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2 Views· 29 June 2022

Chamath: The ENTIRE Stock Market Is Crumbling Down (And When To Buy)



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Over the past few months, a variety of fund managers and billionaires have been warning of an economic slowdown. One of these managers is billionaire hedge fund manager Chamath Palihapitiya, who has recently been warning about the implications of the Fed’s actions. We saw what happened when the Fed printed unprecedented levels of money into the economy. Inflation began to soar, the financial markets appreciated to all-time highs, and speculation increased to dangerous heights. The Federal Reserve has a substantial impact on the economy. The risk going forward lies in the Fed’s reaction to rising prices. That is what so many fund managers, economists, and retail investors have been worried about. This video will cover why Chamath believes inflation is no longer what investors should worry about. According to Chamath, investors should be looking at a totally different indicator.
In a frightening turn of events, the Federal Reserve is adamant about cutting its balance sheet and raising interest rates to combat inflation. Millions of people around the world have called out inflation as not being transitory, but it’s looking like those worries may be a self-inflicted prophecy. The popularity of that opinion is causing the Fed to be overwhelmingly hawkish. Just like the Fed’s reaction during March of 2020, the Fed may be overreacting again but on the other side of the spectrum. Chamath believes that inflation may actually turn out to be more transitory than people are expecting solely because the Fed may overreact. One famous investor named Jeremy Grantham has been warning of a market crash for America’s superbubble. Grantham explained how the market has been stabbed by COVID, money printing, unexpected inflation, and the promise for higher interest rates. He sees the market as a monster that has appeared to be immortal over the past couple years but will suddenly die down. The phrase superbubble is used because Grantham called 2020 a quote-unquote “epic bubble” and he also called 2021 another bubble. Therefore, we would currently be in a bubble squared or a super bubble. I personally don’t listen to Jeremy Grantham, because he is essentially a broken clock. A broken clock says the same time every day and will be right two times a day. In the case of Grantham, it’s unclear whether his money was where his mouth is. That being said, Grantham does detail solid points from time to time. The US economy is in a weak position by all means. Chamath believes that the Fed will likely overdo its retraction and potentially cause the US to go into a recession. The government printed $10 trillion and equities have corrected by $10 trillion. If equities continue to crash from rising interest rates, then it is possible that the net money outflow could eventually become negative. This is evident from the fact that growth stocks and cryptocurrencies have crashed significantly over the past couple of months. On January 22nd on the All In Podcast, David Sacks, a famous venture capitalist, explained why a recession is imminent, which Chamath agreed with.
The most important factor that is pointing towards a potential recession is the bifurcation, or in other words, the division in the global economy. You might think that interest rates are increasing around the world, but that’s not the case. While the US Federal Reserve has been increasing interest rates, China has actually been lowering interest rates. This is concerning for one reason. The Fed raising interest rates could indirectly crash China’s economy, which is currently in a weak position. Because China represents such a significant part of the economy, a crash in China’s economy would hurt America's economy as well. This is problematic because China’s property sector is currently going through a major deleveraging. A deleveraging is when companies reduce their debt by rapidly selling assets. We’ve seen this happen not just with Evergrande, the second largest Chinese real estate developer, but also with plenty of other developers as well. At the same time that this is happening, China is also being impacted by Omicron, as the Chinese government has been extremely strict on shutdowns. The result of these two factors is China’s rapidly slowing economic growth, which is projected slow down even more in the future. Chinese policy makers are panicking in response to this and are quickly loosening their monetary policy. Yu Yongding, an economist who once advised the People’s Bank of China, told Reuters that “we need a relatively loose monetary policy. How much we loosen depends on economic conditions, but the policy direction is clear.” The People’s Bank of China, or PBOC in short form, will likely cut the banks’ reserve requirement ratios soon as well.

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