Market update, inverted yield curve, immigration, new SPAC rules, $FB smears TikTok and more

The recording opens with locker-room banter. One host jokes that two of the others look like accountants just fired from Lehman Brothers in 2008, carrying their boxes out to the street. Another host, who is in Washington, says he is flying home that night for a fundraiser the next morning, then announces it as an April Fools' joke: he is supposedly hosting a fundraiser for a Democrat in a blue state. The others tease him about wearing a blue rather than a red tie.

The formal welcome follows. The host reads a run of nicknames for each regular, welcomes back a co-host from a Tahoe vacation, and mentions that the previous episode set a record. The hosts joke that the intros are rehearsed material and that one of them is plugging his own portfolio company in passing; none of this is substantive.

Asked what he was doing in DC, one host says he spoke at a foreign policy conference called "Up from Chaos", sponsored by groups named as the American Moment and the American Conservative. In his telling, the title fits because US foreign policy has been chaotic for thirty years: seven wars, trillions spent on nation building, thousands of US soldiers and millions of civilians affected, and no war he can name as won. He compares the US to a raging elephant and argues for a more restrained foreign policy, which he says is neither conservative nor liberal.

Others agree that restraint has no lobby in Washington, because, in their words, the military industrial complex has become so big and powerful. One says Trump did not want to start wars, but that a gaffe by Biden, whom they say declared a new world order and called for regime change, shows he has bought into liberal interventionism. These are the speakers' own political judgments, not established facts.

The conversation then turns to Obama. One speaker credits him with the right instincts: de-escalating in Ukraine around 2014 and in Syria, over his staff's objections. The claim is that he was nonetheless played by staff and the establishment, because officials expected to stay for years had an incentive for chaos. The speaker cites Ben Rhodes's term "the blob" for the foreign policy establishment and the Atlantic interview on the "Obama doctrine", which in their account describes a playbook demanding a militarized response to any provocation. They say generals leaked against an Afghanistan withdrawal and Obama did not stick to his guns. Ukraine is deferred to the end of the show.

Prompted to give a primer on the inverted yield curve, one host explains that commentators watch the gap between the two-year and ten-year bond rates because inversion is believed to predict a recession. In a healthy economy, he says, investors take more for longer risk, so rates should rise with maturity. An inversion implies the market expects rate cuts, which governments typically make to stimulate the economy during a recession.

He then argues the signal is murkier than it looks. As he describes it, Fed economists back-tested and found a better recession predictor in the spread between the three-month and eighteen-month T-bill, which they call the forward spread. That measure is not flashing a recession and instead reflects the Fed's stated plan for a run of rate rises. In past recessions, he says, both measures collapsed to zero or went negative, and it has never been the case that the two-ten spread inverts, the forward spread stays up, and a recession follows. He adds that oil price spikes have also tended to precede recessions, so the overall picture is unclear. These are his readings of the data, not independently checked here.

The same host calls the market's reaction inappropriate. Since November, he says, inflation has surged, supply chains have been disrupted, a war of uncertain length has begun, and the Fed has moved from expecting 50 or 75 basis points of hikes to 200 to 250 by the estimated average. Yet the market is roughly at an all-time high within about 5%, which he finds illogical. His explanation, attributed to Brad the previous week, is dispersion: weak companies have been crushed, good ones hit but not crushed, and rallies favor the good ones.

He expects the end of Q1 and the earnings season to widen that gap. Companies that control their business and project strength will be rewarded, he predicts, while those with indecision or structural flaws that blame macro conditions will be punished. His examples are Restoration Hardware, whose CEO warned of recession, which he reads as a weak product facing a stalled housing market with refinance rates near 5%, and UiPath, down 25% or 26% that day after guiding ARR growth of 35 to 40 percent from about 900 million to 1.2 billion but showing soft ACV and revenue, and now trading around 11 times ARR. Figures are as stated in the discussion and unverified.

Another speaker defines a recession as two or more quarters of negative growth, notes roughly a dozen since World War 2 and says they come about every ten years, and finds two negative quarters implausible now. He is asked how much room government has to fight one, since spending and tax cuts are constrained and rate cuts are the other tool. A speaker answers that a slowdown is certain, a recession is a good chance given rate rises, inflation and war-related supply chain disruption, and starts to add the effect of unplugging a large economy from global trade.

Continuing the recession discussion, a speaker says Russia has effectively been unplugged from the global economy, which he expects to hit the US economy with a delay. Taking these as negative indicators, he thinks the US will have either a recession or something very close. Asked how long recessions last, the group offers guesses of about 11 months or 18 months, with no firm figure given.

A speaker argues policymakers have few tools left. In his account, emergency stimulus for COVID of something like 10 trillion dollars flooded the system with liquidity, which caused much of the inflation, and rate rises now meant to mop it up are slowing the economy. He says there is little left to spend and rates cannot be cut much without worsening inflation, so the US could end up with 1970s-style stagflation. Asked to spell out what that feels like, a speaker lists higher gas prices, pricier airfares and fewer dinners out, with no stimulus to offset the drag.