E103: Tech layoffs surge, big tech freezes hiring, optimizing for profits, election preview & more

If Elon Musk successfully makes Twitter significantly more profitable by cutting approximately 30–50% of its workforce, then over the following couple of years (roughly 2023–2024) this will set a new benchmark for tech profitability and trigger a noticeable flurry of private‑equity buyouts and M&A targeting distressed small- and mid-cap software companies, with PE firms explicitly emulating the “Elon playbook” of deep cost-cutting to drive profitability.

“if what Elon is going to do at Twitter or what is reported ... that he's going to cut so deep, he's going to cut 30, 40, 50% potentially of the employee base... it really sets a new standard for how profitable a tech company can get... there could be the case that private equity firms take a look at this... and you could see a bit of a flurry of buyout activity as more folks come in and maybe try and mimic the Elon playbook. So, you know, that's one kind of prediction I think may arise. If Elon is successful in making Twitter a much more profitable enterprise, it could set a new model that catalyzes a lot of other M&A activity, a lot of other buyout activity of these distressed small and mid cap companies” View on YouTube

Over the next few years (roughly 2023–2025), at least half of the ~200 public software companies referenced in the chart (especially the unprofitable ones) will face severe difficulty raising capital and will likely need to either raise money on very punitive terms or go private in private‑equity transactions, resulting in on the order of 100 such companies leaving the public markets via PE-led take‑privates or similar structures.

“I think if you look at the number of them that are unprofitable, at least half of them will have difficulty and about. So I think about two thirds of these companies really have no line of sight to profitability in the next 2 to 3 years. And again, if you if you layer in this cost of capital argument, all of those companies, David, will have to raise money at very egregious terms in order to keep themselves going as a public business, in which case their alternative is to go private in a PE transaction. So it's probably at least half these businesses. I mean, it's a lot.” View on YouTube

Within roughly the next 18–24 months from November 2022, on the order of 100 private‑equity buyout deals will occur among the ~200 public software companies discussed, as PE firms take these distressed or underperforming software businesses private to restructure them.

“I think there's 100 PE deals to be done. Yeah, 100 buyout.” View on YouTube

Starting in late 2022, the U.S. economy is entering a sharp, economy‑wide slowdown that will deepen into a significant recession rather than a mild or brief dip.

“it feels to me like the economy is headed off a cliff right now... this is just, I think, an economy wide slowdown.” View on YouTube

Contrary to his earlier expectation that the worst would be over by mid‑2023, Chamath predicts that interest rates will remain elevated and financing conditions will stay tight such that the current tough macro environment for companies and investors persists until roughly early 2025.

“for me, I'm like, wow, I thought that we could get through the worst of this by mid 23. But now you have to plan for the worst, which means, okay, now I'm thinking that man rates could be higher for much longer, which means we could be in this market till early 25.” View on YouTube

As of November 2022, the U.S. is at the start of a prolonged period (multiple quarters) of rising unemployment and is entering a “really serious” recession, deeper and more sustained than the brief technical recession seen earlier in 2022.

“So I think we're at the beginning now of a long cycle of the unemployment rate going up. I mean, it just feels like the economy is slowing so fast... it just feels like this is the beginning of a really serious recession.” View on YouTube

By the end of 2023, the U.S. unemployment rate will have risen from the low‑3% range (where it was in late 2022) to approximately 5–6%, driven by accumulating job cuts across the economy.

“you're starting to see economists say we're going to go from three point something percent unemployment rate to say, 5 or 6% unemployment next year. So I think we're just beginning to see the the job cuts start to add up.” View on YouTube

The recession that the U.S. is entering as of late 2022 will last on the order of two years (approximately through late 2024), rather than being a short downturn.

“You know, this recession probably will last about two years. You want to make sure you survive it.” View on YouTube

In the November 8, 2022 U.S. midterm elections, there will be a broad 'Republican wave' in which Republicans significantly outperform Democrats across federal races, beyond just narrowly winning one chamber.

“Well, it looks to me like there's going to be a Republican wave.” View on YouTube

In the November 8, 2022 U.S. midterm elections, Republicans will gain control of both chambers of Congress, picking up roughly four net U.S. Senate seats (specifically winning in Arizona, Nevada, Georgia, and New Hampshire) and approximately 31 U.S. House seats.

“you have now real clear politics currently has the GOP gaining four Senate seats. So winning in Arizona, Nevada, Georgia and New Hampshire... and winning 31 House seats. So this is this is kind of what it's looking like right now... Ultimately, I think this breaks Republican.” View on YouTube

In the November 8, 2022 midterm elections, Republicans will win a majority in the U.S. House of Representatives, and there is a material (plurality) chance they will also secure a majority in the U.S. Senate.

“it seems like most scenarios the Republicans will have the majority in the House. And the real question is what happens in the Senate... most scenarios, David, I think you'd agree, is that the Republicans win the House. And then there's a there's a plurality of scenarios where they also win the Senate.” View on YouTube

In the November 8, 2022 midterm elections, Republicans will almost certainly win control of the U.S. House of Representatives, and there is roughly a 55% likelihood that they will also win control of the U.S. Senate.

“The House will almost certainly go Republican. But I think the Senate now, the official percentages are 55% likely to tip Republican.” View on YouTube

If a Republican wave materializes in the November 8, 2022 elections, the U.S. Senate could end up around 55–45 in favor of Republicans, rather than a narrowly divided 51–49 split.

“you could just as easily end up with, you know, instead of it being a 51, 49 Senate, it could be 55, 45 because all these things could break the same way.” View on YouTube

In the 2022 Pennsylvania U.S. Senate race decided on November 8, 2022, Republican Mehmet Oz will defeat Democrat John Fetterman and the seat will tip to Republicans.

“So I actually think for both reasons, Oz is going to win that. I think Fetterman is manifestly unqualified... So I think Pennsylvania will will, will almost certainly tip.” View on YouTube

In the 2022 Ohio U.S. Senate race decided on November 8, 2022, the Republican candidate will win (the seat will be held by or flip to the Republican Party).

“Ohio is going Republican.” View on YouTube

In the 2022 Arizona U.S. Senate race decided on November 8, 2022, the contest will be extremely close, but Republican Blake Masters will ultimately win.

“I think that Arizona is probably going to be the closest race in the country. I think it's going to be a nail biter, but I think Blake's going to pull that out.” View on YouTube

Following the 2022 midterm elections and for the remainder of Joe Biden's term (2023–2024), the U.S. will have divided government with Republicans controlling Congress and Democrats holding the presidency, resulting in legislative gridlock. Large-scale federal spending increases and aggressive money printing will stop, and Republicans in Congress will conduct multiple investigations, including into the federal Covid response.

“you're going to have divided government. The Republicans will will control Congress, the Democrats will control the presidency. And so as a result, you're going to be largely in a gridlock situation. But gridlock may be a lot better than what we've had over the last couple of years. So you've had basically this orgy of spending and money printing. And I think that's going to stop. Obviously, the other thing that's going to happen is Republicans may not be able to pass much legislation, but they're going to be able to do investigations.” View on YouTube

ProPublica (and possibly Vanity Fair) will win a Pulitzer Prize for their joint investigative reporting on the Covid-19 lab-leak theory published around 2022.

“ProPublica has done an investigation, and they're saying, along with Vanity Fair and they're going to win a Pulitzer for this, I bet that this conspiracy theory from two years ago is probably actually the leading theory” View on YouTube

Around the 2024 U.S. presidential election cycle (roughly 2024), the U.S. economy will likely still be in or just emerging from a recession, characterized by significant economic damage and high unemployment.

“the setup is really interesting for 2024 because it's probably going to be the case that we're in the middle of a recession going into that election cycle. Maybe we'll be sort of like getting ourselves out of it, but there'll be a lot of economic damage, high unemployment.” View on YouTube

Following the large drawdown of the U.S. Strategic Petroleum Reserve in 2022, the U.S. will soon have little additional SPR oil available to suppress prices, while Saudi Arabia and OPEC+ will cut oil supply to maintain higher prices, limiting the Biden administration's ability to further reduce gasoline prices through SPR releases or diplomatic pressure.

“we have now depleted our strategic oil reserve by almost 50%... So we are running out of oil that we can introduce into the market at effectively zero cost to bring the price down. And because we've lost our relationships with folks like Saudi Arabia, there's no way to influence them in order to produce more. In fact, they're going to cut supply so that they can control the prices” View on YouTube

In the November 8, 2022 U.S. midterm elections, Republicans will win a majority in the House of Representatives, while control of the Senate is uncertain at the time of this statement.

“I gave up on the House. I think it's clear that the Republicans are going to win, but the Senate is still is still up for grabs.” View on YouTube

Between late 2022 and the 2024 U.S. presidential election, underlying U.S. economic conditions will remain weak or 'bad' even absent major new policy shocks.

“I think that we need to sort of have stasis so that nothing bad happens between now and 2024, because I think the economic conditions on the ground are going to be bad in and of themselves.” View on YouTube

If future economic and energy conditions in the U.S. deteriorate severely (similar to Germany's 2022 energy crisis) and government is not split between parties, there is a realistic possibility that the U.S. federal government could pursue extreme interventions such as nationalizing key assets, analogous to steps taken in Germany.

“I know most people will say it'll never happen in America, but I'm not so sure. And I think that you want to make sure that there's a split government so that these things are never possible.” View on YouTube

The 2024 U.S. presidential election will feature Ron DeSantis as the Republican nominee and Gavin Newsom as the Democratic nominee.

“and I still think it's going to be DeSantis versus Newsom.” View on YouTube