etc It's just early days for enterprises figuring out how to do that But I do really believe That the future is enterprises companies building their own LLM driven tools for both internal and external products that leverage smaller open source models and that we're kind of in this, you know, dearth of people's understanding and ability on how to actually execute against that, which makes the default to be go to the chat GPT interface.

1:00:23I will also provide a counter. I just did a big project at work this week. We had a big off site with 20 people involved and everyone used chat GPT to get ready for it. So there was a ton of analysis, a ton of data gathering, a ton of reporting needed for the off site and rather than hire a third party or have people go out and source data themselves, a lot of us, including myself, I prepared like maybe a quarter of the material, just use chat GPT and pulled the sources to make sure it was all kind of stuff. Did you pull sources and check facts, right? You do have to do that stuff. Yeah, so we pulled the source, and there were a lot of wrong stuff just to be clear.

1:00:57But for our purposes... For our purposes... ...their to ballpark. I would say 25 % of it was like wrong and then you had to clarify. But the truth is, for this particular application, it didn't matter. We were making some approximations on markets and sizes and and various facts that we were kind of using to Do some strategy stuff but in some product development stuff. So I would say like it wasn't useful You found it 100 % and I would say it saved us hundreds of hours hundreds of hours and You're paying them an enterprise license or a consumer license 20 bucks a month. What is that? It's the same thing for the enterprise Jamatha you can just sign up and for 20 bucks a month you can have your whole organization on it like the free bird, yeah, no free bird, like you're just paying it yourself or you pay for everybody at Pohalo.

1:01:39I think everyone has the right to pay for, I think other people at the company pay for it too. I'd pay, like I have my, I don't have like a corporate thing set up. So we took the time to set up the corporate, it's really easy and then anybody with your domain can sign up and let you track it, but it doesn't consolidate. That's what I'm looking for, Chimap is the ability to consolidate all the searches in one place and everybody can share their searches. But like I said, the application is what we're doing, right? In some way, SACs. Yeah, collaborative AI. It's an application today meaning like we go to the app We ask questions we get answers and we use that and I actually had it pull tables down and I drop those tables in like all So it's a great stuff.

1:02:14It could do you know do some analysis pull out the stuff with analysis showed Understanding unit economics on various businesses all the sort of stuff that it can solve and it's for that stuff It definitely makes everybody bionic I agree But what it's what it doesn't do yet is take all of our internal data and all of our internal tooling and kind of reconfigure how we use that. So we're still paying for a whole bunch of enterprise software and SaaS licenses for things that we know we don't want to be paying for in the future. And we're now starting to figure out how can we build our own AI -based software to replace a lot of the dependency we have on third -party software that uses our internal data for our internal consumption.

1:02:52So there's a lot of that still ahead of us. And that's why I know it and we're pretty progressive. So that's why I know it's early innings. because I see the way we're going to use it. And I know that we're probably well ahead of a big enterprise company that are more traditional. And so I can see like a couple of years from now, all these big enterprise are going to figure the same thing out. And then you're not necessarily going to need to pay for the chat GPT stuff if there's an internal tool and an internal LLM that you can run. The young people are really getting dependent on this. And they use it constantly.

1:03:23We're on our investment team meeting who are evaluating a company for real estate brokers. were evaluating a company for therapists and tools and SaaS products for those type of people. And when I asked them, well, how many, what's the total addressable market? Boom. Three or four researchers and analysts on my team are doing that search, finding sources and saying, there are this many therapists, this many social workers, this many real estate workers, this many bice, and then I'm saying, well, did you source them? They're like, yeah, of course, I asked, and what of them was like, well, I asked Claude, I asked Gemini, I asked Chad Gbt, I asked them all for sources, I cross reference them.

1:03:56So they're like, have three of these things open. And so just everybody's knowledge level goes up, but you do have to check it because one out of four facts is probably wrong or cited wrong. And so it's going to be, I think one out of four is about the right number. Yeah. And so that's interesting. So you use multiple LMS to find the hallucinations. Yeah. Basically, you cross reference. That's actually pretty interesting. I jump on Gemini too. So I use Gemini .google and I use chat GPT and I just make sure that stuff lines up just sanity check things because I'm but you're not gonna pay for these right how many would you be willing to pay for I call I mean five you'd pay for five different LMS well think about it if somebody salaries a hundred thousand and these cost a thousand dollars to have five of them of course I pay for five well as a work tool okay it says a work tool you know I guess I guess there's three categories to their business now that you're raising this there's sort of the consumer subscriptions then there's the business subscriptions which are basically the consumer product but a company's paying for it.

1:04:53And then there's the developers paying for a meter day. That enterprise is really powerful. Yeah, it's kind of like Microsoft Office or Google Docs where consumers use them for free or want to use them for free and that companies will pay for it and that's where the real money is. Anyway, this is going to make people bionic. I think all organizations will have the same number of people for the next couple of years and then just individuals will get better and better at their jobs and so efficiency is going to go way up speaking of efficiency. The market is ripping. We're going to get a little macro here in three acts inflation has been broken.

1:05:31I think it's safe to say we're down at 3 .x, 3 .3 lower than expected and hiring wages are are surging and stocks are surging. So let's go through it here and get the besties take on the vibe session. Actually disagree with that framing, Jason. Yeah, I disagree as well. We disagree with it. Let me go through the numbers. And then you can all disagree. That's how this works, folks. Inflation print came at 3 .3%, lower than expected. Here's your 10 -year chart. Super easy to explain what's happening here. Rates were low for a long time. Inflation cruising at about 2%. And then lunatic spending during COVID.

1:06:07and we added a trillion to the national debt, and then Biden added a bunch. Everybody getting those Stimichex and PPP loans. And so if you look at inflation here, we were just cruising along at 2%, massive spike, up to 9 % year over year inflation, and now coming back down to 3 .x. And the question is, can we get to a two handle? And the rates went up faster than in ever in history. Here's the Fred Chart. You can see there in, and this goes from the 80s. You see that massive spike when they try to break the back of inflation previously. So, this is the fastest ever gone up. And here we go. The common sentiment here is that savings has been burned off and people are starting to have debt.

1:06:50And so now we are in act two, the lowest unemployment rate of our lifetime continues. If you believe those numbers, some people do. some people don't labor department before it's 272 ,000 new jobs in May, smashing, crushing the 190 ,000 estimate, and then act three, average hourly wages up a massive 4 % from last year at $35 an hour. That also topped estimates. So if inflation is at 3 .x and hourly earnings or at 4 .x, maybe consumers will start feeling better about the economy eventually. They obviously They've been pretty shocked by that 90 % inflation and only 4 % growth. Here's your chart from Fred and the hourly earnings of all employees.

1:07:38And you can feel pretty good about that. Everybody's way just keep going up. The question is, do they go up faster than inflation? Okay. So there's my framing of the situation. Frebrake, tell me what I got right. Tell me what I got wrong. I think there are three numbers that matter. Okay. Okay. Flation rate, the growth in GDP and the cost of borrow. The growth in GDP in the first quarter of 2024 was a lousy 1 .3 % on an annualized basis. And even if the rate of inflation came down, we are still inflating the cost of everything by north of 3%. So the economy is only growing by 1 .3 % and it costs more than 3 % more each year to buy stuff.

1:08:20So that means everyone spending power is reducing and our ability and our government's ability to tax is declining because the economy is only growing by 1 .3%. And the most important fact is that the interest rates are still between 4 % and 5%, 4 % and 4 .7%. That means that to borrow money cost 4 .7%, but the business as the economy on average is only growing 1 .3%. So just think about that for a second. We have a tremendous amount of leverage on businesses, on the economy, on the federal government. That leverage, the cost to pay for that debt is more than 4 % to 5%, but you're only growing your revenue by 1 .3%.

1:09:04So at some point you cannot make your payments. And the goal, and that is true for consumers, that is true for enterprises, and it is true for the federal government. just to point out here what you're saying. The goal was to, in fact, increase the interest rate just to accrue the economy, right, which they got too late, but that was the goal. That was the explicit goal was to accrue the economy. Yeah, the whole purpose of raising rates is to slow the flow of money through the economy. And by slowing the flow of money through the economy, there is less spending, which means that you're reducing the demand relative to the supply, so the cost of things should come down.

1:09:40You should reduce the rate of the increase in the cost of things. Now, if you click on this link, make that I just sent you in response to the condition in the economy today, Elizabeth Warren sent this note to Jerome Powell three days ago, saying, Dear Mr. Powell or Dear Chair Powell, we write today to urge the Federal Reserve to cut the Federal Fund's rate from its current two -decade high of 5 .5%. The sustained period of high interest rates is already slowing the economy and is failing to address the remaining key drivers of inflation. She goes on to point out the fact that consumers are suffering, businesses are suffering, and the strain of these three numbers is really starting to show on individuals, on businesses, and obviously on the power of the dollar.

1:10:25But the dollar is a different story. So the condition of the economy and the rest of the world, and we're in a very unique position. But I think that things are not as rosy. Now, there's certainly a shift in the market because what this tells us is that the timeline at which the Fed will cut rates is coming in a little bit, relatively speaking. And so the market is saying, okay, let's adjust to lower rates. The 10 -year treasury yield has come down a bit, but we are still in a difficult situation for people and for businesses. And you have Elizabeth Warren, who I think is the voice of small businesses and consumers.

1:10:56She's trying to be the voice of those groups. Yeah, that's the hard. I'm saying this is very hard on people. Tremoth, what's your take on this? We have a slowing GDP growth. We have inflation going from nine down to three. We have wage is going up 4%. How do you make sense of all this? So you feel like, sorry, freeberg, are you saying we're going to have stagnation or we have stagnation right now? Definitely. But what I'm saying is that it's not a rosy picture just because labor rates are going up. If the labor rates aren't going up, and you can see this ultimately, the best number for this is the sum of GDP growth.

1:11:35So in aggregate if the revenue of everything combined which is GDP isn't going up faster than the increase in the cost of everything People businesses and the government can't afford their stuff and that's fundamentally what's going on right now What we need to see is a normalization where GDP growth is Greater than inflation rate and as soon as that happens then we have a more normalized And stable economies right now things are not stable. There's a lot of difficulty and strain and assistive I I will put myself on the other side of that trade if there was one. If I had to simplify the United States economy, remember GDP is 70 % spending by individual people.

1:12:19And so people can spend two things, savings that they have or credit that they have. And what's interesting is that we have finally burned through, and this is what this picture shows. All of the money that folks had in their bank accounts. And so what does that force people to do? It actually forces people to re -enter the workforce so that they can start to make money. But the problem is that companies have been shrinking and have been on a defensive posture. And so as a result, which you started to see this past unemployment report, unemployment is now taking up because when these people re -enter the workforce, there are no jobs for them to have.

1:13:05People are filing incremental unemployment insurance claims, states like California, in fact, the state of California was the worst off this past month. So I think what we're starting to see is that for the large portion of the economy, we've run out of cash to spend. And as a result, I do think that we are going to see an economic slowing. And I think that that will create not just enormous empirical justification for Jerome Powell. It'll be exacerbated by what Friedberg just showed, which is the political pressure that he's going to be under to cut. Will it cause him to cut more aggressively than he would have otherwise?

1:13:48On the margins, I actually think yes. But my perspective is that I think that we've run out of money individual people. So I think unemployment is going back up. I think GDP is going to shrink. And so I kind of tend to be in this camp that we're going to steep more than one rate cut. So here is total job openings to your point, Shamaath. They're getting burned off. We peaked at 12 million. Again, if you believe the numbers are not, they obviously have some value. And we've burned off a ton of those. So Sousaqs, what's your non -political, non -partisan tape, first principles of what's going on with the economy?

1:14:23Well, look, we just had this inflation report. CPI was 3 .3%. The market was expecting 3 .4%. So that's a teeny bit better than expected, but it's still persistently sticky inflation is. And furthermore, Powell's comments were very hawkish. She basically said he could not commit to when rate cuts might begin. And we're ready. Remember at the beginning of the year, we entered the year with expectations for seven rate cuts this year. Now we're down to an expectation of one rate cut. And we can't say for sure when that's going to happen. So honestly, I think your introduction overstated how positive this news was.

1:15:04And that's why I think if you look at the markets right now, it's very mixed. most tech stocks that I'm seeing are actually in the red and a few of them like Tesla and Apple and Nvidia are up but the vast majority are in the red. So I think the market is taking this in stride. I think the big picture here is just we don't know when red cuts are going to begin and I think that Vinnie Lingham had a really interesting take on this actually where he said, look could Powell cut by a quarter point with that matter that much? No, it wouldn't matter that much but the point is as Powell doesn't want to say that the rate high cycle is over.

1:15:40Right? If he were to cut by a quarter point, that by itself wouldn't do much, but it would be a huge statement that we're out of the woods on inflation. There's not going to be any more hikes coming and we're beginning a new rate cut cycle. And Powell is clearly unwilling to say that. We're still in this like limbo where he is saying that we don't know when rate cuts are going to begin. Betting markets had two, a 70 % chance of two rate cuts before Powell spoke afterwards now it's one rate cut, Dow, record high again this past week and NASDAQ record highs each of the last like month for less four months.

1:16:15So the market, putting aside individual stocks has broken records almost every month for the last three free bird bills. On the back of like two stocks, I mean, Nvidia is holding up the whole market. There's a lot of funny memes about this. Nvidia, Microsoft, and Apple. And AI stocks are holding up the whole market. Correct. Yes. Record stock market. What does Jerome Powell have to gain or lose by bowing to political pressure? So a lot of folks mention and reference his kind of, there's political pressure for him to do something. But why would he bow? What does he care? What do you think the motivation is for Powell individually?

1:16:56And what is the political process that will ensue? future job. It doesn't bow to political pressure. I think it's the legacy and the perception that he leaves behind. I think had he not overpromised and underdelivered at the end of last year? Remember, he was promising, as SAC said, six or seven rate cuts, and he's delivered bubcus. And the markets were none too pleased. And so now I think he's just swung the pendulum to the other side, which is he's going to massively underpromise and then overdeliver if he can. And so as a result, I think he's being much more measured and guarded. I don't think he wants to be wrong here.

1:17:31So I think he's thinking about what most folks think about when they're at the tail end of their of a job like this, he's not going to get reappointed. He's going to go off into the sunset. It's roughly about how his career will write, how he handled the transition from that to the next phase, whatever that is. So I think he's probably very interested in making sure he doesn't break the economy and also that he doesn't seem like he's constantly waffling and unpredictable. But is any just an autonomous agent that is meant to respond to the data? I guess I'm not quite understanding the degree of judgment and discretion that I have to do a mandate.

1:18:01They have a mandate, but if you're asking what his incentives are, I agree with you. I think his main incentive at this point is concern for his historical legacy. And specifically, he wants to be thought of like Volker, not like Arthur Burns in the 70s. Volker basically crushed inflation even at the cost of recession and he is worshiped today as the best Fed Chair ever, whereas Burns let inflation slip the leash in the 1970s and he's not thought of very highly. So I think that Powell's main concern here is with his historical legacy at this point. I don't think he's expecting to be reappointed.

1:18:37He's wrapping up his second term already. Now I think if you go back to 2021, the incentives were a little bit different. it. Powell once be reappointed by Biden. And remember that in the summer of 2021, that's when the inflation began, we had that surprise 5 .1 % inflation print. Powell was up for re -nomination and confirmation in November of 2021. And I think what happened back in that year is the administration downplayed the inflation report. They called it transitory. Yellen did, Biden did. And so Powell had to get on board with that message if he wanted to get confirmed by the Democrats and he did get on board that message.

1:19:15He repeated the whole transitary point and for that reason, they didn't begin the rate hike cycle until March of the following year and from that May inflation print to November, they kept doing QE even though we had inflation back in the system. So I think that Powell was actually intensely political in 2021. He knew who was going to reappoint him and who was going to have to confirm him and he got on board that message. And that's why they were so slow to react to the inflation. And I think it was disastrous. And that's one of the reasons why the rate tightening cycle was so steep is because he had to catch up with all this inflation that he had allowed for nine months longer than he should have.

1:19:53But if you ask me what's his incentive now, I think it's purely about legacy. And he does not want to let inflation come back after cutting rates a little too soon. So his incentive, I think at this point is to make sure that he's not wrong again about inflation. And to remind everybody, maximum employment, stable prices moderate, long -term interest rates is the mandate for the Federal Reserve. They're supposed to be independent, famously Reagan, push vulgar to get rate cuts. And there is a lot of politics involved in this. And so, legacy does seem like the organizing principle here, I would agree with Chimoff and SACs that it's legacy, but there's always political pressure here, as you can see.

1:20:40Elizabeth Warren is trying to push him to make cuts for obvious reasons. Well, no, there's politics when they're up for appointment or for re -appointment, for confirmation basically, because they want to get that vote. Yes. But there's also subtle pressure and then there's a letter writing like Elizabeth Warren's doing here Right, so the pressure can be there the question is do they bow to it right sex? Yeah, they don't have to I mean the Fed's independent What do they stand to gain or lose by the pressure is my question And I'm not sure I really like this concept exactly and I think that's really where there's a Important point to note here that you can identify the guys motivation and how he's gonna operate this year because there are no there is no political pressure There wasn't 2021 and I think that's why he was slow to react.

1:21:26Yeah, right. Listen, if Powell can stick the landing here, then his legacy comes out intact. But if he screws this up and then he was slow to react to the inflation back in 2021 and 2022, his legacy is going to be mud. So I think he's going to be more concerned about airing on the side of tamping down inflation than airing on the side of the economy not doing as well. I think those are the incentives. My position is I think he might have already stuck to landing. I think like the fact that we've burned off all that savings to your point, Jamoth, that people are going back to work and that these businesses are doing fantastic and efficient because of AI and other gains.

1:22:09It feels like all the people are trying. I think he's actually a tough stock that are no. No, no, they're trying to go back to the job point. To free bird's point. I think they're going to take jobs. They just might get the job they want. And that's what I think people have to recognize is they have to take a job. And they may not be the one that they want working from home. We could have a negative recessionary print going into the election cycle. I think that's very possible. Yeah, exactly. I don't know, Jason. Look, I'm hearing a lot of happy talk right now. And I just... you had one point three percent GDP growth rate with a six percent of GDP deficit by the government.

1:22:50If the government wasn't printing so much money, wasn't overspending, that's right. If you were to have a balanced budget. It would be a recession. Yeah. Think about that. Just to try to be negative, it would be negative GDP growth if not for the government's programs, stimulating the economy. And a lot of the jobs you're talking about are government jobs. The government is creating jobs like crazy, not in the private sector, but in the public sector, because it is an election year. So there's a lot of political forces propping things up. And I wonder what happens after the election. We'll find out.

1:23:23All right, everybody. This has been another amazing episode of the All in Podcast. Just one last thing, guys, this is really important. So friend of the pot Peter Fenn who's a famous VC in Silicon Valley tweeted that his sister has been diagnosed with the rare sarcoma and they are searching for lookalike cases to do a study at Dana Farber. And if this works, it will change the future of cancer. But they are seeking this research ably in Gibson who is retweeting. Is seeking patients with myoxoid, lyomyosarcoma, featuring a PLAG1 fusion? So if you are somebody out there who has a case like this, Then please reach out and let us know or let Peter Fentonow this could save a life Or many lives his sister is also the the wife of a good friend of ours P.

1:24:20Brigger so our thoughts are definitely with you and if there's anybody out there who Has this type of virus or coma please let us know and we can refer you to Dana Farber and This is a very important study that may save some lives Peter and Peter are great guys and our thoughts with Devon and hope you guys find a cure. Okay, best wishes to Peter and his sister, help out if you can and you're in our thoughts and our prayers.