| Ever wonder how companies like Google, Meta and Amazon have grown so big, so fast and make such obscene profits? It’s not just because these tech giants have good ideas and products consumers want. Far from it. More than a decade of free money is the big reason. Historically low-interest rates have given people little reason to keep cash in the bank. That drove money into higher-risk, higher-growth bets. But the days of free money are over for the foreseeable future. And the fact is that Big Tech’s growth was fueled by cheap, borrowed money. This begs the question – is Big Tech dead? Steve Eisman, of The Big Short fame, bet against the crazy mortgage market in the US back in 2008. He won big and got rich. Now, he thinks we’re experiencing a shift to a brand-new financial era. Sometimes shifts “change violently,” Eisman told Bloomberg recently, and sometimes they “change over time because people don’t give up their paradigms easily. And I think we’re going through a period possibly like that again.” Eisman refers to the shift that happened after the 2008 financial crisis. That’s when central banks cut interest rates to zero and kept them there. It triggered a free-money era that helped tech companies like Google and Meta soar into the stratosphere. But higher borrowing costs could end that era, Eisman says. There tends to be a major financial shift about once a decade, so we’re due. In the ’70s, it was inflation. In the ’80s, rate hikes and deflation. In the ’90s, a small recession followed by rate cuts. So, are the boom times of tech really over? Only a crystal ball would tell you for sure. As Eisman points out to Bloomberg, after the 2008 crisis, bank stocks soared in 2009 and 2010 before falling again. They haven’t led the market since. Something similar could happen now, and the tech party could be over. |
