Billionaire venture capitalist Chamath Palihapitiya is detailing his outlook for global markets in the near term.
In a new edition of the All-In Podcast, Palihapitiya says he believes that investors have already factored in most of the worst-case outcomes of Russia’s invasion of Ukraine.
“I think that we’re in the midst of what I would call a melt-up. So probably in the next month, month and a half, there really isn’t much ‘bad news’ that hasn’t been priced in. The thing I’ve learned over the past few years is that markets don’t actually care what the news is. They can process good news and bad news equally well. What they despise is the uncertainty of what the news could be.
So this week was really important because we had two huge buckets of uncertainty taken out of the market. The one we’ve already talked about is when the market saw that there was a surface area of a deal between Ukraine and Russia, that was really constructive. Because neither side would have signaled something if both parties were very far apart. So that meant to the markets, we’re a few weeks out from getting something done.
The second thing was Jerome Powell and the Federal Reserve. They finally had their meeting. They raised rates 25 basis points. But even more importantly, they gave you a very prescriptive forecast of what the next year will look like at a minimum and possibly even two years.
And once you can have that, you were able to go and redo all of your expectations. And what people realized was ok, inflation may actually start to get tamed in the back half of the year. The economy is still quite strong, and we could actually support 2% to 2.5% interest rates and still actually grow really well. And so what you’ve seen in the last three or four days is a reaction to the loss of uncertainty.”
Palihapitiya’s expects equity and crypto markets across the board to move higher unless Russia deploys a “low probability” chemical or nuclear attack.
“The fly in the ointment could be if the war all of a sudden escalates. Not that it gets dragged on because at that point that’s also, I think, been priced in. But if something very meaningfully different and Russia in this case ratchets up the intensity by going nuclear or something else, although I think that’s a very long-tail – these are all very low probability events. But in the absence of these things, you basically have really constructive dynamics right now for at least the next month and a half, maybe even two months.”
Palihapitiya says there are clear signs that retail investors capitulated and sold-off at the start of March, which further plays into his calculus that markets are positioned to rise.
“Retail is not a very good signal of anything. In fact, if you actually look at retail flows, typically you will make money by doing the exact opposite of what retail does… Every single day since the beginning of this year, retail was a net buyer. In all of those days, the market got punched in the face. Finally, at the beginning of March, retail capitulated. And I posted that same day and I said, ‘Guys, this is the moment to buy.’
And lo and behold, what happened is the markets rallied meaningfully from that point.
And the reason is because they were going into the end of Q1. You have a huge tax bill due on April 15th. People were finally starting to give up. They were buying every single day and they finally gave up. But that capitulation was the moment you buy…
Retail flows are something you typically will make money by fading. By doing the exact opposite of whatever retail is doing. And you just need to have access to that information… So where are we going from here? Probably up.”
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