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How you doing there? It is the podcast time. I hope all is well in your life. You're not getting as depressed as I am in Ireland. If you're not from Ireland, we'll just be quick on this affliction that it has rained constantly. It is like a biblical deluge. I actually thought I saw Noah walking by looking for two pairs of every species to put in the ark so that we could actually... so two economists walking by, two economists, a male and female economist. Wonder what happens to econ... you know what I find? They produce another economist. God hope not. But you know what I find interesting about Irish people in general is that we always talk about the weather and complain about the weather. Mairéad, you've been in this country, on this planet for 56 years. Are you not used to it yet?
No, but John, I woke up this morning...
I get that, man. I get that. But I woke up this morning... I just... stop, just stop. Actually, you know, I mentioned Noah's Ark, right? I was reading something fantastic the other day about... this is a total segue before we start... about the story of Noah's Ark and why so many cultures have the story of the great flood in them. So many ancient...
Because it happened, yes, and somebody saw it and they passed it down to their kids.
And I was reading something about how the Black Sea was formed, and it's an extraordinary story. So the Atlantic eventually creates this rupture in the land between Africa and Spain at the Strait of Gibraltar, and that millions of cubic liters of water gush into the Mediterranean. And then over thousands of years, that little small sliver of land around Marmaris in Turkey, it also breaks and the water floods into the Black Sea. And people saw this and they told their kids about it. And I was fascinated by that. But if you look... this obviously did happen... if you look at the geology of the Mediterranean Sea, it was a desert at one stage.
And as was the Black Sea, wasn't it?
Yeah, and it was a big indentation. This is where kind of legend fact blends into legend into Game of Thrones. But on Mount Ararat in Turkey is the resting place of the Ark itself. There you go. So that's where it actually got stuck. And you're not allowed climb it. Okay, that's one for John and I are going to do a podcast from Mount Ararat in search of the Ark. And we're going to talk about Noah, economists mating, and why it rains in Ireland where it gets in our wick after a while. But anyway, get back to the real business of why we're here.
Something I have noticed actually over the last while is that there seems to be a load of property, houses up for sale, particularly more high-end property up for sale. But just all of a sudden, it's kind of just for sale signs right, left, and center. You know what's happening?
You know exactly what's happening. This is... look, you know, we spoke about this a year or two ago when we said, look, buyer strike, don't touch the market, there's too much going on. Right? What is happening now... two months ago there was a buyer panic. There was still a buyer panic of couples, young couples in particular, climbing over each other to try and get to something. And then sellers were like, oh, those are panicking, we're not going to... we're just going to hold off. We're going to hold off, we're going to hold off, we get another 10 grand, 20 grand, we're going to hold off, hold off, hold off. Right? So in a buyer's panic, the sell market dries up. What's happening now is the sellers are panicking. So they put their houses on the market because they can sense it's about to peak. Right? And they're saying now, Jesus, we better... this estate agent's kind of stirring it up. This is the estate agents whispering. Okay? Estate agents always would have whispered to the seller in the buyer's panic, oh, don't worry, just hold off for a few months and don't put it on. And oh my God, we've got another... you know, so they're managing. Now estate agents are saying to the people who should have put their houses up for sale six months ago, put them on for sale, put them up for sale. Right? Get them before the market peaks. There's still money around, get... because who knows what's going to happen next week or next year. So what you're happening is all those properties that are coming on the market in clusters now, all around Dublin, by the way, you might even see it in your own place wherever you're listening. Look at it, this is a great telltale sign that the market is turning. So the sellers are now panicking, the buyers have stepped away. They're saying there's no value here, interest rates are rising, I'm worried about my actual income because the rate of inflation's eating into my take-home income. Let's just chill out. So what you're seeing in actual... we're going to be talking to Katie Martin about tech in a minute, right? And it's the same fear. It's the fear of the coming recession. So what's actually happening in the Irish housing market that you've identified by strolling around the leafy suburbs of South Dublin, indeed, is a supplier's panic. And that's a telltale sign that the market's going down. And you know, you know what? It's not the only market that's heading down because over the last week, two weeks, the tech market has been... man, it's... let's talk about the cockroach theory of investing. The cockroach. The cockroach. You know, if you're in New York and you see... you know, the Americans have this expression, yeah, cockroaches never come in ones. So if you see a cockroach, it means there's a thousand in your apartment. Right? You turn on the light, you see these little things scurrying across. They never come in ones. Right? So what's... what's the theory of tech is that these balance sheets don't implode in ones. So it's not just Microsoft or it's not just Meta. Right? That basically what has happened is so much money has gone into these things, the prices have shot through the roof. Now people are realizing, hold on a second, these guys are all hype. Yes, there is a technology underneath it, but actually, in a bit like cockroaches, when one bad earnings comes in, the bulls in the bull market, oh, it's just that company, it's just that company, that's an exception. What actually happens? They've all got bad earnings. And this is what happens. So basically it's like one cockroach leading to loads of cockroaches. Yeah, yeah, yeah. So this is like the second tech bubble burst. So the first one was the dot-com bubble that burst. So this is the second one, and this is much bigger, right? And it's bursting right in front of our eyes. Now, you can look at what's happening in the world. You can say like, it's high inflation. Yeah, you know, Europe has got this huge, huge political, economic, social, what you almost call a poly-crisis going on in Europe. Central banks are tightening all around the world. QT, which is quantitative tightening, not quantitative easing, is going on. That's a new one. They're withdrawing liquidity all the time. All these things are happening at the same time. The Chinese property market is collapsing, as we're going to talk about on Thursday. So all these things are coming together, which is totally changing the perception of risk. So there's this idea in markets, one's called risk on and one's called risk off. So when risk is on, that's from The Karate Kid, you know, wipe on, wipe off. Exactly, Karate Kid, same idea, same idea, John, same idea. So when it's risk on, basically all bad news is discounted as unique. It's just one cockroach. Yeah, right, don't worry about this, we're all going together. That's when it's risk on. Right? When it's risk off, everything that's bad is amplified. Okay? And that's exactly what's happening in tech markets. And the best one, of course, is your friend Elon Musk. Oh yes, indeed. I... I don't know what he's up to. I'll tell you what he's up to. He's up to going bankrupt is what he's up to.
Look, he bought Twitter. Yeah. The guy he bought Twitter off, Jack Dorsey, is just setting up his own new Twitter called Blue Sky, which is amazing. But if it becomes a subscription thing, I don't see the point of it. Well, let's look at the finance of what's going on. So Elon Musk, big balls Elon Musk, decides that he's going to buy Twitter, right? Last year they announced the deal, I think it was in March or April. The deal valued every share at Twitter $53 a share. The overall value, I think 44 billion or something, right? Now Musk doesn't have that money, even though he's very rich. So what Musk did, he basically dangled this deal in front of Wall Street and all those morons, right? Said, oh my God. So the banks, the big investment banks, pledged to come in behind him, signed contracts with him saying we will back you. Right? Right. So Musk said, I don't know what exactly the figures are, let's say it's 44 billion. Musk said, I'll come up with 20 billion myself or 25 billion, you guys come up with 20, and we're all in this biggest IPO the world has ever seen, all this stuff, and things can only get better. Right? This is at a time when inflation is at 1%, interest rates are at 1%, the war has started but everyone thinks it's going to be quick. Remember, everyone thought... six-week war, six-week war. So all those guys get in there, right? And the banks don't have the money, they borrow from investors. Yes. So what happens is they say, okay, we're going to do this deal, we want to borrow from you. The investors say, fine. So the deal was meant to be signed in April, but then Musk gets cold feet. Right? Yes. So then they basically, they stretch it out over the summer. All the news in the summer is bad, bad, bad, bad. All the tech company shares are falling, falling, falling, falling. Elon, big balls, is stuck into the deal that he made in March at $53 a share. The banks are stuck, and his friend Larry Ellison and all those guys are all stuck because they all committed money to him then. Right? Right. Now the share price of Twitter... looking at the share price of Meta, of Google, of Snapchat, the share price of Twitter is now equal to... would be equal if it was trading to $13 a share. He buys it at $53 a share, it's actually worth $13 a share. This is the biggest destruction of capital the world has ever seen from the richest man in the world.
Right, just explain a little bit more to me.
Okay, so it's trading on the open market, but because it's in play, the market knows that somebody, Elon Musk and his mates, are in behind it, obliged to buy it at this price. Right? That's why it's trading at 53. But if you took out the Elon Musk factor and if it were actually trading as a normal tech company, it would be following the similar trajectory as has happened to Meta, as has happened to Apple. So the deal itself is just... well, because the deal itself means it's in play. Because... because the market knows that somebody's going to buy it at that price. Right? Because Musk has already signed to buy it, yeah, at that price. So what you're seeing now is not the real value. So the reason that, for example, if you look at Twitter's valuation the last month, it's bobbed around, the share has bobbed around. If you look at Facebook, if you look at Google, if you look at Apple, if you look at Microsoft, if you look at Netflix, they're down 70%. I saw Netflix, it's down 70%. The reason... the reason that the market's not telling you the truth on Twitter is that it's in play. Yeah. So there is a buyer already committed to buy at that price. That's why it's staying up there. If that buyer were taken away and it were actually to follow the trajectory of the rest of the market, those shares would have collapsed. Now, lots of people say it's worth X, it's worth Y, but what you can see is that there's no way this thing's worth $53 a share. Now, some analysts are saying 13, some analysts are saying 17, some analysts are saying 20, some analysts are saying it's even going to go lower. Wow. But the point is, the destruction of capital is real. Now, what happens in the banking world, and this is the fast... this is the follow of the money, right? Yeah. So the banks now are on the hook to Elon. And I know from talking to people in the market that they're now... the bonds that they had to raise to pay the money to Elon are now trading at a massive discount. Right? Right. Okay, so you should buy them for the pension fund. Right? The... the podcast pension fund should go to Wall Street and say, you see those really... because the only way you're going to get value now is buying those bonds that are at a crappy, crappy discount. Yeah. Because everybody now knows that Elon has blown... it could be $30 billion in this deal, $30 billion up in smoke. Wow. Of ego. Yeah, yeah, yeah, yeah. So Elon is a smart guy, he's... he's done some great stuff, but it's when the ego takes over, that's when everything goes to... but this is the thing. So he's... so imagine you are Jack Dorsey, the guy who set up Twitter. Yeah. You've just been paid for a company... he's even more Zen now because he's sitting around growing his beard in Thailand or whatever he's doing, he's all Zen, right? And he's set up a competitor. Yeah. You've just trousered right about 30 billion surplus that you... you know, the company's not valued at. Yeah. So he's sitting... not him, it's the shareholders and all the other owners. But my point is, right, what we have is the most profound destruction of wealth the world has ever seen in one deal. It's a bit like saying, I'll buy... we talk about houses at the top. It's a bit like saying, I'll buy your house for 200 grand. Right? Okay. And you're committed and you've done the paperwork. Yeah. But you can't close until next March and the house is worth 150 grand next March. You've actually lost 50, but you still have to come up with the money. Yes. So your wealth is destroyed. Yeah. So basically, it's a cautionary lesson. It's like a negative equity. It's... it's like a massive negative equity. It's like negative equity except you take all the impact now. And that's what's happening.
Yeah, okay, I understand. I get you now. I get you now. Maybe I will become a trader.
Tell you, it's... it's in your DNA, John. So, so John, the Twitter is just an example of what... what's going on now. Let's look, all the rest of them are collapsing. This has huge ramifications for Ireland, for people working in these companies, for rents of swanky apartments in Dublin 2 and Dublin 4 who are renting to these people, and for office space, all sorts of ramifications. But let's go to Katie Martin in London, the FT's markets editor. Now, for those of you going to Kilkenomics on this weekend, one of the stars... the starlets, not even the stars, one of the starlets of the gig is Katie Martin, the markets correspondent, guru of the Financial Times. We are now going to talk about the carnage in tech stocks. Katie, how are you? I'm looking forward to seeing you next weekend.
I feel like you're overselling me here. That's... that's English, English understatement. So you've got the... you've got the cultural difference between Ireland and England just there, right? Yes, we oversell and you understate. There's a bit of that. But also, I was... funny, I was talking to my sister about this earlier. Like, if at any point you find yourself suffering from even the slightest hint of imposter syndrome, just remember Liz Truss was Prime Minister of the UK for 44 days and she didn't appear to suffer from this. So, um, it's, you know, put yourself out there, you're right.
No, but the... the awful thing is that you're suggesting that Liz Truss might have some Irish blood in her, that this... this, to use that great Irish word, chutzpah, that we always... that we all have. No, but listen, but just... just... I won't... Liz Truss, you... I won't talk about Rishi Sunak. But how are you dealing with the trauma? Okay, have you... have you seen... it's the whole English race finding... hugging each other. It's been a thing.
It does feel like... I don't think we're making it up, everyone is laughing at us. Like, I, you know... the... it sounds like there was a fair amount of 'what the hell are the Brits doing' going on at the IMF meeting, you know. But new era, new foot forward. But, you know, it's going to take a while for us to... to shake this off, I think. And it has been quite sort of embarrassing, yeah.
You know what's been fascinating for us doing this podcast is every time we discuss the UK, yeah, but you see this massive spike in listenership, and that's coming from the UK. So what we find is that I think British people are actually interested in what other people are thinking. Because I think they probably thought, hold on a second, but a lot of people in the UK who give opinions on economics or politics are really committed to one side or the other. They're either Labour supporters or Tories or that kind of Mickey Mouse outfit, what's it called, the Liberal Democrats, or something like that. Yeah, yeah, exactly. But I mean, so... so I think... I think there is a sense of, wow, other people have an opinion on us, and that opinion is not always great. But I mean, it's just a... it's just a bit of bond market, you know, pokery. It's just going to cost you more to borrow. And look, it's a... it's a teachable moment, I think, for the rest of the world. You know, yes, we messed up, but other countries do have the capacity to mess up like we did. And I think, um, I suspect this is something we'll get into in huge volumes in... in Kilkenomics. But this is, you know, markets can teach you a lesson. And... and also, what... what my beautiful segue into... into big tech is that, you know, Liz Truss and Kwasi Kwarteng had to sell their story, they failed to do it properly. Big tech suddenly has a story that it has to sell. It's just been able to like bowl through the market, say, look at us, we're big tech, of course people are going to buy our shares. And now it's like, oh, okay, we have to prove ourselves because the market environment has changed. And they got taken to the woodshed this week. Listen, let's look at the numbers. The companies, what happened in the last couple of days of trading. You want some big numbers? I'll give you a big number. At one point, big tech stocks, you know, this collection of kind of Meta, which we're all too old to call Meta, it's Facebook, Microsoft, Alphabet, brackets, Google, all of these guys, big tech sort of in the round, though, the valuation of those companies at one point was down by almost a trillion dollars at one point this week.
