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0:00 you're managing billions of dollars now, obviously had a really good 15 years. Like what what are what are some of the trends you've looked at? How do you think about investing? >> I know you and I have talked about this. One of the things that I thought was interesting stylistically in my first exposure to venture back in 99200 is they were generalists. People would walk in off the street, two people in an idea, and it seemed like the the office was always full of people doing kind of random things, frankly, from restaurants all the way through, you know, >> even today on Twitter, Paul Graham's like, "You shouldn't actually say you're focused on anything cuz you should back the best entrepreneurs." His tweet yesterday. Yeah, >> that's right. I kind of, and maybe this was my legal training, maybe it's just my DNA, but I kind of consider myself more of a researcher, an anthropologist.
0:47 >> You want to go deep on things, >> right? Exactly. And so what I had you know when I was studying the internet 199899 and saying where will durable value acrue >> it seemed to me there are a couple areas and one was organizing all the world's knowledge and information another one was organizing all the world's products so helping us find and buy things helping us discover knowledge and you could build effectively a tax collection machine that sat in front of those. So for a decade I started and invested in search businesses horizontal like Google and vertical search engines like leading the series B and Zillow or Faircast or Sideep or Kayak or Booking.com >> makes sense >> etc. By 2008 2009 we had this thing called the iPhone and we said wow something's really changing here.
1:36 that's no longer going to be search first. That'll be you know something else. And we saw these icons evolving on on page one. And so how do you become an application? How do you truly leverage? So companies like Uber and Airbnb, companies that were taking advantage of the social graph like Facebook that became applications and were no longer paying the toller, the search engine in order to gain access. And then I think we were early to the cloud. you know people forget but in 2011 2012 the cloud was not viewed favorably and the reason for that is it was more costly it was less performant and it was viewed as less secure than running compute in your own data center. Yeah, >> we had a different opinion there and so our fund you know we run as you know a long short hedge fund and a long only hedge fund and those are permanent capital and now we're on our seventh venture fund but back then when I launched our first venture fund it was almost all dedicated to the cloud so early investments in Snowflake and >> Twilio and HubSpot really powered the return.
2:43 >> We were in the same wave. It took a long time to get the big institutions to actually trust the cloud, but it was clear they were going to and that's that's that's where it is now. >> We're close to the end of what has been the most parabolic rate hike cycle in the last 50 years in this country that's been hugely destabilizing the financial markets. >> It's the biggest bond route in 150 years. I think it's crazy.
3:01 >> Let me be clear on this. I believe the Fed made a huge mistake in the summer of 2021. >> I think it was knowable then. I think any of the us paying attention were tweeting about it. The cost of a container from China to the US had gone up 20x. Okay. The idea that we didn't have an inflation problem in the summer of 2021 that would warrant just moving off of zero. >> Yeah. >> We had Neil Qashqari, Fed president, you know, Minnesota who said at the time there is no chance we raise rates until at least the end of 2023.
3:35 He was only off by the most parabolic rate hike in the history of the country. Right? So like that to me was nine months that we wasted. We got behind the curve on inflation and once we got behind the curve, there's positive reflexivity to inflation. So what I mean by that is if your competitor raises their salary, they're going to pay somebody, right? Then you have to raise yours and then they raise theirs, right? That is this wage price spiral that we talk about. We got behind on that. Now I think we're nearing the front end of that. So we're at 5%. Could we go to 5.25? Could we go to 5 1.5 on the 10 years? Sure. But think about the convexivity from 0 to five. So that's behind us, right? If you look at the futures curve, it's it'll tell you there's an 84% chance of a rate cut by June. And the Fed itself thinks we'll have two or three rate cuts next year, you know, probably in the back half. So as investors, you and I shouldn't hype, you know, spend too much time focused on could it go to 5 and a half or whatever.
4:42 Like it's not a big move. >> I look at this and say we're on the front end of a rate cutting cycle. Okay? So think about 2000, the year 2000, May of 2000, the the markets were rolling over, but the Fed again raised rates 50 basis points, its last hike. By January, 6 months later, they were cutting rates and they would go on to cut rates by almost 500 basis points. >> So, you're not worried about like some kind of fiscal insanity where they spend so much more money and somehow cause more inflation in the next couple years.
5:15 You you think it's pretty naturally just going to go over into a rate cut? >> Well, listen, there has been fiscal insanity. >> There has been. >> We have to reel it in. the stimulus package that we did right at the start of CO right when we didn't know whether this was Ebola or whether this was a common like that one is justifiable the second stimulus package and then the push for the third made no sense to me right threw a lot of gasoline on the inflation inflation fire I don't see any appetite in Congress I don't see any appetite among the Republican contenders for the presidency for any more fiscal stimulus so I actually think, you know, call me chalk me up to being a little bit more optimistic. I think we're going to see more austerity on the fiscal side out of Washington. Obviously, the monetary side of the house is already highly restrictive. We're doing quantitative tightening. We've got over 2% real rates in this country, the highest since you know in over 20 years. And so I think we're set up for inflation to come down as the Fed expects. We're we're we're nearing the top of tenure, if not at the top. We're going to see rate cuts next year and importantly we're at the beginning of what may be the most important super cycle accelerant to our economy in a long time. We're going to see cost savings in call centers and engineering etc. So bottomline margin expansion.
6:35 >> So you think tax is inflationary as well and it's going to start it's going to hit again. You're saying that's interesting. >> and so listen we there are a lot of things we have to do to tackle this. We have to get a a modern and strategic immigration policy in this country coupled with secure borders etc. All of these things will contribute to healthy growth in this country. but listen, yes, it is true if we don't get our fiscal house in order, right? If we think we can get away with $5 trillion deficits and a hundred trillion of of national debt, we're fooling ourselves, right? We'll lose reserve currency status in this country. But I don't think that's fatal complete. And as they've often said, the US does everything wrong before it ultimately does what's right.
7:14 >> I hope you're right. I'm seeing what was called inflation reduction act. I see a lot of even my companies getting giant $100 million loans that are cheap. I see student debt forgiveness. I see I see I see money still being thrown around pretty aggressively. >> Can you and I can we both agree Washington I mean they do some doozies, right? But only Washington could spend trillions of dollars, inject it into the economy and call it an inflation reduction.
7:39 >> It is pretty ridiculous. It's it's pretty ridiculous. It scares It scares me. We need to We need to get this deficit from two trillion down to not much of a deficit if we're going to fix it. But I I hope I hope you're right and things turn over and then it's not a replay of the late '7s. That'd be much better. one last question on the tech stuff. I really liked your letter to Mark Zuckerberg in 2022 saying that they had to get fit. Basically, there's warning of bloat. I think this is similar to what a lot of us are saying to a lot of our companies who were feeling very expansive in 2021. And I mean, have you seen things get fit overall in general in Silicon Valley? Is there still a lot of bloat? Like, where are we right now on that?
8:09 >> Well, I I think that was a seinal moment and it was made seinal because of Mark Zuckerberg. You know, when somebody writes an open letter like that, time to get fit. What I said at the time was that it was an open letter to all of Silicon Valley, to all of technology, who in the middle of COVID, in the middle middle of the age of excess, had all done too much. Y >> hired too many people, spent too much money, too many espressos and free lattes, you know, in the cafeterias in Silicon Valley. And that we needed to wake up, right? We needed to get back in fighting shape because we were going to have rates increasing. things were going to get tougher. And rather than Zuckerberg saying buzz off, >> he writes what's one of the better CEO letters of of of the last 10 years, year of efficiency, where he said flatter is faster, right? and he really embraced this idea that when you when you compress layers in an organization, when you tighten your belt, when you get fit, you don't get less, you get more.
9:12 People are happier. you release products faster. and so I think that became the rallying cry for at least all the companies that were awake in Silicon Valley. Are there still companies that are asleep at the wheel and think the gravy train is going to continue? Of course, but certainly every company in our portfolios, >> fitness and efficiency has become the lexicon of this moment. and I give all the credit to Mark for really taking the lead. Obviously Elon with the work that he's done at Twitter, right, they reduced headcount by 70 80% and the product release cycle is probably gone up by at least 70%. Right? It's incredible what they have in the pipeline there. And the fact that they're doing this with, you know, a fraction of the people before, right?
10:00 That's the case study. >> Facebook's the case study and, you know, competitors would be well served to follow.