Sep 30 2022
- Haircut talk
- Big tech cuts
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Meta cutting people
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Apple stopping iPhone production
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Google also reducing head count potentially
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Companies are acknowledging that growth is tapering
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Have to run companies efficiently
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Apple, Google, MSFT, Facebook are US market equivalent of US treasuries
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Best 4 businesses - so if they are doing this, its a warning to everyone else
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2001-2003 was super deflationary in Silicon Valley
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Starting in 2004, people called it Web 2.0 after that - more rational story of growth, around that time Google started offering crazy benefits, free gym, free food, everyone copied it, and lot of money
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So to compete everyone else had to do the same
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Now we are seeing recession hit, leading indicators of what is in the valley - compensation, benefits, value share
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End of an era and a new world for tech and silicon valley
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Nobody is safe - startups and big tech are not immune from layoffs - there will be a hard landing in 2023 - predicted by Stan Druckenmiller
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Even Hollywood, no one is buying anything, last year Shonda Rhimes and GoT people got like $300M deals
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Now Netflix stock has been hammered, etc
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Faucet has been turned off, not just a trickle, but its off
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Frothy environment was pervasive, was not just crypto, etc - but growth stocks too, Netflix got lot of money and so it flowed down to the writers, etc
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This could be good for startups - coz now they don’t have to compete like crazy with FAANG - those people will not have 4 job offers, but no job offers or laid off
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Whoever makes it out of this as a startup - talent consolidates into the best startups and they grow out of this very well - incredible opportunity for startups
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2023 should be exciting setup for startups
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Now Chamath is predicting that markets are bottoming and consolidating - so there are signals that now is the time to rip the money in
- Today’s price is really everything we already know
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Going forward things will be constructive
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Big Tech put will come out of the market - you will get real price discovery in the market for such a marginal engineer or business person instead of losing them to big tech as part of a blocker strategy
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All irrational behavior is exiting the system
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Chamath is bullish - we are nearer the lows than the highs
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First thing to go in a bad environment like now is
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Investments that one makes in this period are the ones that will be the best - will have asymmetric upside - 2002-2004, 2008-2009 (Atlassian, Whatsapp, Uber, Airbnb, etc)
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2023/2024 startups will be the best
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Fortunes are made in the down market, they are collected in the up market
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Nowadays silicon valley is disrupting other industries by making them technology led - they are not selling technology to each other anymore
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Distribution opportunity also has emerged at the same time - working remote, etc so its not necessarily Silicon Valley
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Wages are lower therefore and office cost is less, and can access far more talent
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Software-wise this is an amazing time
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Life sciences - real estate is more expensive than ever in the Bay Area - lab space is a certain kind of build out, so its hard to just buy up space - this industry is well funded and competitive
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World War 1 happened because people got worried about Franz Ferdinand and Balkan states unnecessarily
- Similar to now focus on Roomba which seems unnecessary
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Druckenmiller - universally respected - said Fed was crazy in 2021 - was waving alarm bells - now true - wheels are coming off - Dow Jones is same today that it was a decade ago - long term stock market does go up, but we could have a flat decade - this has happened multiple times
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Stock market tends to 9-12 months ahead of where we are
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While Trump passed lot of stimulus, it was bipartisan passed during Covid
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Now in Biden admin they continued to pass stimulus post covid and vaccine - Druckenmiller might be Republican too
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Months to S&P Bottom is fast and early in # months of hike cycle
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Every time we trade down, market bottoms quickly - Stan is probably right - something will break in 2023 - in equity and financial markets we are consolidating to the bottom
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Rich folks are doing tax loss harvesting right now
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Unemployment will get to awkward and uncomfortable number - 5-6%
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ARM mortgage people are in trouble
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UK 40% of mortgage are in ARMs that will go up 3-4% in January
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People are going to have to go to work
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- Global Debt numbers
- $300T is total debt in the world (govts, businesses, households)
- In response to inflation, response to fiscal stimulus, now if we raise rates by 5% - this is $15T of annual debt service, 18% of global GDP
- So there’s a massive squeeze that’s going to happen
- But on the other side - you will have 100 year government bonds
- When rates were near 0 - Janet Yellen put a stop to it - Trump said lets do 100 year 0 interest bonds and she said no
- Liz Truss ran into trouble with same problem - and so pound hit a new low
- Markets preferred financial stability to financial viability
- BoE will raise rates 140bps (almost double Fed)
- Governments will keep getting bailed out
- ARM maturing will lead to less spending
- When that happens, Fed will intervene
- Bleeding edge of smart financial actors are being conservative - and then Fed will intervene when say Apple will have to fire people
- Fed is incompetent - they said inflation was transitory but they PRed the news of inflation print
- All politicians want to deny bad news - Jerome Powell is the only Trump official that got re-appointed by Biden by a huge margin - because he got on board the talking point of transitory inflation - he was 100% political
- Paul Volcker was told offline by Ronald Reagan to not raise rates too back in the day - so Fed is political
- Fed has bad information - they can’t have the excuse today of not knowing what the latest information is - Manhattan project for understanding the economy
- Brad Gerstner said FOMC meeting forecast raising rates - out of the blue - they don’t let the markets know what is going to happen
- Fed is actually supposed to be gold standard of transparency
- World Bank excoriated Canada for lack of transparency
- 2 original sins of economic crisis we are in
- Lockdowns
- Overreacted to lockdowns through money printing and monetary policy
- Then we continued QE - long tail event became the mean
- Lockdowns
- There are still kids in school in California that are wearing masks - people take new normal as permanent
- ZIRP (Zero interest rate policy) was too long
- If you have irrational central bankers that will always bail people out - central government policy doesn’t matter
- Unintended consequences of ZIRP - people don’t participate in labor
- Boomers have $71T in assets - US boomers
- An entire turn of global GDP
- 76.4M people control this
- Rich = US boomers
- 1/7th of world’s assets is controlled by 76M people
- At woodstock, best times, most of peace dividend - they are the ones that control everything
- Its less Gates, Bezos, Musk but its boomers
- Each boomer is worth $1M each
- RIP Coolio
- Friedberg is a big fan
- If statins don’t work for you
- PCSK9 inhibitor - effectively a gene therapy - modelled after Nordic people - who are immune to heart disease - can inject once in 6 months
- After you’re 45 years old, get a heartflow and angiogram - get your calcium score
- Gwyneth Paltrow loves All In and Huberman Lab podcast
- Russia/Ukraine update
- Can’t know when markets will bottom out if you don’t know when war will end
- People think war is escalating
- Zelensky wants Ukraine in NATO
- Putin wants annexation of Ukraine territory
- Polish exec says US might have helped blow up a Russian pipeline
- How will we get a peace deal - if you remove offramp it means escalation
- Poker players cant predict exactly what cards opponents have - you can predict a range and see track record and then figure out what might happen
- See Putin’s track record
- US is blessed with being safest and secure country in the world’s history
- Have giant moats
- Monroe doctrine prevented ocean control
- Only 1 vulnerability - ICBMs - and poking in the face the 1 opponent who can hurt us in that
- Its like achilles pointing at his foot
- Keep disregarding the threat to us by assuming he is bluffing
- What is the vital threat to us that we are interested in this so much?
- Turning donbass region into world war
- JP Morgan put out a report saying that sum of portfolio of tail risks right now outweighs opportunities in the market
- If any of these issues get resolved, markets can just take off
- Chamath thinks markets are ring-fencing Russia - Ukraine risk in terms of currency stability, energy stability - Europe energy reserves are going to be meaningful - they will spend whatever it takes
- Markets react to second and third order economic impacts of humanitarian issues
- Nuke will be atrocity - but market will not react so badly now because it has already priced in
- Worried about fat tail risk
- What if China sees this situation and if Russia loses badly then US hawks will target China next
- Then they could enter Russia side to not lose an ally
- In Chechen war when Russia was losing Grozhny, they just levelled it to the ground
- So even if valuations are close to correction, but we don’t know what earnings and profits will happen in 2023
- Markets typically bottom in first 3rd of a correction process
- Market might not drop 1000 points
- Rate of rotation of Chamath’s closet is indicative of IPO markets 🙂
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