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If there’s anybody that has benefited from the tech boom, it’s got to be Chamath Palihapitiya. Over the past 9 years, Chamath averaged a return of 33% per year by investing in growing tech giants. However, Chamath recently took a sudden change of opinion. Chamath believes that over the next couple of years, the entire stock market is going to experience turmoil, especially tech companies. He now has a new game plan that he believes will outperform the market. This video will in-depth on Chamath’s macroeconomic outlook and how he’s navigating his investments to protect his portfolio.
Supply chains worldwide are failing to meet the recovering consumer demand. Despite the fact that the economy is rebounding, a substantial number of people are not returning to work. Total non-farm job openings have increased substantially over the past 12 months. Non-farm job openings represent the number of jobs open for all workers except for farmers. Total nonfarm job openings have increased from 6.5 million in August 2020 to 10.6 million in August 2021. Many investors and economists have pointed to these supply chain issues as temporary. Fed Chairman Jerome Powell thinks that wages are not rising at a pace that is excessive. As demonstrated by Powell’s inflation dashboard, the employment costs index is only increasing at roughly 3% per year, which is not much compared to the rate of increase in the 1990s and 2000s. Cathie Wood has also publicly stated that cyclical deflation is coming. Corporate leaders think the same too, as AMD CEO Lisa Su sees the chip shortage ending next year. Chamath strongly disagrees with everyone. He believes that supply chain issues are here to stay and that inflation is about to take off.
While I couldn’t find the exact statistic that Chamath was looking at, it’s certainly true that wages are increasing dramatically for workers in leisure and hospitality. The average hourly salary for employees in leisure and hospitality has increased from $16.85 to $18.58 over the past 12 months. Increased wages sound great, but wage growth and supply chain issues have also been inflating consumer prices by a similar margin, which is clearly demonstrated by the consumer price index. Contrary to the Fed’s expectations, consumer prices have continued to increase faster and faster. This was caused not just from the labor shortage, but also from increasing prices in raw materials. Chamath believes that both of these factors will cause inflation to sustain in the short to medium term.
As we covered earlier in this video, the Federal Reserve is adamant about inflation being transitory. The vast majority of Fed officials do not plan to increase interest rates until 2023. The European Central Bank also does not want to raise rates either, as they plan to wait until 2023 to increase rates. This might seem fine on the surface, but other countries are not on the same page. Many other countries are experiencing even higher levels of inflation, which may carry over to the US dollar and euro. Because of increased inflation worldwide, central banks outside of the US and Europe are beginning to raise interest rates, which could lead to major issues in the global economy.
Chamath believes that the US economy will experience stagflation, which is when there is high inflation and high unemployment at the same time. Stagflation implies that the economy will suffer while prices are still increasing. A stagflationary period is the worst for central banks like the Federal Reserve, because any move has devastating consequences. For instance, if the Fed raises interest rates, then the economy will crash. However, if the Fed keeps interest rates at low levels, then inflation will accelerate even more. Stagflation is one of the worst situations to be in and that’s why Chamath is quickly preparing for the possibility of stagflation. This isn’t the first time that this has happened before and it may just occur again. Back in the 1970s, President Lyndon Johnson spent enormous amounts of money on the Great Society and the Vietnam War. After Richard Nixon was inaugurated, he inherited a recession and spent large sums of money, leading inflation to reach double digit levels.