📈 Rising rates de-rate high-multiple growth stocks

“But David, to your point, if we get two or three more quarters of these kinds of jobs numbers, you're going to have a low single-digit unemployment number. And what that means is wages will have to go up for businesses to compete. And that's the kind of traditional form of inflation that actually reprices things, because then you lever up rates to kind of control inflation. ... And so you can't own businesses that are projecting revenues, let alone profits in 2026”

“And so as an investor, if I can make one and a half percent with no risk by owning US treasuries over the next 10 years, that may feel like a better bet than owning some risky asset, some speculative company. ... And now that rates are creeping back up, people are de-levering. They're taking risk off.”

“the CPI is up 4% and climbing. And so people are now pricing in big interest rate increases. And so that makes growth stock, that hammers growth stocks, because all the earnings are in the distant future. And so they get now discounted at a higher rate. And so the valuations get absolutely hammered. ... The markets are basically souring on this Biden agenda.”

“No, I think the stock market is in a little bit of a precarious position. Because if you have to reposition yourself for inflation, there's a lot of tech stocks that will get just absolutely obliterated. ... So inflation is very bad for technology stocks. ... But if you're growing 20 or 30% in your kind of a middling business and rates are going up and inflation is going up, you're in a very, very, very precarious spot.”

“Sorry, Friedberg, last thing. Tech stocks in the fucking toilet. ... No bueno for no cash flow growth stocks. ... When interest rates start going up, they say, no, hold on a second, I need more money up front, less money in the future because the future becomes more uncertain. And that's the big trade off for tech companies where they get really pummeled.”

“I mean, once interest rates go up, you'll see that dividend yields will go up, which means stock prices go down because people will expect a higher return.”

“if these valuations ever turn out to not be real, or there's a valuation reset, or there's inflation, or the public markets don't value growth stocks, it takes a long time for it to work its way through the venture ecosystem, and all of this liquidity will probably make it even more quote unquote violent when it does happen ... We'll go through a rerating like the year 2000, who knows when it is and what the catalyst is”

“I don't think that this is necessarily peak, frenzied, bubbled, low interest rate fueled outcomes. I think this may be kind of part of a longer term trend that is statistically probably not that big a deal.”

“And then these asset bubbles will probably deflate or they'll have to get rerated. ... And if the Fed stops tapering and, you know, hikes rates two or three times over the next 12 or 18 months, man, this is an ugly, ugly stock market.”

“Look, the week before when I started to trim, it was like, oh, how dare you, blah, blah, blah. ... So I started to trim and I'm so glad that I did because it was, you know, 10 days ahead or a week ahead of all of this craziness. ... The multiples on these companies are shrinking. Companies like Snowflake and Peloton, Cloudflare, Zoom, we're trading at 70 to 100 times revenue and people are re-evaluating whether those multiples are worth it irrespective of the quality of the company”

“over the last 10 years, we've basically had record good times because of this low interest rate environment, right? And low interest rate environments are fantastic for growth stocks. Now, it looks like we're moving into an environment in which inflation is certainly not transitory. We don't know how long it's going to last for. ... And so the next decade may not be as good for growth stocks.”

“And they can't do that now because interest rates, let's say interest rates climb to three and a half percent. I can go make three and a half percent by putting my money in for a 10-year bond. ... It's a little bit harder to make a bet on a 10-year horizon because interest rates are no longer 0%.”

“Chamath, can we then look at this as, hey, the era of we're going to give a lot of credit to companies for, you know, what's going to happen in the next 10 years? ... The 10 year outcome that we saw, Rivian came up, you know, and then many other stocks and obviously crypto falls into this. This idea of giving people a decade of forward-looking credit maybe is going to come back to. ... Let's weigh these and look at earnings or maybe two years of credit.”

“We had the price sales ratio of Zoom, in other words, the value of the enterprise versus their actual sales was at 123 It's now at 14.7. Peloton was another one of those at 23, now down to 3x, down 87%. ... it seems like there was a mispricing of certain equities”

“all of a sudden inflation changes and the front end of the yield curve goes, and all of a sudden all these assets, when yields go up, prices go down ... That's called de-grossing. ... And we've been going through a very painful process of this de-grossing. Hedge funds are doing it in droves.”

“You went from that environment to all of a sudden an environment of now we're expecting to have rate increases, and that's going to suck the liquidity out of the system.”

“Economically, we pumped 10 trillion plus of spending and monetary and QE and all this sort of stuff. ... I think we're about to enter a new phase, which is the correction to the overreaction. And I think we're already in the correction. So the market's been correcting, growth stock's been correcting for the last five or six weeks. ... And I think you'll see a further correction, both political and economic, in 2022”

“Well, it's a major regression to the mean on public company evaluations in both SaaS, but also more generally. The high growth stocks have corrected more than the indices. So that would imply that there might be more correction to come against the indexes. ... So you could say that if it fully reverts to the mean, we still got like another negative 20% to go.”

“we're probably, to be honest with you, like, actually, like, we've puked it all out for the most part, in my opinion. ... And if you look at all these corrections in the world of computer traded algorithms and ETFs and passive money, and it's all the snapbacks are so fast, you correct 20% and then you whip it back and you go.”

“there's certainly opportunities within as there is in any market that's moving quickly to find businesses that now are prices, mature, non growth value businesses, and they're profitable and growing. And there's a bunch of those out there now. And that wasn't the case a month ago.”

“We've seen a huge correction in growth stocks. We've seen a huge correction in crypto. Basically, anything long dated as the fear of interest rates increasing has gone up, they've massively corrected.”

“but also I saw that clearly we were going to go through a period where that high growth tech was going to trade down. So I sold some of that high growth tech ... And what he said was when you see a drawdown, meaning when the markets go down, it'll affect high growth tech first. It ended up touching a bunch of other areas. Second, like biotech. But he said this key thing, which is Big Tech will be the last to crack. But when they do, they are going to get shot.”

“the compression in SaaS multiples, in the public market valuations, something that we're still working through in the stock market, which has been choppy at best over the last couple of months.”