Episode Summary
Executive Summary: The episode centers on a macro discussion with Apollo Credit’s John Zito about how rapid rate hikes, inflation, and tightening financial conditions are hammering growth stocks, crypto, and parts of housing while making credit increasingly attractive. The host also highlights three tech/product shifts he sees as major opportunities: passwordless authentication, charging, and voice-based content discovery.
Main Topics: Rate hikes, inflation, and market repricing (Priority: 5/5): Zito explains that the post-GFC era of near-zero rates inflated valuations, especially for growth companies, and that rapid Fed tightening is now compressing multiples and liquidity across markets. Why credit looks attractive now (Priority: 5/5): Apollo’s view is that senior debt and structured credit offer compelling risk-adjusted returns as bonds trade at discounts, yields rise, and recession risk gets priced in. Growth companies under pressure (Priority: 4/5): Cash-burning tech names face a new regime where capital is more expensive, equity dilution is harsher, and investors now demand profitability over top-line growth. Housing and consumer slowdown (Priority: 4/5): Housing is expected to plateau or soften rather than crash, with strong home equity and tighter underwriting unlike 2008, but rising mortgage rates are cooling demand and consumer balance sheets. Crypto deleveraging and blockchain utility (Priority: 3/5): Zito argues that crypto’s collapse reflects leverage and mismatched liabilities, while still seeing long-term promise in blockchain for tokenization and liquidity of illiquid assets. Product/brand strategy: privacy, passwords, charging, voice (Priority: 3/5): The host frames Apple’s passkeys, charging convenience, and voice discovery as large but boring innovations that can create major consumer lock-in and brand differentiation.
Key Arguments: Rapid interest-rate increases have re-rated growth assets because future cash flows are discounted at higher rates, hurting companies with negative current cash flow. The market has gone from an era of easy money to one where capital scarcity and profitability matter again; this is especially punitive for tech firms that expanded labor and spending aggressively. Credit is attractive because many bonds and loans are now priced at significant discounts, offering seniority and income even if the economy slows. The Fed is effectively tightening into a recession, but much of the economic damage is still lagged and not yet fully visible in consumer data. Housing is unlikely to repeat the 2008 crisis because underwriting is tighter, leverage is lower, and owners generally have substantial equity. Crypto’s collapse is largely a leverage unwind, but blockchain still has real applications in custody, tokenization, and making illiquid assets more liquid. Apple’s push into passkeys and privacy is a smart branding move because it is differentiated, relevant, and sustainable versus ad-driven competitors like Meta and Google.
Data Points: NASDAQ decline: Down 30% - Zito describes the broader market drawdown in growth stocks. Median NASDAQ stock decline: Down over 70% - Illustrates how severe the selloff has been beyond index-level performance. Fed balance sheet/liquidity support during COVID: $11 trillion - Zito says the Fed effectively put this amount into the system during COVID and is now reversing it. 10-year Treasury rate low during COVID: 50 basis points - Referenced as the extreme low from which rates rose rapidly. 10-year Treasury rate current level: Over 3% - Highlights the speed of the rate move in less than two years. Double-B high yield yield vs Treasury: 50 basis points lower than newly issued Treasury yield - Zito says this has never happened in over 25 years of tracking. Investment-grade market vs Treasury: 50 basis points lower than matching Treasury yield - Used to show abnormal pricing in credit markets. Consumer market expectation: 70% of the market anticipates a recession in 2023 - Cited from FT coverage during the discussion. Mortgage rate threshold: 6% - Zito cites a homebuilder saying demand falls significantly once mortgage rates hit this level. Coinbase labor cost increase: $300 million to $2 billion - Example of tech company cost expansion during the growth boom. Peloton labor cost increase: $300 million to over $1 billion - Used to show the dramatic rise in tech labor spending. Used car prices: Up over 100% - Mentioned as a category that may normalize as demand slows. Rents in one- and two-bedroom units nationally: Up 20% and 28% - Cited in the discussion of housing and inflation. New York City rent increase: Up 35% to 40% for a two-bedroom - Used as an example of strong urban rent inflation. 60/40 portfolio performance: Annualized down 25% this year - Presented as the worst outcome in 35 years. Best prior 60/40 worst year: Down 2.9% - Compared against the current drawdown. Oracle bond yield: 6% - Example of attractive fixed-income yields on a large-quality issuer. Oracle bond price: 65 cents on the dollar - Used to illustrate discounted bond pricing. Apollo private equity AUM: Over $75 billion - Zito describes Apollo’s private equity scale. Apollo credit business size: $350 billion - Zito highlights Apollo’s large credit platform. Apple data collection comparison: 200 data points/day on iOS vs 1,300 on Android - Used to support the privacy positioning argument.
Pivotal Quotes: "The median stock's down over 70%." — John Zito: Zito describing the severity of the growth-stock selloff in the NASDAQ. "The new mantra is going to be not buying back stock. It's going to be buying back debt at steep discounts to par." — John Zito: On how corporate capital allocation may change in a higher-rate environment. "Apple is definitely the lead dog here." — Host: Referring to Apple’s move toward passwordless logins and privacy-based differentiation.
Implications: Listeners should expect tighter money, lower growth valuations, and more stress for cash-burning companies, while credit investors may find better entry points. Apple-style convenience/privacy products and blockchain tokenization could create the next wave of consumer and financial infrastructure.