From: allin
Macroeconomic Outlook and Fed Policy
The Federal Reserve has maintained steady interest rates, with a range of 4.25% to 4.5% in 2025, after cuts in September, November, and December of the previous year [00:12:11]. The Fed is currently in a “wait and see” mode due to uncertainties surrounding new tariffs and their economic impact [00:12:27]. While economic activity has continued to expand at a solid pace, concerns about potential stagflation, higher unemployment, and increased inflation persist [00:12:35].
Philippe LeFan, of CO2 Management, suggests that the Fed’s decision not to cut rates might indicate underlying economic strength, challenging the prevalent negative sentiment despite strong hard data [00:13:36]. He highlights a surprising ratio where “hard news” is good, but sentiment is bad, possibly due to past market downturns [00:14:05]. Consumer spending, evidenced by Visa and Mastercard earnings, remains remarkably resilient despite weak consumer sentiment [00:15:31].
Chamath Palihapitiya, however, posits that the Fed’s actions may be increasingly politically motivated, choosing to ignore “blinking yellow lights” from leading indicators, particularly in liquidity and consumer credit health [00:18:10]. He points to subprime lending spreads as a historical indicator of impending liquidity crises [00:17:48].
Impact of Trade Deals and Tariffs
The recent trade deal with the UK, which includes a 10% tariff rate for imports into the US, indicates a potential long-term revenue stream for the federal government [00:22:42]. This revenue could create room for tax cuts and influence the Fed’s decisions on interest rates, as it will drive inflation, GDP growth, and employment [00:22:37]. Retailers anticipate only about 50% of tariffs being passed through in pricing, suggesting a net positive impact [00:23:39].
The market’s positive reaction to the UK trade deal, despite a 10% tariff even with a trade surplus country, suggests a move towards a “win-win” scenario in trade negotiations [00:24:09].
Tech Market and AI’s Disruptive Force
The current economic uncertainty, partly driven by unpredictable trade policies, has impacted the tech market. M&A activity is on hold, and companies are pausing plans to go public [00:11:11]. However, for many tech companies, especially those in services, tariffs have not had a significant impact [00:27:01].
Philippe highlights the disruptive potential of Artificial Intelligence (AI), coining the phrase “tokens greater than tariffs” [00:28:30]. Microsoft’s Q1 report, which processed 100 trillion tokens, demonstrates a vertical surge in AI usage, largely due to more sophisticated reasoning engines requiring greater compute power [00:29:08]. This rise in AI activity is seen as a primary driver of market uplift, overshadowing tariff concerns [00:29:57].
“tokens greater greater than tariffs” [00:28:30]
AI is viewed as a “once in a generational opportunity” to accelerate growth across the entire economy, not just within traditional tech companies [00:32:02]. It enables the reinvention of mature markets, creating significant market value creation opportunities for companies that effectively adopt these tools [00:32:28].
Google’s Innovator’s Dilemma
Google faces a significant innovator’s dilemma as AI search tools like ChatGPT and Perplexity begin to impact traditional search volume [00:33:21]. Eddie Cue of Apple noted a drop in Apple’s search volume for the first time in 20 years, attributing it to the rise of AI search [00:33:14]. This news caused Google’s market cap to drop by $100 billion in an hour [00:33:39].
Despite having competitive underlying AI models, Google faces challenges in integrating AI into its core search product without cannibalizing its $200 billion search ad revenue, as AI queries are significantly more expensive to serve [00:35:30]. Chamath argues that Google needs to aggressively integrate Gemini as the front-facing window to Google Inc., rather than waiting for external data or reacting to competitors [00:39:01].
“The problem is that they were effectively at 99% share and now we were always just waiting for that shoe to drop which is where they started to go from 99 to something less than 99.” [00:37:33]
Google’s strengths lie in its diverse portfolio, including Cloud, Waymo, and YouTube, and its massive user base with deep integration into daily life through products like Gmail, Calendar, and Android [00:41:26]. There is a strong case for Google to integrate AI more aggressively into other profitable areas like YouTube search and Workspace (Gmail, Calendar) to leverage its data advantage and train users on AI interaction [00:46:28].
The return of founders like Sergey Brin to active engagement in AI development at Alphabet suggests a renewed focus on addressing this strategic shift [00:55:15].
Venture Capital Challenges and Market Resets
The venture capital industry is facing significant challenges, particularly related to liquidity issues in venture capital industry and exits. Since 2021, the volume of IPOs has flatlined, and companies increasingly prefer to stay private [01:09:17]. This “strangulation of illiquidity” is attributed to artificial factors like government administrations, regulations, and agencies such as the FTC [01:12:10].
“It’s hard to make money. And if you view making money as some derogatory thing and you put a bunch of impediments in the way, the downstream impact is interesting ways to make money will be out of fashion and simple ways of making money will be the only things that people do.” [01:07:08]
The decline in M&A activity, where large companies are deterred from acquiring smaller ones due to regulatory scrutiny, removes a key monetization pathway for venture capitalists [01:00:00]. This situation discourages investment in risky private companies, leading to a potential stagnation of innovation [01:07:29].
Limited Partners (LPs) expect venture capital returns to be in the mid-to-high 20s (net) to compensate for illiquidity [01:11:54]. However, current data suggests returns are closer to those of short-term hedge funds, making the asset class hard to justify unless viewed philanthropically or if prices come down and return multiples go up [01:12:03].
This constriction in venture capital and startup funding comes at a critical time when a new economy, driven by AI, is emerging [01:09:41]. Without capital returns to LPs, venture firms face a “running out of gas” scenario, hindering the acceleration of innovation [01:09:57].
Innovations in Fund Structures: The CO2 Management Model
Philippe LeFan’s firm, CO2 Management, has launched an innovative fund structure designed to address some of the challenges in venture capital trends and fund management and make tech investing more accessible [01:20:58]. This new “interval fund” model aims to combine the benefits of public and private market investing with greater flexibility and lower fees for investors [01:20:03].
Key features of the CO2 Management fund:
- Hybrid Public/Private Approach: The fund can invest in both public stocks and private companies, including debt and owning 100% of a company [01:28:01]. This allows it to capture opportunities in companies like SpaceX and Stripe, which are crucial for a “new MAG 7” or “MAG X” basket of future leading companies [01:28:45].
- Flexibility with Cash: Unlike traditional public market funds that must be fully invested, this model allows the fund to hold significant cash positions when market conditions are uncertain, providing risk management [01:19:06]. This mirrors the Berkshire Hathaway model [01:19:48].
- Lower Fees and Permanent Capital: The fund charges lower fees (1.25% management fee and 12% carry) than traditional venture funds [01:21:47]. In exchange, it receives “near-permanent capital,” allowing for longer compounding of returns [01:22:01].
- Democratization of Tech Investing: With a minimum investment of around $50,000 and lower qualification barriers, this fund is accessible to a much wider audience beyond just ultra-high-net-worth individuals and institutional investors [01:20:44]. It offers simpler tax reporting (1099 instead of K1s) and manages capital calls and distributions centrally [01:26:14].
- Strategic Seeding: The fund was launched with a combined $1 billion in backing from the Bezos and Dell family offices, providing significant initial capital and credibility [01:23:34].
This new structure is a response to the current liquidity issues in venture capital industry and aims to create a more robust and accessible investment vehicle for the future. The strategy emphasizes identifying future market leaders, whether public or private, and applying public market valuation discipline to private investments while leveraging private market insights for a “telescope into the future” [01:33:04].