11 – Inflation | Jobs & the Fed | Top-heavy Nasdaq & S&P500 | Pharma solution for many chronic diseases | Rite-Aid debt concerns

Marcus: [00:00:00] All right. Good to be back. Yeah. Welcome back. How was Italy, man? Italy was incredible.

Vic: It was really fun to be there with the family. Good weather. We had travel problems on both ends, but when we were actually in Italy, it was phenomenal. Where did you go? Went to Rome and Florence Cinque Terre in Venice.

That’s amazing. Yeah. My, my, you know, two teenage boys. They’d never seen Rome. Had they ever seen any of it? Never seen any of it. I was about to say. Never seen any of it.

Marcus: Yeah. That’s, that’s awesome, man.

Vic: Yeah.

Marcus: Um, well we have a ton to was great.

Vic: I really, David was incredible. You did, it was a good job. Oh yeah.

Marcus: Well, it’s, you know, look, if you, if you pick great people to talk to, right? I mean, it’s easy. He’s a wealth of knowledge. He’s, he’s fantastic. And it’s, it’s such a, such a pivotal time in the industry right now.

You know what I mean? Like, so he’s, he’s such a good person and we’ll, we’ll have more, we’ll have more great people on, but you did [00:01:00] a yeoman’s job while I was in Dublin meeting, uh, the, the good people at Cardinal health this week, pulling together the show this week, so Dublin,

Vic: Ohio,

Marcus: yes, Dublin, Ohio, to be clear.

Uh, but yeah, which I had a great time. So just shout out and thanks to all the people at Cardinal, um, incredible organization and, uh, yeah, it was great to learn, you know, it’s a complex organization, so. It’s great to be there and learn from leadership, like exactly what they’re doing there. And, um, it’s, it’s a lot.

And it’s also, it’s a, I mean, I, I feel like when you, when you do that, we talk so much about providers, right? Yeah. It’s really helpful to remember there’s all this underlying support ecosystem that makes healthcare work. And when they

Vic: go to the cabin and pull out materials. Cardinal, one of the three makes a fire delivery.

There’s a lot of that. Exactly,

Marcus: exactly. And so just like getting, getting anchored in that truth and that reality, I think is, is helpful, is really helpful. All right. But you’ve pulled together a great show and, and it’s a lot [00:02:00] of news this week. Well, it’s, it’s another big, it’s another big fed week. Right. So, you know, we’ve got, we’ve got inflation news and, and, uh, we actually have some, some real movement on that front for the first time, you know, I would say it’s been moving, but this, this week’s.

Print CPI print really does feel to me, it’s the, the turning point, you know, maybe we’re at the halfway point in this, of this overall journey. Uh, it’s been a year, right? It’s been a year since the fed really started activating, uh, the hikes and what, what, what, what are we seeing here?

Vic: Well, I mean, uh, I was just talking to someone at lunch today that listens to us while he jogs.

So let’s describe it a little bit. So yeah, this is CPI from 2020 to now. And what we’re looking at is it went up over 8 percent at the peak of inflation, when we all were spending our stimmy checks and buying large big screen TVs and new cars, and it’s come down dramatically that the headline is down at 3%, which is not [00:03:00] 2, but pretty damn close to 2.

Right. And core is. Core. It’s still stubborn. It’s called Corks. It’s not as volatile, but it is going down, but it’s going down.

Marcus: Yeah, it is going down. So I think, I think that that 3 percent headline number on its way to two, while it may not be the stubborn labor piece from a, from a narrative perspective, which really influences the market, right?

This is a politically friendly number. I think, right. Um,

Vic: politically friendly, uh, wall street loved it. I mean, the day it came out, the market was up, right. Right. Um, so, yeah, I mean, I’d venture to say that the Fed is not going to get to, yeah, it looks like

Marcus: it’s on the way to too sharply, but it gets quite a core, right?

Right. Oh, yeah. No, the core is not getting it, right? That’s not happening.

Vic: I mean, the Fed won’t come out and say this, but my guess is that there’s no chance of getting to two, right? Ever I mean for a long time, right? Right. And so this has been it’s really good improvement.

Marcus: Yeah, it’s good It’s it’s uh, it’s good news.

[00:04:00] Certainly we welcome it, right? I mean, you know bringing into this pain we’re living in. Uh, Really nice, right? Um, okay. So so then we have some jobs numbers, right?

Vic: So there’s two jobs reports adp kind of front one runs Uh bls, so the the official Report comes out, I think it’s on the 7th or something the day before ADP that, of course, does a lot of payroll processing a couple of years ago, they started front running that and give people kind of a preview.

It’s, of course, not as robust as the government survey, but interesting. And so it was really a lot of jobs created. I mean, the leisure and hospitality. Added 232, 000 jobs in the incredible, that’s incredible. I mean, a lot of months, that’s the entire market, uh, and not many sectors lost. And so overall it was 400 something, uh, really unexpectedly large amount of hiring, which is good.

It makes some people nervous about inflation, but, but [00:05:00] we’ll see. I, I like the people, people getting hired is good.

Marcus: Yeah. I mean, I, I, I know my friends at the, at the CVC love to see that leisure and hospitality number jumping up like that. Right. That’s great. All right,

Vic: so then BLS, then the official Bureau of Labor Statistics came out.

That was also good. Not quite as strong. This is the sector by sector categories. What I thought was interesting is that education sort of grouped in with health services. So it’s not totally clear. We can’t get just health by itself, but from the government’s point of view, that was the biggest job growth area, healthcare, which is, which is great to see as well.

Um, the next one, which is the summary. And so here, this is their summary cystic 209, 000 jobs Uh, which is not as robust an estimate as ADP, but certainly not job losses stable. I see a kind of a stabilization at that 200, 000 a year, a month kind of level for six [00:06:00] months. And there was one month when it jumped up a little more.

We have stabilized, I think, at job growth, which is, which is good. Probably a healthy number. We, I mean, a thousand jobs at the peak there in February is, is 900 is too much, probably too hot.

Marcus: So we’ve, we’ve spent the vast majority of our time putting this podcast together for the last three or so months, um, talking about the durable inflation levels around.

Yeah, we’re seeing growth in jobs. We’re seeing energy come, cost come down significantly. You know, what does this mean in terms of the economy stabilizing such that we can do what we want to do as, as venture investors?

Vic: I mean, I, I sort of see that there’s going to be a couple of different scenarios going forward, but I think we should cover the, the banking changes.

Okay. All right. So, I mean, the way I see this is pricing is coming down from the, from the, uh, Okay. Peak, maybe go to the next one with [00:07:00] retail sales. Yeah,

Marcus: I love this chart. So if you’re, if you’re just listening, this chart should be the reason why go on, go

Vic: on YouTube and check out this chart. Yeah.

Marcus: You need to check out this

Vic: chart.

Marcus: All right. So

Vic: this is a group called red book. They measure retail sales weekly. And so it’s a, it’s very often every week it comes out. Yeah. And it, you know, it was kind of, it’s, it’s an index thing. So it’s kind of relative. But forever for this is back to oh, one it was in the kind of, you know, zero to six as far as like growth, you know, moderate retail sales.

And then in the oh, nine, you know, great financial crisis. It went went. Down negative people didn’t buy anything those several weeks in 2009 when it was scary and then of course in their pandemic there were there was a month or two when no one was doing retail shopping but what’s really interesting is since the pandemic you see the stimulus checks and kind of the reopening [00:08:00] everyone bought all kinds of stuff at retail kind of pent up demand And also the government’s sending money out and e commerce and what else, what else

Marcus: you got to do just home,

Vic: right?

Yeah. Yeah. Everyone is sort of getting back to, uh, life again. My opinion is that drove a lot of the inflation. The supply chain was not ready. Everyone tried to buy at the same time. If people are listening, it, it’s. It goes up to almost 18. So it’s like a three X peak. I don’t think we have ever seen, I don’t think red book has ever seen that.

This, this chart only goes back to a one, but I don’t think it’s ever been that high.

Marcus: It’s insane. Yeah. Visually it’s, it’s, it’s obviously a mess.

Vic: Yeah. It’s a huge, uh, peak buying of stuff, but the, but now it has come down. Headline is reverted

Marcus: to the mean. Well, it’s

Vic: gone negative. So for the first cross, it has crossed into negative territory.

Yes. That’s probably not totally sustainable, but certainly [00:09:00] it’s gone a long way. That

Marcus: negative is a little bit, probably a blip, right? It’s probably now going to bounce around the middle again,

Vic: right? I mean, hopefully, I mean, what we’d like to see is this come back to the more healthy. You know, moderate growth, right?

And the question is, is the fed rate tightening going to allow that with credit card expenses being up and, you know, maybe, uh, not people don’t have as much savings as they had after the pandemic. I don’t know. We’ll see. But I think it’s interesting to watch the retail almost as like a leading indicator of where the economy is going.

Marcus: How do you think the Fed, I mean, because, you know, the idea that they don’t ever see this, it may not be the core data that they’re leveraging, but they, they know that this is generally happening. That, you know, if we see it, they see it. I mean, I take the assumption that

Vic: they see more than we see. If we have it, they

Marcus: have it.

So how do you think that they, Interpret this decline in retail sales that, you know, they’re always trying to break something, right? So is this [00:10:00] breakage positive for them in terms of like saying, Hey, our, our mechanics are working, you know, what we’re doing with interest rates are, are functionally breaking the economy to a place where we can.

Start to think about letting our foot off the pedal.

Vic: Yeah, I think they I’m not sure they want to break something I think they want to cut the Growth of the economy. Yeah to a point where it doesn’t drive prices up so much Yeah, but retail is is probably the best indicator for that. Yeah, like so that’s prices were really high because there was so much demand In large part, right?

And so I think the Fed would be happy that has come down like this. The thing that would break would be more like a credit event or some, the markets don’t function. I don’t think they would worry about the retail spending coming down. That’s probably good. It’s going to, it’s going to, it’s going to have the effect of reducing inflation.

And

Marcus: it’s certainly good from the high that it was at. I mean, that high is bad. Way too high. That’s bad.

Vic: Yeah.

Marcus: Yeah. [00:11:00]

Vic: Yeah. So hopefully we’ll see this, uh, recover. What we wouldn’t want to see is it keep going down. So that’s the, that’s the question. It’s, it’s come down dramatically.

Marcus: All right. And then, uh, you found this story on, on banks and the fed.

Vic: Yeah. So the fed, uh, vice chair for supervision, they have a lot of roles there. Yeah. He, he testified in Congress and They are increasing the reserve requirements for banks. So the money that has to be retained and can’t be lended out. Um, is being increased, which will provide more resiliency and also limit how much money banks can loan out.

Uh, but then also importantly, they are rolling back the, the relaxation of the standards for the regional banks. So there’s going to be about, about 70 percent of banks are going to see more regulatory requirements, more capital they have to hold and reserve and not lend out.

Marcus: So this is our [00:12:00] response to SVB and, you know, ironically, this is a rollback of that, which SVB lobbied for.

Yes,

Vic: that’s right.

Marcus: Yeah.

Vic: Yeah. And so it’s going to, it’s definitely going to reduce the amount of money small to medium businesses can borrow, especially if they’re on the edge of credit worthiness. Banks are gonna go to their Yeah. Really high credit borrowers. That’s right. And not loan. That’s right. Or or loan at a much higher interest rate through a subprime lender or someone.

Yep. So this will have a additional kind of quieting effect on the economy, similar to their rate

Marcus: hikes. May maybe just for some of our, um, listeners who don. Uh, understand like how banks, how fractured, how the fractional banking system works, like why does an increase in the reserves requirement mean less lending?

Vic: So when they get deposits, when a bank gets deposits in, they can then loan out that money. Again, [00:13:00] and the percent of money that they have to hold and not reloan is the reserve requirement, but it’s an iterative process, right? So they, they loan it. So say I give a thousand, I deposit a thousand dollars at Bank A.

They can then loan out, say 90 percent of that

Marcus: 900. Yeah,

Vic: 900. They loan it to you, but typically they make you get a account, a checking account with their bank. So now they have, so now they have 900 deposit, 900 of new deposits. It’s not totally new, but, but they get to count it as new deposits and then they loan out 90 percent of that to someone else

Marcus: and it’s recursive

Vic: so you end up loaning out a sniff a lot of the money.

And so they’re increasing that reserve ratio to dampen, dampen that, which is probably healthy in the long run. Not probably. It’s healthy. It is healthy. Yeah. [00:14:00]

Marcus: In light of, in light of the bank failure, specifically SVB, but like just the whole bank run, I mean, we’re going to talk, I think, a little bit about reserves versus liquidity and what that issue was.

But there is something to be said for larger reserves mean you have a bit more last reserve liquidity, like you’ve got a little bit of more insurance before you have to call the FDIC because you’re out of cash.

Vic: Yeah, I mean, inherently, they’ll have. Fewer borrowers and more reserves. Yes. Um,

Marcus: and you’ll be tighter on your credit requirements.

And so your likelihood to get paid back is higher. It’s higher. It’s,

Vic: it’s going to. It’s going to be hard on that kind of edge case borrower. Yep. A lot of our portfolio companies, as they mature and they get to cash flow positive and they’re viable and growing, they would prefer to take money from a bank and not a venture equity investor because it’s a lower cost of capital.

That’s going to be delayed, [00:15:00] pushed out, or not happen as much. And so that’ll, that’ll limit CapEx. It’ll limit job growth. It’ll limit the economy, basically. So I, I see it as. I mean, it’s the Fed’s job to regulate banks. They clearly need to pay attention to it, given what happened in March, and it’s very similar to increasing the interest rates.

It’s going to have a similar effect, I think.

Marcus: So, this has, has been a story we’ve talked about for a while. I actually, I, I write a column for HFMA’s, uh, magazine, the Healthcare Finance Management Association, uh, that I’m on the national board of. I write a, a biannual article for them. Uh, in the magazine called HFM.

And the last one I wrote, because really, because we’ve been talking about it so much, it’s about the connection, uh, between the banking industry and the healthcare industry and specifically how it’s going to impact the innovation that the healthcare industry needs. Um, yeah. How it affects healthcare and in healthcare [00:16:00] innovation.

Exactly. And have talked about sort of the. The potential of a credit event, um, that could happen based on the rates and the loan to value issue that is bubbling up. Um, and how this is all going to change credit worthiness is going to change access to capital, going to change bankability even, um, for smaller companies and how specifically in the healthcare industry, you know, startups, we have a higher hurdle than we would in almost any other industry, not any other industry, but almost Almost any other industry, because we have to present as more mature because the, you know, the risk management of the organizations we’re selling into is just higher, right?

So someone’s life at stake. So you

Vic: can’t, you can’t play with that. Like you might with a, an internet toy thing.

Marcus: And there’s also just higher compliance requirements, right? I mean, it’s, it’s life at stake and also just. Legal peril, right? Literally more money is needed to back these companies. And, um, these banking struggles are not directly connected to sort [00:17:00] of the pathway of innovation, but they’re, they’re basically indirectly, you know, connected.

And so the only reason why I’m sharing this is just because a, this article is live and, you know, we’ll, we’ll put a link to it in the show notes, but also it’s been pretty well received, you know, um, several of the pretty. Top ranking CFOs, uh, at health systems around the country have reached out to me around the article and said it was, it was, it was spot on was actually, I wasn’t that happy about because I’m, I’m talking about pretty bad situation in the article.

So, um, I think

Vic: the point of this podcast was to. Force you and I to, to dig into these things and really learn about it. And then this is an outgrowth of that where now, you know, this space, you’re writing about it.

Marcus: Exactly, exactly. Um, so yeah, so let’s, let’s continue on and let’s talk a little bit about, um, the markets, because I think we kind of have two different stories and we talk a little, a lot about how venture.

Trails the public markets, right? The public markets, pricing mechanisms are real time, right? You know, it’s very, very transparent. And so [00:18:00] last year, this time, I mean, it’s crazy. We’re in July of 23, right? But July of 22, the stock market started tanking, right? Because. Fed’s raising rates. Everyone’s realizing this is the beginning of a long process.

Bonds are going to go up. And the stock market started to proactively price in what it believed was going to happen overall to, to damage the valuation of equities. Right. So way before it happened in the venture market, we were, we were recording videos and talking to our portfolio companies and trying to message to founders, Hey, this is coming.

This is coming. This is coming. Yeah. And then it wasn’t really until the first quarter of this year, I think SVB was a huge catalyst and a wake up call for everybody, but it wasn’t really until the first quarter of this year that the founders started to really understand, Oh shit. Like our companies are worth like something in the universe of two thirds to a third of what they were previously.

Right. Um, but what’s happening in the stock [00:19:00] market lately is it’s been ripping, um, you know, this year and, and particularly, Uh, the NASDAQ has been ripping. And so like, when we were talking about what we’re going to talk about for this show this week, I was just like, Hey, can you unpack the NASDAQ? Like it’s, you know, it’s running through the roof.

What’s going on here?

Vic: It’s either crazy or it is sort of seeing something that, um, I don’t say.

Marcus: Yeah. Well, well, I mean, we, we know there are a couple of, Bits of narrative, right? So, uh, there’s AI and that obviously bumps in video, you know, and, and, and also in Microsoft and Google a little bit. Right. Um, and then there’s also the storyline about, uh, companies getting their act together in terms of cutting the fat, getting more lean, getting more focused, focusing on, on their core.

Uh, uh, on their core business lines. Meta is pretty much the poster child for that, um, has totally crushed, you know, earnings of, I think the last two quarters, uh, after those, those, those. Those, uh, tactics that they put in [00:20:00] place. So we, we know that the individual company narratives that are driving why meta or Nvidia or these other companies, but I think it

Vic: depends on the, um, your view of where the next 12 months is going.

Right. Right. So like if the fed is able to pull off. What’s called a soft landing, meaning they they sort of slow down the economy and get get inflation in control, but they don’t really break anything. They don’t make a deep recession. It just sort of slows down and we all take a breath. Inflation comes down.

And then we slowly grow in a beautiful, you know, GDP of 4 percent inflation at 2%. Um, that’s the scenario where the stock market does really well. And

Marcus: that’s currently the stock markets bet. And at least the narrative they are pushing. Yeah, right. Yeah,

Vic: that’s right.

Marcus: Yeah.

Vic: Yeah. I mean, [00:21:00] and it’s, you know, you make more money in Wall Street.

When the stock market’s going up. Yeah,

Marcus: that’s right.

Vic: So, um, I look, when you were talking about the NASDAQ earlier this week, I went and looked at the waiting. Like, you know, both the NASDAQ and the S and P are market cap weighted, which means that when you buy them, you don’t buy an equal heart. Like your money doesn’t get spread across the hundred companies in the NASDAQ.

One hundred.

Marcus: It’s based on how big, how big they are. Pro rata. Yeah. Yeah.

Vic: It’s a pro rat. And then the S and P 500 is 500, but it’s the same deal. It’s a. The number one biggest, if you put a thousand dollars in gets a lot of your money and then it goes down pro rata. And so I, I went and pulled and it’s on the screen here, but for those that are listening, the top 10 holdings.

In both. And it’s two things were interesting. One, there’s a lot of concentration in the top 10. And so the NASDAQ is a hundred stocks and the top 10 and, and Google [00:22:00] has, alphabet has two of the top 10 spots. So it’s really the top nine, right? It’s really the top nine. That’s 59 percent of the value of the index, which is crazy to me, but that’s what it is right now.

And then S and P is 30%. Of course, S and P has 500.

Marcus: That’s

Vic: even worse. It’s worse as, yeah, it’s, it’s less, it’s more concentrated. Yes. Less concentrated.

Marcus: Yeah.

Vic: Uh, but what I was sort of expecting, that’s why, that’s why I ran this. I expected it to be highly concentrated. What I was really almost shocked about is that it’s the same damn names.

If you think you’re going to buy. I’m going to buy an index of S& P 500, and I’ll buy a NASDAQ 2, and that’ll be all tech, and then the S& P 500 will be more of the basic businesses. It’s the same companies that you’re buying. And I’m not, I didn’t know that. Like, two days ago, I didn’t know that. And so, one, they’re highly concentrated, and two, they’re kind of the same.

Marcus: Yeah, very [00:23:00] much. Um, and so when we think about the stock market ripping and specifically people talk about the NASDAQ, they’ve been mostly talking about the NASDAQ ripping and then they’re saying the S and P is performing very well. Right. Yeah. But when the NASDAQ is 60 percent made up of nine companies and.

The top seven of those nine are Microsoft, Apple, Nvidia, Amazon, Meta, Tesla, and, and Alphabet. I think we understand why it’s like, there’ve been great stories for each one of those companies. Apple is now a 3 trillion company. Tesla’s charging network, uh, is now going to be the standard for all of the other EV companies that are out there.

Right? So now they’re going from being a car company to a network company. Um, we’ve talked about Meta, uh, Uh, alphabets doing really, really well right now. I mean, it’s just, it makes more sense, but that concentration is insane. Right? So the, the swings that can happen in the stock market are largely predicated on these seven tech [00:24:00] companies.

Vic: Yeah. And I think the, um, the narrative is, is what you said. I think that’s exactly right. And so the, the, uh, people believe. That AI is going to be incredibly successful. There will never be any bumps in the road and it’s going to be to the moon. And that might be true. Well, they think they think it’s going to fix inflation.

And so that’s a great narrative. It might be true. It might not be true, but it’s sell stock right now. Right. But go, go to the next Slack. So I, I started, uh, trying to unpack, you know, where is this valuation coming from? Is it. Earnings. I mean, you said meta meta has done really well. Yes. I mean, a lot of these tech companies are highly profitable.

Yeah.

Marcus: Yeah.

Vic: Um, but I, I couldn’t find the NASDAQ, but JP Morgan has a really good slide that I’ll try to talk through, but again, it’s worth looking at the video. Where back to 96. So this is not the last 2 months right back to [00:25:00] 1996. The concentration of the S. P. 500, which again is almost mirrors NASDAQ. So I think it’s pretty relevant.

Yep. It is that. They, so they did a June 30th. I did mine like two days ago. So it’s slightly different, but in June 30th, it was 32%, 31. 7. That’s the highest it’s ever been. Um, and we kind of know that we’ve already talked about that, but the interesting part is the earnings is really low or maybe average.

Yeah. Average. It’s, it’s not the lowest it’s ever been, but it’s 10

Marcus: percentage points different from the market cap. Yes.

Vic: And so the question is, are these tech, uh, tech, mostly large cap stocks, are they kind of demonstrating what the entire market will experience over time, meaning that valuations are going to be high because they have earnings power and growth.

Because of AI and the Fed [00:26:00] steered us to a soft landing and everything is working perfectly, maybe, and in that case, the entire market would do well, our portfolio would do well, everything would be good, we’ll all be happy, or is there something else going on around the, the multiples and the narrative just around these kind of story stocks, and there’s going to have to be a reckoning there, like, so either The entire market is going to kind of shift up, or there’s going to be some kind of correction in these 10 names or something in the middle,

Marcus: right?

I think this is a great chart and I think it’s important to ask this question. I think. Most people in our world will say that market cap relative to the earnings contribution is deserved based on the relative performance of these companies against so many other companies, right? That are either. Pretty much putting [00:27:00] along kind of just flat and not really growing much and constrained for whatever regulatory reason or whatever CapEx reason or whatever OpEx reason there may be, or the myriad of companies that are going out of business.

Bankrupt, right? Um, many of which are on the public markets, right? Um, or real estate or brick and mortar retail, right? So it’s like, I think there is a relativity that at least people in our industry in the VC space would sort of say, it’s possible that market cap is not. Even, um, what it should be, you know, it’s, it’s possible if you’re really sort of playing this out, the market cap should be larger relative to the earnings contribution.

So, uh, yeah, I mean, I don’t know what the answer is. I can’t predict the future, but I think that would be the, that would be the innovation community, VC industries, you know, response to this, to this graph.

Vic: Yeah. I mean, I think that there’s a, there’s a have and a have not [00:28:00] kind of, approach to that narrative that I kind of agree with Google, Meta, Microsoft, NVIDIA, they have technology assets that a lot of other companies don’t have.

You know, in America, that is rewarded. That’s that’s great. Other companies need to get their act together and figure out a way to respond. A lot of health care companies can’t grow that fast can’t have those assets because they it’s a it’s more of a service. It’s it’s harder to scale health care. So I think that’s certainly true.

It also is a fear of mine. I don’t have facts for it, but it’s just a fear of mine that this narrative requires there to be a soft landing. And they’re not to be some major credit problem. And I see a lot of potential credit problems out there.

Marcus: Yeah. Yeah. I, I, I think, I think it will be a lot [00:29:00] to track over the back half of the year.

And so we’ll have plenty to talk about. Yeah. Oh yeah. There’s going to be, it’s an ongoing story. I can’t possibly make sense of it, but, um, I do think that, um, The AI narrative accrues broadly across these companies, even to Tesla. I think AI accrues to them as well. Um, I think that AI equaling, lowering the cost of labor as a whole is a very stock market friendly narrative.

And. While we’ve talked about how AI is something that basically anyone can spin up because these large language models can be easily cloned, what we’re learning or relearning or remembering is that distribution is king, right? You know, meta, I

Vic: mean, threads,

Marcus: I was about to say meta puts, you know, I don’t know, 20 engineers in a room for nine weeks and they release a Twitter killer literally.

Like I haven’t seen anybody really talk about this, but literally they [00:30:00] called. The app threads, like, which is at least the colloquial word for stringing together multiple tweets. They literally took a Twitter term, named their app after it. And a hundred million users in what? 48 hours. Something stupid like that.

It’s a ridiculous amount of time. So distribution, the distribution power of those seven companies is just done. It’s just unparalleled. It just is, it’s just,

Vic: you know, yeah, I mean, I, I guess we didn’t talk about this ahead of time, but I, there’s no question just, they are leveraging distribution in a way that is really powerful, but I also was, uh, thinking about this in a different frame, which is, uh, I think it’s really interesting to, to consider meta and Microsoft.

Okay. So like Microsoft. I think meta is the Microsoft of the 1990s. Right? So Microsoft started, they had a very [00:31:00] dominant market position and they started just cloning things and doing, Oh, you have a browser. We’re going to, we’re going to do that. We’ll just put everything in our, in our windows system. And they, they were successful until they got so big.

That they got sort of slapped down and in the penalty box for a while. Yeah. And now they have gone through 15, 20 years. Where they’re now being, I think, really innovative and, and aggressive and trying to turn into a growth company again. They really weren’t a growth company for a while. And Meta seems like they’re at the opposite phase of that.

Like, they were incredible as far as innovation, invention at first. But now that they sort of, you know, they, they bought Instagram. Yep. They are cloning Twitter. And that will be successful. But, but, uh, It’s not going to be like a breakout new thing. It’s sort of monetizing [00:32:00] their existing platform.

Marcus: Well, I mean, I think that’s why, I think that’s why this, this whole weighting of market cap versus earnings contribution thing is such an interesting thing to look at because there’s so many subscale industries for those companies, maybe Nvidia aside, but at least the software based ones for them to eat.

You know what I mean? Like Meta can eat Twitter and you know, Microsoft look, I mean, there’s a reason why this Activision thing is such a huge story, right? You know, it’s because of call of duty, right? You know, it’s because Microsoft, if Microsoft gets their hands on call of duty, like they could eat the console.

Business that like don’t you could distill all the first person shooters to call of duty. Okay. Yeah, effectively and if they managed to get it and you know, I think they’re going to, it looks like it did all of the signs of the last. Yeah, [00:33:00] everything’s pointing to them getting it right. And, and it’s like, What these companies are turning into are incredible M& A and distribution machines, you know, where the, you know, these subscale companies, you know, the whole gaming industry right now, it started where everyone was talking about the, the publishers, but it, you know, You know, that’s over.

It’s not the platforms, right? It’s Microsoft and Apple. That’s who you care about in the gaming world because they have the Sony is still still around, right? I mean, well, look, so I mean, let’s talk about it. I think Sony had a big issue, which was they made the best console ever created in PS5 supply chain fell down.

No one’s got one. Like I know like three people who have one. So, yeah. Yeah. So

Vic: maybe they’re, maybe they are losing it.

Marcus: Yeah. You know, I mean, look, I mean, they’re, they’re, they’re, are they in the game? Yes. They’re in the game, but they’re not at the level of a Microsoft or an Apple, right. You know, in the scale and [00:34:00] distribution and capabilities and, you know, both Microsoft and Apple have stores in every city.

I mean, you know, beautiful stores where you can go visit. So. We’re just talking about a new era of really, it’s interesting. It’s like the power law is, is really taking place in the stock market. It’s really winner take all in the stock market right now. Um, and again, if we’re just sort of comparing that back to the point of this show being about healthcare, um, you know, when we compare that to healthcare, This was, this was why we had the whole discussion about the age 16 Z thing.

It’s like, there’s really no close analogy to this in healthcare. Right. Um, to, to what, to what these organizations are able to do relative to even a United health group, right. You know, even a United health group, that’s a, you know, incredible juggernaut of an organization. Still generally pretty small in their market share and the relative areas of, of, of business lines that they’re in.

Vic: I mean, I think the, the sort of the entire [00:35:00] question for our firm and for this podcast is how quickly can we digitize healthcare and what sub sectors of healthcare can, can be digitized today? And then what does the regulation allow? And how do you scale that over time? I mean, I think in 10 years Healthcare will be Much more digitized than it is now But it, but it’s much harder.

People’s life is at stake. It’s highly regulated. The federal government pays for half of it. So unlike other markets where you can just like go off and go around the, the federal government, you can’t do that. Cause they, they pay for half of everything.

Marcus: All right. We’ll take a break and flip it to Doug to talk about Jumpstart Foundry.

Doug Edwards: Thanks guys. For the opportunity to talk about our pre seed fund Jumpstart Foundry. My name’s Doug Edwards, CEO of Jumpstart Health Investors, the parent company of Jumpstart Foundry. We’re so excited to be able to talk about, uh, early stage venture [00:36:00] investing. Certainly the need for us to change the crazy world of healthcare in the United States.

We are spending 20 percent of our GDP north of 4 trillion a year on healthcare with suboptimal outcomes. Jumpstart Foundry exists to help us find and identify and invest in innovative companies that are going to make a difference in healthcare. in our country. Every year, Jumpstart Foundry invests a fund, raises a fund, and deploys that across 30, 40, 50 assets every year, allowing ease of access for our limited partners to invest to help us make something better in healthcare.

Some of the benefits of Jumpstart Foundry is there’s no management fees. We deploy all the capital that’s raised every year in the fund. We find the best and brightest, typically around single digit percentage of companies that apply for funding from Jumpstart. And we invest in the most incredible, robust, innovative solutions and founders in the United States.

Over [00:37:00] the last nine years, Jumpstart Foundry has invested in nearly 200 early stage, pre seed stage companies in the country. Through those most innovative solutions that Jumpstart Foundry invests in, we also provide great returns and a great experience for our limited partners. We partner with AngelList.

To administer the fund, making that ease of access, not only with low minimums, but the ease of investing in venture much better. We all know that healthcare is broken. Everyone deserves better. Come alongside us with Jumpstart Foundry, invest in making the future of healthcare better and make something better in healthcare.

Thank you guys. Now back to the show. All right, we’re back. So,

Marcus: uh, in, in your show notes, you, you had this as the third topic. And I was reading now, I think you had it framed as, uh, obesity is, is a key comorbid feature of diseases. And I was like, duh, like, right. That’s

Vic: obvious.

Marcus: Yeah. Like, uh, okay. That’s really a topic for us to discuss.[00:38:00]

And then you link to the story and I was like, Oh, got it.

Vic: Yeah.

Marcus: So, uh, again, for those who are listening and not watching, I’ve got a wall street journal story up on the screen. Uh, it was published on July 7th by, uh, David Weiner. And the headline is obesity drugs. Won’t starve these other potential blockbusters.

Vic: Yeah. It’s kind of a funny title. I think it is the opposite of that.

Marcus: That’s what I, that’s why I wanted to say what the title was. So, so go ahead, Vic. Like, like just how did you, first of all, how did you come across the story? And then how did you read it and really get to the point where I was like, my mind is totally blown about this.

Vic: Well, so the, the subtitle is what got my attention, which is, um, you know, a bunch of fatty liver treatments have been doing really well, but not tears where it says right until some of the Eli Lilly results spooked people. And that, that kind of is interesting. So Eli, Eli Lill has one of the. Obesity [00:39:00] drugs and, uh, I’m not going to say it right.

Ret, retritude, is that how you say it? Retitutide. Retitutide.

Marcus: Yeah, retitutide. But I mean,

Vic: there’s three or four of these. They’re, they’re, uh, being, you know, they came out for diabetes treatment and then have been used off label for just pure weight loss. And they’re really successful. They’re very expensive and they have to be injected, you know, sort of limits, Not everyone’s comfortable with that.

Right. But I, I have friends I’m sure you do that have lost 50 pounds. I mean, they lost a ton of weight.

Marcus: Well, and also like, they have to be injected, but so does insulin. Yeah. I mean, yeah. You know what I mean? Yeah. So, I mean, not gonna be that big of a barrier for, you know. Yeah. Right. For a lot of people.

Vic: Right. Yeah. So, um, the reason it’s, it’s interesting to talk about here. We all know that Ozempic and Tude and there there’s gonna be more. This, these drugs do reduce weight gain. They do reduce appetite. [00:40:00] They help you lose weight very quickly. Um, that’s pretty well established. I think as you mentioned, it’s sort of like an obvious statement to say that maybe every chronic disease, but certainly fatty liver disease, is comorbid with, with obesity.

Almost most people that have chronic disease, certainly have fatty liver disease, also are overweight. And the study that, uh, Lily, uh, was conducting, the drug that is supposed to Help you with weight loss also has significant impact positive impact on fatty liver disease And so the question for up for I want to get your comment on is Might we only need these couple drugs to treat all chronic care and how many how many biotech pharma?

products in the pipeline Should just be a band that we don’t need.

Marcus: So, um, I have to state my bias before we start talking about this, which [00:41:00] is, you know, I’m one of these, uh, Peter Atiyah guys. Right. So I like listen to his podcast. I read his books and all this other kind of stuff. Right. And, and I, I. You know, I take my own health into my own hands insofar as I live my life like an athlete, right?

Like I, I train like an athlete, I compete in sort of all that stuff. Well, I mean, I don’t get paid. And so I think, you know, you’re not professional, right? I think if you don’t get paid, people are like, oh, whatever you’re playing athlete. But I mean, if they actually saw. My schedule, like what I do on a day to day week to week basis,

Vic: you know, it’s, it’s one thing for me to go on a jog.

It’s different when you get in a jiu jitsu ring and have to fight someone.

Marcus: So I do this a lot. Right. And, and what, what doing all this has done is it’s really made me focus on first principle stuff. Right. And that’s what I think Peter T is really great at is breaking down things to first principles and saying, these are the biggest causes of death.

Right. Yeah. Um, and, um, And these are [00:42:00] the things that indicate that you’re on your path to this cause of death. Right. Right. And so, and

Vic: there’s only, I mean, I, in the book I read he had five, that, that account for, I don’t know, 90% of people’s death.

Marcus: Yeah. And A-S-C-V-D is like the Yeah. Top one. That, that’s the, that’s the one.

That kills most people, you know, people think about it as some type of heart disease, coronary artery disease of some form, but you know, that’s the, that’s the one that gets you and I’m currently listening to his audio book where he’s talking about

Vic: healthcare 3.

Marcus: 0. Uh, it’s called outlive is the book where he’s talking about fatty liver.

Disease and how literally when he was, I think it was a resident, this was when he started to sort of realize that this was what he needed to focus his whole life’s work on. Right. Was as he started to see over and over again, the first

Vic: principle causes for that. The first

Marcus: principle cause of all this stuff, right.

Of all these people who [00:43:00] come in and they’re at this point where You basically can’t save them, right? It’s too late. They all have fatty livers. They all have fatty livers. Right. And so, um, and I think he actually said, I can’t remember if it’s, if it’s, uh, AST is AST or ALT it’s, it’s, it’s, it’s one of the, the, the, the liver biomarkers.

I can’t remember which one it is, but basically one of those, he said, this, this biomarker is like just a massive indicator, early indicator That you need to get to work on your obesity and use exercise and diet and nutrition and all this other kinds of stuff. So when you, when you said that this Eli Lilly, uh, new drug is starting to show results of lowering fatty liver, you know, syndrome, I was like, that is, that is a massive, massive potential situation, right?

Because you’re right. There is a world in which these obesity drugs. Just [00:44:00] decrease all this chronic disease that we’ve been dealing with, you know, that we’ve been trying to figure out how to get people through, you know, their lifestyle and the foods they eat and their exercise and all these other things.

We’ve been trying to figure out how to get them healthy and really with terrible results up until this point. Well, behavior change

Vic: is really hard.

Marcus: Like it’s

Vic: really versus taking a shot once a day and then I’m not really that hungry.

Marcus: And, and here we have a pharmacological approach that really, I mean, this, this could be massive, this could be massive, and I think the thing that totally escaped me and I feel so dumb for this is as we’ve been hearing about the obesity drugs, you know, I had just defaulted to thinking about appearance.

Right. And not, and not really thinking about the comorbidity. I mean, I thought about it, but it wasn’t [00:45:00] until you say the words, fatty liver, that’s when I go, Oh, this is way beyond appearance. This is like, could be fundamentally fixing America’s problem. I mean, you know, I mean, I’m not that excited about ascribing that to a pharmacological, Approach, but I mean, we’ve been unsuccessful thus far, right?

So, I mean, people are, people are

Vic: dying, right? People are dying of fatty liver. They’re dying of end stage renal disease. They’re dying of heart, heart disease. They’re dying of COPD. All of those and more, all of those would be massively improved or Or cured, effectively cured, where you’re not going to die of that anymore, you’ll die of something else.

If you lose, your BMI gets down to 23. And it’s at 32 right now, 35 right now. So, just that one, and that’s why the stocks for these fatty liver, Treatments all cratered.

Marcus: Yeah, but that’s going to be just the beginning. That’s just the [00:46:00] beginning. People, people are just connecting it directly. They’re just seeing that one.

Yeah. They see fatty liver. Okay. Let’s go knock down the price of these fatty liver things. But it’s like, no, no, no, no. This is way bigger disease. This is well, not every chronic disease. It’s every chronic disease that’s directly tied to fail over. So the reason why I say, because it’s not like, um, like auto immune.

Right. So it doesn’t, it doesn’t, it’s

Vic: every current disease that is comorbid with weight gain. Yes. Which is many of them, which

Marcus: is a lot, which is a lot in America. That’s why I had in mind in the

Vic: show notes that, um, which was obvious, but, um, but I think it’s going to be impactful. And we don’t know, no one knows, we don’t know how this is going to get rolled out and the impact.

I mean, there are some side effects, and it’s kind of expensive, but payers will start funding it.

Marcus: Look, I guess all I’m saying is, it’s early, but it is something to watch. And it’s something to watch as an investor, right? I mean, this [00:47:00] automatically Makes me much more leery of doing anything in the diabetes, you know, type two diabetes world, especially if it’s like a chronic care management solution.

I’m like, uh, I mean, look, it’s already a flooded market in that space. So, you know, there were already good reasons to, to steer clear of it. But really to think about the idea of might go away. Yeah. Yeah. Pharma might take care of this. Right. And that is, that’s a big, big, big deal.

Vic: And it, and it’d be incredible

Marcus: for society.

I I’m, I’m way more excited now about this. I mean, I didn’t, I was just like you,

Vic: I didn’t care about Ozempic and ret to whatever it is. I don’t know. I mean, it makes, yeah, I was looking at it as an image, uh, vanity thing, but it’s very different if you start treating all these chronic diseases.

Marcus: Totally.

Totally. So anyway, like pretty exciting, actually, I think, you know, just the idea that we may have a path to help so many people that have [00:48:00] basically struggled with, with, with. Lots of suggestions and recommendations and prescriptions for things that, you know, I, either their body is resisting those things or for whatever lifestyle reasons or, or socioeconomic reasons, they can’t actually do these things.

It’s like the idea that we may have a pharmacological solution that it’s just about adherence. And now we get you out of the, the death trap, right? That is diabetes. That is ASCVD. I mean, like that’s, so it’s all, um,

Vic: Yeah. It’s all interrelated, right? Yeah. If you lose some weight, now you can walk a little bit easier.

You don’t get out of breath so much. You can sort of maybe enjoy small meals. I think there’s going to be probably a lot of different, these are the first couple drugs that came out. Right. There’s going to be a lot of other ones that maybe aren’t injected or you can titrate down or different options.

But yeah, it’s pretty exciting.

Marcus: Well, anyway, I’m really glad you pointed this out [00:49:00] because this I’m going to spend more time researching this, this group of drugs and, and getting smarter about it. I mean, I don’t want to get too excited before I understand all of the implications of it, but just to see that it is impacting fatty liver in, in, in early findings, that’s, that’s a really big deal.

That is a really big deal. And

Vic: I don’t know the pathway. The journal, you know, is not scientific. They didn’t describe the pathway, but I can’t think of a pathway that wouldn’t also affect other diseases of, of obesity.

Marcus: Yeah. Okay. All right. Final story. Um, not so, not so good news, uh, but sort of getting back to our winner take all and smaller companies are.

Really struggling. And it’s, it’s so difficult. So, okay. Just a real quick segue before we dig into this Rite Aid story. I saw, so I saw, um, a headline, uh, about Bob Iger, uh, getting his contract as CEO with Disney extended to 2026 and like an immediate opinion [00:50:00] piece was Bob Iger is going to be the CEO of Disney till 2026.

Uh, that’s enough time that for him to sell the company. And it’s like, I just, You know, thinking about Disney as a small company that you should be thinking about selling, like, that’s what I mean, like all of these media companies are going to get eaten by the big tech guys. Like, that’s where we’re headed, unfortunately.

Right. And so it’s, you know, when we hear Apple is now a 3 trillion company, that means all these other companies that are not growing at that rate. Are just by virtue of relativity becoming small, right? And that’s the reason why I segwayed is because, you know, Rite Aid is, it may be going bankrupt. Okay.

Yeah. And this, this is, this is a big deal. We normally are talking about hospitals that are struggling to stay open. Yeah. Uh, but goodness gracious. If, if drugstore, you know, if drugstores are not [00:51:00] just as important to many communities, right? Yeah.

Vic: Yeah. Um, Rite Aid has 2300 stores in the U. S., and they have a bunch of debt.

The reason this story came up now is they attempted to refinance their debt that’s due in 2025. And they failed.

Marcus: I couldn’t get it done. I just heard yesterday about another story of a company that got an extension to refinance their debt last year. And I think we may be hearing about them in a month.

So if we do, I will, if it comes public, I will then say, remember on this episode, when I said this, but this whole refinancing debt and inability to do it, this is what we’re talking about. It goes back to the first story, literally what we’re talking about.

Vic: The, the banks. Cutting back on their ability to lend to Less than perfect borrowers.

Yes affects Rite aid affects [00:52:00] the company you’re talking about. I think and so they failed at that They have no plan of how they’re going to they can’t pay it back. They can’t refinance it and there are all these opioid um settlements and CVS and Walgreens have settled Because they just wanted to put it behind them and be done.

CVS paid five something billion dollars. Ray Day doesn’t have any money to do that. And so they are in trouble. They’ve already tried to sell themselves twice. And both times it got, uh, squashed. The first time they were selling to Walgreens, I think it was Walgreens. FTC blocked it. And the second time was Albertsons and the shareholders.

Didn’t want it. So there’s a real question of is this set of 2, 300 stores gonna exist? And and then do we do we need it? There’s some that probably are in [00:53:00] communities where they’re the only one certainly not all of them Anyway, so it’s a it’s a huge asset. They’re probably the second biggest after Walgreens Um,

Marcus: Rite Aid was right across the street from our old office.

Yeah. Yeah. We used to go there at least once a week Yeah. For something. Right. Um, I think that was the store where, you know, someone where we know that someone that we know went and got their blood pressure checked. Yeah. And then, and ended, and ended up being like a big emergency.

Vic: Yeah.

Marcus: Right. Um, so like,

Vic: and, and the fact that she could just walk across the street and get checked.

I mean, not that she wouldn’t have maybe ever gone, but it was, it definitely helped her get the care more quickly. Totally. Totally.

Marcus: Well, well, you know, because otherwise we weren’t, we didn’t know what the issue was. Right. Right. I mean, she’s not feeling well. Okay, fine. No, the blood pressure is like through the roof.

Okay. We know what that is. Let’s, let’s go deal with that. So I think there’s just, uh, you know, more and more clear signs [00:54:00] that, um, access to care. Is going to be impaired as we continue to go through this, you know, financial churn, uh, that is banking related. That is, um, healthcare margin related. It’s, it’s, it’s hitting from so many different angles, right?

Um, we talk a lot about rural onesie Tuesday hospitals. We talk a lot about the nonprofits that don’t have a health plan attached or not academic medical centers generating grant income. Um, but this adds a whole nother dimension to it, I think.

Vic: Yeah, there’s no question. I think as we. Go through the soft landing, hard landing, various scenarios, no matter what, scale and balance sheet strength are going to be critical, massive, and Rite Aid doesn’t have it.

Um, I didn’t get a chance to put it up because it came out too quickly, but Acadia is a big behavioral health platform headquartered here and I, I have friends there. It’s a great. [00:55:00] Well run company. They had a lawsuit. Uh, they just were handed a judgment of 480 million, um, for treatment of a, of a child. And I don’t know how they’re going to pay that so that they’re also in trouble.

Um, so there’s going to be this group of. Healthcare companies and every kind of company that they don’t have a strong enough balance sheet. Something out of the blue happens, an opioid settlement. I mean, Rite Aid certainly dispensed opioids, but I, I have trouble saying that they’re the cause of it. Right.

Right. So, but, but they are grouped into that. Right. Katie does incredible work. And in addition, they were found guilty of hurting this one patient. There’s a lot of patients there. Yeah. But if you don’t have enough resiliency, enough balance sheet strength, enough scale with the way the fed has [00:56:00] the, the banks now you can’t, there’s no real way to recover from a bump in the road.

Marcus: So, I mean, I don’t know how we summarize this show. Uh, this is kind of a bummer note to end on. Um, maybe we should have thought about rearranging this a little bit. Maybe we should have put this before. Yeah. Yeah. Uh, I. You know, I just think we’re in this on unpredictable moment with lots of indicators, but they seem to be indicating different things.

And I think that’s why you’re talking about the multiple scenarios, the soft landing, the hard landing, which would really be, I think, principally due to a credit

Vic: event, whether it’s commercial real estate or it’s something like Rite Aid and then a bunch of things around right ago. You These things are all intertwined, right?

So you don’t know exactly what causes it, but I mean, I’m a, we’re VCs, right? So I believe [00:57:00] in the U S uh, innovation economy to, to sort of pull us out of

Marcus: this. Did you hear that? Um, Bed Bath and Beyond is now the name of overstock. com.

Vic: No, they rebranded it. I knew they bought all the assets.

Marcus: Yeah. So that they could take the brand.

Yes.

Vic: Oh, interesting.

Marcus: Yes. No, but I mean, but this is like, this is the question. Are all these brick and mortar institutions going to just become brand IP that lives online? Like, is that what, is that, is that what’s going to happen? We’re just going to liquidate all this stuff, you know, hollow out our, our physical footprint.

Right. And just shift it all online. It’s a real question. When you look at the. When you look at everything we just talked about from a stock market perspective, you know, how it’s one thing for the, for the NASDAQ to be concentrated with tech companies, but the S and P is not a tech [00:58:00] stock market. It’s the top 500 stocks

Vic: to be the sort of proxy for the whole economy.

That’s

Marcus: right. That’s right. So when, when out of the top 10, the only thing that’s not a tech company is Berkshire. Right. I mean,

Vic: yeah. And then the thing that I’m trying to think through is the impact on. everyday people, blue collar people, even middle class people that mostly pay for things with their job and don’t have a huge stock market portfolio.

The jobs are being largely automated. Overstock is going to, or now Bed Bath Beyond is going to hire fewer people than the old Bed Bath Beyond hired. And just so as a society, we need to figure out how are we, are we going to do universal basic income? Or what are we going to do so that people can continue their life.

I don’t know. There’s a lot of questions, a lot of questions, but I think, um, technology and venture and, you know, keep listening because, uh, we’ll figure out [00:59:00] something and then try to bring it to you.

Marcus: Yeah. Okay. Next week I’m on vacation. So Vic will bring, uh, in a special guest and, um, we’re excited about that.

I’m excited about a break. I haven’t had a break all year, so I’m looking forward to that. Yeah. You’re going

Vic: to the San Juan islands.

Marcus: That’s going to be amazing. Yeah. Yes. Yes.

Vic: Yeah. I have, uh, I have a. I’m in discussions with a guest right now. I think I’m excited about it. I need to get the logistics worked out.

Marcus: If you lock them in, it’ll be good. Yeah. Um, well, anyway, thanks for lining up a great show and, uh, I will see you in two weeks. Yeah. Okay.