Tech investor Chamath Palihapitiya has slammed the Federal Reserve, saying it’s allowed the biggest financial experiment in history to occur by basically being asleep at the wheel on purpose. Palihapitiya, who’s also an owner of the Golden State Warriors basketball team and one of Facebook’s earliest executives, said in an interview on CNBC’s Squawk Box Tuesday that investors and traders have been getting away with absolute murder in recent years.
The so-called SPAC King and billionaire investor Chamath Palihapitiya said that the “perverted” market circumstances he benefitted from at the height of the Covid epidemic were caused by the Federal Reserve’s years-long persistence of zero interest rates.
At an event on Wednesday, Palihapitiya spoke with Axios and described what, in his opinion, caused the market for special purpose acquisition companies (SPACs), which gave emerging businesses a means to go public without some of the typical IPO obstacles, to climb quickly and then crash. In the face of challenging economic and regulatory conditions, SPACs, which gained popularity in the first two years of the epidemic, have witnessed a reset. Nevertheless, SPAC Research reports that there are more than 450 agreements available for merger targets before the 2023 deadlines.
The CEO of Social Capital and a former Facebook employee helped numerous businesses go public through SPACs, including Virgin Galactic, where he eventually sold his own stock before resigning from the board. After failing to locate merger prospects in time, he liquidated two SPACs earlier this month.
Palihapitiya said of the market, “We are learning what went wrong, which is that we had a decade or more of zero interest rates.” “What was truly wrong was that. The market was corrupted. It warped the truth. It allowed asset bubbles and manias to develop across the board in the economy.
Low interest rates result in lower savings account returns, which may drive increased consumer spending, which is advantageous for high-growth assets.
According to Palihapitiya, the central bank’s “free money” distribution caused a “misallocation of risk,” which caused many individuals to overestimate the risk associated with their ventures.
Palihapitiya refuted the notion that SPACs were struck more severely than other assets, such as IT stocks.
He asserted that “manias will develop when free money is provided into a system, and these manias are widespread.” “These manias will cease now that we have removed money from the system, and you will find the market-clearing price for a number of securities,” he continued. And I believe that process to be beneficial. However, I believe it is unreasonable to concentrate on a single asset type.
The biggest lesson I learnt was how much of my early success was probably not due to me, Palihapitiya said. Interest rates are already rising once more. Therefore, in the same way that I kind of blame Jay Powell for zero interest rates, I think I really profited from Powell, as well as Bernanke and Janet Yellen in the past, he added.
We had a zero interest rate environment, which allowed us to raise incredible quantities of money from investors who, to be honest, had few other options since interest rates were zero, he added. As a result, he said, “We literally had a big tail wind.” And it made it possible for us to cram into businesses. Numerous of such businesses had improbable values. Eventually these unsuccessful enterprises went public and only now are we trying to sort out what are good and what are not so good businesses.”