Ep.71: US stocks suffer sharpest first-half drop for more than 50 years

Hello and welcome to episode 71 of the Market Maker podcast. Great to be back. You might have realized if you're a follower of the podcast series that there was a missing episode last week because I had my hands full, unfortunately.

Yeah, what's your excuse? I mean, surely you don't have a good enough excuse.

Just, you know, doing my part, just helping humanity, adding another human being to the world.

Yes. So yeah, well, can I just say, amazing. Congratulations.

Thank you.

Fantastic news.

Yeah, I know, um, because technically I'm still off at the moment. You messaged me this morning.

Yeah.

And, uh, I'd literally— I said to my wife, right, you know, I'm gonna go back to work properly Monday, so look, just go in the other room, sleep all night, I'll take care of this, I'll take care of both of the little ones. Yeah, big mistake.

The brutal night shift.

So yeah, it's, uh, if I'm sounding a little groggy, that will be why. But, um, but yeah, good to be back. And first off, as I normally do, a couple of shoutouts in order, I think, because as I've been away, kept my eye on a few things. And LinkedIn, I saw some really great news. And first off, for our own team, for, for a change, and that is for, for Milan First Class degree, Computer Science, he unveiled to the world this week. So massive congratulations to him. I know he's had quite a few things to handle on his plate, both professionally and personally. So absolutely awesome job to, to get that done. And now onwards and upwards, you know, the real difference that he can make, I know, will start now for us and for himself, I'm sure. So congratulations to Milan. Sophie as well. Not to neglect the other members of our awesome tech team. She also got a first. I know she announced that a couple of weeks ago. And she went to the best university in the world, Nottingham Trent, which is where I went, of course. And then, yeah, just to mention the other members of that team as well who are joining now full-time, having now graduated. So Ishan, great to have you on board as well. With us every day. And their leader, of course, my main man Amir, just the glue that holds everything together. So can't, can't not give Amir a shout out as well. So yeah, just to get that out of the way and say well done to that team. But yeah, let's talk about what's been going on because I did catch the episode that you did, I think the day after or the morning of when the baby arrived. Yes, uh, obviously the Fed pulled the trigger and, uh, they went big. And then volatility has been quite high, which is quite typical. Go back and do your backtesting, uh, of when I typically tend to take holidays and associated—

pattern is there.

Um, so yeah, US stocks have recorded their worst first half in more than 50 years. And we were recording this, obviously it's 1st of July now, so it's good, really good time. I like to do this often I know you're the same, Piers, is like take a bit of a stock check where we are various periods throughout the year, and typically quarterly, semi-annually. And, and it's good, it's good conversation. I know we can talk a little bit about potential portfolio rebalancing, and these things are very important at this time of year seasonally. And we can also talk a little bit about debt and capital or equity capital markets as well. So it won't all be global markets, we can throw in a little bit um, of kind of IBD chat as well. So yeah, the main crux of this, as we know, has been very well commented on in press— runaway inflation, fears of slowing growth, aggressive central bank tightening now well on its way. The S&P finished yesterday's session down around 1%, but it means that the index is in bear market, down 20.6% the first 6 months of the year. Um, the one stat I did see, obviously sensationalizing it, was the FT. They were talking about stocks that basically lost $9 trillion, and I was like, $9 trillion? Can that be right? But they were quoting the, the S&P 1500, which, uh, not something I'd look at a great deal. Um, but to give you a bit of context, um, if you are relatively new to markets, with these stock indices, there's a variety of them. And typically they, they look at different types of stocks, different size index weightings, things like that. The S&P 1500, because it's typically the 500 largest companies that most people would look at as a benchmark, the 1500 tracks small, medium, and large cap groups. So I guess it's a pretty good barometer of just the general encapsulating what's been going on, but it obviously starts to blow up that figure nicely, if you're a journalist, to the $9 trillion marker. Um, but then, yeah, tech stocks of course have been arguably one of the main casualties, um, for 2022 to date. They've lost almost 30%, so you can stick on another 10 on top of the S&P loss. But they haven't all been losers, um, although we can talk through— and I'd like to get your input as to the rationale behind some of the equity sector performances, energy stocks up 29%. Now, just to put this in context, I said the S&P, which was down 21%, energy was up 29%. So phenomenal period for energy stocks. But then perhaps you could talk us through that and talk us through consumer discretionary stocks, which I know was the complete opposite. Yeah, why these sectors have performed like they have, and is there any expectations that you have for going forward for the next 6 months?

Yeah, so definitely some sensationalist headlines, as you were saying, in the, uh, like the FT and the like this morning. Um, yeah, that kind of front page, you know, US stocks suffer sharpest first half drop in more than 50 years, um, which is factually correct. Yeah, 1970 was the last time we had a bigger sell-off in the first 6 months. But I mean, I guess it's just a bit of timing. This sell-off we've had, as you said, 22%— sorry, 20.6%, sorry, is the official NASDAQ 30%. But it's just the timing of the sell-off. It just so happens that we peaked at the end of November and kind of started to move to the downside. And then So just so happens the first 6 months of this year has been all downside. It's not to say that we haven't had bigger sell-offs at any point in the last 50 years, because of course we have. For example, Q4 2008, Q1 2009, the S&P sold off 66% or 68%, I think it was, right? So we've had way bigger moves lower. It's just that just in the first 6 months of a calendar year, we haven't had as big a move as this. So, um, but yeah, I mean, we've been talking about this all year, of course, so everyone knows the reasons— the inflation crisis, the hawkish pivot from central banks, the commodity price pressures as a result of geopolitics, the supply chain factors that are ongoing, you know, China lockdowns and all the rest of it. So we know, we know why it's happening, but yeah, Well, we often mostly talk about the indices on this pod, but it's time to just lift the bonnet, as you said, because if you delve into then— so rather than just taking a whole index, you then go down to the subsectors, right? So that we split stocks into different sectors, different categories, depending on what type of business it is. And then these businesses, depending on what type of service or product they're selling, often behave in different ways, you know, in certain parts of the cycle. So basically every single sector has declined in the first half of 2022 apart from one, and that's energy. And no, it's for obvious reasons. Um, the price of oil's shot higher because of supply risks associated with Russia invading Ukraine, and so clearly energy companies' revenues are derived from selling oil. And when the price of the product you're selling just ramps through the roof, well, clearly that's great news for you. And that's why, like, here in the UK, for example, the government's announced a kind of one-off windfall tax on energy profit, energy company profits, because, you know, they're benefiting from this crisis, right? So look, energy a lot higher, 30-plus percent. Everything else has dropped. Okay, but then when you look at everything else, we often talk about defensive sectors, and then the opposite to that is what we call like cyclicals. Okay, the defensive sectors— utilities, consumer staples, healthcare— they're the ones that have— they've sold off, but they've sold off the least. I think utilities is the best. Utilities is down 2% when the whole index is down 20%. Right now, why is that? Well, a couple of reasons. Number one, what are you— so that we're talking about electricity and gas, right? Um, selling to consumers. And the thing about their revenue streams of those companies, they're very stable. So you, like consumers, you're going to turn your lights on, you're going to turn your AC on, you're going to turn your heating on. Doesn't matter if you're in a recession or if you're in an economic boom. You know, you're gonna— your consumption of electricity and gas is going to be fairly steady, right? So from a revenue point of view, these companies' revenues are very stable. And so that becomes really attractive when you're heading for a downturn. That stability can be very attractive. That's one thing. The second point is about if you're in an inflationary environment— obviously we are— then actually it's that type of business that can far more easily pass on the higher prices to their consumer. So electricity prices go up, right? And actually, we're used to our electricity prices going up and down on our electricity bill. That's— and that's always the way it is, right? Most companies, it's a lot harder. You know, if you've been whatever, if you've been selling Mars bars at £1 for the last 5 years, and now you want to increase the price to £1.20, then hang on, you're in the shop and you're like, what, £1.20? I'm not paying that, right? And so it's a lot harder for— we talk about price being sticky. So a lot of people that manufacture and sell physical products, um, that stickiness, it's really tough to pass these inflationary price pressures through to the customer, right? And so they have— that hurts their margin and their profitability. So utilities are great, a good inflation hedge actually, so they've done well. Consumer staples, you know, that's stuff you buy, I don't know, whatever, Procter Gamble, or the often one I talk about is toothpaste or deodorant or shampoo. You're going to buy this stuff, it doesn't matter what the economic situation is. So again, very stable revenues Healthcare, similarly, you know, if you're buying drugs, well, obviously you need to buy drugs, and again, that's not an economic decision. Um, so again, stable revenues, right? So they're your three kind of defensives. Then you have other kind of sectors that aren't defensive, they're more cyclical, where the sales of these companies goes up and down with the economic cycle. Um, so, you know, industrials and technology and consumer services— sorry, communication services. And then the big— the biggest loser of the whole lot in 2022 is something called the consumer discretionary sector. And that's like your— if you like your luxury goods, uh, I don't know, Burberry, you know. Are you gonna buy your $2,000 Burberry jacket when you're worried that a recession's about to hit? And you might lose your job. Well, you know, these discretionary products, it's like nice, nice to haves. You don't need them, you'd like them, and you maybe aspire to them, I don't know. But it's an economic decision where in a downturn you're not going to buy that stuff, right? So therefore those companies, they get that their revenues are way, way more cyclical. And so when we've got a downturn ahead, um, those share prices get hammered the most. Most. Um, so, so yeah, I mean, that's the situation. And yeah, generally speaking, uh, a 6— well, it's actually a 7-month downtrend because it really started in December and still going.

A couple of stats for you then to just kind of bookend that, that segment is that looking at the S&P 500 worst performance over the first half from 1928 to 2022. So given us a nice pool of data. So the first half of this year ranks— talking calendar, so I understand the context you were saying earlier— but looking at the calendar year, 2022 ranks 4th worst. So more, more downside than that was 1940, 20.9% lower. 1962 26.5% lower. 1932, which any market historians will recognize was by far the worst, that was down 44.5% for the first 6 months. However, all 3 of the years I've just mentioned, 1940, '62, 1932, their second half of the year looked like this. Gone. So in third place After being down, well, basically 21%, it rallied 7.4% for the second half. Uh, the second worst start to the year in '62, down 26.5%, then rallied 20% in the second half. And in 1932, the big downside that I mentioned, it actually rallied then for the second half of the year 53.4%. Um, so yeah, it's, uh, just, just to put that out there, um, because one of the things I did see was a note out of Morgan Stanley's wealth management team, and they were saying that watch earnings estimate cuts and a bottom, or bottoming in economic surprise indices, to signal a buyable bottom. Now I know you don't like going around picking bottoms, Piers, but Earnings season, is there something on your radar?

Buyable bottom. That conjures up all types of images. I think that, yeah, look, so I guess you've rolled off those stats. Well, I guess in there you're basically asking a question that you didn't actually verbalize, which is what's going to happen in the second half of 2022 then? And I would definitely not be bullish second half of the year yet, but definitely not. I think there's a big difference here. Well, I'm not— I don't know what monetary policy was doing going that far back, maybe. But the thing about the second half of this year is the central banks are not coming to your rescue. You know, investors are very— you know, we've been used to— we've had the luxury for a few decades that whenever stocks go down, don't worry, central banks are in with their stimulative programs and pumping them back up, right? That's gone. In 2022, that is not going to happen. So that's a key factor to understand when you're trying to judge what's going to happen in the second half of this year. What is the rebound potential. Well, we might not even rebound at all. We might actually continue to sell off, by the way. Um, but the central bank's not going to drive the rebound. Um, that's an important thing. So for me, July is the critical month that will shape the— what, the next 6 months, I think. And 2 key elements to this month: the earnings season So as you've just mentioned, with Q2 now ended, and so as normal, we now get big companies, corporations reporting their performance in Q2, number one. So that's looking backwards, you know, revenues and profits and all the rest of it. Much more importantly, yeah, it's guidance forecasting for the rest of the year. And are they going to revise down their earnings? And almost certainly, but how much are they going to revise it down? You know, how badly did Q2 get impacted because of this inflation crisis? This is what we want to find out. That's really key. That's happening throughout the month, right? It takes like 4 weeks for all of these companies to report. That's going to be ongoing. Um, the other critical thing is on the 13th of July, 1:30 PM London time— mark it in your calendar— US CPI for the month of June. Okay, this is massive, massive, massive, massive. We had some inflation data earlier this week— earlier this week? Yesterday, actually. And this is the— something called the core— inflation is a tricky one. There's lots of different measures and different types, and yesterday's measure was something called the PCE, and This is actually important because it's the Fed's preferred measure of inflation. And so we had some data there and it actually came in lower than expected. And at the time yesterday afternoon, I was like, wow, okay, that's quite notable. And the thing is, I should make clear, this is for the month of May. So this is PCE inflation data for May. So it always gets reported 2 or 3 weeks after the CPI data is reported. So this is slightly older news. We're end of— well, we start July now, right? And this is May data, so it's a little bit further backwards looking, but it was lower than expected. And I thought, well, you might well see stocks rally off the back of this, but— and they did for all of about 1 minute, and then they actually sold off. And I thought that was incredibly interesting as a gauge of sentiment. There was a, there was a, a reason to buy yesterday afternoon, and while some I'm sure did, in the end the sellers still were in control and the market closed lower for the day. I thought that was a really interesting sign that this is still a bearish market. There was, in amongst all that inflation data, there was something called the personal spending data for the US for the month of May. And we were expecting a strong increase, 0.6% month on month. So we're expecting consumers' personal spending numbers to be 0.6% higher in May than they were in April. The actual reading was only +0.2%, so it's quite a big miss. And I think what's happened is up until this point, whilst this inflation thing has been, you know, with us for a while, because the savings rate was so huge through COVID, people were saving a lot of money because they weren't going out. Then you have these stimmy checks, right? So people are flush with cash. And so what's been happening is even though prices have been ramping up quite rapid, very rapidly, consumers are still being out there spending because they've got so much cash, right? It could be that people are looking at that personal spending number and going, you Maybe that's the first signal that inflation is now beginning to bite in terms of damaging consumption. Maybe that's possibly why, but that's kind of just getting into the nitty-gritty of the data that we get on a month-by-month basis. But that's for May, right? On the 13th of July, we'll get the CPI, the Consumer Price Index, for the month of June. That'll be the latest update, and that is key because, because of what happened last month. So the, the May inflation data that was announced on the— I think it was the 10th of June— showed that inflation pinged back higher. Prior to that, we had thought inflation peaked in March, but May saw it jump back above, and so proved that actually it hadn't peaked, it's still going up. So what we want to know is, is that inflation trend definitely still back on the up? Is, is the June inflation number going to be larger than the May inflation number, indicating this inflation problem still getting worse? And so, right, the Fed are going to have to carry on with their massive hikes each meeting. Or is the May reading where you got that blip higher, was that the anomaly? And actually, does the June reading drop back down and kind of the idea that the inflation peak is behind us, does that narrative come back to the table and we start feeling a little bit more relieved and maybe the Fed aren't going to have to hike as much and etc., etc., right? So that July 13th inflation number and the US earnings for Q2 is key. So ask me at the end of July and I'll have a more confident opinion on what's going to happen in the second half of this year.

So that, that sounds like an incredibly, um, sensible way to economically monitor the situation. But mechanically, what about this idea of rebalancing to just make sense of some recent market movements? So away from just kind of interpretation of forecasting on data Is there other activities that would seasonally happen around now that can have influence on prices?

Yeah, so the day your wife gave birth was the low of the year.

I'm already long, Piers.

I'm already long. We had a big sell-off. That was Fed day, FOMC day. That currently is the low of the year. I mean, so far, this is only a couple of weeks ago, right? I'm not saying that is the low of the year. We're not going to break yet. That's not what I'm saying at all. Right now, that's the low of the year. From that point, we actually had a bit of a rally over the last couple of weeks. We've had a bit of a rally. I'm talking about US stocks here until like the last couple of days, and now it's come back down again. All right, but we had a period there really between, let's say, the, let's say the, the week beginning the 20th of June. That week we had a solid, actually a pretty sizable bounce, um, and people were going, oh wow, okay, that's interesting, what's going on there, how do you explain that economically? And, and people were scratching their heads and we were trying to spin an argument, oh, maybe people think that the recession's going to happen sooner because inflation's worse and the Fed are going to have to hike faster. And if the recession is going to come sooner, well, then maybe the Fed won't have to hike as much. Oh, and maybe, maybe in 2023 they might start cutting interest rates. And you were reading articles about this and people trying to spin a story, but actually I don't think it's got anything to do with economics at all. Um, that rebound week beginning the 20th is most likely due to quarter-end rebalancing. So this is a sort of phenomenon like in the asset management industry where you're running equity portfolios, then you'll be, you know, your, your kind of language is what's my asset allocation weightings, you know, what's my strategy, and therefore, right, as a result of that, what are the weightings, how, what proportion of my portfolio will I be investing in equities, for example, right? And let's say you've got 50% weighting in equities, okay? Let's say at the start of quarter 2, so on the 1st of April, you've got 50%— 50% of your portfolio is in equities, and that's your strategy. But then as quarter 2 unfolds, equities sell off sharply, okay, for the whole of quarter 2, literally from the 1st of April to the 30th of June. It's a big downtrend. So what that means is if you do nothing with your portfolio, naturally you're going to see the proportion of your portfolio made up of equities dropping because the price of those shares are going down faster than other stuff in your portfolio. So it might be that by the— coming to the end of Q2, your equity weighting is 45% now, not because you've been selling anything, it's just That's natural creep because of price change, okay? So here you are at the end of Q2 nearly, and you're 45% equities, but that's not your strategy. And look, your strategy is linked to a lot of stuff you've agreed with your client through like an investor policy statement. And so it's really your job to make sure your weightings are in line with strategy and with constraints and risk parameters and so on. And so if you're now underweight equities, you've got to what we call rebalance, which means you've got to bring your weightings back in line. So if you're 45% equities but you should be 50%, well, you're going to need to buy equities, and a lot of them. And actually, the net rebalancing figure was thought to be— in the US, this is just US equities only— the net rebalancing was plus $29 billion in that week. OK, so you had a net— plus $29 billion on the rebalancing flows, which is almost certainly why the S&P and the kind of US stock complex went up. Wasn't really anything to do with any kind of clever rationale around 2023 Fed rate cuts or anything. It was just straight up what we call window dressing, rebalancing at the end of the quarter.

Just got me thinking Talking about Milan at the beginning of the episode, I'd love Milan to run some numbers for me about the severity of kind of stock losses over certain periods to then going into the seasonal pockets of quarter, semi-annual, to see the impact. Can we quantify window dressing in duration of the dressing, if you want to call it that, and then the scope of size comparative to the size of the loss? That pre— precame that move. So that could be interesting, something to look at. But, um, okay, well, let's, um, let's pivot and let's talk about the fact that, you know, something I always say when I talk to various different students I meet is that irrespective if you're going to work in global markets or in the more classical kind of investment banking side of the bank, you definitely should have an idea about what's going on in the economy, because even if you're looking at mergers and acquisitions, equity, debt capital markets, a lot of this is influenced by economic conditions and the outlook for the economy, which ultimately is derived from things like monetary policy, fiscal policy, so on. And with that in mind then, so let's pivot and let's talk a little bit about how fundraising has gone in the first 6 months of the year.

Well, it's gone incredibly badly if you're in the business, like an investment bank, of providing services to help companies raise capital. So there's kind of— just very broadly, you kind of split the capital raising, uh, activities into three categories: equity, and then— well, I was going to say debt. You could say two categories, equity and debt, but within debt there's two parts. There's bonds, so your corporate bonds, your corporations are issuing bonds. But then if the amount of money being raised is a lot smaller, then it's just loans, right? You'll go to your bank and you'll have a whatever revolving credit facility, or you'll have an overdraft facility. You're just borrowing money from your commercial bank, right? But so equities, bonds, and loans, okay? OK? And yeah, fundraising's down 25% in 2022 compared to 2021, looking at the first 6 months of each of those years. On the one hand, I mean, 25%, that's a huge number. You are— the comp is really bad, though, because 2021 was off the scale, the biggest year ever. 2021 was the biggest year in history. For capital raising. Okay, so that's a bit unfair. So when you say 25%, well, okay, coming off 2021, it was always going to be hard to try and compete with that. But the numbers are that $4.9 trillion has been raised, so that's down 25%. So in 2021, it was $6.6 trillion. This is according to Refinitiv, by the way. But when you delve into it a bit closer, so if we just park the debt side and look at equities, So equity raising, this is like everyone will have heard of IPOs, right? So initial public offerings, but also then follow-on offerings. So if you've IPO'd in the past and you issued shares and you sold them and these shares now trade on the stock exchange, you can still raise more capital through issuing and selling equity, but it's not called initial public offering anymore. You've done that, so it's called a follow-on offering, right? So if you take IPOs and initial— sorry, and follow-on offerings, then we're down 70%. 2022 compared to 2021, 70%. So by the end of June, we only had $252 billion raised. And not only is it down 70%, and you still might say, well, it's unfair to really just compare it to last year, but $252 billion capital raised in, in, in the first 6 months of a year That's the lowest since 2005. That's globally, OK? If you look at the US, it's even worse. If you look at US only, they raised just above— like, only had 18 IPOs in the first half of this year, which is crazy, and raised only just $40 billion. That puts it at the worst first 6 months since 1999. So we've had the worst equity capital markets in the first half of the year this century, in 2022, which is kind of insane. And I guess it kind of makes sense, right? It's all part of this bigger macro story that we've described at length. And, and I guess what happened was there was one, um, IPO in the start of May Bausch Lomb, which is— I don't know if you've actually even kind of ever, ever heard of them, but they're an eye care company, so health, healthcare basically. They used to be called Valiant Pharmaceuticals. Maybe people might have heard of them more, but they kind of rebranded. Anyway, so at the start of May, they were trying to raise capital, initial public offering, and they were looking to raise $840 million. Um, and it would have been the second— would have been the second largest listing of the year. Um, but it was— appetite is so bad at the moment in terms of risk. And that, you know, in public markets you've seen that with the S&P and the NASDAQ, blah blah blah, but in private markets as well. So they were trying to raise $840 million. It went so badly, the book building process, and trying to get investors, you know, demand up. And in the end, they had to— they, uh, had an IPO price at $18 per share, which was kind of below range. But in the end, they only managed to raise $630 million when they were trying to raise $840. To put that into context, normally when you're running an IPO like this, your demand is normally going to be at least double Right, your book is going to be at least— will have demand for at least double the amount you're trying to raise. And then investment banks can have the luxury of going, right, we're going to pick and choose from the bidders, you know, what type of investors we want to have owning part of our company. And you'll be looking for a mix between, you know, longer-term asset manager investors— that's investors who are in it for the longer term— so you might want 80% of your book to be long-term, kind of long-only asset managers. And then you might want 20% that's more short-term money, like hedge funds, who are most likely going to be in and out quite quickly. And you want some of that because you want some liquidity on the secondary market, on the stock exchange. You want some volume so that the, you know, on the order books, so that the price can behave well. So, um, to be that far below— they only raised $630 million aiming for $840. As soon as that happened, basically that's it. There's been no IPOs. And that's because it was so bad. It was like, wow, everyone just kind of pulled back. And so it's really, really bad climate at the moment for trying to raise any type of capital, which makes it— and then you come back to the kind of tech sector and the more kind of high-growth sexy tech stocks and fintechs. The big problem they have is that they're not profitable, and so they're cash burning. And the problem is that they need to raise capital. It's not a question of, we— should we, should we not, let's try and time it for when market conditions are favorable for us to raise capital. So Some of these companies, they have to, otherwise they'll literally run out of money and go bankrupt. And so what we're finding is that a lot of these tech, big fintech names are having to raise— they're having to have what we call down rounds. So you have like your seed round, then your Series A, and your Series B, and your Series C, and however many series you need until you're profitable. So these are rounds of funding to fuel this growth. Um, and what we're finding is we're having a lot of down rounds, which means that companies are having to raise capital at a valuation that's lower than the valuation of the previous round. So they're basically having to accept a big discount from a previous valuation because they need the money, otherwise they won't survive. And obviously this is incredibly negative amongst the investor community Because basically you're having to take a big haircut if you were involved in a previous round. You're having to take a big haircut on the kind of valuation of your, of your asset. Um, so this is what's happening in private markets, and yeah, it's just really bad.

So if you are working in that space in the kind of advisory arm, surely then it's not that these deals go away, they just get parked. Would that be an assumption? And that actually we're going to go through the next flush when we see— whenever that might be. So, yeah, 18, 24 months or whenever. But surely that's going to just result in pent-up demand and everyone will be rushing and there'll be astronomical demand at some point because there'll be just people wanting to get back in again. Is that a normal— was that a true assumption to have?

Yeah, it's cyclical like everything, right? So, well, if you have the luxury as a business, right, where you don't need external capital. So there's— even if you do need it, you can try and delay it. But how do you delay it? We've got to cut costs. You've got to try and spend less money on a month by month. You've got to reduce your cash burn. But then this is all like vicious kind of negative feedback loop. Because how do you do that? We lay people off.

And then maybe I might, I might lay off some autonomous car driving engineers and 10% of my workforce.

Exactly. So I know it's a bit of a spiral, because if everyone's laying people off, well, then obviously this just makes the recession even worse, um, and then the fundraising conditions stay bad for longer. And there's obviously only so much cost cutting you can do, right? In the end, you've got to— even if you get down to the real skeleton, you've obviously still got to be operating and trying to grow the business to try and actually achieve the— that end goal where you actually turn profitable. So if you do have the luxury though where you don't need capital and you can cut costs if you want, then yeah, fine. People are just parking the bus and we'll wait 12 months. So you're always going to get a rebound. We're just not quite exactly sure yet whether or when that rebound would be. But yeah, at the moment we're really right at the trough, probably, of this, you know, incredibly negative kind of fundraising conditions out there in the private markets.

Cool. Well, look, great explanation as always, Piers, and a good way to kind of fit in a bit of different chat to the— to supplement the global macro kind of view on things. So we'll call it an end to the episode there. Um, don't forget to check out the show notes of the episode for links to either our Finance Accelerator simulations— they are still going on— so if you're a student and you have finished now and you're free for the summer and you're looking for something to do, well, the summer is a great time to skill up, get some practical experience. And yeah, we do this for absolutely free. It's sponsored by Morgan Stanley, none other than the major US investment bank themselves. So, um, we'd love to get you involved with that. So it's a 2-hour free sales trading, market making, asset management simulation. Again, check out the show notes to register. We do it every week. And also for our daily newsletter that we put out. And yeah, I'll be keen to get back in the hot seat as of Sunday night. In fact, look out for the Amplify Me YouTube channel. My look ahead for the week will go out as per normal.

And then yeah, you've been missed. It's good to have you back. Just the world, you know, what's going to happen in the second half of 2022? Well, All right, the Fed aren't going to help you out, but at least Anthony Cheung's back at his desk.

That's it. You know, Jay Powell was texting me, he's WhatsAppping me last week, and I was like, look, Jay, just, just hold off. Look, I'm not going to have any more children, so don't worry. Cool. All right, cheers, Piers. Thanks everyone, and see you next week.

Have a good weekend.

Take care.