Venture capitalist Palihapitiya: a ‘little bit’ of panic is good

Venture capitalist Palihapitiya: a ‘little bit’ of panic is good

  • Coronavirus related concerns should be met with "a little" bit of caution, according to Chamath Palihapitiya
  • The Social Capital CEO said a stock market bottom has yet to be seen.
  • He also said government action is needed to prevent a multi-year headwind.

The stock market is in a state of complete turmoil and panic while on a social level, people haven’t shown any meaningful reaction to the coronavirus, Social Capital CEO Chamath Palihapitiya said on CNBC’s “Halftime Report” on Thursday. 

Should be the opposite

A “little bit” of social panic could prove to be a good thing to help ease the spread of the coronavirus, Palihapitiya said. A reasonable amount of panic translates to heightened caution and enough social distancing.

U.S. President Donald Trump made the correct decision in blocking parts of the border but made the mistake of picking Europe, he said. This makes zero sense as all travel needs to be blocked, or none. 

As such, Trump offered a mere “symbolic gesture” that won’t stop anything in any meaningful way, he said. But at the local level, a lot of leaders are making the right decisions to sacrifice the local economy for the “greater good” of preventing the social spread of the virus.

Business update

On the private side of the corporate universe, the venture capitalist founder said he is telling founders and CEOs that this is a “very, very untested moment” in history. It should be treated as a combination of the financial collapse last decade and the bubble around a decade earlier.

“It’s the severity and the depth of the great financial crisis and the long refractory period of the bubble,” he said. “Cash and liquidity are the most important things right now.”

Meanwhile, the public equity market hasn’t seen its bottom yet, he said. A stock market bottom doesn’t show less than three weeks into the start of a virus spread. In fact, the market lost all momentum and sprung into bear territory in just over two weeks.

“What we are dealing with now is a broad-based market decline — a broad-based impact to GDP,” he said. 

As an example, the travel industry and all of its interconnected businesses account for $9 trillion worth of the global economy. Under a reasonable scenario where travel activity falls by 50% over the next two quarters, it can erase around $5 trillion worth of global GDP.

Government action

The federal government needs to take action in the form of a “massive and decisive” intervention to create confidence in the market. Failure to do so could result in a multi-year headwind for the market, followed by years of “malaise.” 

Second, the government needs to step in and provide the safety and social infrastructure that “all Americans deserve.” 

By Jayson Derrick
Jayson Derrick has been writing professionally about stocks since 2011. He is particularly interested in alternative investments, hedge funds, and activist investing. He is a big fan of NHL hockey and lives in Montreal, Canada with his wife and four year old daughter.

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