Trey Lockerbie (00:03:01):
Did I see Turing there?

Josh Wolfe (00:03:02):
You saw Turing, in fact, yes. And we got Henrietta Lacks and Santiago Ramón y Cajal and Turing and Fineman and Catherine Johnson from Hidden Figures and Rosalind Franklin.

(00:03:13):
All of those folks, either because of gender, ethnicity or sexuality, or some other social thing for which they were ostracized, were scientifically correct, but because of the forces that be, in some cases they were the wrong gender, the wrong color, or the wrong sexuality, they were totally shooed, and so this was an homage to the rebels of science.

Trey Lockerbie (00:03:32):
Much like yourself in a lot of ways.

Josh Wolfe (00:03:35):
Yeah, and we like to bet on the people that have chips on their shoulders and feel like outliers.

Trey Lockerbie (00:03:40):
I love it. In the latest Lux annual report, you were describing the current environment, which we’re going to talk a little bit about as the Entropic Apex. Can you break down what exactly you mean by that?

Josh Wolfe (00:03:54):
Well, entropy is disorder and the apex is the top of something and we felt it was the peak of disorder, that it was the peak of chaos that was the complete inverse of what had been a lot of order, predictability, and stability amongst markets by which everything was going up.

(00:04:10):
Everybody was basically aligned to one side of the ship, everybody assumed that the world was only going to get better, that we had permanently low rates, and that companies were going to continue to be at profit margins despite record claims of record peak margins. Jobs would be abundant, everybody would be able to work from home. The world was stable, war was finished, and we were in a post-history period. And then very quickly in Q1 of this year, all of that reversed.

Trey Lockerbie (00:04:36):
Quite quickly, yes, exactly. It’s kind of like how Buffet has this quote about how it takes a lifetime to build a great reputation and only about five minutes to ruin it. Seems like we were building up a lot of this wealth and then someone came along and swiped it all away, or at least a lot of it away.

(00:04:51):
What are some of the biggest risks people aren’t thinking about because obviously there’s a lot people are talking about? What are you seeing?

Josh Wolfe (00:04:58):
Well, there’s individual risks, there are company risks, there are market risks, there’s a societal risk. So, let’s take the number one risk, which everybody’s concerned of, which is climate change or global warming. To me, that’s actually not a risk, because it’s one that we know and I think that the answer there is mostly one of human adaptation or redundancy. You want to be able to anticipate that there’s going to be more extreme events, that you’re going to be prepared for them.

(00:05:22):
Maybe you shouldn’t live in coastal Florida if you know that the hurricanes are going to destroy billions and billions of properties that continue to get built. Maybe you shouldn’t live in fault zones in California if you know that eventually the “big one” is going to come. And there are people that are looking and saying, “How do I hedge the possibility of average climate temperatures increasing along certain latitudes and buying land in Michigan, in Canada,” and imagining that in two decades they might be building vineyards there.

(00:05:46):
And so, that’s the big global macro one. The geopolitical one is one that I think people are now very aware of, and I don’t think we yet have an appreciation for the cascade of events. So, people know Russia, Ukraine, there’s an increasing possibility, probability of China, Taiwan at some point. I try to focus on where are there areas that you see the sort of proverbial fingers of instability, you see early signs that there may be chaos, but it hasn’t yet materialized. One area, in particular, is the Sahel and the Maghreb in Africa.

(00:06:14):
I think that there’s a high risk of growing violent extremism. The feeling from former European colonial powers that this isn’t necessarily of great import, the presence of peer or near-peer competition from both China and Russia and the latter in particular funding mercenary groups to extract diamond and uranium and other resources. It’s going to be a continent of chaos and I feel like it’s very improbable that terror is not projected into Europe, so that’s an area where I would say that people are not looking and I think it’s something that we’ll look back, unfortunately, and probably see economist headlines, covers of the chaos that’s happening in the Sahel and Maghreb in Africa, states like Mali and Niger and Rwanda, elsewhere. And people will say, “What could we have done or why didn’t we move faster or why didn’t we…” And so that, to me, is an area geopolitically that I think is not being appreciated.

(00:07:03):
Going down to individual markets, I think emerging markets are both for currency purposes and over-indebtedness at significant risk of default of both the attended political chaos and populous chaos and risk of starvation, commodity, exports, imports, so that’s an area where it’s very hard to predict where the supply chains will break and where there are dependencies and inputs, but it’s one that is of high risk. With markets themselves, both fixed income and equities. I think equities, for the most part, people are sort of going through denying or bargaining depression acceptance. I still think that there’s a leg to fall and there have to be certain poster children to me of the excess that need to capitulate and…

Trey Lockerbie (00:07:41):
Repent, if you will.

Josh Wolfe (00:07:42):
Yeah, and that might be some of the large thematic mutual fund index complexes that might be some of the celebrated poster children of technology that are not cash-generating positive, profitable businesses, so that’s something I’d look for on the equity side.

(00:07:55):
On the fixed income side, you have pension complexes, you have all kinds of strange interconnectedness in markets that are just not as sexy to be covered on the front page of headlines. And so, I think there’s still less leverage than there was 14 years ago, ’08, ’09, but there is still significant leverage in hidden pockets of the economy that can ripple over and people are under anticipating. You have not really seen headlines about municipalities struggling as you did 15 years ago. I think that’s an area that is potentially problematic for both political and infrastructure purposes.

(00:08:25):
And then people’s savings have been killed. People were saving during COVID, they had a wealth effect from rising stock prices and to the extent that they were speculators on both crypto and, or equities. That wealth effect was compounded, they pulled in a lot of forwarding demand on consumer discretionary goods that are now abating and you’re seeing that with liquidations inventory bill declining profitable quarters for some of the large consumer discretionary companies from Peloton to Nike to Under Armor, now to Walmart and Target. And so, you can see the champagne has stopped flowing, the glasses are starting to dry up and I think that’ll continue to trickle.

(00:08:59):
I think a big risk that I see is continued unemployment rather than underemployment and happening with the middle class and sort of white collar crew that the layoffs occur there first and it ends up with this weird recession where people that are blue collar are effectively on, what I call, a class warfare treadmill. And so, instead of a treadmill class, you’ve got sort of treadmill class warfare. And they’re showing up at work every day because they need to because food and fuel are more expensive. The cost of everything has gone up, including their mortgages and their car payments because of the Fed’s effort to fight inflation. I think it’s really hurting the poor the worst and they’re going to be very highly employed.

(00:09:34):
The middle class is arguably going to be expendable in many domains, lots of BS jobs, consulting, accounting, and other areas where people start to lose corporate business and cut back. And I think that’s going to end up trickling down and have a demand effect on the lower class, so it’s going to be this weird fight where in the attempt to fight inflation, you’re putting poor people or the poorest back to work because they’re the hardest hit. You’re going to end up hurting the middle and lower upper class, their demand function is going to decrease, and it’s going to end up with the second derivative hitting the poor even harder.

(00:10:03):
And so, what I imagine as I try to speculatively, as I like to say that failure comes from a failure to imagine failure, what would happen,§ I think you could end up with an extreme left labor movement, something that is almost like a violent Jimmy Hoffa like character. Somebody that is not like an AOC or a Bernie rallying against capitalism with rhetoric and social media, but somebody that actually takes to the streets or the factories with violence.

(00:10:26):
And we haven’t seen that kind of character in one or two generations or more, in part because we haven’t had the economy that would fight for it. But you see some of these clues like the Train Union labor dispute. There are early signals of the kind of stuff that could happen in critical infrastructure. Truckers, you know saw this obviously in Canada with the strikes, but I can see significant labor strikes in significantly critical parts of the infrastructure to the economy and some of that turning violent and a new labor leader that forms, that becomes a political force.

Trey Lockerbie (00:10:55):
I think that’s a very valid risk. And yeah, you’re talking about these secondary, even tertiary effects or trickle down that, well, some of these people don’t really maybe even understand what exactly is the root cause of what’s happening. They just know how it’s affecting them in their daily life and that can lead them to make really maybe uninformed decisions to some degree.

(00:11:11):
I want to go back to the equities. You highlighted one point there are 800 biotech companies, half have less than two years of cash, and 150 of them have negative enterprise value. And with the dot-com era and that bust, you could see the cash burn and that burn rate and it was almost predictable. Are you seeing something similar here with biotech and is this an area where you expect a lot of special situations to occur?

Josh Wolfe (00:11:35):
I’ll add to that, I think the last count, something like 75% of the biotech universe was under a 250 million market cap. So unlike the dot-coms where you had people that were actually talking about profitability, you’re never really talking about profitability with biotech. Biotech is a cash-burning machine, they turn money into speculative science and clinical trials that hopefully turn into life-saving drugs for patients.

(00:11:53):
And the vast majority of them statistically fail and the ones that do get lucky or have positive clinical trial data make a small impact, in some cases those impacts unfortunately for humanity or fortunately depending on where you sit, a simple six-month extension in life for cancer can create a multi-billion dollar drug. And that’s a sad state of affairs on the one hand that a mere half a year can extend somebody’s life and be worth that much and it feels incomparable to what it should be doing. It should be curing disease.

(00:12:17):
And there are of course drugs like Keytruda that take people that are in stage three or stage four cancer and it’s the closest thing we have to a miracle drug. And two of the people that we’ve backed, Roy Baynes, ex Merck and Roger Perlmutter, also ex Merck, who now lead Eikon, one of our biotech companies, are testaments to that. But they’re also testaments to the fact that most people don’t understand what the mechanism of many of these drugs is.

(00:12:36):
So, if you take those 800 publicly traded biotech companies, half of them are going to cease to exist, some of them will go out of business, and some of them will get acquired. I think the most likely trend here is a combination of investors forcing at a board level, roll-ups, combinations where people have redundant efforts, so you might have a company that has a diversified portfolio that’s focused on immunology and oncology and neurodegenerative diseases, and another company that has three different programs that are also in immunology or oncology.

(00:13:05):
And some investor comes along and says rationally, “Look, you know guys are both competing in this area, we’re going to form a new co, it’s going to take all the oncology assets since you’re just going to be focused on cancer and we’re going to take the metabolic disease or the cardio disease or the kidney disease or liver disease and we’re going to focus those on individual companies.”

(00:13:20):
So, I think there’ll be a rationalization. Why? Because when capital is abundant, every experiment gets tried. And I like to hearken to a biological analogy of the slime mold, which is when resources are abundant, the slime mold spawns out and it’s basically searching for food and trying everything and then when resources get scarce, it re-congeals into the mothership and comes back into this macro organism.

(00:13:39):
So, the same thing happens in the economy when there’s a lot of cash, a lot of people can start lots of biotech companies, there’s increasing dispersion of talent across all those biotech companies, instead of the best people just going to Merck or Pfizer, they go to one of many biotech companies that have launched. Each of them is then increasing their consumption and spending on both real estate and scientific tools, but a lot of those are redundant purchases. And then when the proverbial stuff hits the fan and re-congeals, all of that stuff gets liquidated. People are giving up their space, people are going back to large companies. Private equity firms or investors at the board and governance level are forcing mergers and combinations.

(00:14:15):
And the people that have the most money, biotech or pharma companies that are very well capitalized will pick up other companies for cents on the dollar. I can tell you being in the boardroom of both one company like Eikon which has nearly a billion dollars of cash are looking at what are the assets that we can acquire. And the targets that they’re looking at are companies that do have 10 programs, because oftentimes what a biotech company would call a platform is really an unacknowledged admission, “We don’t know which of these 10 things are going to work, so we’re going to have many shots on goal.”

(00:14:42):
But if you’re in the boardroom as we are in some of those other cases, on the receiving side of that, I can tell you, “Hey, we’re running out of cash. You don’t have that much money, you don’t have that much time, and you can’t focus on all 10 of these things, so pick the top two priorities, either based on the maturity of the program or the molecule or the size of the market that you’re going after.” And you have to either mothball, divest, license, sell, or just shut down those other eight programs. And so, the people that have cash will be able to be a little bit predatory but also salvation for the people that don’t.

Trey Lockerbie (00:15:10):
At the top of the year, you were pounding the table saying “Husband that cash,” a lot to your Port Co’s specifically. I’m kind of curious to see what you’ve seen from the top of the year till now with your Port Co’s taking that advice. Are they doing what you just said, meaning they’re letting go of some of their more speculative efforts or projects and focusing on the core products or services they’re providing? What has been learned, I guess, from the top of the year, doing such a thing as husbanding your cash?

Josh Wolfe (00:15:36):
Well, go back two years and our basic admonishment was to capitalize on the current capital markets and raise as much money as you can. And then the second piece of that was then-husband that cash, don’t spend it. And what we meant by that was so many people were investing in growth initiatives, because growth was what the market was rewarding. The more you can grow your top line, even if it was unprofitable growth because there wasn’t attention to that, the higher the multiple that people would give you.

(00:15:55):
And that’s why you saw particularly in some of these growth businesses in SaaS 5000, 200 times multiples that just were outrageous. It hearkens back 20 years ago when people were talking about eyeballs and these weird metrics, and affording insane multiples. So multiples have contracted in many sectors, and growth was becoming unprofitable for many companies.

(00:16:12):
And we basically said, “Don’t invest in growth, instead husband that cash and start to look towards consolidating your sector so that you can emerge from this winter, whether it lasts for two months or two years.” And our view was the latter, it would last for two years. That you have assembled the best team, the best talent, the best technology, and the best channels to market. And some of that might be an organic investment in that, but most likely somebody else has already built that out. Why don’t you go and buy it and buy it for cheap, because these companies are going to be distressed?

(00:16:36):
So, I think going into this year before the market really got hit, about 90% of our companies had cash for two years or more. 10% were in some sort of condition where they’d have to go out to raise money or they weren’t doing well, maybe they shut down. But overarchingly and overwhelmingly the number of companies in our portfolio that listened to us was very high. And I think they feel very good that they have these sort of [inaudible 00:16:55] balance sheets to both withstand the current market and be able to pounce on opportunities that unfortunately were created by people who might be less prudent.

Trey Lockerbie (00:17:03):
A continent of chaos you said a minute ago. That might be the name of a book someday. You mentioned Ukraine and Russia, everyone’s pretty familiar with that. This week North Korea was launching ballistic missiles over Japan, so to your point earlier, it seems like we’re moving more into a dangerous world and not a safer world. Talk to us about your investment in Anduril and what it’s been like to work with billionaire Palmer Luckey.

Josh Wolfe (00:17:28):
Well, the main thesis in Anduril are aerospace and defense investments. Our investment in nuclear waste, our investment in perimeter security and detection, many of these things are basically in the parlance of hedge funds or some global macro folks, long vol, but the vol is that bad stuff is going to happen. It’s expecting that there will be black swans, that there will be low probability, very high magnitude negative events. It is naive to believe that war is eradicated unless you believe that human nature is eradicated.

(00:17:55):
People will be vainglorious, petty, vengeful, and revanchist, they will have petty grievances that become substantive. They will seek resources, they will seek power, they will seek legacy, they will seek restoration of pride, they will seek retribution for the destruction of that pride. And so, war is unfortunately a constant through all time. And of course, it happens at a molecular level between organisms and bacteria and viruses and of course it happens amongst us homo sapiens and whatever follows us billions of years from now, war will be a constant.

(00:18:24):
So, nobody likes war, nobody wants war. You want to defend against something you don’t like. And so, I’ve always found it virtuous to have defense as both the deterrent and the way that you defend is by having superior technology. Superior technology to detect deceptions, to detect attacks that are nascent signals before and be able to thwart them. Technology that can move faster than in adversaries, technology that can coordinate forces better than in adversaries.

(00:18:50):
And you want that all to be able to deter and prevent strategic surprise and strategic surprise is what an enemy would like to do to take advantage of somebody, particularly a stronger adversary. So, we’ve always been investing in technologies and companies that have sort of benefit from these low probability, high magnitude events, whether it was a nuclear waste cleanup company for a nuclear disaster when many people believe that that kind of thing was improbable or impossible, whether that is the reality that we are going to have.

(00:19:17):
Mass shootings and horrible events, and you want to be able to protect and defend and deter those things as quickly as possible with security and perimeter defense. Or whether that’s a suite of technologies in the case of Anduril for all domain defense against combatants, and that could be air, space, land, sea and cyber.

(00:19:35):
So, Anduril was founded by Palmer, it’s like SpaceX and some other companies, unique in that it was founded by a billionaire and many of these companies require billions of dollars to be able to develop their technology and a competitive edge, you need that. Palantir, those co-founded by Peter Thiel, he’s a billionaire. You had SpaceX by Elon was a billionaire. You had Anduril from Palmer and others who was a billionaire, so there’s an interesting thread through that.

(00:19:58):
There’s also a respect and an inner reverence. The respect is for the institution and the philosophical demand of what is needed, which in this case is the defense sector. And the irreverence is for the way that it’s done, looking at the beltway bandits, looking at the people who are cost plus contractors, looking at the F35 joint strike fighter and how long it takes, how much it’s overrun. Looking at the number of congressional districts, 300 plus that contracts are awarded in.

(00:20:21):
I mean, the whole thing is an utter mess and it’s the kind of mess that if you were an adversary you would take advantage of. If you were China, you would relish the idea that we have an aversion to defense technologies because of the idea of a military industrial complex or an aversion for people in technology to want to work with the Pentagon, while you have a military fusion concept, which says that not only are we going to fund cutting edge technology, but there’s a mandate that you must work with the defense industry and the government.

(00:20:46):
And so, I think Palmer saw this and said, “You would think that there is in the paragon of technology, in the frontier of great capitalism and Silicon Valley, the equivalent of a James Bond Q, where we have the most cutting edge technology and it’s just serving up the war fighter whenever they need it to defend against an adversary and unfortunately that doesn’t exist.” It does in the movies, but in reality it doesn’t. And there are brilliant people working inside the Pentagon. There are brilliant people working in all domains from In-Q-Tel to Army research to Air Force, but there is no entity that is developing the most cutting edge technologies for the war fighter.

(00:21:20):
And Palmer said, “I want to go build that.” And I’m sure in no small part he was inspired by, as many of our inventors and entrepreneurs are, science fiction. And as I like to categorize it, the decreasing gap between sci-fi and sci-fact and in this case sort of a Stark Industries. And I think he said, “I want to build the Stark Industries and I want to build cutting edge technologies that truly give the US and our allies and advantage and deter the bad actors.” It proved prescient. This was at a time where people felt like we should be investing in climate and clean and green. And us and others were saying, “No, this is important.”

(00:21:53):
And you can argue today amongst the debates about ESG. To me there is no greater ESG investment than one could have made than two things. One is investing in a strong defense and all you have to do is look at the plume of methane if it was Russian or other sabotage and the carbon that’s being spewed into the environment because of that. If that could have been avoided by deterrents and defense early on, it would’ve done more than everything that’s been done over the past half decade in climate goals and Greta Thunberg protesting in the UN.

(00:22:21):
And the second thing that I’m very passionate about and I have a feeling we’ll talk about is nuclear’s rebrand to elemental power, but we’ll get there. Palmer is amazing. He’s amazing for two reasons. Number one, he’s a technical genius. Number two, I utterly disagree with him politically. And so, this to me is a great testament of what our country is and we disagree about a lot politically, but we do agree that the warfighter, the women and men on the front lines should have every advantage and you don’t want them to be disadvantaged, because no matter how flawed our country is and our country is very flawed and our history is very scarred, there’s not another country that I can point to in the world that is really trying to give people more freedoms, more possibility, more lateral movement, more optionality and that’s a system worth defending even with all its pimples and imperfections.

Trey Lockerbie (00:23:06):
You’ve backed a couple of billionaire founders that we’re going to talk about today, but I’m kind of curious, is there any advantage or disadvantage to having a billionaire founder? Because the two we’re going to talk about, Palmer is one of them, they became billionaires quite young, and sometimes that can distort your reality a little bit if you’ve got yes men around you and people kind of getting an echo chamber going around you when you become that kind of credibility so young, so have you witnessed anything like that that are hurdles that come across or just stronger personalities to try to get your point across to?

Josh Wolfe (00:23:40):
Palmer doesn’t have a lot of yes men, because he’s opinionated and disagreeable and so smart and I think he’s very open-minded to people who challenge him. I could disagree with him. We could debate about guns, we could debate about social issues and it’s actually a fun debate because he’s well-informed. I think he made FU money and had some FU views at a young age and he decided he wasn’t going to suffer fools.

(00:23:58):
He likes to troll the left on some things and it’s sort of an interesting personality quirk, but the one thing that’s constant, no matter how much money he’s made, is he has the one trait which I truly believe is the one defining trait of an entrepreneur. He’s got a chip on his shoulder and it doesn’t matter if somebody, some no-name journalist is criticizing him or accusing him of something, and maybe they misunderstand or misrepresent his view, it is just fuel for the fire. Many people would just let it go and he hates the idea that somebody has got him wrong or misunderstood or is being sloppy or lazy.

(00:24:29):
I think he really hates laziness the most because he can have nuanced views, people can contain multitudes. And so, he’s got a chip on his shoulder. I don’t think there’s any amount of money that he will make, that chip on his shoulder won’t go away. And I like to say that chips on shoulders put chips in pockets. They certainly have for him, I think they will continue. And his chip is on one part geopolitical and national and historic. I think he believes the CCP is a source of evil. That’s not to say that China or Chinese people or its citizens are evil, nobody believes that, but I think he believes that the CCP is not a force for good and should be at a disadvantage, not at an advantage technologically.

Trey Lockerbie (00:25:04):
Yeah, I mean to that point, he was ostracized more or less for his political views it seems from Silicon Valley, which only fueled him, I think.

Josh Wolfe (00:25:10):
Yeah, no, he’ll say he was fired from Facebook because he was anti-Hillary.

Trey Lockerbie (00:25:14):
And he went and built another billion-dollar company.

Josh Wolfe (00:25:16):
I mean, the three most powerful words that often come when somebody feels slighted is I’ll show them. And that’s true of a high school athlete, it’s true of somebody that is scorn from a local town, it’s true of somebody that has already made money and is doubted by the public or the press or the media or some antagonist, it’s just great fuel for the fire and it never goes away.

(00:25:36):
In fact, one of the great disagreements I have with a lot of peers who are into mindfulness and meditation, which is great for the individual, finding a stoic sense of calm is wonderful, but if you truly want society to progress, forget about the nonsense of I want to save the world. But if you truly want a better society, by which you mean more people have more options, there’s more technology, there’s more healthcare, there’s more democratization of everything, everything is more available to more people, you want troves of disaffected, bitter, frustrated, angry people with chips on their shoulder, because those are the people that go and actually are motivated to say, “This system’s got to work or this thing sucks and I’m going to make a better version of it.”

(00:26:10):
And you can consider that arrogance of the highest order, but it really is that one fuel that is inextinguishable and the source of human ingenuity and progress.

Trey Lockerbie (00:26:20):
Now, this is kind of curious, I’m wondering if this ties in at all, but I recently learned that Stan Druckenmiller was an early LP of Lux, which is really fascinating and Stan’s actually been outspoken recently. He’s saying that the market’s probably going to be sideways or we’ll have another lost decade or so.

(00:26:36):
Do you share that sentiment with Stan and do you feel like he’s the kind of billionaire with a chip on his shoulder in any way or is he his own… He seems almost like a lone wolf in a lot of ways, off doing his own thing.

Josh Wolfe (00:26:47):
I think he has a curmudgeonly stoic sense. I think he is intellectually competitive and he not only wants to be right but wants to be rich. And I think most importantly with his riches, he has done enormous good for the world in thinking about social equality and poverty reduction and education reform, so I deeply admire him, because the world is a puzzle. He’s able to look at aberrations and anomalies and identify them relative to history.

(00:27:14):
He has humility every time with increasing frequency that you hear him speak publicly. He says, “Oh, I’m old, or I’m past my prime or I’m this or that.” I think there’s something admirable about his ability to detect anomalies and part of that is a long arc of history and correlations and understandings of different asset classes and how they’re supposed to perform together. And he’s the first to say with humility, “I used to look at this and this and X used to work when Y did and now I just don’t understand it.” Sometimes that’s his way of saying, “I think the world’s gone crazy,” but in some cases it’s spotting an anomaly.

(00:27:44):
And he’s also been publicly honest about saying, “I don’t often go on TV,” and usually when he does it’s almost Buffet-like in that he feels the need to raise attention. He’s taken endowments like Bowdoin and taken them from small amounts of money to large amounts of money. And I think for those that he has either invested with him or that he advises, I think he does great moral good in rational capital allocation and compounding cash that can be used for good, so huge admiration.

(00:28:06):
I got to meet him through my co-founder, Peter, who had worked at Lehman Brothers, and before their bankruptcy, I had started in [inaudible 00:28:13], he had started at Lehman and there was a convertible bond analyst that Pete knew, Ravi Suria. Ravi, not a lot of people know his name, but he was responsible for the Amazon report that basically said that Amazon was going to go bankrupt in, I think it was February or March of 2000 that just precipitated the market crisis in the dot.com and Nasdaq collapse in that Q1 of 2000, which is an analogy that I happen to share with Stan, that I feel like these next few years will be very volatile, will be roughly range-bound, will not have any obvious catalyst of where incremental capital will come in to see some huge return.

(00:28:42):
And people have head-fakes, they will see companies that are up 15 or 20% and then down 15 or 20%. I equate it to a ball that’s bouncing and eventually the ball is going to bounce smaller and smaller and volatility will eventually abate and people will eventually feel a sense of fatigue in their participation in markets in that they have fallen and fallen and fallen and not gone up and start to sort of opt-out. That’s probably the best time to become an investor for the next cycle if one was trying to time it, which is a very difficult thing.

(00:29:07):
But I think that the right posture for the next few years is to assume that you have declining and range-bound markets that are highly volatile with lots of head-fakes and probably one or two big frauds that get revealed, that shake confidence in the system will inevitably be met with some reactive regulatory piece of legislature that you’ve seen every time.

(00:29:26):
And then the cycle will start again in some totally new area that is “different” this time. And whether that lasts two years or 20 years for the next generation, it’ll be a lot of fun. I remember being in Stan’s office early in Lux’s days and there was a book that said, “Written by Stan Druckenmiller, Everything I know.” And when you open the book up, every page was empty. And it was just this great nod… I think a friend made it for him, half as a joke, but he displayed it proudly because it was a nod to his intellectual humility.

(00:29:52):
And he also gave me great advice, which was, I was just starting a family at the time and he said, “There’s no such thing as quality time.” And I was like, “Well, what do you mean?” And he’s like, “Well, a lot of people work hard and then they come home, they carve out specific hours with their kids and they feel like if they just put in those two hours on a Saturday or something that’s quality time.” And he said, “There’s no such thing as quality time, it’s just quantity of time. It’s spending time at breakfast, then at lunch and at dinner and going to all the school plays and events and just being present and talking about your wealth if you have it and being open.”

(00:30:20):
And so, I admired that too, because it was very contrarian advice. Everybody else talked about quality time with your family and it almost was the acknowledgment that your family has to respect what you’re doing and what you’re building, but you can make them part of it and at the same time be present in every part of their life. And it’s part of what we do here culturally at Lux, I’ve never missed a recital or a play from the trivial to the substantive. It’s something that I don’t want to ever look back and say, “Oh, I really wish that I was at that other meeting.” You’ll never feel that. You’ll always regret the thing that is most important to your kids at the time.

Trey Lockerbie (00:30:49):
I should take that back to my wife, because she says quality time is her love language, so I do think the quantity with my two kids, it doesn’t really matter what we’re doing, it’s just being around.

Josh Wolfe (00:31:00):
Being together.

Trey Lockerbie (00:31:00):
Yeah.

Josh Wolfe (00:31:00):
And creating moments and creating memory. And I’ll tell you, there was a venture guy who lost his wife and he was a young guy and I think she left one or two children behind with him. And at his memorial service, which I did not attend, I heard about, he had made this comments about creating moments and memories and that’s just the one thing, his admonishment to people, because he’ll never get to do that with his wife again.

(00:31:22):
So, I think you can always make money, you can lose money, time is one direction. And so, every time on a Friday afternoon you say no to some meeting, you’re saying yes to yourself or to your family and it truly is binary. And so, I try to multitask as much as I can, but truly when it comes to family, it’s just be present, be there.

Trey Lockerbie (00:31:39):
I feel like people would have a hard time just wrapping their head around sitting across from Stan Druckenmiller who’s saying, “Hey, I want to give you money.” I would be like, “I want to give you money, Stan.” And I imagine that’s because you guys are doing such interesting cutting edge things and you’re fishing in all these areas that are maybe unexplored.

(00:31:55):
And one of them I’m really particularly interested in, which is chronobiology because I don’t know, you seem like the kind of guy who’s interested in longevity perhaps, or on the cutting edge and seeing all these things that might help in a lot of different ways. Maybe talk to us about what chronobiology is and maybe what is most exciting about it for you.

Josh Wolfe (00:32:14):
Maybe on the one hand I’m not old enough to be obsessed with the longevity thing. Maybe I still harness the illusion of the young that I’m going to live a very long time and I have some views about that, but I’m actually not focused on this in the context of longevity and trying to live forever. It’s more about understanding the biology of timing, the timing of mechanisms inside of ourselves and between ourselves and a truth that your Purkinje cells, which are in your brain are 25 years old and are not renewed. The cells inside of your cell or your gut are renewed in some cases every day or several days.

(00:32:45):
And so, if you were to say your gestational age versus your biological age, different parts of you are different ages. There isn’t a you, like this table that we’re sitting at is one age, but you and I, even though we might have been born at a certain year are made up of different parts and those different parts actually have different ages in the same way that you could look at a river or stream and say that, “Well, of course there’s a river or stream, but its individual components are constantly changing.” And it’s also why you might have cancer mutations in some parts of the body, because you have more rapid rejuvenation or reproduction of cells and in other cases you have very low rates of cancer, because you don’t have higher probability of mutations.

(00:33:18):
So I’m very interested in the cell signaling between organelles inside of a cell, between cells, within an organ, between organs themselves, between our bodies and circadian rhythms. If you take something like cholesterol medicine, they figured out that you want to take cholesterol medicine in a specific time of day, which tends to be night, because your liver shuts down the production of LDL and it’s a optimal time to take a cholesterol lowering medicine, so that’s something that’s not either obvious to many people or well known.

(00:33:46):
When you look at between humans, you see synchronicity between women who get their period that are clearly hormone signaling amongst each other at the same time they end up in the same cycle if they’re roommates in college and after. And so there’s just very interesting hidden biology in the timing mechanisms inside of cells, inside of our bodies, between our bodies and that means that there’s mysteries to unlock and ultimately drugs to produce.

(00:34:11):
And whether those drugs or mechanisms or technologies are for the specific time of day you should be taking specific drugs and your biology might actually be different than mine. There are people that we know are morning people and people that are more night owls. Some of that is genetic, some of that is biological and environmental or epigenetic, the way that the environment acts on the expression of your genes, but it’s an area that is just not well understood. And anytime there’s an area that’s not well understood, to me it’s a whistle to pay attention, because there’s an opportunity to discover something profound.

Trey Lockerbie (00:34:39):
I want to talk about another position you were holding here at Lux that recently went public. Actually, last time we spoke it was right before this company went public and that was Planet. The timing of that seemed maybe in hindsight less than ideal, because it was right around the time that all these multiples got cut in half and the IPO price dropped around, I don’t know, 70% or so.

(00:34:58):
Hurricane Ian seems like a great case study for the value of Planet where you got these before and after photos after a huge event and I imagine companies like insurance companies needing some of that kind of data and it was kind of a reminder of the value that something like that could bring. So, I’m kind of curious how you view the price of Planet today and just your observation of the going public in general.

Josh Wolfe (00:35:21):
Well, I won’t comment about specific public positions, but I’ll say broadly. We had probably a dozen companies that went public either direct listing IPO or took advantage of the spec phenomenon. And the virtue of that was that they were able to get, in some cases, hundreds of millions of dollars of cash delivered to their balance sheet.

(00:35:36):
And for some of those companies, they were still immature, it was almost like a public venture financing. And the admonishment to many of those companies was quite literally, you have no idea if your stock price is going to go 10 x or be cut by tenfold, and end up 90% lower. And in some cases they did. And I said that the only thing that matters is how you take that cash and how you invest it to build fundamentals so that you ultimately get rewarded or brightly valued or punished depending on your performance.

(00:35:59):
So, I think for companies that have a long timeframe and a lot of cash, the jury’s going to be out. I think it’ll be up to them to be able to retain people amongst low stock prices and you’ll see some turnover and some low morale for that kind of stuff. And again, if you take my own personal experience and expectations, you’re going to have a few years of pretty range-bound markets that are stuck in the mud that aren’t going up five or 10 X.

(00:36:21):
So yeah, I’d say broadly the virtue of this entire period was people’s ability to capitalize huge amounts of cash and make sure that they’re not only solvent, but just really competitively advantaged relative to peers. The phenomenon of satellite imagery is undeniable directional hour of progress, going from having one decade old image of the pale blue dot that inspired Stewart Brand and Steve Jobs and so many other people to thrice daily static images and live video being able to do 30 frames a second, observe everything from weather patterns to human rights abuses, industrial activity, and really getting quite literal God’s eye ground truth of what is going on.

(00:37:00):
Now, who cares about that? Over time, more and more people, so you can expect that the customers are going to be not only others, governments for supplemental information, but macro funds and hedge funds that want proxies of industrial activity and company activity and weather and insurance companies as you know, but it’s going to be up to the company to be able to execute and turn all of the possibility into performance through good fundamentals.

(00:37:22):
And all of our companies should ultimately be subject to that test. They should all be valued based on an investor coming in and not caring about the technology, not caring about the story or the narrative, but looking and seeing if it ultimately translates into good fundamentals that would reward an investor vis-a-vis every other opportunity cost that they have.

Trey Lockerbie (00:37:38):
Elemental power. So, you’ve been outspoken about the need to rebrand nuclear energy to elemental power, but shifting towards a future heavily relying on it. Energy has been a major headline in 2022. Do you think the events that have unfolded this year have set the stage for a more elemental future?

Josh Wolfe (00:37:57):
On elemental energy, yes, I think that the events of the world have at least sparked people in a few ways, some of which are overt and observable and some of which are speculative. You’ve already seen in Germany, which unfortunately has made decisions, I would speculate, and this sounds conspiratorial and crazy, but the only thing that Putin had to do for the past decade was foment the Green party, foment them to rise up against Merkel and convince the populous that the important thing to do in the name of climate was to shut down nuclear power.

(00:38:26):
The effect of doing that was not to decrease our reliance on low carbon energy. I mean, nuclear produces zero carbon. It’s just the cleanest, largest, most reliable source of base load power for a population. Most of the people that are against nuclear, as I’ve rebranded it elemental, I’ll get to in a moment, they’re really against growth, they’re really against progress, they’re really against capitalism. They’re really against systems of power and in some cases democracy.

(00:38:50):
There really is an ideological wrapper around people that are against that. And the elements of the mantra for clean and green, if it’s not a de-growth position, are mostly focused on solar and wind and biofuels and things that feel like they’re natural. Now, solar, of course, is inorganic semiconductors, and they’re not necessarily super clean. Wind requires huge amounts of cement and technology and infrastructure, but there’s this poetic and romantic illusion about using these elements.

(00:39:16):
And so, that’s actually what inspired me to say, “Wait a second, people love solar. They love the sun. Sun makes us happy. It’s in children’s books and it’s on stickers at Greenpeace protests. People love the wind. There’s lots of that and that seems good and clean, and we want to keep our air fresh. People love water and hydro, that’s also good. I mean, it’s not great that we make dams and affect aquaculture, but people like the sun, they like the wind and they like water, they should like rocks. Rocks are great. Who doesn’t like rocks?

(00:39:41):
Well, hey, there’s this rock called uranium and you don’t really have to do all that much to it, but if you tweak it a little bit, just like you tweak the other stuff, you can get it to produce heat and that’s pretty cool. Okay, well, if you get heat coming out of this thing just like a geothermal, which people also love on the environmental end, that’s just literally heat from the earth that is able to boil water and produce steam and turn a turbine with that steam and produce electricity by spinning the magnets. Well, that’s really what nuclear power is.”

(00:40:05):
So, I realize that people are against nuclear because they conflate it, unfortunately, going back to the mid late 70s with nuclear war. Nobody wants nuclear war and nuclear war is terrible. So, now you’ve got this thing that’s associated, you don’t have hydro war, you don’t have solar war, you don’t have wind war, but you have nuclear war. Nuclear war is bad, so nuclear is bad.

(00:40:22):
And yeah, 1979, the China Syndrome movie where you had this environmental disaster and radiation leak from nuclear, you had also 1979 with Three Mile Island where there actually was a burst valve that wasn’t actually a radiation leak, nobody died, there were no injuries. It was actually proof positive of engineering systems that work. But then you had Chornobyl, which was a certifiable disaster. I would posit that there isn’t much Russian technology that is competitive on global stages that anybody would buy except for possibly an AK47 or a MiG fighter jet, because those actually have to compete on the global stage.

(00:40:54):
And then you had Fukushima where a company that we founded ended up playing a pivotal role in the cleanup, a company called Kurion named after Madame Curie who discovered radiation spelled with a K, that was developing technology, both material science that could grab radioactive elements like cesium and strontium and technetium and uranium and plutonium, and then robots that could actually enter a disaster site and remove that and they ended up being the only US company picked for that cleanup back in the Fukushima disaster, which happened because of an earthquake and a tsunami and then a radioactive meltdown. So, I was very proud of founding that company and capitalizing it and the work that they did, which was just quite miraculous.

(00:41:29):
So, I’ve always been interested in nuclear for about a decade, and I got interested really because of a book. I wish that there was something more sophisticated, but I read a book called Bottomless Well by two brilliant people, Mark Mills and Peter Huber. Peter since passed, but he was a polymath and brilliant legal mind, and Mark is a technology pundit and advisor to many and they wrote this great book. Bill Gates gave a testimonial blurb for it, and it was called The Bottomless Well and it was really about the availability of energy that’s all around us at a time when people were talking about peak oil and gas and so forth.

(00:41:56):
But the key thing was a paragraph in one of the chapters that caught me and the paragraph talked about our directional progress. And I always had this concept that I called the directional hour of progress, applying to all kinds of different technology industries, from lighting to automotive to semiconductors, where you can see where we start and how we progress and we’re never going back the other way. And so in this case, I’m listening to or reading this book, and I’m following the logic as they talk about going from carbohydrates, growing fields or trees and burning them as we did centuries ago, to hydrocarbons cracking the molecules of oil and natural gas and dead dinosaurs to release heat exothermically. And then the trend towards nuclear, which was uranium and the undeniable era of progress was more and more energy density per unit of raw material.

(00:42:38):
And so, that to me was a feeling of inevitability and so I got very interested in nuclear. I got very interested in every part of the fuel cycle from uranium miners who were mostly hucksters and fraudsters in New Mexico, Nevada. We said no to that. Modular reactors, small scale reactors that were too expensive and had too much regulatory risk. And I like to ask this two word question, which is what sucks in any industry and the thing that sucked was what do you do with the waste? And we went around and tried to find a company to invest in and we couldn’t and we ended up starting one from scratch.

(00:43:03):
So that was 10 years ago, we ended up selling that years later after success. We had about 160 million of revenue, 40 million of EBITDA. We sold for 10 times EBITDA with a mere, from us, million and a half invested in that company and returned about 105 million to our LPs and it was a great story. And as Bill Conway who put us in business from Carlyle said, “It’s got the benefit of being true.” So, nuclear did us well.

(00:43:24):
And it was interesting also, because we talked about being interested in defense and some of these sort of sectors that may benefit from a reality of the world, which is that there are these negative black swans that occur. And so, this was a company that benefited a positive black swan, a low probability, high magnitude event consequence from the Fukushima event, which for Japan was a negative black swan. And so, it’s just always interesting to think about how you can do something that not only makes investors a lot of money, but is morally good, because we helped to remove 99% of the radioactive material from that disaster site and feel really good about that. It’s made history.

(00:43:52):
I’ve been a proponent since then of nuclear, particularly as it has been noticeably, audibly, visibly absent from any of the proposals put forth by Al Gore, Greta, anybody that is saying we need to help the climate, we need to cut carbon. How can you not look at the abundance of the 440 plus global plants and their safety record and their low carbon footprint and say this is part of the answer. The amount of land that you need for wind or solar in contrast to one nuclear power plant, the density of the ability for a gigawatt power plant to provide for millions of people, it’s just incomparable.

(00:44:25):
And unfortunately, there was this zeitgeist that had captured people and it wasn’t part of the religious doctrine. It wasn’t at the podium when people were speaking. And so, I realized that the thing that this really needed was a rebrand and as I thought about wind and solar and hydro, I said, “Well, this is just a rock, so why don’t we call it elemental power?” And elemental power can’t include all these other things that the environmentalists love, but any true environmentalists should be pro-nuclear, but they just can’t bring themselves to say that word. It’s sacrilegious. And so, let’s give them a new word and the word is elemental power.

Trey Lockerbie (00:44:55):
There’s this new modular nuclear technology that’s coming up. Is that something that you are positioned in at all or you have interest in, or is it more about just raising awareness?

Josh Wolfe (00:45:05):
My rant here on elemental power has no economic interest. We made our money on cleaning up stuff and nuclear waste. It’s a hard industry. It’s not easy and I’d like to encourage a lot of people go into it. Eventually we’ll raise the talent base, we’ll lower the cost of capital, we’ll raise awareness and attention, and maybe we enter at some other point.

(00:45:21):
But as investors, I put it in the too hard category. Modular reactors are great, but it’s going to take a lot of money, a long time, and a lot of regulatory headache, so we’re not invested in modular reactors, we’re not invested in any of the large nuclear power players, we’re not invested in uranium players. There’s really no exposure today other than advocacy that I think it’s the morally right thing to do as a society.

Trey Lockerbie (00:45:41):
Now my second question was about the incentive structure. So yeah, is it it’s just too costly to set up that there are too many regulations to get across, are those just the headwinds that we’re facing most?

Josh Wolfe (00:45:52):
Historically, it was too expensive. It was in part too expensive because of the requisite regulatory requirements. That had come down a little bit when they came up with these combined operating licenses, which were for both building and permitting and that cut a little bit of time off of it, but it was still getting a drug to market, 10 years, billions of dollars. And so, that’s gotten a little bit shorter. The risk is still very high, particularly with reactors that don’t have decades of operating history, so these modular reactors or Thorium or other alternative efforts, and I hope that they see the light of day.

(00:46:22):
One that came quite close was Bill Gates funded TerraPower, which was actually very close to getting permitted and built in China and then geopolitical reasons I think that got killed. It’s back now and has raised a new financing, we’re not investors there, but I’m very admiring of their efforts and ambitions. And then you’ve got a lot of people that are doing fusion, which I’m very skeptical about, but I think great things will come from that, just great things came from the early days of the space program.

(00:46:44):
So yeah, most of it is just too expensive, too much regulation, too much red tape and frankly a scarcity of labor and a scarcity of investors that are super excited about it. You get a zeitgeist change, it’ll lower the cost of capital, create a rush of people that want to do it and it’ll be a good thing.

Trey Lockerbie (00:46:58):
Given what I know about you, I could see you being a huge skeptic of crypto given that there’s a large amount of hucksters and fraudsters as you put it earlier, but at the same time there’s likely an intrigue around the technology and its use cases. How do you view Bitcoin today and what is your take on the Metaverse in development?

Josh Wolfe (00:47:19):
Well, I’ll give you one comment actually, because it’s fresh. I was with a friend, Dave Heller, who used to be very senior at Goldman Sachs and we were talking about crypto where he has some exposure, we were talking about ESG. And he said “The thing about crypto and some of these other domains is that there are people that were really skivvy and slimy and real hucksters and growing up in Coney Island, you can spot the hucksters, the people with a scheme and an agenda that are trying to you.”

(00:47:38):
He said, “The thing with ESG folks is that, sure there are some con people and hucksters, but the more dangerous thing is that there’s a lot of people that just have really bad ideas in their earnest.” And so, you get less of that in crypto. I think there are some camp of people that are just naive to the way that capital markets work or financial regulation work or a lot of people joke that a lot of crypto is sort of reinventing the financial system, that we’re relearning the financial system in real time and every time that something collapses, people come running to some agency saying, “Why didn’t you protect us?” And people are like, “Yes, that’s why we have the CFTC or the SEC or the various regulatory bodies.

(00:48:13):
The way that we’ve approached crypto is to just basically have a demarcation between the objective at one end and the intersubjective at the other. Intersubjective depends upon what I think you think he thinks, she thinks he thinks at infinitum and that’s the domain of something that exists only in our minds.

(00:48:32):
So, you could argue currency is that, art is that, teams, religions, companies, those are all intersubjective things. They exist only because we choose to believe in them. And so, that’s really hard, because it’s hard to tell what you believe and let alone what the mass of society is going to believe in. And unfortunately, and I’ve been quite public about this as a non-theist, I would’ve been short religioned and lost a lot of money, but people believe.And so, in crypto there are people that believe in the primacy and value of a scarce set of digital apes or apes. There are people that believe in crypto punks and their value and while individual partners might have made investments in NFTs and crypto art, we as a fund have not and we’ve not done that because it’s intersubjective, it depends upon other people believing that other people believe that other people believe at infinite. The opposite of that is the objective. It doesn’t matter what somebody believes, the thing just works.

(00:49:22):
So, examples of that are protocols, custodians, exchanges, where if you look at something like Anchorage as a custodian or FTX as an exchange, they’re relatively indifferent about what people believe, but they are setting up the market mechanism or the market-making mechanism or the technology to reduce inefficiencies that exist in a market.

(00:49:41):
And you look at that the way that you would look at a 56K baud modem of the early 90s or late 90s versus a fiber optic cable of today and it’s just no question, it doesn’t matter if you believe that one is faster or the other, it legitimately by physics carries light at a faster bit rate than the other. And so, the ability for somebody to transact over a protocol or to entrust their assets into a secure custodian or to transact on a marketplace or market maker like FTX, it doesn’t matter what you believe, it just works better.

Trey Lockerbie (00:50:10):
I want to talk about FTX and also I alluded to another young billionaire and that is now Sam Bankman-Fried who, I don’t know the timing of your investment in FTX, but I’m kind of curious about what the thesis is around it and how you would describe Sam?

Josh Wolfe (00:50:25):
Well, one would look at the pattern between Palmer Luckey and SPF, and you would say that the common characteristic is that they both wear cargo shorts and flip flops, or Birkenstocks as it might be, but both have a amazing irreverence and are really intellectually competitive.

(00:50:39):
And I think SPF has always described internally when we were first making the investment a ruthless focus on eliminating inefficiencies. And so, I think he has attentional turrets that he’s able to turn in the same way that Bezos would look at a company and say, “Your marketing spend and margin is my opportunity.” And I think it’s the same thing that he looks and says, whether it’s Citadel, for example, in market making inequities, Robinhood, any of the prior crypto folks where he’s taken lots of market share from, I think he’s looking quite ruthlessly in the interest of serving customers and saying, “Where can I eliminate inefficiencies?”

(00:51:12):
So yeah, we admire that and you can look at what has been described as some regulatory arbitrage about everything that he’s done has been legal, but he’s situated himself in different locales and I just think he’s very smart, he’s very driven, he’s very philanthropic and yeah, I think he’s just getting started.

Trey Lockerbie (00:51:28):
You’ve been a long time critic of another billionaire and that’s Elon Musk with the caveat that he’s an overall net positive for society. As of today, the time of this recording, it appears Elon is proposing, I love this, proposing to close the Twitter deal at 54.20. Are you concerned about your account and where do you think Twitter goes once this deal is done?

Josh Wolfe (00:51:49):
Yeah, I guess there’s a low probability account that Elon does not like me and blows up the account and nukes the account. So yeah, that would suck. But I think one of two things is right, I’m right in my skepticism of motive for the deal, and he doesn’t really care about free speech and that is not the main motive or he really does care about free speech in which my account will live on in perpetuity. So yeah, we’ll see.

(00:52:11):
Yeah, I think that what you’re seeing in recent days of the release of many of the texts is that it seems it was on a whim, I should do this, seems like I’ve got some support of some interesting people pull it together. And I think it’s an interesting coup to be able to pull off and I think he’s entitled to do that.

(00:52:26):
So, I was a bit skeptical and critical of him as related to the Twitter thing in that the timing of the enormous liquidation of Tesla’s stock, eight and a half billion dollars plus did not seem to make a mark on anybody that he was selling effectively at the top of Tesla. And it felt like the Twitter transaction was potentially a raison d’etre reasonable and proximate cause to justify the liquidations.

(00:52:48):
And so yeah, if the deal doesn’t go through, one would assume that, particularly now that Tesla is lower than it was then, that he would buy back lots of Tesla shares and show support for it, but we’ll see.

Trey Lockerbie (00:52:58):
Just curious, you have mentioned your skepticism around it not being about free speech. If it’s not about free speech, what might it be about? I’m kind of curious if you have any ideas.

Josh Wolfe (00:53:08):
Well, I did think that the cynical motive or the cynical attribution of motive was liquidation of Tesla stock and having this reasonable cause. And I think it’s the kind of thing that somebody might have if they’re impulsive and powerful and influential to be able to say, “Yeah, I’m just going to buy Twitter.” Now, if you actually cared about free speech, I think it was quite easy to be able to influence. I think Elon has enormous influence to be able to just take to the public airwaves and say, “Why is Twitter not doing this? Why is Twitter not cutting the bots?” And I don’t think you need to go with a transaction to potentially demonize the company’s leadership, it’s people.

(00:53:40):
And so yeah, it’ll be very interesting to see who stays, who leaves, the ability to attract and retain talent. It’s an incredibly powerful force, I think for good for communication. People talk about Twitter as a toxic cesspool, but I find it nothing but high value, high signal access to really interesting people and ability to broadcast ideas openly and be criticized openly, so I think he’s got a lot of really smart people and I think he probably has a lot of smart ideas and I hope he does something really productive and useful with it.

Trey Lockerbie (00:54:10):
Tesla just announced this really interesting development and they’ve essentially reinvented the super computer as I understand it. This is above my pay grade, but they had this new D1 chip and this Dojo supercomputer, and I was just speaking with Cathie Wood about this, and I guess my imagination is captured by the potential to exponentially compound information using this new tech.

(00:54:31):
So, as a student of futuristic tech, do you have an opinion on this new technology and what it might be able to do for other industries?

Josh Wolfe (00:54:39):
Any new hardware development semiconductors is always interesting. I think the main pitch here is that they would not have to be reliant upon in Nvidia or others. And my bet would still be on Nvidia, not as a stock, but just the development that they’re working on, particularly in AI.

(00:54:52):
I think the main thing that they’ve been able to show here is the giant tile that’s effectively working in a single lab at two gigahertz, which is not super fast. And the two key things that they’ll have to show, which they may show this year or maybe soon or maybe never is tile to tile interconnect, so showing multiple layers of these chips, which are relatively large, and then the software which they themselves acknowledge that they haven’t really made much progress on.

(00:55:15):
The software for Nvidia, if you look at the [inaudible 00:55:18] system, was really the thing that broke open the entire movement globally for artificial intelligence, machine learning. And so all these things are interrelated, you have brilliant chip designers globally. It’s possible they come up with a big breakthrough. Apple certainly has with their M1 and M2 chips.

(00:55:32):
It’s highly possible that Tesla ends up developing a cutting edge chip or is used for valuable purposes inside Tesla and adjacent industries, but my money would still be on some of the core developers, particularly in the cutting edge of GPUs that are used in AI and ML, which would be Nvidia and some of the competitive efforts from large chip designers for that.

Trey Lockerbie (00:55:50):
Similar to Elon, you’ve been a critic of Ray Dalio for seemingly turning a blind eye to the humanitarian atrocities we hear about in China. Ray retired today, the fund is up about 30% this year, any thoughts on his retirement, his legacy, what he’s leaving behind?

Josh Wolfe (00:56:06):
Ray went out at the top, so excellent timing. I mean, you got an up year, you’re able to take a bow. It’ll be very interesting in ensuing years to see what happens. My criticism has not been about his failure to criticize China, which is a moral failure and specifically the CCP. My criticism has been that I’m not sure that what people believe Bridgewater does, Bridgewater actually does.

(00:56:27):
And I’m not sure that when you actually listen to Ray most times over the past 10 years that his views on markets have been cogent or concise or precise or accurate. And one extreme would be that the emperor has no clothes. That takes nothing away from the books which have presumably been ghostwritten by others or the daily observations, which are of course written by others or any of the research or the quality of the thousands of people who I think are brilliant that may work there. But whether they’re involved in any investment decisions or what’s really going on there is a more speculative open question or at least an open question that’s open to lots of speculation.

Trey Lockerbie (00:57:02):
All right, so before I let you go, there’s one more thing I want to talk about, because last time you and I got together, we discussed your aspiration to see human scent digitized. How have we been progressing on that front and what could a machine that could smell, maybe it’s the Tesla Optimus robot, let’s say, be of benefit.

Josh Wolfe (00:57:23):
Well, very skeptical of this Tesla Optimus robot. Obviously if you look at Boston Dynamics robots from five or 10 years ago, they were doing feats that just blow the mind. But yeah, so I don’t see that being really relevant technology and it felt like it was a gimmicky monorail man-like showcase from the Simpsons.

(00:57:39):
Yeah, digital smell. It’s something that one of the Nobel Prize winners that we backed Richard Axel in a company called Kallyope, which is focused on the gut brain access, a biotech company, maybe eight or 10 years ago said, “Forget about it. Don’t try. Like lots of people have tried, this is never going to work.”

(00:57:52):
And I’ve been looking for over a decade for both the hardware and the software and kissed a lot of frogs and we finally found someone. Beginning about six months ago, negotiated with a very large tech company where this technology’s being spun out of, it’ll be announced in about a month and we catalyzed the transaction and capitalized it with $60 million, some incredible co-investors, two giant tech companies, one giant global foundation, a few billionaire famous hedge fund folks that are coming as co-investors.

(00:58:19):
And notably, when I was negotiating this, I lost my sense of smell. I evaded Covid for two and a half years and I ended up getting it and my two symptoms were one, loss of smell and two was the anxiety about when my smell would come back, but that was about just under three weeks, so that was really poetic justice, I guess.

(00:58:34):
There’s three things that this company will do. One is, to me, the holy grail, and it’ll be the longest, but Shazam for smell, the ability to hold up your phone or some other small device to effectively capture in the same way you do today image, which is really two dimensional or three dimensional with RGB. And you can do time lapse and you can do slow mo and you can do 4K and you can put all kinds of filters and whatnot in that capture. The Sound, which is really two dimensional frequency, amplitude, wavelength and you can capture spatial or stereo or mono.

(00:59:02):
Smell is at least 40 dimensions and could be several hundred depending on what the molecules are. It’s complex. It’s not a single sound or a linear set of notes, it could be mixed in potpourri, so you have to be able to sort signal, but a smell is volatile organic compounds, they are quite literal chemicals that are floating in the air that bind to your old factory bulb. Ours is more sensitive than some, but less sensitive than others. We know that dogs can detect covid and cancer and Parkinson’s and early signals of epilepsy before someone has a seizure and machines will have the sense of smell.

Trey Lockerbie (00:59:34):
Now, is that the use case, what you just mentioned of for the medical device?

Josh Wolfe (00:59:39):
Yes, so one is Shazam for smell, for humans to be able to record smell, so your childhood bedroom, the nostalgia of a grandparent’s home, the smell of your loved one’s hair, the smell of a wine, a meal, a vacation, beach, forest, wooded path, your home, whatever it is. The second is detecting human health from breath, so that will be in fact why one of the large global foundations cares to be able to help diagnose people early.

(01:00:00):
And then the third is industrial and defense applications, so the ability to detect chemicals, and that could be industrial chemicals, it could be fire, it could be electrical fires inside of large server rooms. It could be taggants that are used on people of interest for defense applications. So yeah, it’s an exciting future and we relish the idea that we get to invest in people who are inventing the future.

Trey Lockerbie (01:00:22):
Now, can you foresee a world where the computer is recognizing the smell in those compounds, those volatile compounds, and then could recreate them in some physical space?

Josh Wolfe (01:00:33):
I can definitely foresee the world that it’ll take longer, but the first thing that Kodak did was figure out recording and then screen companies later on figured out playback, but recording will be first and we’ll be digitizing that with a signal and then playback will come after.

(01:00:45):
And I see no reason why it doesn’t obey the laws of physics to be able to do that. It just needs to reduce our human ignorance and come up with the knowledge and ultimately the technologies that embody that knowledge to be able to produce it, so we will have it. I couldn’t tell you when, but recording will come first.

Trey Lockerbie (01:00:59):
That continues to be one of the more fascinating ideas I’ve ever come across, so I just continue to be interested in it and I would love to have you back as things progress and you announce more around it, so thank you again, Josh, for coming on the show, it’s been a real pleasure to be here in your office.

Josh Wolfe (01:01:14):
Love listening to you and learning from you and your guests and thrilled to be part of it, thank you.

Trey Lockerbie (01:01:19):
All right everybody, that’s all we had for you this week. If you’re loving the show, don’t forget to follow us on your favorite podcast app and if you’d be so kind, please leave us a review, it really helps the show. If you want to reach out directly, you can find me on Twitter at Trey Lockerbie.

(01:01:31):
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Outro (01:01:42):
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