Eazy Money, hard life

ZIRP and its effect on big tech

For a short time period, we are seeing the effects of not having free money in the market. Interest rates are finally going up. One clear effect is that big tech is freezing hiring. Not only that, but for the first time they are starting to feel pressure from investors to be diligent with spending! 😮 Brad Gaerstner wrote a letter to Meta to make sure they are spending all their R&D money well. Though Meta is well managed compared to some of its peers… Finally they are seeing some accountability. Not only that, we are now finally seeing some of the big tech market capitalizations go down. The biggest tech stocks lost around 3T dollars of market capitalization over the last year. That’s a lot of value.

Some of the consequences of all these market changes are hiring freezes and a much tougher market for engineers. Smaller tech companies and private startups are also seeing their funds dry up. The VC market slowed down. Raising money is harder and valuations are getting reset. Though, amid all the turmoil, there is no best time to build lasting companies. There is less competition for talent and zombie companies have less money in aggregate.

Given all that, I think the biggest loser of this market change is big tech. They can’t necessarily issue bonds at 0% rates and “print money” 💸.  Wasteful investments are harder to do. The total value that big tech lost, 3T dollars, may be more than all of the rest of all other tech companies. Free money incentivizes the buildup of these huge faceless corporations. Unfortunately this is not the end of easy money. The FED will pivot. The money printer will come online and inflation will be higher than 2% for a long time. Inflation wasn’t transitory after all. Eventually, we will see the end of easy money. Not now. And when that happens, society will be better off. Competition will let a thousand flowers bloom. We might have to wait for the next crisis though.