This RECESSION Will Be Like No Other! [Chamath Palihapitiya]

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01. so it seems like we're at the beginning of something that's going to be long and drawn out and that's separate from whether we're in a recession or not that's just the bear Market that we're in right and so you have to look at asset prices today as a microcosm of a much larger Trend that has to be about fake money pushing asset prices up and now taking all that fake money out and finding out what the real price of something is and I just don't think that takes six months so for all the people that were you know fingers crossed hoping that this would be the end of it fed raises 75 we're done with this they're going to raise 75 more I think that's not how it's probably going to be it's going to take you know 24 36 months that may mean the bottom doesn't happen for another 18 months so I think it's a we're in for a lot of choppy Market action I think we have to also be sensitive to the fact that the FED operates on a certain class of data and that data in the 21st century is pretty pathetic there was an article I think it was in the New York Times that really walk through how CPI is calculated and it's a bunch of people that work for the government that walk around with iPads building relationships with local businesses and all these random places all around the country and asking them to you know chit chat for 15 minutes and do these surveys now you would have thought that in 2023 or 2022 what the government would have said to Visa Mastercard American Express all the payment rails the banks and stripe is send me a feed in the following structured way so that I can actually have an absolute precise sense of inflation because inflation really only occurs when a good or a service trades hands for money right and you calculate what did that thing trade at the day before and what does it trade for today so you could get an absolute precise sense of it instead we do this random sampling thing if you read this article your takeaway will be oh my God this is very rickety and it drives an enormous Hammer that we use to try to manage the economy that's the first thing I think you need to buckle your seat belt because the next three four five months of CPI will probably be very very bad seven eight nine percent why there are a handful of components that have gotten completely run away number one the biggest one is rent and so rent works on a three month lag we're going to reintroduce what the true owners equivalent rent is into CPI so we can already forecast that CPI going up Russia is basically trying to break the bag of Europe by now messing with their Nat gas supplies the German energy Minister yesterday said that if that happens it could be a contagion equivalent to Lehman Brothers with respect to energy when you play all of these things out what what you have is unfortunately rampant runaway costs that really have no mechanism to get back in check in the absence of some real governmental changes for policy on this Ukraine Russia War you know how we intend to sort of work or cooperate or fight with China all of these things have to get solved so in the absence of that prices are going to continue to go up and so what does the FED do how does it throw away what little credibility it has left when there's eight and nine percent inflation prints and saying we think we're done for right now you can't do that so they will over correct because there is just going to be so much pressure for them to act all roads I think lead to lower Equity prices we've seen the first wave but now it has to touch all these other areas I also want to tell you guys a quick Story one of the most interesting canaries in the coal mine of all of this was two days ago and what happened to Facebook and this sort of ties a lot of this stuff together into terms of economics inflation asset prices equities everybody was saying oh gosh the Market's going to rip on the open and then on Tuesday the market you know the s p was up like 250 basis points 2.5 and the NASDAQ was also a call at maybe 300 basis roughly but Facebook was down like 400 words right so it's a big spread and why is that and I was like this makes no sense to me what is going on with this price action everything was up Apple was up Google was up and so I called around and I was like why is this happening and this is the best explanation I got when you look at who the incremental buyer is in the stock market it tends to give you a sense of whether prices can go up or will continue to go down and the forest informed buyer tends to be retail and the most informed buyer tends to be these very large institutional hedge funds right so there's a spectrum and Facebook is an example of big Tech that is poorly owned by retail so it's mostly owned by smart money and the case that smart money makes for owning Facebook is that it's got an extremely cheap price to earnings ratio so you must own it and what they said was that looking at the Tea Leaves of consumer demand what they actually re-underwrote was that actually it's not that the price to earnings was cheap it's at the e in PE was just wrong and if they pass through all of these increases in inflation and you know their earnings expectations into Facebook it's actually more like fair value at a lower price that's why they sold it so much on a day where the market was up now why is that important well eventually you're going to touch all these other stocks as well that are going to go through earnings revisions in this recession this is where I think Wall Street has done a very poor job on behalf of retail if you look at the average estimates of earnings you will be shocked to hear that Wall Street actually has this year being record earnings next year earnings continuing to go up how is anything possible how do you see earnings continue to go up into these prints like this when you cannot pass through 80 90 increases in energy and cogs and you have to sell few fewer things because there'll be fewer people with jobs to buy things I think wall Street's wrong and I think that earnings are going to go down this year and will definitely go down in 23 and so I think what probably happens is the entire world of equities needs to get repriced at a lower price and in that it's going to put enormous pressure on these cash burning non-profitable tech companies so we have an odd situation where we are picking fights we cannot win and the consequences for us are economically really damaging and then the consequences for everybody else to stay on the sidelines is like economic Prosperity that doesn't make any sense