Billionaire Chamath Palihapitiya says the economy is 'completely divorced' from the stock and bond markets — and issues a warning for the Fed

ReutersFILE PHOTO: Chamath Palihapitiya, Founder and CEO of Social Capital, presents during the 2018 Sohn Investment Conference in New York
  • Social Capital CEO and Virgin Galactic Chairman Chamath Palihapitiya said the economy is “completely divorced” from the stock and bond markets.
  • In a CNBC interview Tuesday morning, Palihapitiya said the Fed has acted as the “principal agent” of the “obfuscation” driving the disconnect between the markets and economy.
  • Additionally, Palihapitiya warned that the Fed’s recent stimulus policies risk creating a deflationary supercycle.
  • The billionaire investor said in a tweet Monday night that “THE MARKET IS TOO DAMN HIGH.”
  • Visit Business Insider’s homepage for more stories.

Billionaire investor Chamath Palihapitiya said that there is “no doubt” the economy is disconnected from the stock and bond markets in a Tuesday morning interview with CNBC.

“We have completely divorced the economy from the stock and the bond markets, and the Fed has been the principal agent of that obfuscation,” he said.

Additionally, Palihapitiya criticised recent stimulus policies and said that the stimulus should be going directly to taxpayers and consumers who will then spend that money and help energize the economy from the bottom up.

Instead, the current stimulus measures only inflate asset prices, and that doesn’t do anything to fix the economy.

“Asset inflation does not solve income disparity. It actually doesn’t solve full employment. It doesn’t do any of the things we need it to do for it to be a robust economy. What it does is it allows people who play in the financial markets to make money,” Palihapitiya said.

While Palihapitiya appreciated the Fed’s efforts to stabilise markets amid the coronavirus pandemic, he warned that the Fed’s policies of expanding its balance sheet and buying corporate debt ETFs are going to “accelerate a really bad deflationary supercycle.”

Palihapitiya said that the Fed’s actions will only exacerbate the deflationary trend that is caused by technology companies who have trained consumers to save and get more for less in terms of technology innovation.

“The best technology companies in the world have literally been training billions of consumers to not really spend money,” he said. “The whole idea is if you wait tomorrow, you will get more for less.”

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Where should investors put their money in a deflationary supercycle? Bitcoin, according to Palihapitiya, who commented on recent news that Paul Tudor Jones is buying the cryptocurrency.

“Now all of a sudden even [Paul Tudor Jones] is looking at bitcoin and the reason is because we are in this massive deflationary cycle. I still struggle to find anything that is as uncorrelated to anything and to everything else than bitcoin,” Palihapitiya said.

And in case there was any doubt of what Palihapitiya thinks of the stock market, in a tweet posted Monday night he said, “THE MARKET IS TOO DAMN HIGH.”

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