Big tech starts making cuts, Fed incompetency, global debt, Russia/Ukraine & more

The episode 98 opener is pure banter. The hosts tease one another about a trucker hat, a $400 Moncler hat and a six-week-old haircut, and one jokes that the patch of white hair is proof of something sinister. The person with the patch says it is natural, that the haircut was meant to make it more prominent, and that he lets his hair grow wavy for truffle season.

Another host closes the exchange by saying nothing is less relevant to the audience than a haircut or cashmere sweaters. A last aside about open-sourcing something to the fans and making discoveries is too fragmentary in the transcript to pin down.

The first topic is a run of cost-cutting signals. The host introducing it says Meta announced a hiring freeze and a reorganization, and that its 2023 headcount will be smaller than this year's for the first time in its history, which he describes as the end of an era of rapid growth. He adds that Apple was hit in the market.

He also says, as his own claim, that Apple pulled back iPhone production after weaker demand than expected, and that a three-days-a-week office mandate works as a "gentleman's layoff" because people who quit do not need severance packages. He cites a July message from Google's CEO about productivity concerns and Google's 174,000 employees, then asks whether these are the last towers to fall, noting that these companies have plenty of cash and may be cutting to protect earnings or to push employees to work harder.

One host reads it as the end of a phase of unfettered growth in which Big Tech business models seemed unassailable and companies were growing into their valuations. In his account they must now behave more like cash-cow businesses, trade in a tight multiple band, keep experiments small and let management dictate strategy more firmly.

Another host disagrees and argues it is the beginning rather than the end. His reasoning is that Apple, Facebook, Google and perhaps Microsoft are the most widely held stocks, the equity-market equivalent of US treasuries and a safe haven in stress. If even these businesses see a reason to batten down the hatches, he says, that should warn everyone else. The host then turns to Friedberg and asks whether this is simply a shift from top-line growth to the bottom line.

Friedberg answers with his own history. He says he began working in Silicon Valley in 2001, just as the dot-com implosion hit, and that 2001 to 2003 was deflationary: money raised in 1997 to 2000 was wasted or companies liquidated. From about 2004, when he joined Google, new business models with real traction emerged in what people called Web 2.0, in a more rational climate than before 2000.

In his telling, Google then began offering gyms, free food and higher pay because it had cracked how to extract value from the Internet, and Facebook and the rest copied it. Every tech company, from enterprise software to hardware to e-commerce, had to match that environment to compete for talent. He sees the current downturn as the first reversal in a generation, with benefits, pay and the option to jump jobs now likely to tighten, which he expects to be a shock to many tech workers.

Asked about startups, a host says the big takeaway is that nobody is safe and he expects a broad-based recession. He points to Druken Miller's comments that week predicting a hard landing in 2023, and says no one talks about a soft landing any more.

He then relays a conversation from Los Angeles with a showrunner friend, who told him that no one in Hollywood is buying. By this account, last year saw huge multi-hundred-million-dollar talent deals, such as those he attributes to the Game of Thrones creators and Shonda Rhimes at Netflix, signed for future writing rather than libraries. This is a secondhand report that the transcript does not verify.

The showrunner's explanation, as relayed, is that Netflix's stock was hammered, Wall Street is watching, and Netflix now questions whether spending that much on content works, so its competitors stopped too. The host concludes that last year's asset bubble was not confined to crypto and growth stocks but trickled into the real economy, and that the unwind is only beginning.

A host agrees that people took more risk when capital was free, then argues the downturn is good for startups. Founders he has worked with kept losing candidates to offers of around $300,000 a year plus a $1,000,000 in RSUs from Facebook or Google, and had to hire creatively in places such as Ukraine and Uruguay. He expects those multiple-offer situations to disappear as people are laid off.

He expects many startups to close and their people to move to the stronger survivors, comparing it to the NBA dropping its bottom ten teams and moving the best players up. He calls this a strong setup for 2023.

One host repeats last fall's prediction that markets would fall and now predicts they are bottoming and consolidating. Another agrees. The first says it is time to start nibbling and get ready to deploy money, since he believes prices already reflect what is known and he is becoming constructive. This is a market opinion rather than a verified forecast.

He introduces the idea of a Fed put, meaning the right to sell, and says market participants have known for a decade that in times of uncertainty the Federal Reserve would step in as a buyer of last resort. In his account this removed the last element of true supply-and-demand balance, because the Fed would effectively say not to worry.

Continuing the thread, a host argues that Big Tech made it impossible to find the true market price of an engineer or of office space, because the companies were locked in an escalating arms race: massages, then gyms and physical therapists, then buses to the gyms, then fresh protein shakes. In his account cost did not matter, since the goal was to land the marginal engineer, product manager or businessperson and remove the risk that they would start a disrupting company.