YouSaid · the spoken record

Ed Harrison

lines on the record: 72
first: 2022-05-12
most recent: 2022-05-12
sittings or episodes: 1
sources: podcast

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“From a real economy perspective. And so all of the dynamics that we're talking about are going to gather pace in addition to a loss of capital investment, bankruptcies, spread widening in the credit markets, et cetera. And all of those things will hurt multiples. It will hurt especially these businesses. And you're going to get a rotation back into value as a result of that, these businesses that we're talking about, their multiples are going to come down as a result.”
2022-05-12 · Forward Guidance · The “Everything Risk” Is Here | Ed Harrison · IDENTIFIED FROM THE TRANSCRIPT
“Right. Yes. That's what's going to come out of this market. You know, as the interest rates, as we normalize interest rates and we go back to the regime, the era that we had pre-zero rates, you'll see a lot of the expectations for those kinds of businesses go away. So that's what I expect to happen. And I think it's just a longer-term process. If you think of where we are right now, if you think perhaps we're in a bear market, there are bear market rallies. And that goes on for a while. And I think that the overriding consideration is monetary policy, especially in the United States, because the Fed has already said what it's going to do. I think that the level of restrictiveness is going to be too much to handle.”
2022-05-12 · Forward Guidance · The “Everything Risk” Is Here | Ed Harrison · IDENTIFIED FROM THE TRANSCRIPT
“You have to have both sides equaling one another, and therefore there's a weaker network effect. And so to me, it shows you that there are places where the network effects like Facebook or Instagram are stronger. And then there are other places where it's weaker. A perfect example that I always use is Amazon. I was looking for something that was like a recovery agent because I like to go out on my bicycle and sometimes I need to recover. I went to Amazon to find the good. Why? Because Amazon, in my mind, is the Google of Good Search. So why is that? It's because everything is on Amazon. We've gotten to a point where Amazon is, there's a network effect associated with that.”
2022-05-12 · Forward Guidance · The “Everything Risk” Is Here | Ed Harrison · IDENTIFIED FROM THE TRANSCRIPT
“Right. I mean, and it's funny, I think Joe Wisenthal he was like someone a stock was down 90% and then it was down another 15%. He was like, I didn't even know that that could happen. A stock could go down 105%. He was joking. But, you know, once you're down 80%, you can still go down another 80% as well, which is the equivalent of 90-some percent as a result. The interesting bit, however, is that I think there is some degree of network effects in market clearing type of places like, let's call it search or Uber or Doordash. So if more drivers get on board, then more”
2022-05-12 · Forward Guidance · The “Everything Risk” Is Here | Ed Harrison · IDENTIFIED FROM THE TRANSCRIPT
“And I said, you know what? It's even better. I just sort of was kept on averaging down. And now it's at a little bit over a dollar. So I have learned the hard way. Fortunately, it could have been much worse. But I've learned the hard way that stocks that go down 80% can go down 80% again.”
2022-05-12 · Forward Guidance · The “Everything Risk” Is Here | Ed Harrison · IDENTIFIED FROM THE TRANSCRIPT
“So Google, Facebook, yes. Someone joins Facebook, the network is more valuable. You joined Facebook, you join Twitter. My experience on Twitter is bolstered because I get to read your tweets and interact with you. But if you're on DoorDash and suddenly I'm on DoorDash, that's not a network effect. That should not be valued richly. And if you look at the stock, DoorDash came public where those network effects were valued quite richly. Price to sales very, very richly. And those have come down to Earth. I'd also add perhaps Curvana to that list where these stocks are down at 70, 80, 90%. I mean, Ed, I'll just be honest, there was a stock, I won't name what it was, but it was an online retail stock. It was at $25. And then it went down to $6. And I said, you know what? I'm a pretty smart guy. The stock was at $25. Now it's at $6. If it goes back to $25, that's a pretty good return. I'm going to buy a little bit of the stock. And then I went down to...”
2022-05-12 · Forward Guidance · The “Everything Risk” Is Here | Ed Harrison · IDENTIFIED FROM THE TRANSCRIPT
“It magnifies the decline and therefore all of the projected growth just tumbles out in a magnified way. So that's what gets you the 50, 75, 90% losses in the market cap. When we think about it just from a network effects perspective, network effects say that there's an exponential increase in the number, in the value of your network as the number of people get drawn to the network. And we have Mark Zuckerberg as a perfect example of that with Facebook and with Instagram. However, it works in reverse. If there are a lot of people in your network speculatively, if those people are exited out, then suddenly your network loses value at a more rapid Rate than the loss in the size of the network.”
2022-05-12 · Forward Guidance · The “Everything Risk” Is Here | Ed Harrison · IDENTIFIED FROM THE TRANSCRIPT
“Was at Yahoo back in the day. I left banking to go into the internet just as it was busting. And there's a thing called operating leverage. And, you know, we can talk about the exponential age in MetCap's law. Both of those things are very related. So operating leverage says that when our revenue grows, the cost don't grow at the same rate because we have that operating leverage. So, you know, revenue grows at seven times over a period of time, but costs only grow at two times. So you get a massive amount of money that's falling to the bottom line. The problem, however, is if that growth doesn't materialize, there's a recession, and it not only does it cause growth to diminish, but potentially for you to start, you know, throwing in some negative numbers, shrinking slightly, that operating leverage works in reverse.”
2022-05-12 · Forward Guidance · The “Everything Risk” Is Here | Ed Harrison · IDENTIFIED FROM THE TRANSCRIPT
“Is pricing in a ridiculous amount of growth over time, basically it has to execute perfectly over the next 20 years in order for that growth that's priced in to be warranted. And so it could be the next Cisco of this particular era. As for Microsoft and Apple, at a minimum, their price earnings ratios are lower. So they have less to fall having already fallen, say, 20% now. So I think that they have been hit. They will continue to be hit, but they'll get off the ground much quicker than Cisco did back in the day, and Tesla will today.”
2022-05-12 · Forward Guidance · The “Everything Risk” Is Here | Ed Harrison · IDENTIFIED FROM THE TRANSCRIPT
“Yeah, I think that we've already seen the Nasdaq's off 25% already in this year. So it's definitely already dragged down. The question is, will it go further and how much further will it go? I think Cisco is a great opportunity to look because it was a market leader, it was a real company, it was actually already in the early 90s, you know, after the Fed raised interest rates in 1994, Cisco started to take off. But even before that, it was recognized as the next hot area. And yet, here we are today, and we're really at levels that are commensurate with the levels of the late 90s. So Cisco price earnings ratio was just tremendous. And as a result, it treaded water for the next 20 odd years, even though it's an amazing company. Tesla is a perfect example of that. Here's a company that...”
2022-05-12 · Forward Guidance · The “Everything Risk” Is Here | Ed Harrison · IDENTIFIED FROM THE TRANSCRIPT
“Raises interest rates when capital investment is withdrawn, those companies that haven't made the grade yet, those will be busts. And many of the other players will go on to huge great things in the future, but there's going to be a lot of carnage between now and then.”
2022-05-12 · Forward Guidance · The “Everything Risk” Is Here | Ed Harrison · IDENTIFIED FROM THE TRANSCRIPT
“Yeah, so I mean, I'm a believer in crypto. I'm a believer in the exponential age. However, I think that both of those things are associated with busts. They're associated with speculative manias and then busts. Why? Simply because we're at the next level of technological displacement. Crypto is an arena of technological displacement. If you don't get in there very quickly and get the network effects that are going to accrue to you and make you hugely valuable relative to your competitors, and then basically block them out, then you are not going to have a chance. You got to do it immediately. And so what that means is everyone and his brother is getting into the space. Everyone in his brother is getting into other spaces of technological displacement. And there's going to be a shakeout at some point in time when the Fed.”
2022-05-12 · Forward Guidance · The “Everything Risk” Is Here | Ed Harrison · IDENTIFIED FROM THE TRANSCRIPT
“Right. And you said companies are staying private for longer. I know that was a huge hallmark of the past decade because companies like Uber, which were huge, valued at, what, $60 billion, they were still private. But at some point, they had to IPO and they did IPO, Uber IPO'd, Lyft IPO'd, and that gave way to the sort of spack boom of speculative companies, i.e. nonprofit companies, in some cases non-revenue companies, let that sink in. who went public. And, you know, for a while, maybe let's say in the summer of 2020, it seemed like there was hope in the air. Yes, we're in a new age. Those companies, you know, what is revenue? What is profit? Come on, Ed. You're so old school. It's all about the future. It's all about this and that. Yeah, that has seen a huge repricing. What do you think? What do you make of it?”
2022-05-12 · Forward Guidance · The “Everything Risk” Is Here | Ed Harrison · IDENTIFIED FROM THE TRANSCRIPT
“In the dot com bubble, you have to go into the crypto arena because there's all sorts of things that are happening within the crypto arena, which are early stage. People are trying to get in there before we find out who the market leaders are in the next cycle. And that's where potentially you can get hurt. That's where the excesses could lie.”
2022-05-12 · Forward Guidance · The “Everything Risk” Is Here | Ed Harrison · IDENTIFIED FROM THE TRANSCRIPT
“Right. Yeah, I think that the era in public markets, i.e. public equity markets was worse back then than it is today. However, if you include crypto into that, that is, you know, let's use Dogecoin as a perfect example, which was the algorithm is similar to Bitcoin, but it was a joke to begin with. And you have unlimited supply, and it makes crypto look bad in certain ways from my perspective. When you see sort of the speculation there, that's where the speculation is. So in the old days, you got all these little companies going public. Today, all of those companies aren't going public. They're just getting VC money. And it's only later that they go public. But if you want to get access to early stage stuff in the way that you did back.”
2022-05-12 · Forward Guidance · The “Everything Risk” Is Here | Ed Harrison · IDENTIFIED FROM THE TRANSCRIPT
“And Ed, you know, you were working on Wall Street back during the dot-com bubble. How does the excesses, if I can call them that, while still maintaining my objectivity, the excesses that we've seen today of stocks that are going public or price the sales of 100, or they have no sales whatsoever, or they have deeply flawed business models where they can grow a lot, but it costs them a lot of money. They're losing a lot of money. They're using funky metrics like EBITDA and community adjusted EBITDA. How does that era, which perhaps we're witnessing the end of right now, how does that compare to the dot-com bubble where you had kind of the similar things, but with pets.com and stuff.”
2022-05-12 · Forward Guidance · The “Everything Risk” Is Here | Ed Harrison · IDENTIFIED FROM THE TRANSCRIPT
“You add the fact that inflation could be a problem and therefore the Fed could be more aggressive even than then it's not just a range bound market but one in which returns over a longer period could be negative.”
2022-05-12 · Forward Guidance · The “Everything Risk” Is Here | Ed Harrison · IDENTIFIED FROM THE TRANSCRIPT
“You didn't make any money for another 10, 12 years. And so when you take inflation to an account, really your negative returns are very large over that decade. Then you look at a chart and you compare that to the 14-year period that we're talking about. Let's make it 16 years to go back to 2006 to get it consistent. And what you really see is even though we had that little hiccup through 2009, it's just up and to the right. So what I would expect is that aberration of that up and to the right, which is coincident with the easy money period to fade away and for us to look more sort of like we did in the period before that. And remember, that was a period during which inflation wasn't a really big problem.”
2022-05-12 · Forward Guidance · The “Everything Risk” Is Here | Ed Harrison · IDENTIFIED FROM THE TRANSCRIPT
“Yeah, good question because I look at even during the dot-com bubble period, if you go back to 97, the levels at 97, this is pre LTCM, that was sort of the low during the next phase. So I'm looking at 97 to 2013 as a block during which we were range bound, even though 2013 was five years into this 14-year period that we're talking about. So the market was range bound between, say, 700 on the low. You had the 666 number in 2008 on the S&P 2009 on the S&P, but 1,500 or thereabouts on the high. And so basically, if you got into the market near the highs during the dot-com cycle,”
2022-05-12 · Forward Guidance · The “Everything Risk” Is Here | Ed Harrison · IDENTIFIED FROM THE TRANSCRIPT
“Tells you that. That tells you that the Fed can't relent and there's political pressure for them not to relent. So we're in a new era and that means very different things for the market than the last 14 years.”
2022-05-12 · Forward Guidance · The “Everything Risk” Is Here | Ed Harrison · IDENTIFIED FROM THE TRANSCRIPT
“Yeah, I think that because the old era was dominated by zero rate and accommodative policy, if you think about where we were, we hit the zero lower bound and we basically couldn't get off it except for that very short period of time between 2015 and 2019. And that was a traumatic experience trying to get off the zero lower bound. We exited out of that and went the other direction and the pandemic came. So basically since 2008, 2009, we've been in this unbelievably easy monetary situation. And so now with the Fed tightening and because of inflation, and I believe that that inflation is embedded, it's becoming embedded in a negative way, that last CPI print that we got on Wednesday, which is actually today, but it'll be tomorrow when this goes out.”
2022-05-12 · Forward Guidance · The “Everything Risk” Is Here | Ed Harrison · IDENTIFIED FROM THE TRANSCRIPT
“Thank you very much, Jack. It's great to talk to you again. And I see you have a nice mic. Now I realize I was like, ah, that's what I'm missing from the days when we used to do this kind of thing all the time. I don't have a mic. And actually, I'm upstairs in my living room versus in the basement when we used to do it before.”
2022-05-12 · Forward Guidance · The “Everything Risk” Is Here | Ed Harrison · IDENTIFIED FROM THE TRANSCRIPT