Fri, 27 May 2022 04:58:41 +0000
The Palmer Luckey confrontation session from the All-In Summit will be released as a podcast episode in the week following this recording (i.e., in early June 2022).
“I'm looking forward to when you release... A great episode. It's going to be coming out next week.” View on YouTube
The Palmer Luckey All-In Summit session was released as a podcast episode shortly after this recording, consistent with the prediction.
If the inflation data released on the Friday following this recording shows moderating inflation and moderate growth, the Federal Reserve will signal a less aggressive tightening path and equity markets will experience a significant short‑term rally immediately afterward.
“So right now we're in a moment of pause. And there is the potential If this data comes back as reasonably good, which means prices are not escalating as much as we thought, inflation is not going to be as bad. Growth is going to be moderate. That that gives a lot of ammo for the fed to kind of take their foot off the off the gas here. In that case the markets will go boom.” View on YouTube
The May 2022 CPI report released that Friday showed inflation still very elevated (around 8.6% year-over-year, actually higher than expected), and markets sold off sharply rather than rallying, contradicting this prediction's conditional outcome.
The U.S. economy is entering (or already in) a serious downturn that will be classified as a recession in 2022.
“So it seems to me like we're headed into a pretty serious downturn or recession here. I mean, I've been saying we're in a recession for months.” View on YouTube
The US did record two consecutive quarters of negative GDP growth in Q1 and Q2 2022, technically meeting the definition of recession, consistent with this prediction.
The Federal Reserve will raise the federal funds rate by 50 basis points at both the June 2022 and July 2022 FOMC meetings, and then pause to assess the effects of tightening in the back half of 2022.
“So they're saying we're going to hit it with 50‑50. And then we're going to take a look.” View on YouTube
The Fed raised rates by 75 basis points (not 50) at both the June and July 2022 FOMC meetings after the hot May CPI report, exceeding the predicted 50bp pace, and did not pause in the back half of 2022, continuing to hike through year-end.
If a macro slowdown forces significant downward revisions to corporate earnings forecasts, U.S. equity markets will likely make their cycle low at the point when those revisions occur, expected within the next 2–3 quarters from this May 2022 discussion (i.e., by roughly Q1 2023).
“And that's the risk now that's left in the market in my opinion that could take it much, much lower is if that, you know, all of this slowdown really contracts spend and the earnings are actually not accurate. The forecasted earnings will need to be revised over the next 2 or 3 quarters. And that's where we will probably see the low.” View on YouTube
Equity markets did continue falling into October 2022 amid earnings concerns, roughly consistent with the predicted 2-3 quarter window for finding a low, though the precise causal mechanism of broad earnings-forecast revisions driving the exact bottom is difficult to isolate.
Later in 2022, as startup financing conditions worsen, there will be a noticeable increase in venture deals that use structured terms (e.g., multiple liquidation preferences and other preferences) to preserve prior high valuations for companies that would otherwise be facing down rounds.
“Where you start seeing structure in deals is in deals is when a founder is trying to preserve a valuation they got last year... you'll start to see them happen later this year when companies get more desperate.” View on YouTube
Structured venture deals with liquidation preferences and other downside-protection terms did become notably more common in late 2022 as startups sought to avoid formal down rounds amid worsening financing conditions.
By roughly six months after this May 2022 conversation (i.e., by late 2022), the tech talent market will cool substantially, with candidates receiving fewer competing job offers and reduced upward pressure on compensation compared to the prior boom period.
“Within the next six months, the talent market is not going to be as hot.” View on YouTube
The tech talent market did cool substantially by late 2022, with widespread layoffs across the industry reducing competition for candidates and easing upward pressure on compensation.
By fall 2022, there will be clear evidence that US inflation is declining (“rolling over”), markets will have better visibility into the Federal Reserve’s likely policy path and upper bound on interest rates, and public‑equity investors will again be able to underwrite valuations using roughly the prior 5‑year average multiples.
“I think the base case is by this fall will have very good evidence, right, of where inflation is rolling over. I think it is rolling over what the fed is likely to do. The upward bound on on interest rates. And I think we'll be at a point where we can start underwriting to the five year average again.” View on YouTube
By fall 2022 there were some signs inflation was moderating from its June peak, but it remained elevated and volatile through year-end, and equity valuations did not clearly return to a stable 5-year-average multiple regime during that period given continued Fed tightening and market declines into October.
The Federal Reserve’s tightening path in 2022 will avoid runaway inflation, and by fall 2022 the US public markets will again be an attractive, investable environment; private venture markets will lag this improvement by roughly 6–12 months (i.e., will reach market‑clearing prices and become attractive between roughly spring and fall 2023).
“However, I do think that the fed is taking a good course here. I don't think that we have runaway inflation. I think that, um, you know, we're going to have an investable environment come this fall. However, I think for venture there's a six to a 12 month lag to that.” View on YouTube
The US avoided runaway inflation and public markets did stabilize by late 2022/early 2023, but venture markets took considerably longer than 6-12 months to reach a genuinely investable, market-clearing environment, with the funding slump persisting well into 2023 and 2024.
The layoffsfyi.com tracker, which showed 714 startups with layoffs at the time of speaking (May 2022), will eventually list at least 3,000 startups with layoffs by the end of the current downturn cycle.
“there's 714 startups on this list. By the time we're done, they're going to be at least 3000 startups on that list.” View on YouTube
The layoffs.fyi tracker did surpass 3,000 companies with reported layoffs as the tech downturn extended through 2022 and 2023.
In the week following this episode’s release (the week after May 27, 2022), Friedberg will return to the podcast and an ‘explosive’ Palmer Luckey episode will be released, resulting in a week with multiple strong All-In podcast content releases.
“Freiburg will be back next week, as will the Palmer Luckey explosive episode. So look for a great week of all in content next week.” View on YouTube
Friedberg returned to the podcast in subsequent episodes and the Palmer Luckey episode was indeed released as planned around that time.