Markets update: whipsaw macro picture, big tech, startup mass extinction event, VC reckoning

The episode opens with the hosts joking that the previous show drew the lowest ratings in its history. One speaker floats the theory that Google downranked the show over its stance on boosters, and the others riff on a low-level functionary pushing a button to "shadow ban" them. The tone is plainly comic and none of this is supported with evidence.

The banter then turns to moderation and to fan reaction. A speaker says the response to the earlier COVID vaccine discussion was that it seemed "pretty fair and balanced," and another describes the YouTube warning as fairly benign, essentially a pointer to COVID information.

The market segment starts with the data as one host presents it: the Fed raised rates by 25 basis points, markets rallied afterward, and the morning's jobs report showed 517,000 jobs added against estimates of about 188,000. The host adds that labor participation has risen to 62.4% while wage growth keeps slowing, and says risk assets have been climbing for a couple of days.

One speaker reads Powell's recent remarks as a reversal. In December, he says, Powell sounded very hawkish, but weeks later he indicated roughly two more 25-basis-point hikes and a bid to "stick the landing." Even though the transcript reads hawkish, this speaker calls it effectively a capitulation, and says the market took it as the end of the cycle. The speaker also argues that markets tend to bottom six to nine months before the picture is clear. This is the speaker's interpretation of Powell, not a quoted policy statement.

The same speaker adds two technical factors. Many investors tax-loss harvested and cut gross exposure at the end of last year, so almost nobody was positioned when the Fed softened. Tesla is offered as the example: the speaker says it traded down to about $108 and has roughly doubled in 30 days. These price figures are the speaker's own recollection.

The speaker compares the moment with late 2018 and early 2019, when markets fell, then Powell backed off amid worries about China, and stocks ripped higher before the COVID pandemic. The conclusion is that over the next 30 to 90 days the "pain trade" is upward. It is a forecast, not an established fact, and the speaker does not claim certainty.

After a Fed funds chart is shown, a host asks whether the Fed pauses or cuts and what it means for venture capital and startups. One speaker answers that this is a "whipsaw economy": a month earlier the consensus, as this speaker describes it, was for higher rates and a recession later in the year. Then a couple of good inflation reports shifted expectations toward only one or two more quarter-point hikes, and markets rallied on the belief that inflation was in the rearview mirror.

The strong jobs report reopens the question of whether labor costs will rise and the economy is overheating. The speaker concludes that the risk of returning inflation is slightly higher and the risk of recession slightly lower, and that a soft landing looks more likely than it did weeks ago. Another speaker notes that recession is hard when people are employed and cites a jobless rate of 3.4%, which they call a 50-year low; these figures come from the speakers, not from a cited source.

A host asks whether people are returning to work because they burned through savings after the pandemic and took on more debt, including buy-now-pay-later. The responding speaker says this is hard to classify, since much of it happens at the margin, and does not endorse the theory.

The speaker instead cites Larry Summers, described as a former US Treasury Secretary, as arguing that the US needs a jobless rate of 5 to 6% for five years to reach its inflation target. By that logic, a tight labor market pushes wages up, firms raise prices to pay for talent, and inflation spirals. The speaker presents this as the downside reading of the jobs report that many people are watching. The Summers attribution is as relayed by the speaker and was not checked.

Asked about deflation, one speaker agrees the marginal risk is a whipsaw. The period is disinflationary, but if stocks keep rising and monetary conditions loosen, money could slosh back into risky assets and companies could raise and spend more, potentially reigniting inflation and forcing the Fed into another hiking cycle. The speaker also says Wall Street contacts expected a choppy first half and a strong second half, and that they told him this week they were not positioned for the rally.