Podcast, Fireside Chat, Roundtable
E78: VC fund metrics that matter, private market update, recession, student loans, Bill Hwang arrest
- Open-source asset release is expected to drive frenetic fan content creation, while an open mic night is anticipated to be entertaining despite a less personable environment.
- Andrew Lacy expects individuals with available capital to visit prenuvo.com for head-to-toe MRI scans, potentially uncovering 11 life-saving diagnoses ranging from brain tumors to stomach cancer.
- The speaker predicts the stock market has effectively already crashed, particularly in growth stocks, with potential for a small silver lining if bearishness focuses specifically on the four mega-cap names (Google, Microsoft, Apple, Tesla) keeping the market afloat.
- Market pricing for a recession is anticipated to have occurred around November 6th of the previous year, with the speaker forecasting a 50 basis point rate hike by the Federal Reserve that could make the market fragile due to aggressive quantitative tightening.
- A marginal risk of recession is identified, with two quarters of negative growth definition under test after the first quarter saw a 1.4 percent GDP fall, while savings rates have dropped to 6.2 percent as of March, signaling a contraction in consumer spending.
- Supply chain constraints are forecast to cause chip shortages through 2024, impacting companies like Intel and Apple, while wealth destruction in growth stocks (45% down 50%, over 22% down 75%) is expected to trickle into the broader economy.
- Student loan forgiveness of the first $10,000 is predicted to act as a stimulus, providing a 2.5 percent boost to GDP, though the speaker warns this is a half-trillion dollar stimulus that may be wasted without systemic reform of university incentives.
- If federal student loans are cut or restricted, tuition costs are expected to decline due to reduced demand, whereas current federal intervention is viewed as having created an inflationary bubble that has overburdened 15 percent of American adults with debt.
- Total federal student debt stands at $1.6 trillion (with 13 percent of the U.S. population carrying it), having risen from $25,000 to $37,000 in average debt between 2012 and 2022, while private market mechanisms are expected to emerge with differential risk pricing if federal funding stops.
- The midterm elections are anticipated to be influenced by the political decision to forgive student loans, which could help the administration, though the speaker argues this primarily benefits the 43 percent of the 2020 Biden electorate who graduated from college.
- The Archego Capital Management collapse, involving $160 billion in exposure from 4.5 times leverage, is attributed to banks failing to see risk due to doctored reports, with the speaker predicting that a clearinghouse for equity derivatives would have solved this risk buildup.
- Elon Musk is forecast to generate a 2x return on Twitter within six or seven years, potentially valuing the asset at around $100 billion, with plans to open-source algorithms and potentially donate the company to a trust to create a competitive alternative to for-profit media.
- Twitter is predicted to go public again under Musk's ownership, reaching a five-times evaluation, provided it adopts transparency policies (such as agent numbers for moderation) and bases content decisions on First Amendment case law categories like fraud and incitement rather than acting as a referee.
- The Disinformation Governance Board led by Nina Jankowicz is expected to function to censor debate and push partisan political points, while the Homeland Security Department's redefinition of disinformation as a terror threat is seen as a precursor to creating a "Ministry of Truth."
- Big tech censorship of the Hunter Biden story two weeks before the election is characterized as election interference, with the speaker asserting the story was absolutely true and that doxing and hacked material were used selectively to suppress political opponents.
- The speaker notes that private market valuations are sticky, and companies may face a 60 percent discount to public market prices when seeking new capital, while the market typically sees 5-7 percent growth, necessitating low-to-mid 20s returns for venture capital to justify risks.
- A 2x return over 11 years ($2.5 billion returned) is contrasted with the S&P 500's 7-8 percent long-term return, while the speaker expects the next phase of fundraising to be difficult as capital call loans used to juice IRR come under SEC scrutiny.
- The Federal Family Education Loan Program introduced in 1965 is expected to be the cause of college costs rising from $1,200 to $21,000 publicly and $2,500 to $46,000 privately, creating a cycle where the government profiting from private companies leaves taxpayers to foot the bill.
- The speaker anticipates that the 2019 stock market performance (up 32 percent) was a result of the Fed's "head fake" in tackling inflation, and predicts a similar scenario could result in the market being more than 30 percent up if the government races to tackle inflation again.
- Income Sharing Agreements (ISAs) are presented as an easy free market solution capping returns at 2x, while the speaker argues that the 2008 real estate bubble demonstrated private markets have a cleansing mechanism to sort out bad loans without federal intervention.
- The Consumer Confidence Index is expected to remain volatile, currently at 107 down from 128 in 2021, while the John Durham indictments are predicted to prove the hoax of the Russian interference narrative which began with the Steele dossier.
- The speaker expects that the private market for education would function correctly if the federal government stopped funding loans, forcing lenders to make smart ROI decisions, though 15 percent of American adults with student debt are expected to never be able to pay it back.
- The speaker predicts that if the federal government does not stop funding "worthless degrees," the cycle of debt and wasted money will continue, whereas a University of Waterloo-style co-op program allows students to graduate with less debt and acquire commercial skill sets.
- Global university rankings are characterized as a shell game forcing schools to undo their unique qualities, while the 17 million dollars a year in legal counsel at Twitter is described as a bureaucracy that cannot be held accountable through standard harassment laws.
- The speaker anticipates that 60 percent of stocks on the Nasdaq are down significantly, and the market will price in a 60 percent discount to private marks unless companies accept it, while the 10-12 year fund structure makes distributions difficult to achieve.
- The speaker expects that the 2020-2021 era of easy fund raising is over, with the next phase requiring returning multiples on easily collected money being difficult, and that multi-hundred percent IRRs with zero DPI are indicators of funds playing games to trick LPs.