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#FinanceDaily: Markets donβt believe the Fed | VC in Disarray
Recorded: June 16, 2023 Duration: 0:54:49Space Recording
Short Summary
The transcript discusses various crypto-related developments, including regulatory scrutiny of Binance in France, market reactions to BlackRock's trust, and Fidelity's preparations for BTC custody. It highlights trends such as the decoupling of Chinese VCs from U.S. support, the potential growth of Bitcoin due to sanctions, and Africa's emerging economic activity. Technological advancements are noted in the context of the Chips Act and blockchain innovations in tokenization and cross-border payments.
Full Transcription
Eugene, I came armed this time.
I have a shit ton of data on the VC industry right now
and what's going on.
We're going to have a spar.
I'd get prepared.
And this has to do with China.
Just a heads up.
I didn't want to put China again in the title
because this is broadly about VCs in general.
But this is, I came armed with actual, like, stats now and articles and
sort of like early indicators, but also direct data from the source.
And I might be able to get at least one of them up here today,
someone really well known.
I'm just waiting to see if he's going to show up.
But he messaged me and said, yeah, no, I'd be down to talk about this.
How much of that data?
From China, do you think can we rely on and believe?
The data is not from China directly.
The data is from the Middle East.
Very interesting.
Yeah.
That's right. All right. I'm just, I guess it's Friday, so everybody's taking their time. Give us a couple more minutes. Maybe like 7.05ish, central. So five more, four or five minutes. Michael, do you see the Binance, France news?
I saw the Dutch news. I didn't see the France news.
Apparently, Binance is under investigation in France now.
That doesn't surprise me. I think a lot of places coordinated with the United States will probably all kind of work together to pressure them here.
Yeah. Or maybe they did actually do something. I mean, it is actually possible.
Well, I completely agree they did do something. I just, I'm not surprised that it's all going to come out at once.
That's a good point. Very good point.
I was in France's Binance Blockchain week in Paris last fall.
And the amount of theater of France trying to embrace blockchain crypto,
I mean like, you know, French people like regulators and stuff on stage.
And now just a little over half a year later that the about face is just interesting.
Because just seeing there how much they were excited about Binance's presence in France.
Yeah.
Only about half a year ago.
So interesting.
I'm only going to say this once, but I don't know if you can trust the French.
I'm just kidding.
That's a joke.
Sorry.
What about the Black Rock News?
Interesting.
People are misinterpreting it.
It's not actually an ETF.
It's a trust, which is very different.
Yeah, we'll get denied, too.
No doubt about that.
Maybe.
But the markets are reacting to it.
It's very interesting.
Okay.
Give us one more minute and then we're going to get started.
Thanks, everybody.
We're waiting on a few more people.
Yeah, I think as long as Gary Gensler's at the SEC, there's a very, very low chance that any
crypto-related products are going to be able to make it through him, but that's my own opinion.
It'll be very interesting.
I'm actually kind of curious to see what ends up happening.
There's a story that I don't think most can predict right now, because I feel like what's going to end up
happening is what always happens, which is the government will pick winners and losers.
That's what I think will actually happen, but I'm kind of curious to see how.
Yeah, I agree with that overall sentiment.
I think it's going to be their argument for why they denied gray scale, which obviously
our government doesn't always act in completely logical ways, but was because there was
manipulation in the spot market.
So it's going to be funny to see them try to square the two for why they would be able to
approve Black Rocks in that aspect and not gray scale.
So I think there's going to be some interesting insight.
I'm probably going to...
say this later anyway, again, because, you know, the room has barely begun, but
you guys remember when a few weeks ago I had told you that Black Rock was tapped on the
shoulder and told to pull money out of China? That was not just us. It was pretty public news that.
You remember that? You all remember that? All right. Well, maybe that has something to do with this.
Isn't that fascinating? The timing of everything is just nuts.
craziness this freaking country man as we're waiting I'll tell the story of
something that people don't even think about but once I share it for people in the
US everybody will recognize what this means for actual health care and
mickle and I both come from health care so we can kind of talk a little bit about
this but
But for people that are not aware, you know when you go to your doctor's office and your doctor is not paying attention to you and your doctor is like sitting on their computer looking away from you?
Anybody, anybody been through that experience?
Please put it in the comments on the bottom right.
What they're doing is they're putting all the information in the medical record system.
So what's the record system is it is the way that just keep notes, supposedly.
Now, these notes...
are actually used for payments from the government.
50% of all health care in the U.S. is actually paid by the government.
It's more, actually, because of healthcare exchange, Obamacare.
And so to get paid the highest possible amount, you have to meet something called meaningful use, which is a ridiculous thing to say even.
Because once you understand what it is, it's crazy.
Meaningful use is you have to meet a certain amount of requirements and your electronic medical record, which is being used to put all this information in, is meet certain criteria.
And so we this hilarious situation where we're going from paper records into electronic records.
This is like 20 years ago.
Okay.
This is Obama Times or 15 years ago.
And so guess what happens when we're thinking about this?
So nobody's talking about this.
Nobody absolutely nobody is talking about this.
Okay.
and Obama's like, we're going to make free health care.
We're going to make free health care.
We're going to make free health care.
Okay, cool.
We're going to do free health care.
Great.
One, the only way he was able to get it across the finish line
was by getting the insurance company with the Affordable Care Act.
Since then, insurance companies have skyrocketed.
It looks like that 1971 thing that everybody talks about.
You can do the same thing with health care and be like,
why is everything suddenly going?
And one of them was,
We won't talk about the insurance company as much,
but insurance companies have pulled back like crazy in the last week.
And I'm about that as well, since that's an area of expertise.
Two, there was this lady out of Wisconsin that nobody knew.
Her name was Judy Faulkner.
All right?
I want people who are listening to go and Google Judy Faulkner.
This is like something you've never heard of.
By the way, today, her company...
that is more outrageous than the Google campus.
Yet you have never heard of her.
Yet she has, her company has led to burnout of hundreds of thousands of doctors.
When you say the name of her company, every doctor has like a visceral reaction, just like,
ooh.
And that company is epic, not epic games, epic in healthcare.
And Ockner...
was the founder and CEO of Epic.
It is.
And Judy worked with Obama to write the actual laws
that govern all medical records.
While she was the founder and CEO
of a electronic medical records company,
electronic medical records were made crazy complicated.
Easy complicated.
I can tell you the barrier to entry was so broad
And the incentives to convert from paper to electronic were that you would get paid double digit percentages more per.
So now all the health systems in the country are like, one second, you're increasing our margins.
We're going to switch to it.
But along the way.
was the worst user interface.
It was so complicated.
It led to so many issues.
Many people believe that this medical record issue,
which I didn't seem so simple,
but it enriched billionaire.
Like, it enriched her so much.
And it led to such a huge worsening in healthcare.
Again, that 1971 chart people talk about.
So the reason why I'm bringing that is because
This is an example of actual corruption in the government.
This is like real corruption in the government.
When I say that when we see this news about BlackRock,
when we see this news about BlackRock,
don't just sit there and say, huh, that's interesting.
Take a step back and ask the questions about, okay,
well, what's happened to the last six months?
What is BlackRock done for the U.S. government in the last six months?
And for people that join us every day at 8...
Usually the first 10 minutes, I speak my truth, I feel.
I feel like I'm, like, the most honest in the first 10 minutes.
I don't play games in the first 10 minutes.
And I don't play host.
I just, like, speak what I think.
For people that have been watching, and, you know,
we have the best-looking smartest crowd on Twitter spaces,
our audience is very perceptive.
And...
If you are looking at what's happened in the last month and Black Rock starting the uncoupling of U.S. investments from China.
By the way, I brought receipts today of this.
If you see that and then you see that Black Rock, so Mickle, I will, one thing you said, I think they will get approved.
I think the bargain they made.
I think this is the game they're playing.
And I think they're doing it because U.S. has pulled back significantly.
And again, I have receipts from a, and I will share those receipts.
But U.S.,
investment in China has seen one of the large pullbacks ever.
I have receipts now.
And I have receipts from like mainstream media too for people that are interested.
So, Tanesh, you blocked out, you blanked out when you were saying what will be approved.
And you didn't say, you couldn't hear if you said yes or would.
Yeah, don't.
You're a little choppy right now.
Just say you know.
Oh, I am.
Yeah.
Hold on.
Yeah, probably I would say every 25 seconds you get like a two second cut.
Okay, good to know.
Do you guys hear me better now?
Yeah, it sounds like it.
Yeah, a lot better.
Okay.
So what I was going to say is that if you look at...
Black Rock, and I don't know how much you guys heard.
I don't know if it all made sense, but I was, Joe, I was tying, I was telling the story
of the company that was involved in doing the U.S. government a favor and ultimately won an
entire market because of it.
It was Epic, which is the medical records company that was on the committee, the founder and
CEO of a private medical records company.
that electrified or made electronic medical records
was sitting at the table writing the laws
that essentially led to a barrier to entry
for anybody else to enter that market.
Today, Epic still owns most of that market.
And in fact, most people will say that that's part of the problem with electronic medical records.
The reason why your doctor's not looking at you and listening to you during the visit is because they have so much work to do on the electronic medical record.
Just so people know, you know how you feel like your doctors don't have time?
Google this.
Two-thirds of a doctor's time go into documenting.
This is the reality of healthcare, all right?
And this lady has made a billion dollars, billions of dollars because of this.
Hundreds of thousands of doctors have quit their jobs because of this.
And nobody's talking about it because it was done in the back rooms on Capitol Hill.
And so the reason why I'm bringing that up is because if you don't think this shit happens,
I know a lot of people up here know it happens.
But if you don't think this shit happens, you don't, you know, you're not paying attention.
And what I said was, Joe, you know, if you were here about a month ago, I mentioned a story that was not publicized broadly.
But I said, huh, this is interesting.
Black Rock started pulling its investments out of China.
It's about a month and a half, maybe two months ago.
And, you know, I can't say that we completely broke it here first.
There was, I think, Zero Hedge may have mentioned it to, maybe the same day.
But I think we had the same sources.
And we were like, huh, BlackRock got tapped by the U.S. government to remove their investments in China.
This is freaking weird.
Like, why would they do this?
And now we know why.
And that's why Mickle was like, hey, I don't think that Black Rock's going to get approved.
Mark my words, that trust.
By the way, did you guys notice how it wasn't a spot ETF?
How it was a trust specifically?
Did anybody else notice how weird that is?
I bet you that gets approved.
Yeah, and fidelity is moving in the same direction.
Go ahead.
Yeah, and fidelity is moving in the same direction.
Like, they're getting everything in place to be able to custody, BTC.
You know, it's kind of odd that the biggest banks in the world are all,
well, and biggest banks in the U.S., well, the world.
You know, we're all moving in that direction and all this, like, legal stuff's coming down.
It just seems like a...
You know, seems like more corruption, to be honest.
Yeah.
And, you know, I'm going to post now some of the receipts.
I'm going to start posting the receipts on China.
The real story here is Chinese VCs are losing U.S. support.
That's step number one, okay?
This is the uncoupling happening.
And we're going to talk about this quite a lot over the course of the next few weeks to months.
There we go.
Add a speaker.
So we're going to talk about this quite a lot because, again, our jobs, I'm going to put it up in the nest,
is to tell you what we think is going to happen before it happens.
Now, again, if you're listening to Twitter spaces for financial advice and not doing your own due diligence, that's on you.
But this is not financial advice.
What we believe is important is to just inform and let people make their own decisions.
So I just posted up in the nest.
that the story that is being pushed is that Chinese VCs are looking to the Middle East for a U.S.
dollar lifeline.
But in reality, the story that nobody's talking about is twofold.
Okay?
Number one, the Chinese VCs are not able to raise money from Chinese investors.
Huh, I thought we were talking about this yesterday.
I'll bring more receipts on that.
Chinese investors are pulling back in record numbers.
And then number two, the U.S. is pulling back.
So just so people know that right now, venture capitalists in China, who once relied on U.S.
investors are now focusing on Middle Eastern money.
Remember even yesterday?
That's exactly what I'm going to say right now.
And the narrative that's building is that the Middle East is investing in China,
but that's actually not the case completely.
That is half the story.
Number one.
Chinese investment firms, including family, I mentioned this yesterday. This comes from very good
sources that Chinese investors are pulling back from U.S. investment in record numbers. What this is
telling me is that they're also pulling back from Chinese venture capital investments,
likely in such large numbers. Number two, this is telling me that
that the U.S. investors, by the way,
who are a large part of Chinese venture capital
and PE firms and institutional investment
are pulling back.
Again, it's been reported now,
always a few weeks after we mention it,
It's been reported that Black Rock and others have pulled back significant investments.
Yes, in commercial real estate there, which is really hurting and residential real estate there, which is really hurting.
But also in other investments in China.
And so now there's this giant hole.
So where do the Chinese go to their friends in the Middle East?
So there's been a bunch of China Middle East conferences.
Many Middle East investors are looking at Chinese venture capital firms.
And even CNBC admits that the money will not be able to replace all the pullback in U.S. investment.
So it gives you a sense of what is going on.
So that's step number one.
We're seeing Chinese VC firms now struggle.
And for people that don't know, Chinese venture capital is pretty prominent,
especially over the course of the pandemic.
They became really big.
And so we're seeing that.
I mentioned, again, I have receipts on what's happening in American venture capital.
So I'm very interested to learn more about this.
But let's start here.
What are people's thoughts about this decoupling that's happening in an investment between the U.S. and China?
Gary?
Hey, guys, if I could just bounce in because I'm taking one of my kids to get her license at 16 years old, she's really excited about that.
I think what we're seeing, guys, is we're seeing the de-globalization that is taking place.
I'm not...
I mean, I'm not an expert on what Black Rock has done, but I suspect they're splitting up some of their businesses for focus and for being prepared for markets to compete with each other.
I don't think that has to happen once we walk through the de-globalization world where we're just going to compete with each other in various markets, which I actually think is healthy.
On the point of Black Rock coming into the crypto industry and fidelity, I get a little confused by the industry.
I thought we wanted adoption.
I don't think we're going to get adoption without the big boys coming to the table.
And sadly, it is us who has, you know, created a bit of a...
mess in our own toilet bowl where other big players are like the government is going to most surely want these big players in because
They're going to act a bit more mature than what we've been doing.
So I think this is about us needing to regulate ourselves.
Understanding the Bitcoin is going to be the winner.
I will make that prediction that Bitcoin will become the big winner from all of these sanctions.
So I'm really excited about the opportunity once the space gets cleaned up.
So I want to let Osse jump in or Mickle.
Oss, go ahead.
Do you agree with Gary that you actually need...
the,
the Fidelity's and the black rocks to enter this industry for it to become more
legitimate and better,
and work better for the average investor.
so you can unmute the bottom left.
Yeah.
How we doing,
all right.
So I,
Mario.
How are you on?
How are you?
If you're done?
Yeah,
yeah,
I can hear you.
Go ahead.
Yeah.
Yeah,
I said to Mario at the start of all this mess with,
Luna that,
You know, we do need more regulation.
We do need more eyes looking in on it.
And I kind of wish they acted a bit quicker than they did.
And they might have caught Sam out.
So I sort of, I've been in crypto for 12 years.
So I've watched, you know, what it was created for and what we did to it.
You know, putting it on exchanges,
chip coins, leverage, all that sort of stuff
was not what it was invented for.
So we sort of, you know, the world did that,
made a lot of money, lost in a lot of money,
corruption.
And, you know, those two big companies you're talking about,
everybody is eventually going to have to have it on their books.
Right.
Bitcoin's not going anywhere.
I think all of us on this are going to agree on that.
You know, we are going through a tough time in the world,
and it's probably going to get tougher,
so Bitcoin will keep going down like every investment will,
but diamond hands and keep buying.
But, you know, I think companies like that,
they'll be foolish not to because, as I said,
when they caught Sam out, they caught Alex out, you know,
they've caught...
uh what's his name from uh
uh lunar
um you know we're we're running out of bad eggs
i said in one of the Twitter spaces we're running out of bad players in the industry
they keep getting caught i'm just not
i'm not convinced that without regulation we would run out of bad players mickle
uh would love for you to weigh in yeah so
I definitely think it's a positive step forward, not necessarily in that it's some massive game changer, but I think it's a legitimizes the asset class to a certain degree.
I mean, at the end of the day, BlackRock, if this fund does get approved, it's going to bring in massive amounts of new capital.
For me...
Although it's exciting.
The whole story about just another large asset manager just holding Bitcoin.
While that's cool, I don't think it's really anything game changing for the technology.
I'm really excited for some of the really, really deep uses of blockchain, really just transforming tokenization for these...
massive asset managers, transforming cross-border payments,
transforming programmability of the underlying rails
of the financial system.
That's what I find really exciting
when it comes to institutions
and really transforming the rails and pipes
of our financial system.
I think this is really cool and good for adoption at a whole
When it comes down to the technology of what these decentralized instant settlement platforms are doing,
an asset manager holding Bitcoin is more of just some kind of monetary instrument use of Bitcoin rather than the technology itself.
Exciting, but I don't think it's necessarily a game changer for the tech.
Not your keys, not your coin.
Say again?
I said not your keys, not your coin.
Yeah.
as the tricker friend but i think there's a lot of people out there who i mean in my personal
opinion shouldn't be self-custiding like i i know a lot of people in my own personal life who are
much better with just a fund on an exchange and as long as that's regulated they're going to be
perfectly happy locking into their account and just seeing that representation of the bitcoin
so while i agree with you me and you are both technologists and me and you can handle it and
be safe with our investment i do think it's this is a good product for people
who are at least new to this industry and the people who, I mean,
I know a lot of people still can't figure out how to work their iPhone.
I don't feel comfortable with them self-custody.
Yeah.
Yeah.
How many people want?
I'd love to kind of push back a bit on this because how many people want?
Eugene, I do want to focus.
This is what happens with crypto.
It's like a black hole.
We have a crypto space.
I recommend everybody go to that.
But I want to make sure that we focus on the core story, which is the uncoupling between China and the U.S.
And also how Chinese investors are not investing in their own VC funds.
U.S. investors are no longer investing in their B.C. funds.
And then we're seeing broadly this take place in a much crazier way.
So, Eugene, why don't you jump in?
Yeah, sure. So great to have some of the data. So basically, I think at the end of the day, the losers end up being the folks in the U.S. and the folks in China and the winners are everybody else, right? I mean, there's talk in the Middle East here. But, you know, whenever there's trade, at least if you know, believe in trade, you know, increasing value for the traders, right? I mean, you know, just the basic, uh,
econ 101 like ricardo's theory of comparative advantage if you stop trading you know you lose
you know utility in a purely utilitarian perspective right so that's what i see um i was for example
i was in the f i i the future investment initiative in riyadh in sada arabia pre-covid so
one of their big conferences they bring all sorts of folks from around the world like global
investors um really fascinating to kind of see what was going on and really it was there the story was
like you know piff
I mean, the irony is like PIF, the public investment fund of Saudi Arabia.
So a huge sovereign wealth fund manages, you know, a ton of money.
You know, they put like $40 billion something dollars into the Japanese soft bank vision fund.
So Masayoshi-Sons vision fund.
And then Masayoshi-San then invests that into American companies like Uber, et cetera.
So you have money from Saudi Arabia, they're going to Japan, going to, you know, going to, you know, SF companies like Uber,
and some other ones, you know, so what I'm saying about that is that, you know, that in theory,
the idea around that is it creates value for all the participants, but the problem is,
and we're having now is who are going to be the winners when China and U.S.
it's not going to be China and U.S.
or they're going to lose relatively compared to, you know, for example,
the Saudi Arabia's of the world, the UAE's of the world.
Even Africa, I think, is low-key growing in ways that a lot of folks aren't really even focused on.
You know, we haven't talked a lot about that on this panel,
but so many exciting stuff happening there.
So, yeah, I think we end up, I mean, I'm in America right now,
so, you know, we're going to end up losing on this side of coin.
Can I give a pushback to that for a second?
Sure.
So the pushback to that is that when American money flows into American companies that actually follow our intellectual property laws and actually are governed by our reporting laws,
I think, and don't share all of our data with their...
their governments, even if they end up sharing the data with our own government, that's at least
better than them sharing their data with the CCP or with other national organizations that are
keeping sovereign clouds. And so if you keep track of what's happening in China, most of the data
has to run on their sovereign cloud. That infrastructure is built on.
to take information away. Now again, this is not about TikTok. TikTok US and finance. Ticktok
US is completely separate because I know that's going to come up. I don't want to talk about that.
Anybody brings that up. You're being sent down. But this is this is about the fact that the startups
there are building on their infrastructure and their infrastructure is inherently built to help
their country. When we build infrastructure here, the best example of this is the Chips Act. The
Right now, we are winning because we are, we're going to win because we are building chips here.
We're reducing our reliance on TSM in Taiwan, and we're built.
TSMC is building in the U.S.
We're increasing incentives to build that in the U.S.
And I think that's better.
Now, I'm not some like nationalist or something.
It's more just about the fact that right now is a very, very, very,
scary, interesting time,
especially with the advent of AI.
And I am very concerned around the fact that
we don't want to power another organization
that won't do the right things
that we can trust them to do.
And so that's the only pushback I have, Eugene.
I think all global trade is good.
Data has shown that it's good for businesses,
but I have to say, like, what's good for businesses now may not be what was good for businesses.
And the last thing I'll say is the industry has shifted.
Globalization and trade was good for businesses selling products.
I am not convinced that in today's service economy, it will be the right move.
In the service economy, we want to get our people...
out of, you know, off of their butts and working,
and we want AI being built here.
That's the only point that I was going to say.
Go ahead, Eugene.
Sure, yeah.
So I think they're fair points.
And, you know, for all of us here in America,
we can play, and hey, the game was rigged in China.
well guess what they're right yeah the game was rigged but you know what are we going to do about it right are we just going to sit and complain um you know or are we going to destroy value just for the sake of destroying value right i mean the game was rigged in this way right so china was essentially protectionist as donish mentioned and they allowed companies like by do ali baba tentsent essentially copies of you know the amazon the google etc
even like Twitters of the world to become large.
And now the BAT,
by the BAT companies,
as they call them,
are gigantic companies.
And they,
by the way,
are a huge player in the venture capital space.
So corporate venture capital in America,
you know,
not necessarily the A players,
right?
The A players are the companies like Sequoie.
They're independent.
But in China,
the corporate venture capital firms are actually gigantic players,
having sort of dealt with,
actually,
all of them.
But the thing I'd say about it is,
well, like,
okay, let's,
let's talk about like Apple right and I know you're talking about services Donish so I will get to that but like Apple you know you open up an Apple package it says designed by Apple you know in in California right specifically in Cooper Tino one infinite loop but it
It's okay, so you have a $3 trillion company, Apple.
How much of it is an American company versus a Chinese company, right?
Just given all of the operations they have to have in China.
That's just one example on sort of the good side.
I'd say on the services side, I think the AI question is very interesting,
but I think there's a lot of unknowns in AI.
I'm sitting here in San Francisco, which I think is the capital of AI world.
Maybe Beijing, Shenzhen have sort of a number two claimant spot, but they're far behind.
Yeah.
But I'd say that on the services side, we have been a services economy.
We have been growing into a services economy away from a goods economy for decades, right?
So I'm not sure we could say that comparative advantage doesn't work on the services side.
And by the way, that also includes relatively healthy, you know, GDP growth in the U.S. for developed country.
So, you know, I'd say like all of this.
I mean, I think we are, unfortunately, I think we're heading into a de-globalized world.
I think we've had almost 100 years of globalization, right?
Like literally huge.
you know, a trend. This has been a big macro trend. And unfortunately, I think in the last 10
plus years, we've seen the cracks and we're going to probably go through a multi-decade
de-globalization cycle. Which I think a loser is going to be everybody.
Really? Okay.
Yes. I do. I want to go to Jeff real quick because, again, we should talk about this.
I think, you know, if people want us to kind of jump into this more, please go to the bottom right and comment.
And we'll have a deeper discussion today about this.
But I do want to go to Jeff because he was waiting and he was so tired he had to put his hand down.
So go ahead, Jeff.
Okay, no worries.
Yeah, so my day job when I'm not in this space is one of the things they do is I advise Mega Cap Tech on their supply chain design.
And a lot of it revolves around what's happening geopolitically.
And prior to that, two decades and kind of sea level management of
supply chain, both on the technical side and the operational side and really seen, you know,
the buildup of China in the early 2000s where we, from my perspective, we built up kind of the
mobile phone world there and eventually the smartphone world. And then, I mean, I can go
through this whole history and do it in chunks of how everybody wants to do it. But it's wild.
I mean, we, everybody just flooded in there in the late 90s.
in early 2000s, and we couldn't get in there fast enough.
We were staying in Chinese hotels, Chinese national hotels.
There weren't enough American hotels.
And based on what city you were in, I mean, it depended on what kind of, you know,
accommodations you had.
And we would stay there for weeks and we were setting up manufacturing because, you know,
the labor rates were basically, you know, one eighth, one tenth of what they were here.
And the trade lanes were open and everybody wanted to, you know, it was a rush to make more money.
And then over time, I'll accelerate through some of this.
But it actually got increasingly expensive in China to build.
And obviously not more expensive than it would have been to build here.
But in the major cities, as you got closer to a major city, and if you had manufacturing setup,
which a lot of us did near Beijing, near Shenzhen,
that cost structure went up massively.
And so what actually started moving and migrating people out of China, actually,
wasn't actually this geopolitical risk with Taiwan.
It was actually the cost structure in China.
And one of the first, and that's where you started seeing this exodus.
to some of the other countries in Southeast Asia.
So, Jeff, I want to clarify that there's the distinction here.
The uncoupling of the financial and capital markets is very different than the uncoupling of supply chain.
And what I was referring to specifically was investment in China from U.S. financial institutions and U.S. venture capital versus β and by the way, we got slap happy with that during the pandemic.
which was really interesting because a lot of the things remember zero COVID right so all the things
that made sense in the ZERP zero COVID world in the US ended like last year and then you know but in
China it was still continuing so people started pumping money and growth stage equity yeah in
China but I'm sorry keep going yeah I'll just I'll sell right basically the uncoupling has started
actually I want to say about
six, seven years ago, and it was financial uncoupling just because, like, the reality was
these labor rates weren't going out. So the first stage that happened is a lot of companies
started moving to more remote areas in China, and they were studying that manufacturing.
So you'll see some of the biggest, you know, so on behalf of like, let's say a company like Apple
or whatever, some of the bigger factories are now set up in these,
fairly remote areas which have now been built up as,
you know,
cities around,
you know,
where these companies established.
I can go through many examples of that.
But,
And then long story short,
about more than about five years ago, it really, everybody started like leaving for Southeast Asia, Thailand, Vietnam.
And that's what's been happening. And so it started as financial decoupling due to like labor rates and just due to, you know, regulations actually building up in China.
And now for the last, I want to say two, three years.
What moved to the front of the conversation was Taiwan and geopolitical risk of that situation.
And like, what is the plan basically day one when that major conflict?
If that major conflict were to occur, like, what does your day one supply chain look like?
And that's where the conversation has shifted.
I want to say over the last.
18 to 24 months. So reality is set in. I will tell you that there's been a kind of a huge,
huge pull back from China. I mean, there's a big effort from China. There's a lot of, um,
there's basically a lot of opportunities that they're giving, whether it's new factory construction, whether it's tax breaks, whether it's whatever.
I mean, the dollars that they're putting up trying to keep kind of those next manufacturing lines or bring them back in.
is enormous, but some of these other countries are also, I mean, they're getting very aggressive.
So it's super interesting to see what's happening.
But the decoupling now is almost entirely geopolitical driven.
And the finances are actually starting to add up.
So, yeah.
I'll give you an example.
I mean, the labor rate issue got so bad.
I mean, if you go from like China to Vietnam, you're seeing upwards of a 30% reduction in labor rate.
And it's so fascinating because, you know, then people would say, well, are the Vietnamese labor as skilled as Chinese labor?
And the answer is yes.
Yeah.
It's a transition.
So what happened is the initial answer is no.
And then over time...
that whole infrastructure around manufacturing has to get built.
So you set up a factory, you need tool and dye makers.
Okay, where is that experience coming from?
Who's setting that up?
And so what you're seeing is you're seeing Singaporean nationals,
Taiwanese nationals, U.S. nationals that are setting up that capability.
It's a multi-year thing, but they're getting there.
They're not on par with China.
I mean, we've built, and other countries have built China into, I mean, their capability is tremendous, especially on consumer electronics.
Yeah, China reminds me of a zero interest rate. I don't want to say this. I'm going to say something. People are not going to like it. But you know how all those startups were a zero interest rate phenomenon? I'm very convinced that China is a zero interest rate phenomenon. But we will see. Joe, go ahead.
Yeah, you know, I don't really call it a global decoupling.
I see it more like a pro-US anti-US decoupling, let's say.
You have a third of the world under U.S. sanctions.
You know, this thing really started in 2008.
I think Bitcoin was the unpredictable player in the plan where they kind of have a sandbox they can both play in.
But what I'm seeing is all these countries on sanctions, a third of the world, they're looking for an alternative.
They realize that innovation is key that withdrove America a lot.
And I think there's...
ultimately going to be two players, the pro-US and anti-US.
That's kind of the way I'm seeing it.
And that's why Middle East is kind of playing both sides.
They don't know who's going to win.
And they're investing in both.
I will tell you, Joe, I lived in the Middle East for many years.
And I will tell you that you cannot...
envision a world in which the Middle East would ever choose China in any close approximation as compared to the U.S.
And if the U.S. puts our hands on their shoulder, can we remember that the most, I mean, Saudi Arabia is one of the most culturally strict countries.
Right.
And yet they signed the Abraham Accords.
I just want to remind everybody that the America, when we whisper in the Middle East here, they listen.
So, you know, I want to push back on this thing.
Right now, all we know is that Chinese VCs are courting Middle East money.
We don't know how much Middle East is actually allocating to them.
And remember, as Chinese VCs pull out of the U.S.,
which is also in that same article, as they pull out of the U.S.,
as Chinese investors pull out of the U.S.,
it's going to leave a hole.
So if you are an investor from a sovereign wealth fund
or an ultra-high net worth individual in the Middle East,
in Dubai or in Saudi or in other countries,
are you going to fill...
cerebral valley are you going to fill backfill these VCs up in the US or are you going
to bet on China which has all of these geopolitical concerns but that's what I'm saying
I think they're playing both like I don't think they seem to be creating more peace
treaties between each other there are sanctions in certain Middle Eastern
countries I guarantee you their neighbors don't really like that
They're going to play both.
I think they're leaning a little bit away from the U.S.
and leading a little bit towards China.
I'm not saying they went full-blown China, but they're looking into it and they're diversifying their assets, let's say.
I think that's kind of what they're doing.
Of course, that's not equal.
I don't think, I think it would be a long time before that investment is equal.
But they're...
but they're not blind to the fact that there is a possibility where China wins.
And they want to have money in that game.
Or not even wins, just does well.
Diversification, right, Joe?
Exactly.
You know, it's like, it's interesting.
Even, you know, like, there was a flight to Dubai to Tel Aviv.
I mean, for anyone who knows the Middle East, you know, Israel versus neighbors.
Right.
You know, and there's also flights that are opened.
I mean, this is, you know, just a few years ago, you know, Bahrain to Tel Aviv.
Yeah, I was noticing this because I was like trying to figure out I was in Dubai recently
and looking at where I could fly direction.
I was like, wow, I can fly direct Dubai to Tel Aviv.
I discovered that just a few days ago looking at all the flights.
I think these are small indications that I kind of agree with Joe.
I think why not play all the sides, right?
I mean, if diversification is one of the principles of finance.
Oh, interesting.
So can you describe that?
I'm actually curious.
America is tapping China versus, because I just talked about, you know, Japan soft bank fund, right?
And obviously Saudi went all in on that.
So are you saying specifically China versus other Asian countries, Donish or what's the, I mean, I guess you could say Japan's a U.S. ally.
So maybe that's part of that theory.
Japan is a U.S. ally.
Where did people, when America pulled money out of China, Eugene, where did the money go?
When, sorry, second, when who pulled money out?
When America has pulled the money out of China in the first quarter of this year, where did the money go?
I know the answer.
Japan.
Look at the Niki.
Interesting, okay.
Yeah, so if you start looking at it.
Like FDI.
Can you see this in FDI flows?
Yes.
Okay, interesting.
And it was reported, I think, two days ago in CNBC.
So where do you think the fund is the money is going?
The money is going to Japan.
I think Japan is going to bite the hand that feeds it?
I think it's just going to go everywhere, right?
Like, I mean, again, like I brought up Africa, but I mean, there's just a whole lot of stuff happening there.
And guess who's winning in Africa, China, right?
Not the U.S., right?
I mean, we have, like, our VP go out there to try to, like, you know, make friends with all the folks.
Because we realize how behind we, the America, are in that.
I mean, basically they call Africa China's second continent, right?
So I think everyone's making plays...
sort of around the world.
And, you know, I worry, I mean, I posted it up in the nest,
but I was trying to figure out exactly how much de-globalization is happening.
So globalization can be actually...
objectively measured by world exports percent of world GDP.
And they have data that World Trade Organization has data since 1870 on this.
So we had 60 years of globalization until from 1945 until the 08 crisis.
I think it was Mikkel who said that or who mentioned that.
And since 08 and others, I think.
And since 08, it's been a little shaky.
We've had slow globalization, right?
Are we now going to have multi-decades of de-globalization?
Right.
I think that there's a high risk of that.
I mean, it sounds like, Donish, you think that's not a bad thing.
I'd be curious.
I mean, I think it's going to be a terrible thing for consumers, investors, the stock market.
I mean, I'm not sure who wins in that other than maybe short sellers.
You know, I'm curious to hear what other people think as well.
Dakota, do you think that this decoupling and the de-globalization is a good thing?
Look, I think the de-goitalization has been happening for a lot longer than most people think.
I mean, you know, the iPhone was brought up.
You know, the things were brought up.
I think like 13 or 13 to 17 percent of the value.
Most of the value ad comes in their other parts of the manufacturing points.
China's demographics over the long term just don't look good.
You know, the setup between the North American alliance and what's happening between the U.S. and Canada, Mexico,
South America with regards to, you know, places like Colombia look really solid.
All of our resources that we consume for the most part, I think it's like
82% of it happens, you know, in the North American Alliance.
So, yeah, no, I think this is a fine thing.
I think it's going to happen.
I think it's been happening since probably 2013.
I'm bringing up AK since AK works in the global markets for people that don't know.
So AK can join us and tell us his thoughts.
In the end, the question really becomes,
What happens moving forward, AK, do you agree with the general commentary on the fact that there's clearly a decoupling happening between the U.S. and China in terms of the capital markets?
And then do you think that this is going to have a negative or adverse impact on U.S. firms and U.S. companies?
AK, you got to unmute bottom left.
Going once.
So, you know, as AK, there he is.
Go ahead, A.K.
You muted again.
Sorry, can you repeat your question?
She said there's a decoupling.
Yeah.
They asked us.
Well, you know, there's a story today.
And I was talking about it yesterday, which is kind of how it goes, which was that China
was moving its money out of the U.S.
We know that BlackRock started the movement of U.S. funds out of China, moved a lot
of those funds to Japan.
So we're seeing this whole movement happening and this decoupling happening in the capital markets
between China and the U.S.,
We also, you know, Jeff was mentioning about the cost of labor in China's higher.
We're moving a lot of the production for and supply chain to Vietnam and India.
You know, with all of this happening, the question really is, is this good for the U.S.
You know, like, let's be a little bit U.S. centric.
Is it good for the U.S. that this decoupling is occurring?
First of all, do you agree that the decoupling is occurring?
Yeah.
You know, we've provided some evidence.
I'd want to hear the other side of it if you're interested.
But, you know, if you think the decoupling is occurring,
do you think it's a good thing?
That's a tricky one, Banish.
I'll tell you that one, because, you know, the U.S.,
It's never good when U.S. treasuries are dropping or U.S. bonds are dropping in terms of the international reserves held by countries like China and the like of.
You know, American debt is held by China.
What happens when China pulls out slowly and slowly and slowly?
Who starts to support that?
That's what I kind of look at myself personally.
In terms of...
Economy-wise, I think it's a stimulant.
I think that the U.S. economy is strong enough to survive on its own.
But I've been behind a little on...
what the what the what's actually unraveling currently in the markets i was more so concerned with
uh what the fed is doing in terms of the markets right now so i'll i'll tune in and i'll chime in
as i take a little bit more on what's happening with this decoupling currently no absolutely so
you know jeff go ahead other to say if like uh we're not
ready. We're not anywhere close to be ready to be the couple from China. I can just, I can speak on
the tech side. But, you know, the process has, has started. And you refer to the Chips Act earlier. It's going to be
Couple years before that even starts to ramp up with like, you know, physical fabs producing meaningful output.
And in a way where we can actually like move orders, you know, whether it's out of TSM or out of other China fabs, you know, into U.S. fabs.
That's going to be totally fine, I think, by the way, from an economics perspective, because as long as we can actually set up more system level manufacturing.
in the U.S., the Chips Act is going to be a great thing.
What would be really bad with the Chips Act is, like,
if we start building all the silicon in the U.S.,
but we still have manufacturing, like, a lot of it,
if we don't start actually bringing back,
like if you actually don't start seeing a smartphone,
if you don't start seeing other kind of like consumer electronics
actually being constructed here,
then we still have a ways to go.
Because, like, with the Chips Act,
from a labor perspective...
It's a really small labor component versus the product output, the total economics of product output of silicon.
There's a really small labor component to that.
A lot of it's automated.
But anyway, we started the process.
But if China rolled in tomorrow to Taiwan and there was, you know, obviously we responded in some way.
uh our day one we're in we're in bad shape i mean i can speak with like consumer electronics but any
medical i mean there's so many different areas where we're not ready jac how much would iPhones
cost on eBay that the day that happened right old iPhones um you know what you'd be so i i
have history with it i actually built a smartphone so a multi million unit smartphone supply chain we
we did it um
between Google and Motorola in 2013, we did it in Texas.
And I went through, I know the whole economics behind it.
And you'd be surprised that it is manageable inside of the cost structure of what people are willing to pay for a smartphone, which back then, it was actually less than it is today.
These companies could do this.
These companies could do this.
It's very achievable.
Your phone is not going to double.
It's not going to even go 50%.
It's going to be a much smaller number of base.
