Big Tech Signalling a pending collapse - as shared by Gordon Johnson
Big Tech signals a pending collapse by Gordon Johnson (extracted from his tweets on 26 July 2022)
I have highlighted some key parts and shall conclude with my thoughts. These are his original text and no edits have been done to keep its authenticity.
1/13 Is Big Tech signaling a pending collapse in the office market, as well as the job market? Let's explore; firstly, $AMZN recently announced it's halting construction on 5 office towers in Bellevue WA, w/ a 6th that was planned for construction canceled. $AMZN also put...2/13... on hold an office tower in Nashville, TN. They also slashed plans on addtl office space in Hudson Yards in Manhattan, after reporting their 1st loss in yrs in Q1. All in, it looks like $AMZN will be shedding 10-30mn sq ft. of excess warehouse space it took on during...3/13... the pandemic it no longer needs. In fact, in late Jun it emerged that $AMZN delayed or canceled 13 warehouses around the country. Separately, software bellwether $CRM has put half of its office space in the largest tower in S.F. on the mkt for sub-lease, which will...4/13... be mostly avail in Aug (i.e., >400K sq ft). This suggests $CRM took on twice the office space it actually needed; $CRM also annc'd they were slowing hiring overall, freezing hiring in certain divisions, & outright cutting in other divisions. What this means is S.F.'s...5/13... current vacancy rate of 26%, which is SCARY HIGH, is about to get even WORSE. Yet, w/ office vacancy rates in Dallas/Houston at catastrophic levels (i.e., >30%), it's clear to many U.S. office demand is falling, w/ many companies likely never going to see the growth...6/13... necessary for current spaces. Moving on, tech giant $META recently canceled plans to take an addtl 300K sq ft. of office space at 770 Broadway in NYC where it already occupies space; $META also recently halted plans to build out new office space in Hudson Yards NYC.7/13 Further, delivery startup Gopuff, who was recently on a HUGE HIRING BINGE, is now planning to close 76 warehouses in the U.S., which represent 12% of its network; and, they are laying off 10% of their workforce, or 1.5K people, after a 3% cut in Mar. when the IPO bombed.8/13 In addition, $TSLA is laying off 10% of its workforce, and $GOOGL's CEO said they would slow hiring for the rest of the year due to an "outright recession", which also could include outright reductions. Not to be outdone, $MSFT recently laid off some people, and...9/13... eliminated some roles in a variety of groups, with slower hiring beginning in May. $AAPL said it wants to slow hiring in 2023, & video hosting service $VMEO recently cut 6% of its staff. $NFLX, $TWTR, Substack, $RIVN, & a host of other tech cos have aso announced layoffs.10/13 The problem is, all of these companies have been hoarding office space/employees on perceived shortages driven by extreme amounts of Fed-pumped liquidity that distorted reality. Yet, they are now realizing they will never grow into their: (a) office space, or (b) employees.11/13 So, with CPI at >9%, QE now being QT, interest rate repression now being interest rates hikes, crypto imploding, too much office space, & too much warehouse space, it's clear to these companies that their equations of massive growth forever were WRONG. This is a big...12/13... problem, and means... for those calling for a bottom... in all likelihood... YOU AIN'T SEEN NOTHING YET. Why? Well, we still haven't seen the massive layoffs we see with real recessions where big firms cut tens of thousands of people. Nor, have we seen the spike in...13/13.. weekly claims for unemployment insurance (while up, they are STILL near record lows). What we ARE seeing is a recognition by A LOT of tech cos that their assumptions of red-hot growth forever were WRONG, the drunken Fed-driven HYPERGROWTH binge is over, & reality is UGLY.
My investing muse
The overall mood after reading this is not a sense of hopelessness for me. But rather, this has given me a realistic insight on what is to come. People have always invested into various asset classes that include real estate, commodities, bonds, stocks and recently cryptocurrencies. From this, Mr Johnson saw a impact on the office (real estate), warehousing space, construction and also unemployment (following the various retrenchment). For me, it translates to a great sale coming so that we can buy great companies at good prices.
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| Recession Cycle |
From the "Recession Cycle" above, recession can start from falling income. This would lead to falling sales, falling production and falling employment. This becomes a cycle that could send the economy spiralling downwards. With interest rate hike and Q2 GDP figure announcements, we can expect more volatility over the next few days.
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| Reuters article about Big Tech dated 5th Oct 2021 |
From the 5th Oct 2021 article above (source from Reuters and shared on Yahoo Finance), the Tech Sector has a weighting of 38.8% after we add 4 tech-related companies in other sectors that include Alphabet, Amazon, Facebook and Netflix. Thus, the performance of these Big Tech companies can easily lead to much movement in indices such as S&P 500 (and even more so in the tech heavy Nasdaq).
Extract from the article:
Years of solid performance have made tech stocks a mainstay in portfolios across Wall Street, periodically spurring concerns that they may be susceptible to violent market swings if investors try to sell all at once.Facebook, Amazon, Microsoft and Google-parent Alphabet have ranked among the top five most popular hedge fund long positions for the past 15 consecutive quarters, a study by Goldman Sachs showed.At the same time, 40% of fund managers surveyed by BofA Global Research in September said buying U.S. technology stocks was the market's most crowded trade, a designation tech stocks have received for three straight months.
Should Big Tech's coming earnings disappoint, it could well drag the rest of the market down with them. The reduction of their office footprint would also imply a "slowing" of hire. In several cases, some of the Big Tech have already started layoffs.
In fact, the layoff in Technology companies is global and here are some figures:
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| 58,820 employees from 411 startups have been laid off |
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| Some of the global lay offs since 2020 |
from the list above, we have the following notable ones in recent times:
- Booking.com 4,375 (25%) in July 2020
- Airbnb 1,900 (25%) in May 2020
- Zillow 2,000 (25%) in Nov 2021
- Peloton 2,800 (20%) in Feb 2022
- Uber 3,700 & 3,000 (14% + 13%) on 6 & 18 May 2022 respectively
While it is easy to interpret slowing of staffing, reduction of office/work space as part of a foreseeable downturn, this presents great opportunities for us to load up our portfolio with great companies at a discount. In the end, the market always recover from the recession and reach a greater high. It will remove some players along the way, making the market more robust. Owning great companies would also mean that we should be able to recover "faster" in the event of a downturn.
At the mean time, it will be a good idea to narrow down a list of companies that we would like to invest into. Let us spend within our means, invest with what we can afford to lose and save "cash for crash". Let us not forget that much wealth accumulation starts from the bear market. While we may never catch the bottom to sell at the top, it is prudent that we do not allow the news to distract us from our strategy. Our research into these companies will give us the confidence to ride out the economic storm ahead. This will help us to buy "fear" and sell "greed".
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