Chris Forte’s “Thoughts to Start the Day” – Founders Fund

Posted on July 19, 2022 by Scott Shuda

Here’s a sobering outlook from an interesting guy . . .

Meet Keith Rabois, a technology executive and investor. He is a general partner at Founders Fund. He is known for his early-stage startup investments and executive roles at PayPal, LinkedIn, Slide, and Square.

“This is exactly what happened in June 2000. The Fed raised rates 6 times and tech stocks collapsed. This was completely predictable. On November 18 I accurately predicted this is the top of the market and we are just weening out the disbelievers now. We haven’t hit bottom like in June 2000 yet, but we will any day.

“There’s a new world order. As long as the Fed raises rates Tech valuations HAVE TO GO LOWER. It’s an inevitable law of physics, it’s basic Finance 101 – I’m astounded that 99% of people don’t understand it.

“In 2000 the first collapse happened in March and then again in June when all hell broke loose. It took almost 3 years to escape from that change. As long as inflation goes up interest rates are going up unless we go on an austerity plan – cutting government spending which isn’t a bad Idea, but I don’t think there is political will to do. So the only variable is interest rates. If rates go up Tech goes down.

“Tech valuations must go down because discounted cash flows must be divided by a different number. If that number you divide by goes up then the valuation goes down. Most tech companies don’t make money in the short term, they intentionally try to make money 5-20 years in the future. When you divide by a different discount rate these companies with be worth 10-25% of what they used to be worth. And I don’t think it will be a fast recovery.

“Consumer data hasn’t shifted yet. Shopify for instance isn’t really missing numbers, it’s because you are dividing by a different interest rate number. They have a totally different discounted cash flow.

So we really haven’t seen yet what happens when the consumer stops spending. Then we might see 2000 again – interest rates first, then companies miss metrics and earnings – that’s a catastrophic combo. Now you’re at a 10% market cap comparison to where you were at a year ago. That could happen. The consumer seems a little nervous but hasn’t pulled back yet. Savings rates are down, credit is tightening so probably less spending in the future.

“Companies can cut back on spending to create free cash flow like Apple and Google. Earnings season will be white knuckles. If this turns into 2000 where it’s both macro and micro for companies, back then it was 3-5 years of a nuclear winter.

Good morning!
============
QUICKIES
*The market has not made a new low in a month. It’s putting some distance from the lows. –
Rick Santoli
*Pencil this in:
Aaron Warwick says, “I’ll be hosting my monthly call for Elite subscribers on 7/20/22 at market close. I will be sharing a lot of details about my visit this past week at INTZ‘s headquarters.”
*Breakout Investor
Florian Buschek discusses BoardwalkTech (BWLKF) in a 15 minute interview. See the YouTube link on the Feed.
*I am reminded of a comment that my first boss made to me in 1987: “One of the signs of a bear market is that it feels like a big win if we close unchanged.” –
Steve Sosnick, Chief Strategist at Interactive Brokers
*Want a trade idea?
Check out ISSC. I’ve followed them a long time. The little company is hitting on all cylinders. Granted they are small cylinders, but the new CEO has injected some energy. Revenue, margins, backlog, EPS, cash are up. After spiking over $9 in May it has retreated to $6.50. Might be able to snag a nice bounce here. They make some exceptional safety instruments for aircraft.

Baseball players are smarter than football players. How often do you see a baseball team penalized for too many men on the field? – JIM BOUTON

Good luck to all – Chris

 Join us on the Breakout Investor Platform (BIP) to discuss INTZ, BWLKF, ISSC  and other great little companies where our community shares research and analysis.  We seek to be Ahead of the Curve in identifying and owning great companies with catalysts that could make them the next Breakout Investment. Membership and most of the content on BIP is free.

Download the Breakout Investors app to join the conversation.

 
0 0 votes
Article Rating
Subscribe
Notify of
0 Comments
Inline Feedbacks
View all comments
0
Would love your thoughts, please comment.x
()
x