Anatomy Of A Market Meltdown — With Joe Weisenthal

Joe Weisenthal is co-host of Odd Lots and an editor at Bloomberg. He joins Big Technology Podcast to make sense of the cratering stock market, discussing the various factors that led to this moment and when it might turn around. Stay tuned for the second half where we go rapid-fire, analyzing a bunch of tech companies that are getting absolutely hammered, and some big-time investors as well. We end with a meditation on crypto. Learn more about your ad choices. Visit megaphone.fm/adchoices

Speaker names marked ? are inferred from speaking time and the show’s known hosts — they are not voice-verified.

• 0:00Alex Kantrowitz?

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• 0:43Alex Kantrowitz?

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• 1:03Speaker 01

  LinkedIn Presents.

• 1:27Alex Kantrowitz?

  Hello and welcome to the Big Technology Podcast, a show for cool-headed, nuanced conversation of the tech world and beyond. The market is in the middle of a slow-motion or fast-moving crash, depending on who you ask. We've spoken about it a lot on this show about the way that the market is acting kind of crazy. We've talked a lot about the meme stocks and the spikes in Bitcoin. And now, of course, we are on to the hangover. I don't think there's someone who's better positioned to explain it to us than Joe Weisenthal. He is the host of Odd Lots, which is a great podcast that you should check out, and an editor at Bloomberg. Joe, welcome to the show.

• 1:58Speaker 02

  Thank you for having me.

• 1:59Alex Kantrowitz?

  Thanks for being here. So I'm curious what you think, because I think this is one of the weirdest crashes that we've had. Like in the previous crashes that we've had, we've had, okay, something that's been led by subprime mortgages and the interlocking of the banks. We've had the dot com bust. But this one just seems to be a confluence of factors. You have, of course, oil, you have, you know, overvalued stocks, you have the supply chain. And all this stuff is coming together to be like, you know, little trickles that build up to a big mountain. But you're not seeing the like, the, you know, the tragedies like you've seen in the past, in past breakdowns. And of course, we haven't had the one day crash. It's just been like a, you know, slow decline over the course of 2022. Do you

• 2:43Alex Kantrowitz?

  see it the same way also? Because like, it's, it's strange. It almost feels like people are in better spirits. Of course, people aren't happy right now, but they're in better spirits than they've been previously.

• 2:52Speaker 02

  It's a really strange cycle. And I think the fact of the matter is, it's distinct from almost any quote downturn that we've seen any time in recent decades. And I think the starting point for that is very low unemployment. And the different, you know, when we had the great financial crisis, that really like kicked off with a bang and sort of mid to late 2008, there were all sorts of signs of sort of like broad scale GDP deterioration going into that. And so obviously, you know, there's the housing crash and unemployment was already ticking up. And even, you know, so then obviously, you know, the, the very

• 3:36Speaker 02

  brief but brutal recession of 2020 associated with the onset of the COVID pandemic, lots of layoffs, wide scale downturn, people pulling back on spending, very familiar stuff. And even, you know, going back to the dot com crash, it was sort of like this, like, sort of, you know, wasn't too deep, the downturn, but it was, there was a recession and so forth. This is very different because still like, you know, obviously, look, we have sub 4% unemployment, which distinct now.

• 4:05Speaker 02

  Is high inflation and the Fed having to fight high inflation and being willing to endure some pain, being willing to tolerate a stock market sell off in response to that. So it is a distinct type of cycle that I think probably feels unfamiliar. And what I think too is interesting is that, you know, a lot of the market is getting hit, but you know, as your listeners and readers understand, there is a lot of pain specifically concentrated in tech. And what we haven't seen, you know, we've all seen these cycles where it's like the VCs will send out a memo to their portfolio companies, it's like battening down the hatches and get to profitability. And we see there's a lot, but it this, but they're usually part of something broad, whereas

• 4:50Speaker 02

  this time it very feels like it feels very tech distinct in part because there was so much money pouring into the space before. And now we see it sort of like rushing out extremely fast in a way that we don't really see going on with other industries.

• 5:04Alex Kantrowitz?

  Right. And it's why this is the market has become so pertinent on this show. And, you know, I didn't start this podcast thinking, okay, we're going to be talking about markets a lot, but you can't ignore them at this point, especially if you're thinking about tech.

• 5:15Speaker 02

  No, it's exactly right. Like what we see, and you know, I know we're going to talk about this, but what we see in the stock market flows through very cleanly to private tech. And so when the IPO window closes, when the NASDAQ goes down, it just, you know, the dominos are not complicated at all because then they hurt late-stage valuations, then medium and down. And so you don't really have that to the same degree in other industries. You don't have this sort of like whole, you know, sort of massive industry of companies that are one day, you know, startups to mid-stage to public. So like the connection between sort of tech and what happens in the stock market is extremely straightforward.

• 5:56Alex Kantrowitz?

  Yeah, and if you're okay with it in the second half, I definitely want to throw out a list of companies and maybe some investors and get your reactions on what the heck is happening to them.

• 6:03Speaker 02

  Sure, sure.

• 6:04Alex Kantrowitz?

  But in the meantime, let's just talk about A, the extent of this, and then B, the causes. You know, this is the stranger one. We have full employment, we have well, close to full employment. Like you mentioned, we're not feeling it, you know, with job loss. However, there's an argument to be made that this downturn is going to be worse than the others that we've seen because we just don't have the mechanisms that we use to get ourselves out of the last one. In particular, you know, the Fed dropped the rate when it came to like the 2008 crash, and that helped us bounce back. And so, you know, everyone's like, okay, we go through a crash, we'll be back up, you know, right, right away. And, you know, everyone talks about like V recoveries, where you go down and go right back up. But the sense is here that it's gonna, you know, it's the, I kind of feel like it's the most underappreciated economic downturn, you know, in the past few decades, because this one's going to be really tough to get out of.

• 6:49Alex Kantrowitz?

  What's your thought?

• 6:50Speaker 02

  Yeah, I mean, it's, again, it's distinct because the playbook for a sort of standard downturn is pretty straightforward, right? So you said it exactly right. You have this downturn, and then the Fed cuts, or, and then maybe also we get some fiscal stimulus, the Congress did that to some degree in 2008, to a bigger degree in 2020. You sort of reflate the economy, pump money back in, and you hope things get going. You know, I think the problem here is twofold. So one is, sure, we can get out of the inflation problem to some extent if, if the Fed is willing to engineer a recession. It's like you just smash demand, cause a lot of layoffs, and then demand for things goes down. It's like, okay, that's, that's, that's painful.

• 7:34Speaker 02

  The other thing are solutions that don't involve money, and that gets really difficult. And so like, how do you, you know, we, we talk about this a lot, like, supply chain stress. How do you expand capacity at the ports? Or how do you expand, you know, build more pipelines, or build new energy sources? These are really tough problems, like, money is part of it, but also like state capacity, engineering, and by, you know, sci, uh, science and engineering and technical capacity, things like that. These are like important aspects to like relieving these supply side stresses. And we see, you know, it's like, People talk about decarbonization, but copper is scarce and lithium is scarce and so

• 8:16Speaker 02

  forth. These are problems that can't be solved easily by money. They're going to take engineering resources. They're going to take organization. They're going to take time, et cetera. And that will happen, but it's going to take time. And I think that that makes this like a distinct and more difficult problem or challenge for the economy. It's a lot harder than just saying, okay, time for the Fed to loosen credit conditions or time for the Congress to just spend more money. These are like, it's a, it's a, these are technical problems.

• 8:50Alex Kantrowitz?

  Right. We had Nina Ashadi on, on last week, who's a venture capitalist and at Dick's Partners. And the things that struck me was her just, you know, full and acknowledgement that for, for tech or for the economy, this is going to be, this is scarier than in the past because the, what we can do is much more limited than it had been, which like, after we recorded, that just stuck with me for the week. And we recorded like the S and P was down 13% for the year. By the time the episode went up, the S and P was down 23% for the year. I was like, man, you gotta be quick here. So.

• 9:22Speaker 02

  My co-host on our podcast, Tracy Elway, came up with this great line, which is basically like, the lesson of the last like decade or so is any problem that could be solved with money isn't really that big of a problem. And so I think that that's like really stuck with me, which is like, if you can write a check and solve the problem, that's easy. The problem is we have challenges right now that which money is only part of it, or maybe not even the main thing. And that strikes me as significantly harder. And again, it's like, we have advantages. We don't have mass unemployment right now, which is really good. We don't have mass foreclosures, which is really good. I mean, the, these are all things we saw during the great financial crisis, but the challenges are very distinct right

• 10:06Speaker 02

  now and not easily solved with money.

• 10:09Alex Kantrowitz?

  Yeah. And that makes me think how, you know, how bad can get, can this get? And how long does it go? And that's a question that you ask to people you speak with, you know, every day. So how bad could this get? How long can this go?

• 10:21Speaker 02

  I mean, I think there's like a few different things like when we talk about this challenge like I am reasonably optimistic and no one should take my opinion too seriously because I'm uh but you know, been wrong a lot, but you know, I think there are signs that it's like strictly um some of the supply chain goods inflation that we've seen should ease. We see like, we know like you can just look at say the price of um a mile of uh trucking or the cost of a China to Los Angeles uh freight carrier, things like that. It's going down like there are signs that some of like the extreme stresses that we've seen in goods production are going to ease. Now granted, you know, there are also uh constraints and

• 11:06Speaker 02

  mismatches on the services side as well. There's a pilot shortage that's contributing to much higher airfares. There are just over the week, over the recent weekend, we saw a bunch of cancellations like there are still significant issues like that. The oil component is going to be uh pretty challenging and one thing to bear in mind about oil is it's not just that oil prices were cheaper during say like 2014 to 2020, although they were, but what was really striking about that period too was the willingness of oil investors to engage in loss making production. So it's not just that they would like oil prices cheaper, it's that all these companies were losing money. And if you think about the implications

• 11:49Speaker 02

  that that's just a subsidy to every consumer in the United States or really everywhere. So it's like if investors are willing to sustain losses, you know, people joke all the time about the so so-called like millennial lifestyle subsidy of like, okay, for years we had subsidized Uber and subsidized Grubhub and all the, you know, like that was something, but the subsidy to all consumers from nearly half a trillion dollars in energy industry losses. I have a really hard time seeing that come back anytime soon. People, that was a bad period. Stocks of energy companies were down. It was this sort of bad equilibrium for investors where everyone was just sort of drilling like crazy. The moment the price

• 12:32Speaker 02

  of oil would rise a little bit, we'd see the rig counts expanded in Texas. That would drop the price. Everyone would lose money. It was like, if you think of like game theory and some sort of like payoff matrix, that was like the bad side. Now we're in the exact opposite side where the industry is just like, you know, oil and gas is making an absolute fortune right now, making up for years of losses. And I don't think anyone really in the industry is too inclined to shake the status quo. They're like, why go back? Why spend a bunch of money right now on drilling and increased rigs and new exploration and production when we're just losing money? Eventually it'll flip, but I think these are like really slow moving processes. So I think, you know, maybe the price of energy,

• 13:15Speaker 02

  of oil, gasoline can come down modestly. There are probably levers to pull. But to get back to the pre-COVID status quo of like an actual consumer subsidy, it seems pretty implausible that that would come back anytime soon.

• 13:28Alex Kantrowitz?

  And are the oil companies cleaning up because of the Russia-Ukraine conflict? Or what's behind the rise in all these gas prices?

• 13:34Speaker 02

  I think, I think there's like a handful of phenomena, a handful of things going on. So I do think like the brutal downturn of 2020, and remember like, you know, West Texas oil briefly went negative. Like it really just like wiped out a lot of players for good. A bunch of companies just went straight up, straight up bankrupt. And so you have a sort of like smaller, more consolidated industry. The players that survived have more power. The investors of those players, they don't want them producing. You know, prior to the crisis, a lot of executives of these companies. Their salaries were more conflated with production.

• 14:16Speaker 02

  So it's like you would get a bonus if you increase the number of gallons or the amount of, the amount of gas, natural gas you'd produce. Now you see a lot of executive salaries more closely associated with free cash flow and profitability. So you have that, you know, you have just this sort of, again, disinclination to produce. You also have this ongoing deterioration of refining capacity. So even if you get the number of gallons per day of oil produced, you know, the refiners have market power. You don't see, you know, this big move to increase refining capacity. And then the war, absolutely. And both the war and the sanctions continuing to sort of like drive supply down.

• 15:00Speaker 02

  You also have even OPEC countries, many of them have some of the same supply issues that we have in the United States. Like you have like, you have wells and you have oil production machinery just sort of like breaking down in a lot of countries because it was underused for a long time. And so basically we have a lot of like real constraints to getting production back up. And it'll happen, but there's a lot of factors that make that a very slow process.

• 15:29Alex Kantrowitz?

  Right. And, and gas prices are one issue. They're almost like the biggest headline that we're seeing here. Of course, like, you know, white collar folks are looking at the, the stock market, but the entirety of, of the globe right now is looking at gas prices. I was just in Germany for a while. The government issued a nine euro train pass that you could basically take around the country for a month to try to ease the pain here. But the, the pain, and by the way, amazing, like, I think the US should do something similar. It just made sense to take the train instead of drive places. But, but the pain definitely extends beyond. So here's, I, I read this in the Times recently. There's an article that said, pay gains have been falling behind inflation for months. Credit card balances, which fell early in the pandemic, are rising toward a record high.

• 16:12Alex Kantrowitz?

  Subprime borrowers, those with weak credit scores are increasingly falling behind on payments, on car loans in particular, credit bureau data show. Measures of hunger are rising, even with employment, unemployment still low and the overall economy still strong. How do you square an economy that, okay, this is a, this is a deeper issue. We have such close, you know, we're so close to full employment and we have such issues, you know, across, across the economy. What's going on?

• 16:39Speaker 02

  It is again, it's a very strange situation. I mean, I do think there's a lot going on. You know, something that I think about and trying to think of like, okay, like, what are the root causes of like, uh, uh, high inflation? And I really do believe there are lots of them. But if you think, one thing that I've been thinking about is, you know, uh, we had an economy sort of built for 2019 consumption and production patterns, right? Economy is always like undergo subtle shifts over time, but that tends to be slow moving. But like in 20, you know, you think like, okay, like in 2019, everything that we had with respect to the nature of the specific goods produced, how we moved those goods, uh, how

• 17:23Speaker 02

  we employed people to produce various goods and services. It was sort of like, that's what the economy was built for. Then we got this like incredible shock, the likes of which we've never seen any in, in history, which is a simultaneous global shock to both production and supply, or sorry, yeah, production, supply and consumption in every country and every industry, every company, every person simultaneously around the world. And I think that needs to be like, you know, we need to stop and like, think about what that means. There wasn't like a single household virtually on the globe that didn't have to change its consumption patterns in some way. There wasn't a single firm anywhere in the globe that didn't have

• 18:06Speaker 02

  to change its production patterns in some way. Now, some didn't have too much, but most had something. And so you think about it's like, okay, you have this economy optimized for 2019 patterns and then bam, everything changes. And so you have to sort of like refit the economy and there's a, a resortment and workers have to move from one industry to another and factories and office space and warehouses have to be like re, uh, refitted for some other new thing because everything changes. And so on some level, I think what we can, you can think about the sort of inflation and the high cost of living as the sort of like real price imposed for change. And that is a costly process to undergo.

• 18:51Speaker 02

  Nothing is going to be as efficient as it was because most of the sort of like capital fixed investment that we have in place wasn't designed for a 2022 consumption patterns. And so you can see how even in a period of full employment, you get these very big costs. Now, bear in mind, there's some interesting things. You know, if you look at the sort of wage growth by quintile, you know, there is all, it is true that many people wages have failed to keep up with inflation, especially because of high food and gasoline. You know, it is interesting that the lowest quintile of wage earners have seen the fastest growth. And by some measures, the lowest quintile

• 19:33Speaker 02

  has seen wages still outstrip inflation, which doesn't make, you know, the high cost of gasoline necessarily like, oh, that's tolerable or whatever. But when you break down the sort of distributional aspects of the last two years, a lot of it is not as clear. But look, you know, like, it is absolutely true. And it makes sense. You know, we have seen this big surge in the price of food, some of which, some of which has to do with weather, some of which has to do with the war in Ukraine and the fact that wheat has become more scarce. Ukraine is a huge exporter of wheat, as is Russia. So there are certainly distributional aspects that fall particularly hard on low income households, which makes

• 20:16Speaker 02

  these really urgent problems to, to address. But you know, I think that like, basically, it's like you have a sort of economy designed for one thing, and then you shock everything at once. And then nothing is really optimized for the 2022 economy. And it sort of becomes a costlier to run on a real basis.

• 20:36Alex Kantrowitz?

  So I want to know who to be mad at because clearly this is a product of some policy failure. And, and maybe some of that is forgivable, but. First question for you about that is, did the government do too much during COVID? I mean, we were hit with multiple, you know, multi-trillion-dollar stimuluses that ended up creating those demand shocks, which stressed the supply chain, which, you know, helped create inflation. You know, I have a source in shipping who was telling me early on that, you know, he would get these containers for $2,000 from China. And he looked at me, he goes, "Alex, those containers are now 16 grand." And this was before even we saw the headline inflation. And he goes, "Let me tell you something. The one thing that you can bet on is we're gonna get inflation."

• 21:21Alex Kantrowitz?

  And sure enough, he was right. So, talk a little bit about, you know, the government interventions, you know, talking specifically about the way that the Congress and the executive branch acted. And then we get to the Fed.

• 21:34Speaker 02

  Sure. So, I mean, look, what we did see is after 2008, I think there was a lot of frustration with the slow pace of the recovery. And so I think that there was, the, the, uh, the politics were more primed in 2020 to deliver significant fiscal impact. And, you know, I think one of the things was we have to sort of talk a little bit about the counterfactual, which, what didn't happen, you know, we got an incredibly fast labor market recovery. We got, uh, we did not have a mass eviction crisis. We did not have a mass foreclosure crisis. These were things that were assumed to happen in 2020, when, you know, when the unemployment rate shot up.

• 22:18Speaker 02

  Even prior to the lockdowns, we started seeing a collapse and people go out and consuming services, et cetera. We didn't get a financial crisis in 2020, which we could have, had there been a wave of delinquencies and people not paying their credit card bills or people not paying their mortgages, et cetera. So there are a lot of things that didn't happen in 2020, which plausibly could have. So absolutely, we, uh, you know, there was a huge fiscal response to the almost total cessation of economic activity that we saw in March 2020.

• 22:52Speaker 02

  Now, you mentioned the goods boom, and there was definitely a consumption boom, particularly of goods, that manifested itself in increased demand for imports and so hence the surging price of containers. And it seemed very plausible to me that the expansion of fiscal stimulus and maintenance of household buying power, even despite the unemployment rate, contributed to that. But I would say also that a boom in goods consumption is consistent with the shock of the economy, even absent the fiscal stimulus. I mean, you know, there were all kinds of stories from the very beginning. It's like, oh, like gyms are closed, so we're getting a lot.

• 23:33Speaker 02

  So you saw that one of the first things that was sold out everywhere was weight sets and barbell, dumbbells, or, yeah, dumbbell sets and stuff like that. So that was like one of the first things they saw, because people stuck at home, they couldn't go to the gym, they ordered dumbbells. Other things like for the home, such as, you know, toys for the backyard, and they were sort of like famous, like you couldn't buy a slip and slide in summer 2020, because, you know, everyone had the same idea. And all the, you know, suddenly it's like if you're stuck in your house, or you're not going anywhere, it's like, okay, you're gonna buy computer parts and peripherals and upgrade your home office and all kinds of other things.

• 24:13Speaker 02

  And so I think a goods, a boom in physical goods consumption, which would increase the cost of, you know, anything shipped and create these bottlenecks at the ports and the supply chain stress, is very consistent with a change in consumption, even in the absence of fiscal stimulus. Now, if you didn't have any fiscal stimulus and you just like had lots of people lose their job and have to like, you know, go deplete their savings just to pay their rent and mortgage, sure, you might not have had as much consumption. But again, but again, I do think that like this sort of like goods consumption boom that's like, you know, buying household goods, all these things that we saw.

• 24:58Speaker 02

  Is just consistent with the rotation from services to goods that would likely have come out of the pandemic anyway.

• 25:06Alex Kantrowitz?

  Right, but the question is like whether we did, you know, you know, too much or not, because that stimulus puts gasoline on the fire. Now, I'm not going to say, you know, we had to, we had to do stimulus, but we did a lot of stimulus.

• 25:17Speaker 02

  Yeah, I mean, we also had, you know, we had an extraordinary employment hole, the likes of which, and basically, you know, the, the effects of the pandemic, you know, in some places are clearly still ongoing, but at a minimum, or like roughly a year, where it's like, you know, you can think of like going back to February, March, 2021, and, you know, what kind of capacity that we saw at restaurants and things like that. So it's not obvious to me, you know, look, I think that the, there are sort of like in perfect 2020 hindsight, you know, you, there, you could, there's perhaps an argument

• 25:59Speaker 02

  that we did too much, but it's not obvious to me that that's like a huge driver of it. It might be, it just like doesn't seem like, when you think about how impaired the economy was for so long, and the fact that we're like still, still dealing with many of these things. I mean, my life generally like feels normal, but it's obviously not 100% normal. And, you know, it's like, a month ago, like my kids daycare, like all the kids had to stay home for five days because there was a, a COVID exposure at the school. Like, we're still dealing with these ripple effects. And so, you know, the idea that like this was

• 26:40Speaker 02

  like obviously too much strikes me as unproven, whereas the fact that, or it's like, it's hard to establish. Like, I do think inflation would be less in the absence of stimulus. That if we had like, if the economy had grown more slowly, if consumers didn't have that buying power, et cetera, like, yeah, I believe probably there would be like, you know, more slack for goods. I think the labor market would not have recovered to the extent that it did. You know, I believe in unemployment would have come down, whether we would have gotten back to three and a half or 3.6% unemployment by this point, I'm not really sure.

• 27:19Alex Kantrowitz?

  Right, so it could just be a natural hangover of after what we want.

• 27:22Speaker 02

  Yeah, like, yeah, that's what I say, like, we got a huge shock. And, you know, that's what I say, that's what I point out, like, we're still dealing with it to some extent. And so it's funny to me to listen to, it's like, okay, like, the word that was used last year, which now everyone at the Fed seems to regret was transitory. Because, you know, to me, like, when I hear the word, when I hear the word transitory, I think that what they were trying to get across was this idea that, like, inflation was a result of a sort of like idiosyncratic shock that would dissipate as the pandemic went away. Whereas, I guess, but whereas what most people heard is like, this is just gonna last three or four months.

• 28:04Speaker 02

  And so the, the sort of like, short term, oh, this is just gonna last three or four months, is like, unambiguously wrong. But if you use the definition, is this a result of like, this like, huge shock to the system that happened all at once? That would likely fade as society return to normal? Then, you know, it's not obvious, it's still not obviously wrong to me. And something that's worth noting, at this point, you know, in, uh, summer 2022, we are starting to see signs of like, some moderation on the sort of like, core goods consumption. But a lot of what's still going on is the shock to energy prices, which is associated with the war

• 28:44Speaker 02

  and the sanctions, which doesn't have anything to do with the pandemic, which doesn't have anything to do with fiscal policy, which doesn't have anything to do with monetary policy. And again, you know, that was something that we could not have, or, you know, that was something that was not on most people's radar, you know, in December 2021.

• 29:01Alex Kantrowitz?

  Right, and then what about the Fed? My memory might be failing me, but I do recall, and I could be wrong, so, so fact check me, but I think they were kind of skeptical that the Fed zero interest rate policy was driving a lot of the economic situation that we were seeing, but now they've raised rates and, you know, you've just seen the, the air come out of market caps and valuations, and a true crash of crypto. So how does, how's the Fed's reaction played into all this?

• 29:29Speaker 02

  So I think there's a few things going on. I do think like the Fed is pretty clear that, and I think people agree, that the primary transmission mechanism that the Fed has. So I think there's a couple of things. I think the Fed seems to have some ability to decrease valuations or weaken the market as it works, as it raises rates. And you know, it's sort of like the way Fed tightening works is through essentially, they call it, the Fed calls it financial conditions, but essentially that just means financial markets. So we see credit spreads widening. We have seen this very swift decline in the stock

• 30:12Speaker 02

  market ever since November, which was roughly the peak in the market. It was also when it was clear the Fed was going to start taking inflation fighting more seriously. Now, it's worth noting too, a couple of things, that A, since the Fed started taking inflation fighting more seriously in November, inflation has gotten worse. So there is not some like obvious link where the Fed starts switching button and inflation improves. And so, you know, you can tighten financial conditions first, and hopefully that spills over into weakening inflation by sapping demand. But it's like, it's a, it's an awkward process.

• 30:52Speaker 02

  It's also not true that there is some clear like mechanical link between the Fed and stock price, or Fed policy and stock prices. So yeah, it is true that as the Fed started tightening late last year, that we've seen this decline. But I would note, you know, if you go back, the Fed started tightening policy after the great financial crisis, starting in, I guess, I think the first rate hikes were in 2015. And we had this huge rally. So the Fed started shrinking its balance sheet, I think in 2014, started tightening rates in 2015 or something around there. Uh, or I might be getting the sequencing off, but the point is, uh, the Fed started tightening

• 31:36Speaker 02

  policy somewhere around 2015 and then the stock market rallied for several more years after that, really through the end of 2018. So I, the, my, the, the main point that I'm trying to establish is that, you know, people want to see like some really clear link between, oh, the Fed cuts rates and stocks go up and the Fed hikes rates and stocks go down. That didn't happen in 2015. We had balance sheet unwind. We had all of the stuff that we're talking about today and stocks went up. The other thing that went on is, uh, so the other thing that happened, I would say between sort of like 2019, 2020, 2021 is you basically had a bubble and bubbles happened like even outside of zero rates and they

• 32:21Speaker 02

  sometimes happening during tightening, but we had a mania and we had this sort of like, everyone got really excited about crypto. You had all of these people with some money suddenly becoming, um, angel investors on the side. It's like all these people who are like rich from working at their Feng jobs or whatever. It's like all you had to do.

• 32:40Alex Kantrowitz?

  Over the last couple.

• 32:41Speaker 02

  Yeah, exactly. Like all you had to do, and I've talked to, you know, you talk to people. It's like, all you had to do to like, be like an angel investor, like 2020 was like, have a little money that you made from your Feng job, start a sub stack, go on angel list and like do your thing and start posting and you can start writing checks. And it's like, this is like a known phenomenon. It's like, oh, you don't even have to meet with teams anymore. You just meet with them over Zoom. You write about them in your sub stack, et cetera. And this is not, you know, there's a lot of factors that might drive an environment like this. One might be low interest rates, but again, it's worth pointing out that's like, what like interest rate, we had a bubble in, uh, uh, 1999 and 2000 when, you know,

• 33:24Speaker 02

  interest rates were like 5% or something like that. So the idea that there's like some like clear link between like speculative fervor, fervor, mania and rates.

• 33:33Speaker 02

  It's it's related, you know, it could be a factor, but it's not it definitely you can't just manufacture that on a switch. Lots of things happen together. You had like Robin Hood's existence, creating free trades for the first time. And so that got people excited. That brought people into the market. And so lots of things came together over the last few years. There were sort of like these maybe behavioral things, or you know, people might call them animal spirits, that came together to sort of like create this like really intense period of speculative activity that arguably really peaked in February 2021, when the meme stocks like GameStop and AMC, and you know, Elon on SNL

• 34:17Speaker 02

  talking about Dogecoin. Like, that was like a cultural moment that I don't think could be reduced easily to just like low interest rates.

• 34:25Alex Kantrowitz?

  Joe Weisenthal is with us. He's the host of Odd Lots and editor at Bloomberg. You can find him on Twitter at the Stalwart, one of my favorite followers. I recommend you go follow him on Twitter right now. We'll be back right after this to talk a little bit about the impact on some tech companies, then some famous tech investors and how we should look at their track record now. This episode is brought to you by App Point. Everyone's racing to roll out AI right now. Co-pilots, chatbots, agents doing real work. But here's the part nobody loves talking about. All that AI runs on your data, and most teams have no single way to see it, secure it, and prove it's under control. That's exactly what App Point does. For 25 years, they've been the trusted layer beneath the world's most demanding data, now extended

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• 35:44Alex Kantrowitz?

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• 36:29Alex Kantrowitz?

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• 36:47Alex Kantrowitz?

  And we're back here on Big Technology Podcast with Joe Weisenthal. He's the host of Odd Lots, a great podcast that you can get on your podcast app of choice. And then the editor at Bloomberg. Joe, really appreciate you help us diagnose some of the issues in the economy, or many of the issues in the economy in the first half. I think in the second half, we should have some fun and just Sure, let's have some fun. Run down, finally, and run down some of the companies that we're seeing really take massive hits and sort of think about what their future might look like. So why don't we start with one that you mentioned right before the break, Robinhood? I mean, Robinhood has had, you know, the floor drop out of the company. I mean, clearly, the whole, you know, people speculating with their stimulus checks

• 37:30Alex Kantrowitz?

  and their paychecks into high-growth companies is over. What's going to happen there?

• 37:36Speaker 02

  I think you kind of said it yourself like that's you know they sort of like captured this meme mania better than anyone and of course they were sort of they got ahead of it they were the first to offer free trades free option trading etcetera but you know it's like it's hard to make money when all your customers are losing money like and that's the problem which is that trading is a losing money game for the vast majority of people it looks fun and it looks easy but even during a boom uh uh you know most people can't are it's really tough the market is usually you know most that's why for years they're like just invest passively buy the SPY and forget it because trading is a money

• 38:19Speaker 02

  losers game and if you're all in on trading and not long-term investing then what it basically means is that you have a client base that's going to get poorer and poorer and poorer over time because trading is tough and you have all this churn and you have marketing costs because you bring people in you have legal costs because then when people lose money they find a reason to sue and so it's tough to have a sustainable business of an activity in which your clients are presumably generally getting poorer so I don't know what the future is there may be a brand but it's a tough business to be in.

• 38:52Alex Kantrowitz?

  They were at $70 per share in August 2021 they're at seven now it's a 90% decline.

• 38:59Speaker 02

  Yeah just unbelievable unbelievable.

• 39:01Alex Kantrowitz?

  Crazy. What about Shopify I mean they're certainly like in this really interesting position where you know they were facilitated they were a ton of you know the e-commerce that we saw during the pandemic and now they've just fallen off a cliff what's your your thought about Shopify?

• 39:19Speaker 02

  You know I think the the story with Shopify may be as simple as just sort of like unreal valuations that I think I don't know the multiples exactly but they got extremely high and you know I suspect that the Shopify the underlying Shopify business is sound or you know. Has a significant role to play still in this idea of like making it really easy for anyone on any platform to open up e-commerce and to start having, you know, sort of like anyone can have their own Amazon infrastructure like, you know, is a really interesting proposition. I think it just got like insanely overvalued. And you know, the other thing is, it does seem

• 40:03Speaker 02

  as though a number of companies, and I would probably put Netflix in this category too, kind of got derailed by the sort of mistaking trends that happened during the pandemic for sort of like permanent new trajectories as opposed to something temporary. So it's like, okay, there may have been this goods boom during the pandemic. Maybe there was this period in which a bunch of people had time and wanted to open up some sort of e-commerce thing. And so I think a lot of companies sort of looked at this as like, wow, look at what's taking off. And then they hire like crazy and they really lean into that because like, this is the new era. You know, it's like for Netflix, like this is this new era where we're just

• 40:45Speaker 02

  going to be locked inside all the time. And everyone is just going to spend their time streaming. And it's like, no, this isn't a new era. It was a temporary condition caused by the pandemic. And then as life reserves returns to normal, you see this really big swing in the other direction, people canceling or really like not signing up for Netflix and nearly the same numbers. And so I do think a number of companies that probably have sound operations nonetheless got thrown off track strategically by mistaking a temporary change for some sort of new permanent trajectory.

• 41:17Alex Kantrowitz?

  Yeah. And if you bought a share of Shopify in November 2021 for $1,690, you have $316 now. It's not a good return.

• 41:25Speaker 02

  That's brutal.

• 41:26Alex Kantrowitz?

  Yeah. What do you think about gig economy companies? Let's, let's talk about Uber and Lyft. I mean, they can't seem to make money. A lot of people bought cars during the pandemic, which I think is an underrated factor here. What's your thought on that?

• 41:38Speaker 02

  The fact that they can't make money is pretty extraordinary. We just on our own podcast, we recently talked to Jim Chanos.

• 41:45Alex Kantrowitz?

  Great episode.

• 41:46Speaker 02

  Short seller.

• 41:46Alex Kantrowitz?

  Yeah.

• 41:47Speaker 02

  And

• 41:47Alex Kantrowitz?

  Great episode.

• 41:48Speaker 02

  Thank you. And he basically, you know, I don't have anything smarter to say beyond what he said, but he's like, look, you know, why didn't they make money in 2020, these companies? Because 2020 should have been like, Maybe not Uber with the ride sharing. But the gig economy companies, like all we had was people like getting checks from the government and ordering a tremendous amount online or like, you know, food delivery, you know, it's like Uber Eats or the Grubhubs or whatever or Seamless. It's like, that really should have been like economic nirvana for them. And his point is like, well, if they can't make money in 2020, then when can they make money? I don't know the answer, but it does seem like, you know, at some point,

• 42:33Speaker 02

  you know, and now there's all other kinds because of course, labor is much more scarce. You know, I think like going back to the 2010s, one of the points that people make is like, oh, this, these were models like fueled by cheap interest rates. And even before COVID and the Fed cutting rates back to zero, you heard this a lot. It's like, oh, VC and all this like tech companies, they're just like fueled by cheap interest rates, cheap money. And there may have been some truth to that. But I think that like, the other thing they were fueled by, so to speak, is what I was called like slack labor markets. I mean, like Uber, all this quote gig economy. One of the reasons that the gig economy companies sort of like sprouted out and boom after the great financial crisis

• 43:16Speaker 02

  is they took advantage of the fact that a lot of people were unemployed and needed cash, right? And so this, you know, we don't have, those labor market conditions aren't the same today. So it's like all these companies, even like we were to some extent like fueled by like companies like, oh, maybe we just, we don't want to commit to long-term leases because the economy is stable, so we're gonna. So you have all these like companies that were sort of like born out of economic precarity, slack resources, high unemployment, et cetera. And now those conditions aren't there to the same degree. Resources are tight, labor markets are much tighter. And so they weren't really born for this sort of economic conditions, and I think they're gonna find it really tough.

• 43:56Alex Kantrowitz?

  Yeah, what about the, um, the big tech companies? I mean, Apple took, took, it took them 40 years to get to a trillion, like another two years to get to two trillion. Something like a, you know, a year and change to get to three trillion and now they're back, almost back to two trillion. Um, are these big tech companies, like what are, what's gonna be the implication of this crash on, on the big tech companies?

• 44:16Speaker 02

  So I would say two things, you know, the game, you know, one of the things that was just absolutely extraordinary, uh, you know, the years leading up to the crisis and it still is, but like these companies just show insane levels of like growth for how big they are. So that's obviously extraordinary. But you know, the other thing that I think is really important is that in the slow growth environment of the post great financial crisis period, 2010 through 2020, if you wanted to make a lot of money, you had to basically be invested in tech because you know, it's like software is eating the world. This is the industry that's eating everything else. And so it's like in the absence of growth, you just buy the entities that are cannibalizing everything else. In a high

• 44:59Speaker 02

  growth or sort of like high nominal GDP world, what I, the way I think about is like tech companies, software companies have lost their monopoly on growth. They're not the only companies growing anymore. Oil companies obviously are growing a lot these days. Other resource intensive industries are growing a lot these days. Uh, other, you know, like recreational industries are growing a lot these days. Consumer packaged goods are growing a lot these days. In other words, like tech has ceased to be the only game in town for when it comes to growth. Car cars are growing a lot. And so when, when an industry ceases to be the only game in town, then suddenly that premium disappears. And if you want growth, you don't have to just pile into Facebook, Amazon, Microsoft, Google and Netflix

• 45:44Speaker 02

  and Apple. Like growth is in other places too, in a way that it hadn't been pre crisis. And so you lose some of that premium. The other thing that I think is like, I'm still unclear on, but I think is potentially interesting is like so much of these companies compensation came in the form of stock. And if you're an employee of like any one of these companies, you're like, yeah, I'll take stock because every year it seems to go up a lot of money. So why would I prefer to take stock instead of cash? It'll be interesting to see like if if it starts to sink in and you already see it because you see companies saying they're going to raise their cash salaries. But the more it sinks in that tech stocks could go up and down or that tech stocks can go down.

• 46:25Speaker 02

  Then to what degree do employees accept stock in lieu of cash as part of their compensation? And then it's like, okay, then it becomes a cash flow drain and then it becomes this

• 46:37Alex Kantrowitz?

  Right.

• 46:38Speaker 02

  competition, so to speak, between shareholders that want the cash and employees. And so suddenly I do think that becomes an operational or financial, not as like an existential strain on the company.

• 46:48Alex Kantrowitz?

  And they're already raising salaries.

• 46:50Speaker 02

  Doing business probably, yeah, they're already raising salaries. So I think that makes that makes things a little bit harder for these companies.

• 46:56Alex Kantrowitz?

  Okay, great. I have three more topics to get to in three more minutes. So let's see if you can do it in a minute.

• 47:00Speaker 02

  Let's do it.

• 47:01Alex Kantrowitz?

  What happens, what happens to Chamath after this? He was the Pied Piper of SPACs and SPACs are, you know, on fire.

• 47:09Speaker 02

  Yeah, and he was like really public about all his positions and so many of them are down a lot. Look, I don't know. I assume you're probably better answer than me, but I assume my always assumption about this world is, you know, it's the making a lot of money is great and then the next best thing is probably losing a lot of money. So he's the fact that he's like a huge name and his the failures of some of his SPACs were so spectacular probably means he continues to raise money and I doubt he goes away.

• 47:41Alex Kantrowitz?

  Okay, okay. So Kathy Wood, her fund is really taking a hit and you like to monitor ARK. So what's your thought?

• 47:48Speaker 02

  It's really tough performance. I mean, she just like nailed the sort of like pre crisis boom better than anyone. And it's really hard, you know, it's like, you know, fund managers, when you're like so wrapped in a specific. Factor so wrapped in a specific brand, we're going to invest in unprofitable, fast-growing tech companies and that goes out of favor. You can't just pivot that really easily. And so I don't know, but you know, there's still, as of this year, her brand is strong. She's on TV a lot. She's on conferences a lot. But at some point, unless that performance turns around or some, you know, that sort of boom goes away. That's a, it's, it's a tough brand to sustain the longer this goes on. So I don't know. It's tough.

• 48:33Alex Kantrowitz?

  Yeah. What's your quick take on what's going to happen with crypto? Do we still see the, you know, this, this house of cards start to continue to collapse?

• 48:43Speaker 02

  Yeah. So I would say two things. Like, I don't think that crypto is going to go anyway. There's too much excitement and interest in the idea of like decentralized networks.

• 48:51Alex Kantrowitz?

  Right.

• 48:51Speaker 02

  But in this late stages of this boom, it got really Ponzi-ish, like blatant Ponzi's or de facto Ponzi's. And I, I think that like, people are got like really burned. And a bunch of narratives have blown, blown up, like Bitcoin didn't prove to be a good inflation hedge. It didn't prove to be uncorrelated. These were reasons theoretically why institutional money was going to flow in. Now I think it's like, not only is that a lot of those narratives blown up, it's lawsuit season now. And a bunch of people are going to get sued and, you know, wouldn't shock me if some prosecutors out there want to like make a name for themselves. Like, it's going to be a, a bunch of people lost a lot of money. And I don't think there's

• 49:36Speaker 02

  going to be like some like huge rush to like bring it back to where it was in the middle of last year. There's reputational risk, there's legal risk now. There's some of these platforms, these lending platforms, which sort of like lent money to traders so they could buy on leverage have blown up. And so there are a lot of, the industry's not going to go away, but it's going to be a lot of headwinds to get back to like the heedy levels of last year.

• 50:00Alex Kantrowitz?

  Yeah. And when I say house of cards, you know, I don't think all crypto's a house of cards, but certainly like what you're talking about, this DeFi system is, you know, starting to collapse on itself. Okay, last, I have three words left for you and then we can, we can call it.

• 50:12Speaker 02

  Okay.

• 50:12Alex Kantrowitz?

  Call the bottom.

• 50:15Speaker 02

  Oh, you know what? So I, that's brutal. I don't know, but I will say this, like, I, I, I got my start interested in markets in like 99 and 2000 because I was like day trading, like a summer job while I was in college. And so I do have memories of the dot com crash are pretty clear in my head. And like, my memory is like, people just moved on and forgot about the dot com stocks for several years. Like, people didn't talk about like, you know, Amazon in 2004 and 2005. It's just like, it was not on people's minds. And so, you know, I think like, to some extent, the bottom will happen when people have sort of like moved on from a lot of this stuff and some sort of new conversation. And I do think like, you know, there's probably

• 50:58Speaker 02

  companies that went publicly a SPAC last year that are going to turn out to be great companies that make a lot of money. I don't know who they are, but they're probably real. And there are probably aspects of crypto that will be important, would be my guess. But I also think like, to some extent, the bottom, so to speak, will happen after like, people have sort of like moved on and talked about something new, rather than everyone like sort of on Twitter. It's like, have we capitulated yet?

• 51:22Alex Kantrowitz?

  Joe Weisenthal, thanks so much for joining.

• 51:23Speaker 02

  Thanks so much for having me, man. Great to be here.

• 51:26Alex Kantrowitz?

  Yeah. And heck of a sprint towards the end there. Really appreciate it.

• 51:30Speaker 02

  Thank you.

• 51:30Alex Kantrowitz?

  Thank you. Thanks, everybody for listening. And thanks again to Joe. Really appreciate you coming on. Woo. Joe, you can exhale now. That was, you know, quite a finish. So that will do it for us here. If you're a first time listener, or a long time listener, we would love to have you either or and subscribe and rate the podcast. That will help a lot. We do these shows every week with tech insiders and outside agitators. Subscription, a five star rating goes a long way. If you like the podcast, please let somebody else know about it. Would really appreciate that. Thank you, Nate Guatney, for turning around the audio on a short timeframe. You know, the market's moving so fast. We got to do these things as, as a You know, as close to publish time as possible.

• 52:15Alex Kantrowitz?

  Thanks to LinkedIn for having me as part of your podcast network. Always a blast. And thanks to all of you, listeners, really appreciate you coming in week in and week out. And, you know, we are, we have some great episodes coming up in the next couple of months. And, and I, I just can't wait to get them to you. So thanks again. That will do it for us here this week on Big Technology Podcast. Really appreciate you listening. Stay tuned next week. And again, please remember to rate and subscribe.

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