Billionaire venture capitalist Chamath Palihapitiya says that markets are ripe for a strong rally as a deluge of capital looks to find a new home.
In a new episode of the All-In Podcast, the billionaire says that the macro picture is starting to look positive for the United States.
The Social Capital founder first looks at the consumer price index (CPI), which tracks the country’s rate of inflation over time. According to Palihapitiya, the CPI is starting to roll over indicating that high inflation rates are a thing of the past.
“We are really in a decent place with inflation. If you think about what’s going to happen in the next six months, it’s mostly in the bag… There’s a lag effect on a handful of [CPI] components, specifically rents, which when you roll them into this inflation rate, you’re going to see it really, really turn over very quickly.
So we know that inflation is falling. It’s going to fall even more.”
Palihapitiya then looks at the amount of capital stockpiled in money market funds. According to the venture capitalist, trillions of dollars worth of capital may move out of money market funds and flow into the stock market to chase higher gains.
“I think the setup is basically the following. There’s less money in the system. That’s a positive.
There’s more money on the sidelines… Look at the amount of money in money market funds – $6 trillion and growing, so that’s a really positive sign which is money will need to find a home…
So that’s trillions of dollars that have to get deployed… Now you introduce rate cuts and that’s a real accelerant. More than likely, I think what that means is that markets are set up to do pretty well, equity markets specifically.”
Palihapitiya ends his analysis by saying that he’s optimistic about the prospects of the US economy with the Federal Reserve poised to cut rates by mid-2024.
“Inflation is very much in the rearview mirror. Rates are going to get cut by the middle part of the year. The economy looks like it’s going to be a soft landing. That is actually very beneficial for the sitting president. It’s also good for equities. It’s good for us… I think we’ve had a fundamental change.”