Chamath Palihapitiya.
Mike Windle/Getty Images for Vanity Fair
Chamath Palihapitiya slammed the Fed for distorting financial markets with near-zero interest rates.
The billionaire investor said the market slump this year was the result of money leaving the system.
Palihapitiya predicted the US economy would tumble into a recession within the next two years.
Chamath Palihapitiya has accused the Federal Reserve of inflating asset prices and fueling reckless speculation in recent years, and sounded the alarm on an impending US recession.
The billionaire investor and Social Capital CEO criticized the US central bank for maintaining rock-bottom interest rates in recent years. The loose monetary policy drove investors to buy riskier assets such as stocks and cryptocurrencies, as savings accounts and bonds offered meager returns.
“It perverted the market, it distorted reality, it allowed manias and asset bubbles to build in every single part of the economy — whether it’s digital trading cards, or art, or cars, or real estate, or NFTs, or SPACs,” he said at the Axios BFD summit on Wednesday.
Palihapitiya is best-known for his slew of special-purpose acquisition vehicles, which he used to bring businesses such as Virgin Galactic and Opendoor to the public market. He said the plunge in asset prices this year is a product of liquidity being sucked out of the economy.
“When you provide free money into a system, manias will build,” he said. “Now that we’ve taken money out of the system, these manias will end, and you will find the market-clearing price for a lot of securities.”
The so-called SPAC King said the easy-money era led to people taking excessive risks, and lossmaking startups going public at eye-watering valuations. Now, investors are beginning to separate the quality businesses from the inferior ones, he said.
Palihapitiya also responded to criticism that he won big from his numerous SPAC deals by cashing out, while retail investors who held the stocks have suffered heavy losses.
People made and lost money on all sorts of assets during the boom years, he said, adding that even proven, profitable tech companies like Meta have plummeted in value this year.
The former Facebook executive took aim at Robinhood for not treating stockpicking as a serious business. “This is not a game that was meant to be gamified with confetti in an app,” he said, echoing veteran investors like Warren Buffett and Charlie Munger.
Yet it’s worth remembering that Palihapitiya cheered on the GameStop frenzy in January 2021, publicly bought bullish call options on the meme stock, and sold them for a significant profit.
Palihapitiya was also asked whether he expects a US recession in the next two years. “Absolutely, yes,” he said. “I hope it’s not true. But I think that the odds are very, very high that we are.”