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#FinanceDaily: GOP target ESG, Softbank on offense, India US Relations
Recorded: June 21, 2023 Duration: 1:36:21Space Recording
Short Summary
The transcript discusses various market trends, including the end of a market rally, potential economic declines, and the impact of central bank communications. It highlights SoftBank's strategy to raise funds and invest in AI, reflecting a trend in targeting emerging technologies. Additionally, AI is recognized as an innovation to improve business operations and workforce management.
Full Transcription
All right. We're going to bring Jeff up too. Can you guys all hear me? Yeah. Yep. I had to take a second because I was so freaking upset at Twitter that I nearly threw my phone across the living room because this freaking platform, Mario hates it when I do this. But just a quick message for everybody that's listening.
This is my tirade.
I'm about to go into a tirade about Twitter spaces,
the platform that we use every day at 8 a.m. Eastern.
It happens every once in a while, everybody.
Every once in a while.
Grab yourselves in.
Yeah, so.
You know, usually in every engineering team,
You have front and engineers, you have back engineers, you have full stack, and then you have DevOps.
The DevOps team on this freaking platform are the dumbest people I have ever met in my life.
This is ridiculous.
Twitter Spaces team, can you please fix this problem?
Jesus.
So every day when I join and try to go as co-host, it freaking falls apart.
This is crazy.
This is not complicated.
All right?
Just do your jobs, guys.
I know you guys listen to us.
I love you.
But can you please start taking care of this?
This is getting out of control.
You guys don't know this, but it takes me about three to four minutes every single day
to try to get onto this platform and become co-host.
Can you imagine?
Like every day we have reached out to them privately.
It's time to do it publicly.
Romi, who's one of the producers, is about to kill me just so you all know.
Oh, I just got her message.
Let me see if I can read...
Oh, I was told not to call them dumb on stage.
I apologize.
I didn't mean that.
I was just a little angry.
You know, it's early in the morning.
I haven't had my coffee.
So, sorry if I called them dumb.
Just do your jobs.
All right.
Hi, everybody.
Sorry.
How's everybody doing today?
Justin, okay, everybody's doing that.
All right, good.
You're just happy you're not on the Twitter Spaces team right now?
After that intro, I don't even need coffee.
That's right.
Jesus.
All right.
There's a lot to discuss today.
I think there were three main topics, but I also wanted to run through the markets.
I think the markets have been mad confusing recently.
The rally ended.
Michelle, Mish, nice to see you.
Just a quick...
update on the markets, you know, what are you expecting this week? Because it's a shorter week and it started off a little rocky.
Are you expecting that it was just a little relief off of the rally? Or do you think that this is a true pivot?
Well, what's interesting is, good morning, everyone, by the way. What's interesting to me is that so far, we are still...
in the trading range, depending on where you look, right?
Obviously, cues and spies have done their thing.
But we always felt that those would stop wherever and whenever some of the more inside sectors would stop,
regardless of what that is if they couldn't get through certain areas.
And so looking at the Russell 2000, the small caps,
or some people are saying now, forget the Russells, look at the S&P 600, that the shot looks very much the same.
But going back to the Russells, they weren't able to get through 1900.
And so right now they're actually slightly green on the day coming into today.
So they haven't exactly retreated.
So let's call it a pause for now, but they're not wowing anybody in terms of really showing true economic growth in the U.S.
as far as the things that are made in America.
The retail sector actually got weaker over the course of the end of last week into the beginning of this week, but yet that's also green a little bit.
And transportation was starting to look really, really interesting, and that took a bit of a pause, too, but that still's holding up well.
So if you just take a look at those three things, I wouldn't discount them.
I believe that if the market was really going to go down harder at this point, we would have seen more evidence in those three areas of more weakness, and we haven't, just more testing recent support.
And so I really kind of think right now that...
The market may want to try another leg up if we can get those three areas going, particularly retail.
And the semiconductor space and the growth tech stock space may be tired, which would that be expected,
except in certain areas, obviously, just to take a look at, you know, meta is still really going strong.
I think it's down a little bit today.
Netflix is still going strong.
Tesla obviously now, new news coming out with India going strong.
So overall, I'm really watching a couple of things.
Those are on my mind, obviously the indices in the sectors.
But what I'm looking at is the relationship between the high yield debt bonds, because that's really the key indicator of risk, right?
What is the appetite for risk?
And those bonds have definitely based out and gone up along with the market, but not to the same extent.
So that's one thing to be watching here is what happens with those bonds.
Can they continue to hold up at these levels or do they turn over?
And even more important than that is what is their relationship to the 30 year,
or I should say the 20 plus year bonds in the TLTs.
And those have been holding up.
But everything is just stuck.
Okay.
So I think that we have to look at the pockets now that are moving, right?
And so what's starting to move bigger?
Grains, you had the CPI coming out of London, UK today.
showing still inflation, what a shocker to me.
Grain, food, all of those commodities are going up.
Oil is sort of sitting there thinking maybe it wants to go up.
So I'm still focused on the commodities market and I'll watch the equities market,
but I think that it's the commodities now that are going to start to look more interesting
and the companies that are related to commodities and the countries are.
that are related to commodities like Latin America all of a sudden doing very, very well in terms of the ETF.
So, yeah, we're in the stuck point, and they use the word stackflation to describe what's happening in the UK after the CPI numbers.
At this point, I'm still thinking that here, although we're doing a lot of investment in our own manufacturing,
but we have not seen that really translate with the Philly Fed showing contraction.
of orders, new orders.
And then, of course, you got the final X-Factor piece this week,
which is Powell's going to start jawboning today.
So people are going to watch what he has to say.
So this is kind of like a dull drum.
If you didn't already get into all these big moves
and you're looking to get in now,
I think you might be in for a little bit of an anxiety attack, at least.
And if you really want to look for the opportunities...
if we don't get too much of a hawkish talk based on the numbers we're seeing out of England knowing that inflation is global and probably not done here, certainly if you go shopping, you see that, then I would be looking more towards how do you trade a stagnationary environment, and the second half of the year could be really all about that.
Yeah, I mean, I wanted David to weigh in here as well as our other markets person.
David, you know, do you largely agree with Mish's assessment of the market?
Are we in this stuck position?
Our commodities continuing to rise, especially with the new data out of the UK.
Are we seeing all of these patterns play out?
Or do you think that there is potentially a big move in the market that's coming?
like a big move to the downside or a big yes they already had it we've already had a significant
move to the upside and and uh going into the option yeah yeah so yeah this option's exploration
was a in my opinion a significant event you had a you had a significant uh increase like gamma
exposure going into it um obviously the s and p like it
produce some very, very rare overbought signals.
You just don't get very often.
I tweeted about that last week,
especially at the end of last week,
some rare technical signals.
This got so overbought.
And I think a lot of that was related to the options expiration,
and in particular the June, the June expiration,
which includes, you know, all the different, you know, futures contracts,
options on futures, single stocks, things like that.
So the quadriple witching you hear about sometimes.
So coming out of exploration was, in my opinion, the event to watch and to see
how much of a decline that we have.
As of right now,
it's muted.
It's okay.
You know,
as long as it stays muted here,
we can ride the momentum train.
You know, I've talked about before.
I expect more of a decline to come,
but...
As long as these magnificent seven stocks, as long as these large cap tech stocks, which have concentrated the market so much, I've told you before, you know, that they make up like over 27% of the S&P, over 55% of the NASDAQ 100.
You know, as long as that momentum train still running, right?
And it's produced some pretty significant signals on the NASDAQ 100 and now on the S&P 500.
As long as that momentum train keeps running, like, you know, parabolic moves can stay parabolic for however long it wants to.
But...
Once parabolic moves in, they don't consolidate sideways.
No, that's not how they consolidate.
And so there will be a significant reversal at some point.
I don't think necessarily right now it's going to be in the near term
because momentum is just that strong on the S&P.
And so, I mean, we've had a nice little pullback the last couple of days,
but it's not nothing major.
It's not even like broken like short-term moving averages.
So I would just keep running, riding that momentum train.
I wouldn't put a lot of risk on the table in those areas because it can change really quickly.
But it doesn't look like it's going to change really quickly like this week or next week.
I would just keep, I would just keep riding that train.
But do you think that deflation is a realistic thing?
outcome here that we that the that we're gonna I mean that's sort of the bigger overarching question
because you know Robert Wolfe just and he thinks that we're going to have this beautiful
beautiful gorgeous soft landing that just you know that J. Powell is just gonna land the landings
do you think David that that
actually a possibility. I'm hearing otherwise. I wanted a little bit of controversy as Robert
dances. No, I don't, I don't think so. I think that, you know, that we've, that we're so
extended in a lot of different asset prices, that there's, you know, the only reason why we haven't
yet had more of a deflationary event, which I, I expect to come, is unemployment still
very, very low.
And once unemployment kicks in,
and I told you like two weeks ago to watch the jobless claims numbers
to see if whether or not that one week spike was an anomaly.
So far it hasn't been.
So we'll see again Thursday.
I mean, as long as once joblessness starts to increase,
then that's going to be what starts to create more of a deal not just a stiflation or disinflationary
environment which is what we've been in right with decreasing inflation um but i think more of a
deflationary event at some point in time i don't think we're going to stick a soft landing
um in fact i i think that the the drop in inflation um is going to stop here
in July with the June numbers.
That's going to be the last time the year-over-year number drops.
In fact...
like gasoline on a year-over-year basis it's going to bottom out here like right now it's not
going to go down anymore on a year-over-year basis so it's bottomed out and it's going to start
to actually increase on a year-over-year basis and of course you know you know that how much in
fact i've watched that as a as a proxy for inflation expectations um
I don't think it's going to get, I mean, it's,
people make such a big fuss about how it had dropped so much here at the last reading
at the Cinnocet Survey.
I don't think it's going to drop that much anymore.
I think inflation expectations are going to start to ramp back up as,
as year-over-year gasoline ramps back up.
And I think inflation is going to stay strong.
Like, it's not going to drop anymore.
I think it's going to start to ramp back up in the August release of the July numbers.
That's when the year-over-year numbers will start to go back up.
So I don't,
I think at some point in time that's going to hit.
I mean, we talked before about housing is still really, really strong.
You talked about that yesterday quite a bit.
It's still very, very strong.
Big starts numbers, permits beat expectations.
Housing values are still.
They've pulled back in some areas, but on the national level, haven't pulled back enough.
Yeah.
And the reason why is because unemployment is still very, very low.
And if we can go through this entire event
without a significant increase in unemployment,
then even Powell will have failed in what he said he wanted to accomplish,
which was last June an increase in the unemployment rate to almost four and a half percent.
That was part of his stated goals for this rate hike cycle.
He mentioned that specifically in his comments.
And if...
And if we can't even get to that, then he's going to mention how much, you know,
that he's failing that particular event.
And if we do get to 4.5% like we've never not had a recession with that big of an increase in unemployment.
And that's what's going to spark, you know, the housing decline and more of a deflationary environment.
So I don't think we're going to have the soft landing.
No, I don't.
All right, Robert. Thank you for joining us.
Stop Land, Thierrez.
Sorry.
What are your thoughts, Robert?
Do you agree with Mitch and David?
I mean, I agree with a lot of what he said.
But first, let me make sure I'm clear here.
No one said anything's beautiful.
I just want to be clear.
No one said we have this beautiful thing going on.
And I don't think I'd ever use the word soft landing in my many, many hours on this show.
So I'm glad that you guys are putting words in my mouth,
but I think I articulate my ideas.
That's our specialty, by the way, Robert.
Um...
Yeah, but I will say, Robert, just to be clear, that's right.
But I was going to say that one thing was that there would be no recession.
You have said that, haven't you?
No, correct.
So I can speak to myself, but thanks.
Okay.
So one, I don't think, I actually have said there's a 10% chance of stackflation.
I think it's even lower than that.
But, you know, yes, there's a chance.
I'm not where the gentleman that spoke before was.
I didn't hear what his thought it was on chances.
I mean, my view has not changed.
I said inflation will have a longer tail.
I think the Fed needs to get off this two, two and a half percent rate.
I think if we were, if people said, or if anyone said, hey, inflation is going to hang around
three and a half percent, people would say fine.
I don't think they'd give a shit.
So one, I think inflation will have a longer tail.
I think it could creep back up a tad.
So I don't disagree with David that, uh,
we could see a creeping take place.
I don't see a recession coming.
Actually, I think that as inflation slowly comes down,
and we're seeing a lot of other things stay somewhat strong,
whether it's the labor market, retail sales, the housing market.
Like I said, I don't think we're going to have four or five percent growth,
but I think we're going to chug along.
Right.
So I would, you know, I don't know if that means a soft landing or it just means, you know, a chugging along where we stay at this inflection point of, you know, kind of, you know, inflation higher than desired.
And then with respect to the comment on unemployment, listen, once again, I know I'm repeating myself from a few weeks ago.
Inflation impacts everyone every day.
Whereas if we go from, you know, 3-7 to 4-5 on unemployment, I don't know, I'm not belittling that, but that maybe that's equates to, you know, one and a quarter million people, right?
I think the labor participant, I think full, I think there's when they look at the employment, it's on a somewhere around 160 million people.
And remember, we only have participation in 60-something percent.
So you're talking about a million people being impacted on unemployment,
which is high and, you know, isn't a good thing.
But we should versus, you know, a couple hundred plus million getting impacted on inflation.
So I do think the idea that the federal trade inflation for employment is generally a no-brainer.
No, that makes complete sense.
You know, I, so there.
So should I hang up now that you guys, you agreed with me?
Yes, I agreed with you, Robert.
Fine, you got me.
You got me, Robert.
I mean, you know, ultimately when you make reasonable commentary, I'll be open to it.
My only point is what?
I get lucky once in a while.
Yeah.
Well, I was going to go to Mark, and I wanted to get Mark to weigh in here.
Mark, oh, did Mark drop down?
Oh, Mark's still there.
Perfect.
Mark, you know, I'm assuming you agree with Robert's general sentiment.
I will say that yesterday, housing starts surprised like crazy.
21% month over month was surprising, let's just say, the words.
You know, I know inventory is tight.
But like, is this a premature move by the real estate market to add inventory?
Or do you think it was a necessary step because they got to make money somehow?
Since the volume of, you know, of sales has plummeted, people are too scared to sell their home because they're locked in on a good interest rate.
I just wanted to get, you know,
weigh in on housing really quickly
before we pivot the conversation.
Mark, what were your thoughts on?
First of all, thanks, Dinesh, and good morning to you
and Rob Nunn and Rob Wolf.
Always good to be on stage with you guys.
I was as surprised as anybody...
with the housing starts numbers,
although maybe I need to take that back slightly.
We did get a little bit of a teaser into that
with the numbers out of home building companies like Lanar,
which seemed to indicate that we were going into
a pretty seriously bullish period for new housing.
And look, the reality of it is,
New home sales are the only home sales, by and large, I'm exaggerating slightly, but they're the only home sales that are happening right now.
We have existing home turnover at, I think, a seven or a 10-year low.
I think one report I saw was even more than a decade in terms of the pace of existing home turnover.
You saw a lot of the impact of that reflected in the earnings numbers from the Home Depot's and the lows of the world during last earnings season.
the question becomes whether or not the demand is going to be there to actually sell all of these homes, right?
Because starts are different from sales.
and I just don't know where that's coming from.
I look at the status of the American consumer.
I talk about this incessantly.
People are probably tired of hearing me complain about it,
but people are out of credit.
They're out of savings.
It's more expensive to get a new mortgage,
harder to get a new mortgage than it's been in years and years and years.
So I don't know who's buying these houses.
So I was definitely...
Not surprised that it was a strong number, but I was definitely surprised at the strength of the number for the reasons that I just mentioned.
Yeah.
So, you know, we talked about housing.
We talked about the markets.
We talked about inflation.
Now, with everything that's going on and the markets being, quote unquote, stuck, I like Mish's, you know, a way of explaining it.
I think most people will agree with that.
Representative Andy Barr from Kentucky...
is introducing a bill today that will potentially have major impact if it passes.
Now, I have to say the words, if it passes.
You know, it's essentially going to target funds that are considering environmental,
social, and governance issues known as ESG in their approach to investment.
And...
And so, you know, I'm just putting this up in the nest.
I just put it out in the group, in the group chain here.
Hold on. There you go.
And, you know, it's a very interesting move.
There's been, you know, we, I don't want to use the words boogeyman, but this has been the GOP
boogeyman that ESG is somehow responsible.
for a lot of our issues around the supply side of inflation,
that ESG has somehow, you know,
limited the ability to invest in oil and gas.
Now,
That's sort of true.
Incentives drive behaviors.
But the idea here is that this,
the Bars measure would update the ERISA Act,
Employee Retirement Income Security Act,
to require retirement funds.
By the way, retirement funds represent a significant portion
of the LP class that drives decision-making for companies,
you know, for all of the major investment companies.
And so they would...
update the ERISA to require retirement funds to focus only on maximizing profits
and not not focus on ESG as part of their decision making.
It's a very interesting move.
I have to say, I think it's going to have significant support.
But isn't this somehow incredibly anti-capitalistic?
To say no, you cannot focus on things outside of just profits because technically a free market
decides what it cares about.
And I know that sounds kind of counterintuitive, but shouldn't the market be allowed to care
about what they care about?
Mark, I'll let you weigh in since I know.
I know you work with this a lot, and then we'll go to Matt and then Rob.
Yeah, well, so I'll put the lawyer hat and the trader hat on two hats,
maybe too early for two hats.
But look, the ERISA, first of all, the audience needs to understand.
This relates to a specific category of investment fund under ERISA, right?
Which is the legislation, very old legislation designed to protect...
and to hold this type of retirement account in a particular category of protection.
And that standard that says that the manager of an ERISA account can concern themselves exclusively
with profit and increasing the value of those accounts is designed to protect against outside
interests, conflicts, other considerations. This is people's retirement money. The
The only thing that you should make money grow.
So it's actually very controversial for any change to that with what was proposed by, in fact,
I think it was legislation that passed in conjunction with another larger bill,
and somebody else on stage will remind me which one.
But it was very controversial to have anything other than the pure protection and profit motivation of ERISA to begin with.
The other thing I'll say, Donation, I'll turn it back to you and the rest of the stage.
There's something seriously wrong with ESG standards and the ESG concept as it's being implemented.
I'm not against ESG.
I'm not against impact.
A lot of what I do personally and from my family office is driven by our own guidelines around environmental, social, and governance best practices.
But when you have a company like Philip Morris...
getting a score of an 84 by one of the main ESG rating systems.
When a company like Tesla scores only a 37, something is seriously, seriously wrong.
I think that same rating system gave Altria a 94 ESG score,
Philip Morris and Altria being, of course, two of the largest tobacco companies in the world.
So...
Something is clearly wrong with how we determine what constitutes best ESG practices.
We've seen a lot of enforcement action from the SEC around this with greenwashing.
So we got to get our hands around this and we don't want it creeping into our
sub-adagement, I can tell you that.
But, Mark, wouldn't it be more apt to say, hey, look, there's thing wrong with the way that we're implementing ESG here and
Again, if you, so the fact that you can't think from an impact perspective and you have to think from only a profitability perspective also seems restrictive.
Let's work on reforming ESG initiatives instead of completely banning them today.
I feel like that is also a measure too far.
Well, you have to understand how these ERISA accounts are considered.
They're sort of like in the investment management world, they're like sacrosanct, right?
They're the most restrictive in terms of what you can and can't do,
portfolio concentration limits and things of that nature.
And that is really designed to protect against consequences.
conflicts of interest, you know, speculation,
of unreasonable or, you know, improper investment management.
And I don't think they're necessarily a bad thing.
I think you've seen those accounts grow,
certainly since the passage of ERISA.
I don't think it's necessarily...
tremendously impacted the ability for managers to make money for those ERISA clients.
So I don't think they're as restrictive as you suggest, but I'd be curious to hear Rob Wolf's
opinion on that.
Yeah.
Before Robert jumps in, I do want to go to Matt, then Rob, Nunn, and then Jeff, and then Robert
Wolf.
So go ahead, Matt.
Yeah, so look, I think what the media is portraying this as to be like an anti-woke bill is obviously just attention grabbing.
I don't think Barr's bill is specifically designed to block funds from being invested in ESG options.
But he's obviously tried to call out the difference in fees and the difference in expenses for these types of funds out there, which I agree with.
I think...
You know, just saying everyone should focus on profit number one and that everything else can fall in its own order afterwards is also not fair because, you know, the impacts of social underrepresented, you know, platforms like ours, we have a focus at our fund to invest in underrepresented minorities through our Ripple X Fellowship program.
You know, we don't answer to anybody. We don't have any reporting standards. But when we do speak to other ESG focus funds,
they are a lot of hand-waving on how they benchmark themselves from success.
It's a very, very confusing area of investment.
And I think the problems that
Barr is bringing up here are good points in saying there should be a standardized way of how they're being judged.
Profit obviously is the main thing for all funds, but other than that, there needs to be a standard.
Maybe the SEC gets involved on the fee trap side because retail investors are getting duped into investing in some of these, you know, higher fees and lower performing less diversified asset classes.
And I think that's a good call.
But to start with just saying profit and after that, nothing else I think is ludicrous.
And I also think that there is a benefit to a lot of these types of platform investments, but they need to have...
to be held to the same accountability than all other investments.
I mean, the anti-investing decision you were saying to this is like saying,
okay, you know, if you're going only for profit, then just only invest in sin stocks.
Buy porn, buy cigarettes, buy alcohol, and you will be as profitable as anyone else out there.
if that's your main goal.
Yeah, like, no, I, and so Rob, none, I wanted you to jump in
because I know that you're working on something that potentially could be seen
under the, the auspices of an ESG company.
So I wanted to make sure that you can jump in.
I know you might disagree with the,
with the approach, but isn't ESG moving us in the right direction?
I mean, shouldn't we be thinking about these things when we're thinking about investments?
Isn't Matt kind of right that if you just focus purely on profit,
then maybe we should just be focusing on all the things that will make money,
which is usually addiction. Go ahead, Rob.
I mean, it's a really interesting and kind of highly emotional space, isn't it?
So, like, essentially, you know,
My biggest problem, yeah, I am working in that space and we work in renewable energy and transmission lines and we do tons of stuff.
And by the way, our ESG score for putting transmission lines to attach them to solar farms and wind farms is lower than some tobacco companies.
So I just think it's absolutely insane.
I think the insanity of ESG as a policy is not to denigrate the importance of environment
and importance around investment strategies.
I think this is the separation.
Now, if you happen to have a super diverse board of people, you can somehow negate
your environmental obligations, which is absolutely stupid.
And I think they are vitally important in isolation.
So I would get rid of the ESG policy as a grand catch-all.
And instead create environment policies that are sector-specific
that companies have to report on.
It makes no sense to have environmental policies that really harm
you if you're highly emitting, if you're in the cement business, you're never going to get investment.
And so I'd like to see ESG funds, as we'll call them for now, you know, really actually narrow down their focus on what they want to see.
If they want to see decarbonization in cement...
then they can go and invest in cement companies,
which are carbon capturing,
and then they could have a score,
which is representative of the positive that that company is doing.
The problem with generalised policies,
and we needed them to get to this point,
so that's where I agree, Danish.
We needed them in order to get the conversation going,
is that they've now become too generalised,
and in doing so, they're actually harming progress.
and so I'm very pro the individual policy,
I'm very anti the general policy
in terms of this move by a
senator, I guess,
oh, I can't remember where he's from, actually,
sorry, representative.
Kentucky.
Kentucky, thank you.
You know, I clearly this is some sort of political
points-scoring exercise for him, that's fine.
And, you know,
Does the general stance, which is we would like to see the best returns within a certain portfolio for certain funds, I guess their pensions, whatever, a bad thing, no, I'm not too sure whether or not the existing policies I have to overlook actually prohibit them from doing that anyway.
If we've got funds that are set up specifically for ESG, then people can vote with their feet and put those capitals with those funds with the best investment thesis.
I would like to see the policy become far more specific.
In transmission lines, for example, we get low ESG scores,
despite the fact we're plugging in renewable energy
because you can't make steel without emitting emissions.
it's just impossible.
And yet we get punished for that.
We get punished for the fact that there is no electric alternative
to transport large heavy steel
on anything but emitting vehicles, right,
over large distances.
So it's a really dumb thing.
And we do get some exceptions from that,
but not complete exceptions from that.
And that's really silly.
And I really am confused as to how, you know,
the diversity of your board or the management of your company
has got any relevance to your environmental schools.
I think they do need to be separated out.
They are important issues.
And I think if the government could do that
and actually stop making it this sort of like
interesting thing that listed companies do
in order to make themselves look attracted to public investors,
that would be wonderful.
But I don't know that.
I just think it's very interesting, though,
the juxtaposition of trying to...
And I'm going to push back a little, Rob.
I know that you work in the space.
But, you know, the fact is that people are trying to pit
some of these social, environmental issues...
as being anti-capitalistic in some way.
When the data, when you actually look at the underlying data,
the data, at least from last year,
I don't have this year's data,
and I have a feeling this year's data may look a little bit different.
But across the board,
people that have high scores on ESG tend to do better
than companies that don't.
There's a ton of data on this,
at least from the last few years.
And again, I think there have been a couple of examples
this year where people just started boycotting
certain ESG issues.
But overall, there's a ton of data showing that when people choose to do good, they end up doing well.
So, you know.
I mean, I'm not, I don't disagree with you on that.
What I would say is that inherently speaking, we need to look at this from on a policy level.
And this is why the representatives probably.
doing this, apart from the political point scoring exercise that he's probably undertaking,
is looking at this. I would be looking at this from a non-pass stand standpoint to say,
yes, on an individual standpoint, you can do better in a short term investing into things
that have got high valuations because of large investment. What I'd like to see is that
translate down into profitability and returns for investors. And that's not currently happening.
The capital expenditure is very, very high.
and so we've got this weird period.
Now, it's just a transitionary period,
not to use that too likely,
because I know the Fed's been overusing that word.
But anyway, it's a period of time
where, you know,
we are going to see lots of investment
going to a space.
Profitability's not going to be there
as quickly as that's, say,
but...
buying a barrel of oil will be at a certain price
and selling it. But
over time, that will work out well. Now, if you have that
thesis that you want to get on that journey
and you want to invest in that and you're happy to
take what is essentially
high valuations, they might come down a bit,
less profitability in terms of free cash flow
in the next 10 years, but you're willing to sit on that
journey for 20 years, then all power
to you. I don't think that should be stopped and that's where
we disagree with the representative. Yeah, but Rob,
again, the underlying assumption here
is that things financially will be worse.
There's no proof of that.
There is.
They don't make as much money at the moment.
But that's not true.
You look at last year's numbers.
I don't have this year's numbers.
Literally look at the numbers from 2022.
Investments that have high ESG scores do better.
There's a ton of data on this.
No, I get that.
We're talking about valuations versus...
The portfolio investments, not the individual...
ESG funds...
do not perform net IRA better.
Are you talking about venture funds or hedge funds?
No, no, I'm talking about even public funds.
If you look at-
Blackstone doesn't do better?
You don't think Blackstone's ESG funds
do better than their regular funds?
That's actually not true.
We know that's not true.
Show me the data.
Yeah, I'm happy to pull it up, because I looked at a very good argument by Fred Wilson on this, actually, who's actually in the venture world.
And there's a ton of data on at least the public company level.
Boards that have more diversity on the board tend to do better.
Companies that are focused on that have higher ESG scores do better.
There's a ton of data on this.
This is not like...
a made up thing.
Now, I wonder...
The fundamental state on the ground,
which is why those valuations don't make sense.
I'm sorry, just to be clear,
it does,
Rob just did bring up a really good point,
which is I didn't look into the details
around whether it was market gap
or whether it was profitability.
This is my point.
So I agree with your evaluations, right?
Evaluation is higher
because people are buying in, right?
But on the ground...
I mean, like, that's just to be clear, this does not mean that their profitability is worse.
It just means that I don't have that specific data.
There is no doubt.
I have seen enough data, Matt, so much data that valuations for public companies with high ESG scores are higher, for sure.
Well, that makes sense to an article.
It just says, what does the SG do versus to stocks have performed?
The rest?
The answer is no.
I just sent you the article.
All right.
Let me pull up.
Yeah.
This is like one of those funny things where people can pull up different articles to see how it's being defined.
But I'm talking about hedge funds that actually have PSG motives do better than others.
Again, Fred Wilson's.
Go ahead, Mark.
Dinesh, doesn't the argument that's happening right now underscore and highlight the very issue that I was ranting about a minute ago?
You can pull up different articles that claim different things in terms of the performance of a hedge fund, of an ERISA fund, of a public company, because there's no organized...
standard.
The notion that a company,
the notion that a company
can get more points,
and by the way,
this is not to disagree with you,
it's to highlight why we have a argument.
It's a fair point,
which literally just happened on our stage.
So you're absolutely right.
Literally,
the notion that a public company
can get more points
for diversity, diversity of a board is important.
But it doesn't somehow outweigh the E part of ESG.
No, I'm not talking about points,
that's greenwashing.
I'm not talking about net IRR returns.
I'm not talking about phony points.
Yeah, but Matt, does it,
is it just net IR returns in terms of,
again, we have to actually try to figure out
exactly what we're talking about
because the funds have a portfolio.
I'll be very clear.
If we're talking about pure profit,
what the LP of a private fund or a retail investor cares about,
is their net return or their net multiple invest in capital or net IRA,
whatever the hell you want to counter it.
If you take out the fees that these funds charge,
their net IRA is worse.
That's my point.
That's also not like, okay, so it's a bit like this AI craze we're going through, and you can like AI, love AI, whatever.
But because you've got AI in it, your valuations are up because it's the thing of the moments.
ESG was like that two years ago.
And so you have seen valuations of these funds and, and, and,
the companies that they're investing in much higher than their fundamentals.
Bearing a mind that some of the companies that these funds are investing into
aren't even market ready yet.
So there is no profitability at the end of the horizon.
And if there is profitability, it takes a long time.
For example, quite a lot of ESG funds are focused in renewable energies.
They take a long time just to get permitting their huge risk capital capital expense ahead of time.
And so there's lots and lots of back and forth there in terms of the problems around the fundamentals.
What I'm saying is the valuations might be correct in five years' time, and people, or 10 years time, they might grow into those valuations.
So we're kind of agreeing on valuations, Dennis.
And I think we're disagreeing on fundamentals because at the end of the day, oil and gas has done phenomenally well, profitability, year of year, the last few years in relation to...
any renewable alternative apart from hydro.
Robert Wolf, what are your thoughts on what we're talking about?
Do you agree with me or with the rest of the panel here?
Robert, your audio is crap.
Can't hear you.
Do you hear me?
Not really.
Do you mind if I chime in?
I manage briefly.
Robert, why don't you fix your audio and then Bobby jump in instead?
Yeah, I just want to mention a couple things.
I think there's three key points here.
Number one, we are still in the early stages of having accurate ESG ratings.
I think we're only in the second or third inning.
It's really hard to come up with ESG ratings.
And the proof of that is that some of the ratings are quite volatile.
Tesla used to be a 17.
Now it's like a 37.
Nestle used to be about an 80 and now it's down to 60.
J.P. Morgan has been a flat 40.
So when I managed an ESG fund,
if one or two names in the portfolio fell below
the acceptable ESG rating limit,
we would have to contact the company,
let's say one of the major banks,
and ask them what their plan was
to improve their ESG rating.
And they were very frustrated with that.
And to give you an example,
Bank of America's ESG rating was affected then by the acquisition of Countrywide credit.
So, you know, they, they purchased Countrywide kind of in, I don't want to say, I don't think it was a shotgun marriage.
Right.
But they were then dinged for the sins of countrywide that were going back.
So if you have a lot of consumer complaints about your service or your company, like Wells Fargo does,
Wells Fargo has a 33 ESG rating.
So, you know, the point is ratings are still trying to come up with an accurate assessment.
Number two, the ratings are volatile.
And number three, I did not see any indication that higher ESG ratings led to better portfolio performance.
So I think we're still in the embryonic stages.
Yeah, but doesn't that automatically mean that we need to have reform of the ESG ratings instead?
of the completely getting rid of it.
I mean, it seems sort of...
We do.
We do.
Professor Robert Kaplan.
I talked to...
Yeah, I talked to Professor Robert Kaplan.
I posted it in the...
Well, I didn't post it in the nest,
but I did reply to it.
I don't want to post my own stuff in the nest.
But I spoke to him at the Global Drug Reform
about his e-liability model.
model and at first I thought he was a little crazy but but it's actually a pretty
brilliant model because it holds people all to the same exact standard so if you
look at the replies in this there's a YouTube clip and I call out the timestamp but his
e-liability model I kind of thought was more of a left idea but as I talked to him I
could really understand why the left and the right would actually be kind of upset
because it puts them both on the exact same playing field
And I feel like this whole legislative move is kind of the opposite side of the aggressive coin.
The aggressive coin being there were moves earlier to have the SEC include ESG investing in their guidance or in their regulations.
And I'm not sure where that went.
But this might be the opposite side of that.
It might be a response to that.
Yeah. Robert, how's your audio now?
You guys tell me, I'm driving.
yeah it's much better so robert across the board yeah what we're hearing is that this is a necessary
issue i want to understand your thoughts on it yeah so if i can pontificate for a minute or two
i'm going to give you a quick 40 year history of the intersection of erissa invention and i'll move
into esg and i will do it quickly um i thought a lot of mark's points were spot on but you know in the 80s
ERISA in pension accounts had incredible rules and regulations around it.
So, for example, in the 80s when I was in Solomon Brothers, we always looked at companies
that were going against apartheid.
And because pension companies, ERISA accounts could not buy anything where if they were, um,
supporting, you know, businesses in Africa during apartheid.
I mean, that's a perfect example of there's always been carve-outs.
Then in the 80s and 90s, they carved out sin bonds.
They wouldn't buy anything that was tobacco or alcohol.
So there has always been carve-outs for pensions in ERISA.
My personal opinion is we're seeing it more at the state level right now,
where different states are saying, you know,
we're going to watch how our state pension funds invest in seeing a little more of an impact
than from a federal level.
As we move into ESG, I agree with everyone.
The variables are too broad.
We're still in the early stages of understanding what actually ESG means.
I think the correlation of ESG and DEI should not necessarily be correlated.
I do think there should be a carve-out.
I think it was Mark saying on environment and climate.
I do think returns are what matters the most.
But that doesn't mean, you know, doing good and doing well.
You can't have a merger of the two.
You know, I do think with respect to, you know, the ratings today, I mean, it's garbage in garbage out, right?
I mean, everyone has their own ESG ratings with different variables and different data.
And I remember when I early on shared the Diversity Committee at UBS, I asked everyone, you know, show me a case study why diversity is working at companies that are more diverse.
Right.
And what was interesting is it was the time pre-dot-com.
Is it me or is Robert's audio going Matrix again?
Robert, your audio is going Matrix again.
You don't hear me?
At the end, I hear you.
Can you unmute again and try it again?
Oh, perfect.
Go ahead.
Yeah, that was perfect.
We heard everything.
We just like the dot-com.
Oh, I can't hear you.
I'm going to move you down and move you back up.
All right. I wanted to, Jim, I know where you stand, I think.
I do want to get one more voice. I brought him up to give pro-ESG.
I'm hoping that Mickey's going to have my back on this.
I think, like, it's really easy to be anti-ESG because, again, it's not been acted appropriately.
Mickey, what do you have for me?
Can you give me a pro-ESG narrative and why this bill is awful in some ways?
Yeah.
I wish I could give you that. I'm really concerned. It's sort of the devil's in the details. I think I think I think thematically I agree with you. But unfortunately, I think what's sort of happened over the last few years, especially recently, is that we're just seeing a repricing of a lot of assets to the downside significantly like 50%, 60%, 70% on a lot of assets. And I think
a lot of funds are going to seek to use ESG to re-rate their assets to try to avoid them bottoming out and losing their shirts.
So unfortunately, I think there's going to be a lot of greenwashing in this ESG.
You know, I think it's this sort of ESG pool where people, you know, you saw the same thing in semiconductors, right, or an AI, right?
All of a sudden, companies that were worth,
you know, you know, $2 a share
were worth $10 a share because they
mentioned AI in their
in their 10Ks.
So unfortunately, I'm really concerned about
this, the devils in details that people,
that companies will try to use, you know,
the goodwill of ESG to try to
try to greenwash their assets
so that their investors don't
lose their shirts in this giant repricing.
You broke my heart, Mickey.
We're going to go to gym.
Sorry, yeah.
Just kidding.
Sorry.
Jim, go ahead.
Really briefly to that point, I post that up in the next, Robert Kaplan's Harvard Business Review model.
He wrote the whole thing out there, so it's a good read.
Yeah, Jim, go ahead.
Yeah, I think Robert Wolfe brought up a good point that we don't often think about with this ESG as something of its sort has been going on for,
every bit of five, six decades here in the United States,
with various policymakers having various priorities for whatever reason.
This actually, though, in my opinion, ESG, is that a little bit on steroids, or at least...
you know, as bad as it was in the 70s related to oil and gas and so forth at that time.
But listen, you might recall, and I speak as a politician and kind of an economic philosopher, theorist, intermediate, economist, nonprofessional.
But you might recall that about 10 years ago, there was a wave of,
of discussion, articles, podcasts even coming into the last five years,
trying to debunk Milton Friedman's idea of shareholder capitalism.
Now, the reason that Friedman put so much time into that the effort to come up with that theory
and to discuss it regularly is because of all this sort of thing.
And there's been a pretty serious debunking of it recently so that a lot of people don't even give that any consideration.
When I think of ESG, I first think about the fact that people have decided that we have these goals and therefore, Katie Bar the door, anything that goes against the goal.
is wrong. This is why we don't even know what ESG scores are, because there's no way to evaluate them.
We're like, okay, you got to do something on the environment,
But then if someone's doing that and also making money, then we can't figure out the difference
between them and someone else that's not doing much in the environment, but greenwashing as we
talked about.
So I don't think there's any way to do these scores.
I think we have to go back.
This is why I'm, although I need to look at the details of it, but I tend to agree with
Andy Barr's approach here because of the fact that we don't.
need the emphasis on ESG.
We need the emphasis on what's good for the shareholder.
So go back to blue chip companies.
Why did blue chip companies become blue chip companies?
Well, it's a big mix.
I'm simplifying it here, I recognize.
But they became blue chip companies because they had built some form of business
or forms of business under that umbrella.
And then they learned how to manage it precisely and well over long periods.
Right.
Now, we are not used to the fact that we're in a present state post the dot com bubble where companies just start to, they rise up out of nowhere and start going and we make money.
And sometimes they're even making money, sometimes not even now as we get to the back end of that.
And so our whole idea of value gets washed.
So I think ESG is causing more problems than help.
Shareholder capitalism I think still works.
I think it's a fundamental idea and goal that we need to have.
But one quick thing, just to close this out, and I know I went long,
I think about the biblical commands that Moses gave for people when they did their fields
to not cut the corner of their fields.
There is a place in capitalism for concern and care for others and of things.
But that was, at least if you believe in the Bible, that's to the individual, not to the court, not to the government.
Right.
And I think we need that concept in our hearts.
Incentives drive behaviors, Jim.
Jim, incentives drive behaviors, trying to act like incentives don't drive behaviors.
And that individuals are going to do the right thing.
I mean, I think we've seen enough examples.
Go ahead, Robert.
Yeah, I mean, listen, I'm going to give these are real examples.
And trust me, one I write decision and one I...
I wish to God I had a mulligan.
But, you know, when I was at UBS, this is at a time before I was president, I was head of fixed income.
And we had a deal that we were looking to fund the infrastructure of the Three Gorge's Dam and the Yangtze River.
And that would have displaced a lot of the locals.
Right.
And it was an amazing deal.
And this was before ESG and DEI.
This is just looking at, you know, risk first return, just capitalism.
We ended up passing on that deal because of reputational risk.
And I felt great about that.
And then maybe, I don't know, five or ten years later when I became president of the investment bank and CEO of the region,
We were one of the largest players in mountaintop removal.
And, you know, that plays, you know, perfectly into a conversation today about ESG and climate and capitalism.
And as you know, mountain top removal is, you know, mainly in the Appalachia area.
They've done all the digging of a mountain top for coal.
So now they just literally cut the fucking top of the mountains.
as a way to reduce costs on just normal digging.
And this was getting a lot of heat by climate activists.
And, you know, I'm at UBS and, you know, I'm Obama's guy and I'm running a bank,
so I'm probably aided by everybody.
And it came to me and I ended up approving the funding from mountaintop removing removal
because the EPA approved it.
It was not deemed to be, I don't want to use irresponsible,
but it was deemed to be able to do by the EPA and permitted.
And I felt like how can we be more onerous than the EPA?
So we continue doing it.
And I can't tell you the number of postcards I got and how sick to my stomach I was that I approved this.
But in my role, it was, you know, capitalism versus, you know, personal perspective.
I swear to God, it's probably the, you know, it's not the only mulligan.
There's others I wish I could take back.
But that's absolutely a mulligan.
that in retrospect, I believe I made the wrong decision, but I'm not sure I could have made a different decision,
although other firms made decisions to not do it anymore. But that just gives you an idea that
these continue to always have some gray areas of ROI and capitalism. And I think we are finding a better balance
I'm not sure I agree with Andy bars.
I actually think that pension funds and companies should make a lot of their own decisions.
It can put different covenants in.
I'm not sure it has to be legislative.
That being said, I will just tell you that these gray areas, you know, have a lot of difficult decision making.
And so I'm not surprised we're having.
a lot of different sides on this where I think everyone wants to do good and do well,
but equally we're capitalists.
But Robert, I got a question for you.
Hold on, Cody.
What's going on?
I want to jump in with a little breaking news here.
The one and only Jay Powell has made some comments as he's walking into Capitol Hill this morning.
And he says to expect future rate hikes and that the pause is temporary.
All consensus on a rate hike coming early either this next month or the following.
Okay.
Oh, interesting.
Fascinating that he's doing that before he's walking in to see Capitol Hill.
Yeah, but that's not surprising after what just went down in the Europe inflation rates that he was just making sure everyone knows.
Right.
Yeah.
Yeah, and as we always talk about here to our, as I always say, we have the best looking and the smartest audience ever.
And our audience knows that inflation is global.
whereas the Fed is making somewhat local decisions.
So I just, you know, to Robert's point, the fact that what's happening with the ECB
and the inflation in the UK does actually affect us as well, which is, you know,
just in case you were wondering why we care about other countries.
And China stimulating.
And China stimulating, which is going to be very interesting.
I wanted to turn the conversation, Mickey, but I'll let you have a really quick last word before we turn.
Go ahead.
I just think, thank you so much, Don, of course, not only is your audience good looking, but the panel is good looking and the moderators are good looking. So this is a damn good looking show. And I just want to say it's something that Robert said, and I really appreciate what you're sort of talking about, was this difficulty and these decision makers have trying to, you know, walk this tightrope between, you know, environmental and social responsibility and their fiduciary duties. And with the law, uh,
force you know forces them to do which is to maximize shareholder value and that that's one layer
and the other layer is that you know just on top on topic of esg before we close out is that the
issue on esg is the same issue we have it's a fundamental issue in the united states it's a fundamental
problem that we're facing that the right and the left are dancing around that we talk about
these panels all the time which is the perverse relationship between business and politics
which which is basically allowing in the case of esg the casinos to write the laws
on gambling.
So if you want to have,
you need,
like something we need to come to terms with,
globally and in the United States is that in order to meet our responsibilities and the
environment it's going to cost shareholder value we have to come to that we have to accept that
and have the adult conversation and we have not had that conversation we're not willing to have
that conversation and we're allowing institutions and asset managers to write these rules so they can
rewrite their assets to watch their their you know to wash their asset their green
wash their assets so they don't you know so they don't get fired and we're not we're not
facing the fundamental issue, which is that environment, you know, we all rely on our environments
and there's significant issues that we have to face. So I think, you know, that's the fundamental
problem. Our fundamental problem in this country is not the environment or abortion or gun rights or
trans rights. It is corruption. And we are corrupt to the core. And as long as we allow this,
this relationship between business and politics to continue, we will continue down this path
and nothing will change. Mickey for president.
is Mickey for president.
100%.
The first thing to do is
to overturn Citizens United.
That would solve a lot of these problems.
That, by the way, have the people...
agree that money should be out of politics in a bipartisan way.
But for some reason, the politicians don't.
I wonder why the politicians on both sides...
You're not suggesting.
Honestly, dynasty.
It's as if we brought capitalism...
It's as if money incentivizes people.
What are you trying to say?
I'm trying to say that politicians like money.
I just think Nancy Post, he's excellent a stock picking.
Can we just leave her alone?
She's a brilliant stock picker.
Just leave her.
B, come on.
It's insane.
And so this is, you know, maybe we should have a few rules.
Rule number one, that while you're in office, you can't pick stocks, individual stocks.
Let there be a blind trust that picks the stocks for you.
And number two, you and your family members, by the way, and if you're caught, it is as bad as treason.
And number two, we don't let...
you know, money come into politics by just saying, hey, look, you can't do these super PACs that are backed by corporations.
This is awful for our country.
And maybe, just maybe we'll start seeing a lot of these issues change.
But, all right.
So I'm going to, I'm going to move on.
I wanted to make sure that cover our next commentary around SoftBank.
So, yeah.
As many know, Tiger Global dropped a bombshell.
We talked about it live on our spaces.
Tiger Global, for people that didn't join us before, went out,
and Tiger Global is one of the largest investors in venture across early and mid and late stage,
primarily late stage.
Think of the biggest companies you know, a lot of consumer companies, a lot of business,
companies that are pre-IPO.
Most of them have money from Tiger Global, the hedge fund.
They had a venture armed.
They essentially hired, I kid you not, in 2021, they hired Bain.
diligence for them and just started pumping money in a bunch of these startups.
Okay.
That's what happened.
We can argue about the specifics,
but essentially they were just pumping money in startups and watching them go up,
looking for early liquidity,
and then the IPO window closed,
and they got completely screwed.
In 2022, they ended up doing a markdown of about 30%.
And then in 2023, they tried to get some of the more poor performers together and sell secondaries to one or two large players, one of whom said yes and then backed out.
All right.
So this is the history around Tiger.
This week, this last week, Pitchcock came out and showed that Tiger is doing a fire sale of all of these marquee companies.
So if you want to go to a garage sale with all the big companies that you know, you can go.
And if you're an accredited investor, you can go through Tiger Global and buy stocks in these companies for pennies on the dollar.
It is unreal.
This is the most ridiculous thing that's happening in venture.
And the reason why it's a big deal in venture is because essentially it's resetting valuations across the entire industry.
Right.
And when it's one thing to use public companies as comps,
it's another one to use a company that's one or two steps ahead of you as a comp,
as a comparator when it comes to your evaluations.
We're seeing revenue multiples drop from 20x to 10x in 2020
to now single digit revenue multiples.
It is the most ridiculous insane thing that's happening in the industry.
And for people that are keeping track,
Private tech is going decent, not as much as broad base as it is a narrow in AI, but even broad base, it's not awful anymore.
But private tech startup valuations are plummeting.
In midst of all of this, Matayoshi-san...
from SoftBank, who is just, you know, I'm not going to say anything negative about him, but he's not seen as the greatest investor of all time in startup and venture.
has made the decision that instead of doing what Tiger did,
they're going to raise more money and go on the offense.
And so what they're saying is they're going to buy more tech.
They're going to go in harder.
They're going to buy and they're going to push this along
and they're going to go after AI.
I'm going to put a tweet in the group and then put it up in the nest.
But this is unreal.
And I say, in my opinion, a big mistake.
Jeff, I wanted to do you think that he's onto something that I'm missing?
Is this, and he said specifically about AI, but is this a good time to invest in AI?
Isn't it, isn't AI at the top of the hype cycle right now?
No, I mean, I think it's the beginning.
You just have to be selective in, in what you're doing and do the right research around it.
And, you know, you have to be careful.
I mean, but you have to be selective, I think, is the key.
Can't just go in and pile in on, you know, what you hear, what you see on CNBC every day.
You've really got to understand, you know, what these companies are doing.
And there's a lot of, there's a lot of AI work that is happening in companies that is just unheard of.
It's not, it's not making it into, you know, public means.
You've really got to understand what these companies are doing.
And then do they actually have an end market for the work that they're doing?
Yeah.
that's the key jeff it's the end market bit man that was funny sorry i'm saying uh at jeff saying
have you ever seen have you ever seen soft bank be selective is that like actually that feels like
an oxymoron uh for anybody that's in the venture world uh they literally throw money at problems
that has been their entire approach uh so
So some more detail. There was a really funny thing that came out a few years ago, which was like a meme for SoftBank.
And it was like, oh, did we lose $1 billion today? Yes. And then it's like, throw $1 billion in that direction. It was just one billion. Everything was $1 billion. It was quite funny.
So, Dr. Dane, I think, I think one thing to add is, you know, the portfolio companies, right? So SoftBank is made over 300 investments.
But, you know, some of those have been the most headline catching just because the amount of dollars that they were putting into these portfolio companies.
Like wirecard was one that ended up being, you know, fraudulent activity.
I think another one was WeWork.
I know that that was a portfolio company, you know, that had, you know, raised a ton of money and ended up not really delivering.
I think.
The most recent is E. Toro.
So another online brokerage.
And so these portfolio companies, E. Toro, not any fraudulent activity that I'm aware of or anything like that.
But I think the reason that this is such a big story, right, is because they're such a big player.
And a lot of venture capital firms will take...
you know, a second step to what they're doing in the industry, right?
And so you're seeing this dichotomy, Tiger Global's point out, could it be related to, you know, their track record of having some of these big dollar raises that end up, you know, not panning out?
Or, you know, is this just the time where we've seen a 53% decline year over year in venture funding, you know, and now is just they're kind of tapped out from their track record?
I mean, with over 300 companies, right, there's a lot of those that can really, I think, still make it.
Anybody, you know, can see opportunity in different things, but, you know, there's portfolio companies here in the U.S. that I think can also raise a lot of money and do a lot of good as well. So that's just my two cents.
I mean, it's interesting, though.
I did want to kind of mention, by the way, I put the tweet up there for people that are paying attention.
And I put it in the group as well.
So for people that are not familiar, SoftBank, the same company that we're talking about, their vision fund posted a $32 billion loss in May.
is this am i am i missing something here like yeah right here well it's like what do you what do you
say to your lps you have two things to say your lps either you say like tiger like sorry we fucked up
you just lost half your money or do you say no
Like, look at these fools.
They're afraid.
The time to invest is now when there's blood on the streets.
Be greedy when others are fearful.
Exactly.
So, like, you're going to call the Saudi, like, you know, the LPs for, you know,
South Banker, like in South World Funds, Saudis, et cetera.
And they're going to say, they cannot get on the phone with Saudi Arabia and be like,
I'm sorry, I lost all your money.
What they're going to say is like, no, no, like, it's a hockey stick.
So now while our assets are down, this is the time to double down and buy the dip
at a huge level
and now we're going to invest
in these growth areas
like we did before
when the money was cheap
and don't you worry
you worry
Saudi Arabia don't you worry
those others have wealth funds
I'm going to make you more money
so it's sort of like
you have to
like right now across the
across the world
People were having conversations with their LPs and their LPs are saying, hey, listen, I know you're investing in this risky stuff, but I can make like five, five and a half, six percent on just on cash alone for the next few years.
Like, why should I give you any money?
And entire global is saying, uh, yeah, look, we're going to lose money here, but we know, we're going to come out and on top of them.
We're going to come up a new plan.
And soft thing is saying like, hey, don't, yeah, give me more money.
I can do a lot better.
I think this is all rooted in like, you know, that positioning.
Yeah.
that you know this giant re-rating of assets we're experiencing and you know that's in my
opinion that's what um what's happening with soft bang hey
I mean, I have to ask, is bank the crypto burrows of VC firms?
Is that what we're learning right now?
Is that they're just saying, zoom out?
It's okay.
You're missing the point.
You know, are they just telling us that everything is going to be okay?
You know, I would disagree.
I would say one thing with AI, right?
And that's kind of how SoftBank is leading this new funding round saying, hey, here's the opportunity.
One thing with AI for me is that it's such a large upfront investment and has such wide-sweeping implications in all aspects of our lives that I think that there's a national interest
to have a U.S.-based company be the forefront leader in AI technology, right?
And so I know that SuckBank is an Vision Fund is in Japan,
and there's a lot of crossover between Japan and U.S. cross investments.
But if I was looking at AI and I was looking to deploy capital there,
I think that there's a national interest.
So whether Japan has their own, you know, Japanese AI that they're developing, you know, China has theirs and the U.S. has theirs.
I think that there's kind of this dichotomy from a national interest standpoint with open AI because of.
the information that you're feeding it. So if you're feeding it, you know, sensitive information,
personal information, you know, why would you want to send that overseas, right? And the U.S.
has been somewhat of a leader in different technology avenues. And so the hope is that a U.S.
based venture fund would be the leader in open-Aid technology going forward. But
But Darren, aren't we in that early stage here where no one even knows what the marketing structure is and focus for what AI is actually going to generate revenue from?
I think that that, yeah, it is going to have broad implications, but you have to have some degree of narrow focus before you're actually going to bring in regular revenue that leads to profits.
So, Jim, I would say this.
So I've been an early adopter in AI.
I started using Jarvis, which then developed into Jasper,
and that was a French-based AI.
About two years ago, they had a pay-for-play model.
The prompts were, you know, cut and paste templates, really.
And the, you know, model was like a GPT3 at that point, right?
I made the switch from...
Jasper to open AI.
You know, I felt like this open infrastructure technology gave me more leeway to find use cases for myself as a solo entrepreneur, as a business owner.
I would say that the U.S. government has already found use cases for this.
I know that corporations that have, you know, adopted it and developed guardrails around their data,
you know,
you know,
develop PowerPoint presentations
and really enhance,
like an already existing role,
not really replacing roles like they're,
you know,
proponing before.
But to say that,
you know,
AI is a tool that hasn't found a use case yet.
I would say is a little bit misguided
because we're a little bit further along
in the process now and,
and finding that adoption because,
you know, I think the marketing of Open AI has been so successful, right?
Everybody's talking about it.
It's really at the forefront of everybody's mind.
So, you know, I wouldn't say that AI.
Yeah, I mean, I have to say, I have to say for people that are listening, you know,
if you were talking about tools that enhance technology,
and AI has been a tool that has enhanced, is enhancing workflows.
If you're a company that's building a tool that enhances workflows using AI,
please reach out to Mario and his team, or even if you're a VC that's working with one of these companies.
And then also, they're doing some Shark Tank style pitches for AI companies.
So please hit up Mario.
Got it done.
Done.
Done with my promotion.
That was good.
That was smooth.
But Jim, go ahead.
Yeah.
Hey, I'm like, we've got a strong B to C use case.
I mean, obviously on the back end, the B2B and other implementations are developing.
But is that, that's kind of, in that going to be more of the long term, like, revenue growth is going to be more B2B time.
type applications, although it may really enhance, I think, small business in a tremendous way,
you know, with what we have right now through OpenAI and such.
So as a small businessman, it'll often a time.
So, Jim, on the back end of this, there's some Open AI companies that I'm privy to, you know, signed NDAs,
but, you know, they're signing enterprise level checks.
you know, in the hundreds of thousands of dollars monthly to incorporate open AI technology
into their platform.
The most important thing, right, is the data privacy, right?
And if there's any intellectual property that's being embedded into open AI, how do you protect
that?
That's still a big question mark.
And then the other one...
you know it's just accuracy right so sometimes open AI can you know embellish things or
or make up facts like they're doing this you know the lawsuit where they were the open
i was making up cases but i i would say you know without naming any names there's enterprise scale
adoption of this and the hundreds of thousands of dollars a month to be able to leverage existing
data right now with ua space companies with open AI yeah so
But Robert, I know you want to weigh in since I can hear you.
What's going on?
What do you think?
Well, I was just going to give an example on me and how our company is using artificial intelligent.
Go ahead.
But Robert, one question I have is your company is using artificial intelligence.
Are you using enterprise-grade AI or people are using consumer AI?
That's one thing I want to clarify.
Yeah.
So, and so, um,
So I think most of you guys know I became chairman of community less than a year ago.
It's the company founded by Ashton Coucher and Gai Oseri.
And it's the hyper-personalized text messaging system.
And we use machine learning.
We have a patent on clustering.
So, for example, you know, the Yankees use it to put out a text to their fans.
they'll get thousands of replies we obviously use AI to then cluster the replies
we are going to be likely at the end of the month using you know chat GPT we are going to use it i'm
saying likely at the end of the month time wise um where once we start clustering these replies
We will use AI to reply on behalf of the Yankees
because we'll understand how they want to reply,
their sentiments, in a very granular way,
whether it's for a Mother's Day or Father's Day
or a season ticket holder or a young person,
and it will, I mean, it will change the way our company
is helping our customers reply to their consumers, their fans, all of their engagement.
And, you know, community is FCC regulated because it's text messaging.
You know, so unlike the other social media companies that are more like digital billboards,
this is incredibly hyper-personalized and it's growing by leaps and bounds.
But, you know, AI is the differentiator.
I mean, it's fascinating because, you know, people keep saying that AI
has no business model, but literally I don't know a single company that I respect that it's not using AI currently within their tech stack.
You know, with our company, I rarely talk about Resilion does, but you know, with Resilient, we manage patients.
And if you're sitting right now in a tech-enabled system where you're actually taking care of patients and you're not leveraging AI to improve access and availability of care teams,
you're losing your mind. You're literally missing this huge opportunity to 100x your care team
so that patients actually can get access to real-time information. And we're doing that today, right?
I can't talk too much about what's in R&D, but today we're using that in our care delivery model
and patients are absolutely loving it. And we're being honest and transparent about it. And they love it.
And so to what Robert is saying, if you're not using...
Before I get off, I can just finish that.
This is kind of like the intersection of Tiger and SoftBank too.
So when I came in, I restructure the company as their lead investor,
and it was trading like Vintage, you know, 2019, 2020,
and we restructured it to trade Vintage 2023.
Right.
So it was, you know, it went from a tiger scenario to a soft bank scenario.
And, you know, now we're doing, you know, finishing the raise.
But it's incredibly attractive where, you know, I would understand soft bank thinks it's, you know, there are opportunities.
Right.
So the question always is, is, you know, what do you do with the stuff you have and, you know, do you stop doing business or do you try to recreate the next opportunity?
You know, it sounds to me soft banks trying to recreate their next opportunity.
You know, there's a lot, you can't do a lot with, you know, investments that have gone sour, right?
All you can do is, you know, use your expertise, you know, for the next deal.
You know, I will tell you, I kind of see both sides.
I'm probably not a fan of what Tiger's doing.
But my guess is that's probably more based on possible liquidations and things like that than, you know, than other things.
I mean, it's wild.
Chris, I wanted you to jump in.
Thank you for joining us, Chris.
Give us the angel investor's perspective on AI real quick.
And then we'll go to Mickey and then Dakota.
Go ahead, Chris.
Yeah, thanks for having me up, Danish.
I, well, two quick points around this.
One, I heard somebody say the question with OpenAI, can you, if you're doing it as a, hopefully I heard this correctly, if you're doing it as a B2B business level.
Is there a way to cordon off your data so you're not pushing your company secrets into it?
I assume that that's true for Open AI, but I just
It is true.
It is the guys at Google.
Okay, yeah, I was going to say, because I just, I don't know how they could have a business without that.
I just met with the guys at Google on barred last.
Just want to.
Yeah.
Go ahead, Chris.
I was just going to clarify.
No, no, go.
I did hear that.
Yeah.
So really quickly, so you can do federated learning, which is a very well-established model.
off of Azure, just like your data on the cloud
is not available to Microsoft.
You can set it up.
You obviously have to set it up a certain kind of way.
And also remember when you're taking care of patients,
for example, for us, we have patient data
that's sitting behind many levels of encryption
because we're required by law to do that.
When you're SOC2 compliant, high trust compliant, and HIPAA compliant,
you actually have to do all of those things.
These systems are set up for those levels.
Now, if you're just using open AI, the consumer level,
then it's kind of useless.
You should really don't have any protections.
But if you're using it at the enterprise level, you're absolutely right.
Just wanted to clarify that.
Yeah, and I was just going to say I had, I'd have to imagine because I don't know how they would make real money if they weren't able to do that.
But Bard for sure is able to do that.
I was just talking with their engineer team last week.
Also, I guess just a quick disclosure.
I'm also an investor in Danish's company.
I'm not sure if that's important to say, but just to be safe.
Around the...
The soft bank, that's interesting.
I really haven't followed what's going on with SoftBank for a while.
They've really kind of made themselves in some degree irrelevant with the really bad decisions that they've made.
But I...
If their strategy is to go after the same companies that they've actually backed in the past and just double down on those or later stage, I think it's a terrible strategy.
The strategy they really need to be going after, I think everybody needs to be going after if you really want to win in this cycle is go to the earliest stages where I'm at.
below a because that's where you're going to have all the really gritty really scrappy founders
that are forced to make hard decisions because they just don't have a lot of capital right now
and they're having to raise in these really down market so not only are you able to get favorable
terms because it's it's swung the pendulum has swung to investor friendly but it's also that's the
hardest time to build as a founder so you're by nature
filtering for the best and scrappiest and grittiest founders.
So I think the real opportunity right now is investing at the precedency.
Which is a fair point.
And yes, Chris is an investor.
Go ahead.
Mickey, why don't you go next?
The number one, the opportunity for AI is this.
The number one problem we're facing in the world today in business,
not just in business, every person on this call is facing is that the cost of capital has gone up.
It's harder to get a car loan.
It's harder.
It's more expensive to get a mortgage.
It's more expensive to get a bank loan.
It's more expensive to take VC money.
It's more expensive to raise VC money.
So there are all these businesses, whether they are early stage or mature companies or going
public or already public, is that they have this margin pressure, which is that all of a sudden
it's more expensive to do business than this today than it was yesterday.
And the hope is, the dream is that these AI companies can help alleviate some of this margin pressure and help, you know, business to survive long-term or thrive.
And that's the needle that soft ink is trying to thread.
And it's probably what Tiger Globe was doing as well.
Tiger Global probably looked across our portfolio and like, look,
all these companies that we need to write off
were really sensitive to the cost of capital.
And we were anticipating low cost of capital forever.
In our models, now we realize we were wrong.
And instead of just holding on to these companies
which aren't going to make it in an environment
where the cost of capital is going up,
we're just going to drop them and try to raise again in the future.
So I think is saying, yes, we might have to let some of our losers go,
but hey, this is a huge opportunity in AI.
We can, you know, I'll give you an example,
and a company that I've invested in,
which helps alleviate returns.
returns for for clothing companies so if if you were like a big a big clothing company like let's say
hm if they were able to reduce their returns by one percent that equals to a one percent increase
in their gross margin so if they can use AI to reduce the returns they can
And that's, you know, that's, you know, that's $10, 20, 30 million a year for, like, a company like H&M or another big clothing company.
So, AI can do things to help alleviate margin, you know, margin pressure on companies, big and small.
And that's why you're seeing these sort of B2B plays being, being exciting for companies because they can start seeing, oh, I can, I can help you with, you know, this AI can, you know, help your increase your gross margin, one, two, three percent, which for big companies is significant.
So I think that's the real story is that AI is rising because of the cost of capital increase, because it helps with the cost of doing business.
So what Mickey is talking about, Mickey, I'm going to, I'm going to start calling it dance planing.
I'm going to repeat it, but in my way.
But I'm going to danceplain it for a second.
So what Mickey is talking about is so critical that everybody knows.
that right now, cost of capital is high.
What we mean by that is when you raise capital,
the multiples on revenue that you can get are not as attractive.
The debt that you can get is more expensive.
So when you start thinking about how startups raise money,
you can't raise those same valuations.
You essentially don't have free money.
So when you don't have free money,
you have to find ways to make your existing team more efficient.
This is like so critical in so many ways that I can't even like,
Explain it enough.
So when you're a startup and you have to decide
between hiring another person
or making your existing people more efficient
or allowing AI to augment your existing team
or replace portions of your existing team
and you maybe have gone through tough layoffs or whatever,
there's no better impetus than a tight labor market,
cost of capital being high
and a new technology that enhances existing people
This is potentially the perfect setup for AI.
The only pushback I will give is that valuation multiples are ridiculous right now in AI.
That is the only thing that I push back against and SoftBank is not known to negotiate.
Now, maybe they might do something different, but they're not known for that.
They just, you walk into a room, you say the right buzzwords, and then here's a $100 million check.
That's like that, that is what people say about SoftBank.
I have not raised from SoftBank.
But Cody, wanted you to jump in and jump in here.
Is it, I have a feeling you're just going to say something in the middle.
So you let me know.
First off, thank you for having me.
Mickey always jumps on, spit in truth.
I love that.
I actually have a little bit of a counterpoint that I think this is what SoftBank is doing.
It's a little bit of what Jeff said, a little bit of what Mickey said.
I think that SoftBank is feeling some pressure on the capital side.
You know, there are rumors that they're actively looking to bring Arm public.
What I think their strategy here is in announcing this offensive move is that they're probably going to invest in AI teams that utilize some of their edge compute with Arm to try to build up that vendor list.
in order to have as many people in the funnel as they make that arm announcement to take
the company public.
There's a lot of hype around chips, there's a lot of hype around AI.
So I think what they're doing here is being strategic and they probably sat down in the
boardroom is that, hey, if we invest X amount of dollars, build the funnel, take arm
public with a funnel that says, hey, we're going to start buying X amount of chips.
They probably did all that back-end math and saw some public value as they bring our in public.
I mean, it's going to be quite fascinating to see how it all turns out.
But I have a day job.
I have to go make Chris and others money.
So let me let me let capitalism get to work.
We will see you guys tomorrow at 8 a.m. Eastern.
Appreciate everybody joining.
Thanks again, guys.
Have a wonderful day.
We'll see you tomorrow.
Thank you.
See you.
