This Is How The Unicorn Bubble Will Burst

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Joe Weisenthal (1:00)

Hello, and welcome to another episode of the Odd Lots Podcast.

Tracy Alloway (1:05)

And I'm Tracy Alloway.

Joe Weisenthal (1:06)

So Tracy, the last month in markets has been pretty interesting, wouldn't you say?

Tracy Alloway (1:13)

Interesting is definitely one way of putting it. It's been massively volatile, and I'm sure quite stressful for quite a few investors.

Joe Weisenthal (1:21)

Definitely stressful for several investors, but also I would say, you know, as it often is, unfortunately good for us in the financial media business because some very good stories to write about, talk about and dive into.

Tracy Alloway (1:35)

Right, there's been no shortage of headlines, that's for sure. One of the big things that we've been writing about has of course been the massive sell-off that we saw in technology stocks.

Joe Weisenthal (1:45)

Yeah, that's exactly right. Like lots of things have happened in the last month and really all year with many global markets selling off. But I do think what's really striking and what felt different about this past month is how violent some of the selling has been in technology companies that heretofore have seemed really maybe bulletproof. And I'm thinking of companies like Amazon, which was at one point worth over a trillion dollars and then very quickly lost about a quarter of its market cap.

Others like Netflix and Google and Facebook, which had been struggling since the summer, very much a different tone to the trading of these companies. And of course it might just be a blip, but maybe it's a sign that just sort of that pure optimism that people felt towards these companies has started to fade.

Tracy Alloway (2:38)

Right, and I think that's one reason why the month felt so stressful because you saw these stalwarts, not just of the technology sector, but really of the entire market suffer during this downturn. And so think about the major components in the S&P 500, the fang stocks like Facebook and Amazon and Google really make up a big proportion of that.

Joe Weisenthal (3:00)

Yeah, exactly right. And not to belabor this point, but these were also incredibly important stocks for hedge funds and many of the successful long short managers were successful because they made big bets, concentrated bets on these companies.

So when they fell apart or when the stocks fell apart is really wreaked havoc. Now, the other thing that's interesting to me is we live in a time where there are a lot of really big tech companies that are not public or they're tech-ish companies. So whether it's Uber, AirBNB, WeWork, a lot of these tech or tech adjacent companies that are gigantic, much bigger than many of the public companies out there that have sort of feasted on incredible growth and incredible access to private market money.

And of course, one of the questions that arises in light of the tech sell-off is, if the public market is turning more negative on tech, then what does it mean for these companies that people are very obsessed with, but that haven't really proven themselves to be durable businesses yet?

Tracy Alloway (4:05)

Right, because they've all been sort of lining up with the expectation that if they wanted to IPO, there would be this huge amount of demand. And then suddenly the recent market route kind of puts that into question. Although, well, I have a lot of thoughts about this. So I'm sure whatever we're about to discuss, it'll be a good conversation, Joe.

Joe Weisenthal (4:25)

Great, I think it will be too. So all that being said, I want to introduce our guest for this week's episode. We're going to be speaking with Bill Janeway. The legendary economist Hyman Minsky characterized him as a theorist practitioner. He spent 35 years in venture capital affiliated with Warburg Pincus, and he is an affiliated member of faculty at Cambridge University. And I recently read his book Doing Capitalism in the Innovation Age, which really speaks to what I think is the sort of question of the moment about the relationship between entrepreneurship and financial markets and speculative activity.