>> from the heart of where innovation, money, and power collided in silicon valley and beyond, this is "bloomberg

technology" with emily chang. ♪ emily: coming up in the next hour, fed chair jay powell warns there is more pain to come for the economy. we are going to get a read on how a hawkish fed will impact venture capital and more. plus, what does it mean for by now, pay later with america's credit card debt nearing highs not seen since the financial crisis? and flying taxis might not just be fodder for sci-fi anymore. all that in a moment, but first, rough day for the markets after fed chair jay powell warns the

economy is in for some real pain. tough way to end the week. katie: that's probably a good way to describe it. we finally heard from the man himself, jerome powell delivering the message saying they are going to fight inflation. that is enemy number one and they are going to get control and that even if it comes at the expense of the economy, and that went over pretty much as you would expect. the nasdaq 100 where big tech lives, off by more than 4%. don't be full by the green. that's the vix, and that went higher as volatility did as well, and the front end of the yield curve, though two-year treasury yields lifting higher as expectations rose that the fed will keep hiking rates from here. i do have a silver lining, some good news perhaps. if you look at where expectations for the fed rate at the end of 2023 has ended up, when we were at peak hawkish in his earlier in the summer, that's when you saw the s&p 500

high, so if you think about maybe that white line could move higher, maybe that will be good news for the market, but that might be wishful thinking, especially if you look at some of the tech etf's we have on the board. you moved on the list, you have semiconductors really taking a beating, off by more than five percent. cloud computing names as well and bringing it back to the nasdaq 100, those big cash cow large caps off by more than 4%, so it was a really, really rough day. emily: thank you for walking us through all that. i want to dig deeper into what this means for tech and investing and bring in the founder and general partner at activate capital. what was your reaction to these comments from jay powell? how do you think it will impact

markets more broadly? steve: if you listen to his comments, it is pretty clear they were going -- they were not going to move off rate hikes any time soon, although there was a lot of wishful thinking. i think this was a good dose of reality. it happened just as people are returning from vacation, getting kids back in the school. the forward trajectory here does not look great, and it's some interesting things when you think about the public market versus private market. emily: you predicted millions of layoffs in tech specifically last time we spoke. steve: i think the layoffs have just begun. it is happening across everyone's portfolio. what is interesting is the

overall markets are down more than 20%, particularly on the growth side. growth tech stocks are down much more than 20%. we are hearing from allocators of capital to investors that numbers are coming in down 4% to 6%. that means that investors have not taken their medicine and there's going to be more pain in the market in the form of layoffs and in the form of something like 20% of all venture-backed companies are not going to survive. we saw this in 2000, 2001, 2002. what happens when the market pulls back? investors are more careful with allocation of capital. we are seeing also in company creation. investors are going to have to

rationalize your company. emily: are you saying you think this is going to be as bad as the dot-com crash? >> this is a prolonged period. what's painful for tech investors and growth investors generally is prolonged market malaise, prolonged volatility, because it is a lot easier to come in and invest behind in a market that is a little more stable. when the pace slows, you have to rationalize where you put capital. you could see more than 20% of companies go out of business. growth stocks are very, very sensitive to interest rates. interest rates at 3% is one thing. going to 5%, 6% is another.

you cannot invest in these valuations if rates go much higher. emily: are you investing in a 1, 2, or three-your downturn? how is that affecting your strategy? >> we are looking for a two to three-year malaise. companies being created in this environment -- and this happened back in 2000 -- better dna, very strong culture around protecting capital, and just growing up in a different way. these companies will be very strong. you also have companies at a much later stage, meaning hundreds of millions and what has happened is a lot of mid-stage companies have out of the market and other companies have stepped in at reasonable valuations, so it is really a barbell. large companies with proven business models are going to do

great. these earlier stage businesses are rising out of the ashes and will probably do well. that's when people like me come in and put capital on to supercharge growth. there are opportunities, but there will be pain. emily: let's talk more about that pain. what does that mean from a labor market perspective? there has been some really interesting things in the labor market. you are saying layoffs while we've got unemployment at historic lows. >> yeah, the data is hard to wrap our head around because it is not what we are seeing in the market generally. i cannot vouch for government data. there are some interesting things happening. we have seen salaries and general inflation around the

cost, people starting slow a little bit. this is typically what you would see in a down market. the interesting thing is some companies have re-accelerated growth. companies with more be to see exposure are having a harder time -- companies with more b2c exposure are having a harder time. emily: thanks for giving it to us straight. we are going to let you get on with your weekend. coming up, more on the tech selloff. we will get reaction from the world of by now, pay later.

this is bloomberg. ♪

emily: affirm beat expectations in its latest earnings, except for in forecasts, citing unease ahead. let's talk about it with the ceo and cofounder. great to have you back with us. you said the economy is more than likely in the beginning stage of a downturn.

now that we see and hear what jay powell has to say, the dead is going to stay hawkish, do you think a recession is inevitable? >> i'm no macroeconomists, so i'm glad chair powell is in charge, not me. i think there are indications of recession because folks are trying to make sure that their cash flow is responsible, and in inflation, the pocketbook is hit harder because everything is more expensive. we are seeing more demand, but it seems very pertinent to be very focused, and that is reflected in our guide. emily: can you give us some color of what consumers are expecting? consumers are under pressure. everything is more expensive from gas to groceries.

how is that reflected in your data? >> there's definitely the great rotation. we talked about this before. some time mid may, a tremendous number of goods were replaced with services. over the fourth of july weekend, we saw unbelievable growth in travel. experiences, tickets, people sort of jumped back onto after covid. they are also doing really well. it's just there's real weakness last year and the yearbook -- relative to last year and the year before in home goods and a lot of other things that we purchased during the pandemic, if you will. our point of view is a little bit skewed because we are still growing really quickly. we saw over 300% growth in

general merchandise, which is growth we are seeing in partners like walmart and target. we are seeing extraordinary growth than the market we have. i think broadly, commerce grew only 7% last year, which was one of the lowest numbers in a long time. emily: we are seeing americans' credit at highs not seen since the financial crisis. i'm wondering, if the economy is in a more difficult position and consumers are under pressure, does that mean more business for i now, pay later and affirm, but is that not good for the economy? >> it is a careful balance. it is definitely good for us so long as we are good at our job, and we are. we feel very confident in our ability and our latest numbers prove that pretty decisively.

i think we can deliver on that promise. obviously, overextending the consumer is a troubling idea. we are very careful not to extend where we think the consumer will not be able to carry the burden. it does help that we don't charge late fees and we don't have compounding interest. we are trying to fully align ourselves with our and consumer help must be motivated to make the right decision, so we feel good about our decision, our ability to help consumers. i think america will have to borrow more because prices are going up and we are here to do our parts, but we also have to be careful with how we use credit. emily: the delinquency rate rose more than 2% for the first time this year in july and august. is that an alarming sign for you? i think it was about 1% about a year ago. how are you addressing that beyond changing or tightening

the criteria for underwriting? >> it is a great question. if you look at the chart as we file our filings, you will see that it mimics performance going back to 2019. . 2020 and 2020 one were very weird years. there was tons of buying, on the other hand, the government was literally handing out money to consumers. the guard rails used when you own a business is return assets and absolute adjusted charge-offs. if you look at all of our metrics and certainly the

metrics i look at, we have managed the guardrails exceedingly well. if you look at allowance for loss provision, it has been taking down every quarter for the last three, so we are managing credit at her than we have. what it means practically is because we are integrated so deeply into the emerging ecosystem, we have a lot more interactive tools beyond just your basic "we are so sorry your card has been declined." the fact that you look at our approvals, if we added three points on incremental approvals, it does not mean that everybody on average gets more likely to say yes, it means we can say yes even when the consumer is taking on more risk than we think is good for them. if we are convinced your income

is different than what we estimate it to be, or we could say we think you should make a down payment because once you do that, it is a lot easier for you to carry the burden, so we are deploying a lot of those tools, and we have seen increased demand, increased approvals, and better outcomes. emily: affirm had a pretty big downward move today. your cfo said you are approaching the next fiscal year prudently. what is your reaction to the stop drop to broader tech selloffs, and the possibility we are in for this kind of volatility for the foreseeable future? >> i definitely think of affirm in measures of years.

quarters is an artificial marker . it is far better to worry about how we will do next year and the year after and a decade from now then with the stock price will do for us tomorrow afternoon. a day like today, i think we are equipped to produce a broader selloff. that said, i've never been more excited to show up to work. we brag a lot about amazing engagement metrics. my heart goes out for our team and investors who always want to see the stock price go up. i would encourage them to look to the product we are building. we know what we are doing managing credit. we have done well and continue to do so.

i am very, very focused on leaving the company to long-term success. emily: you talked about the pursuit of growth, the possibility of buying up other players, given that the broader macro environment, some of these other players may be struggling. we have seen other players go through some pretty big layoffs. what kind of companies are you looking at, and could we see a big deal hour an acquisition spree? >> definitely nothing to report today. i want to make sure there's no speculation embedded in my answers here, but you are totally right. the way i think about potential targets, and we are definitely looking quite actively now, we have shown to be really, really good at credit management. obviously, the outlook is

uncertain. but we know what we are doing, and much more importantly, frankly, to our credit investors and capital market partners, there are companies that have had amazing ideas and built great products, but they are just not good with underwriting. we have been at it with 11 years and we know how to manage it. it would be great to find some of these ideas. the most important thing about a company is the people running it, but when they are missing that credit management muscle, those kind of acquisitions are fantastic because you want to make it go faster and get bigger. that is what we are looking for. something investors told me, is this asset better off owned by a firm? end if the answer is yes, you should look, and if the answer

is i'm not sure, stop looking now. emily: appreciate that little nugget of advice. great to have your back, max. always appreciate your time. thank you. we will be right back. ♪

emily: some other stories we are watching -- apple shares dropped after politico reported that lawyers are in the early stages

of drafting a complaint against apple at the department of justice. they hope to file it i the end of the year. california is the first government in the world to effectively ban gas powered car sales by the year 2025. the board adopted a mandate that will likely be adopted by 15 other states. and mark zuckerberg vented to joe rogan about the pain of content moderation. the meta ceo says it simply "sucks" but he's more pleased with his methodology then rival twitter. zuckerberg: once my worldview around the stuff is i don't think the stuff is black-and-white or that you will ever have a perfect ai system. i think it is all trade-offs all

the way down. the whole thing of arbitrating what is ok and what is not, i obviously have to be involved because at some level, i run the company, and i cannot just abdicate that, but i also don't think that as a matter of governance you want all of that decision-making vested in one individual. emily: coming up, the nasdaq rules about for diversity. this is bloomberg. ♪

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emily: welcome back to "bloomberg technology." lets get back to the markets and the tech selloff.

obviously, there are big questions about what a more hawkish fed and high interest rates means for venture capital. what is your reaction to what jay powell had to say? >> i don't know that anyone was surprised. it has been a very volatile few years. i think that never before have private markets been connected to public markets. usually, we say we got time and you don't have to worry about what's happening out there and then investors see what's happening and say if this how the valuation is going to look, then i need to moderate my entry point and the valuation that i'm going to pay right now because

it might not be at the top end of the market when we go public, so i think there are a lot of open questions about that. everyone is trying to figure out what is happening in the market to see if we can start investing in a cautious way, but what it does mean is that companies have to get back to business fundamentals and realize if you want to build a business that is going to last, that is going to make sense, valuations will come and go. emily: we heard from an investor earlier in the show who said he thinks there will be millions of layoffs in tech and that they have only just begun, that more than 20% of venture-backed companies will fold and that the downturn will last two to three years. do you agree with that? >> it is a pretty grim picture.

i don't want to agree with that. we have to realize that is a possibility for sure. what what i say to that? i think that it would be imprudent if companies today did not take the opportunity to right size their teams and be thoughtful if the market is volatile and be careful allocating resources going for word. you want to have optionality and maybe you don't need to grow 200% year-over-year. maybe you can grow a little slower but continue to build a business people can look at and say there's a real company here that makes sense over time and will congenital -- and will continue to generate profitability. will the recession happen and stick around longer? who knows? reading tea leaves maybe, but it creates constraints that the best companies continue to do

well because they are the only game in town, and that might mean 20% of companies will go out of business, and candidly, maybe that is ok. maybe in able market, you see too many businesses being funded that do not have the right economic structure to be real companies every time. i'm a glass half-full kind of person, so we are cautiously optimistic. we are going to do a good job. emily: meantime, there are new rules from the nasdaq requiring listed companies to have more diverse boards that are being challenged in federal court starting next week. i know you have been thinking a lot about this. what do you make of the fact that there's a challenge to something that to others seems so obvious? >> it is hard to see because i am a diverse board member, both

female and asian, and the number of women who have been appointed to fortune 500 boards in the last year -- actually over the last three years has doubled. there was a stat that said women comprise 45% of fortune 500 board members last year. that's amazing. black members were 26% of new companies. that would never have happened if all this light were not shown down on the fact that there was not diversity before. yes, it is challenging. yes, it is a quarter and maybe that is not the right way to manage the process, but what it resulted in was real action, and we were filling the pipeline with new people. the record number of appointees or new appointees that had never been board members before. that is the linchpin. if you would have always had to

have board experience to get a portable, not many of us had that -- to get a board role, not many of us had that. i think that the sorts of rules or at least guidelines does put pressure on boards to prioritize diversity, and i think it is that her for the company and for management to have a more variable viewpoint around the table -- i think it is better for the company and for management. if there's a rule or not, i certainly have to continue to champion that. if it does not always work and sometimes you have needs, i get it, but then how can we build a pipeline? how can we make sure we get other ways of getting that experience into the hands of

people who have a voice around the table. emily: you made the point that a lot of people were taking a lot of board seats, but that also meant -- i believe the term you use is shotgun wedding and that has not always been a good thing. can you explain what you mean by that and how that has played out? >> think in 2021, certainly, and there's been plenty of years in the last decade where there's a real exuberance in the investing market. a lot of times, you end up taking the person who bid the highest, and that's not always the best decision because that person is going to be an investor at your table for a very long time, and if they take a board seat, they can sit on

the board for a long time. many of these investor board members stay on your board longer than marriages last, so if you are not aligned with the vision and values and communication and partnership styles of the person that is investing in your company, and majority investor, you are stuck working with this person and dealing with this person for a really long time, and the job of a board member is to do what is in the best interest of shareholders, and that will not always online -- align with what the ceo wants to do hour feels like they want to do. ultimately, board members have to stand up for shareholder value, and that is just a voice that you definitely want to make sure you are aligned with. emily: i would love to get your reaction to the big silicon

valley controversy over the last couple of weeks, which has been entries recent horowitz writing its biggest check ever to adam neumann, a controversial founder , residential real estate idea. some people think it is a good thing. some people don't like it. what do you think? >> i don't know that i have a say in that one. when investors have founders they have worked with before, they backed them again, and, you know, there are lots of things that happen in companies that are not portrayed factually in market hour with press, so nobody knows except for management team and a board what happened, so if an jason continues to have faith in adam, that's great. they should back him. it should not be that if you

have a company that goes under or does not go as planned that they should never work again. it's just the investor has to decide, i still trust you and still believe in you as a founder. i don't know enough of what happened in that company and ultimately what led to the ups and downs. but i understand the intention of when you back somebody you have an in the trenches with, so perhaps that is what is driving that investment. emily: you are not sitting in the cheap seats, but i appreciate you. eurie kim, managing partner at four runner. meantime, the u.s. and china are nearing a deal to avoid mass the listings. the agreement would allow american auditors to go to hong

kong to check the records of chinese companies listed in new york. david westin spoke with one of the architects of the deal. take a listen. >> the agreement is the most detailed prescriptive we have ever had with the chinese, and provides for us to have complete access to the audit workpapers in china with no loopholes or exceptions. there are three key provisions. it has the authority to select which firms and audit engagements we inspect and investigate. second, there are procedures that allow us to view the audit workpapers completely with no great actions, and third, we have direct access to interview and to take testimony of any of the individuals involved in the audits. david: how did this compare with arrangements with other

countries that have companies traded on our exchanges? >> every country where the pco b has registered entities except china, we have been able to have complete access. this agreement allows us the complete access that we have been after, and it is more detailed and prescriptive than any other agreement we have had with the chinese. david: does it go any farther then your arrangements with other countries or less far? i understand the chinese government is saying they are worried about national security. >> there are no special arrangements with china. we are not providing them anything we do not provide other regulators and entities around the world. this is just an agreement that is very detailed so that there are no questions that the pca be

-- pco b will have full access and we are hopeful that this first step in reaching the agreement will allow us once we get our inspectors and investigators on the ground in china, to have complete access as is written on paper in the agreement. david: you just said the critical phrase, first step. we all know it is one thing to get an agreement -- by the way, congratulations, i know you have been working on it and long time -- but the next step is to get it implement it. >> i have been working with investigators to be able to be on the ground in mid-september. we will be conducting investigations in hong kong because the health and safety of our staff is of critical importance. we will, though, be able to have full and complete access to the chinese workpapers in hong kong that we need in order to conduct our inspections and investigations. david: how big a job is this? how many people will you have to

send over there and how long will it take them? >> inspections and investigations take as long as they take. i cannot predict that right now. we have a team of talented, dedicated staff that are ready and their bags are packed and ready to go. if we are able to complete the inspections and investigations are not really will be determined on if the chinese provide us with complete access as is required under the agreement we signed today. emily: erica williams there, u.s. public company accounting oversight board chair. coming up, with the ethereum merge up on us, we take a look at the potential risks that come with

>> i don't necessarily think of it as a great thing for ethereum in the short run. >> basically, bitcoin and either are the only proven networks still alive. >> we think they get back to 1000 or even lower if the merge does not go well. >> if the merge goes well, individuals and institutions can earn 8%, 9%. >> i think proof of stake will be just fine. >> our forecast is for the merge to be smooth. >> ethereum has been promising proof of stake since basically

they started. wake me up when the transition happens. emily: just heard from some of our guests what they think of the upcoming ethereum merge. let's talk about it with our own reporter who has been covering the merge. a lot riding on this and a lot depends on if it happens smoothly or not. david: right. we are seeing a lot of discussion around if the margin will be successful. we have seen concern among investors, the awareness of potential risks during an asset merge. one argument from investors is that the merge has basically been assimilated but not in the real environment, so nobody knows what really happens during and after the merge.

it is a really big question mark around the merge on if it will be successful or not. emily: ethereum recently raised bug bounty's, basically as i understand it, paying people to find flaws in the system. david: it kind of reflects the growing concern over the security risk intentionally. but in terms of if that will actually be effective in preventing any potential attacks, we don't know because we have seen attacks that caused investors to lose billions of dollars, so who knows what will happen after the merge?

we will certainly see a more vulnerable state of the network during and after the merge. everybody is actually expecting how this will unfold. some who are skeptical of the transition are saying the risks are bigger and bigger over time as we get closer to the merge. emily: lots to continue to watch. thank you. coming up, flying taxis may be upon us sooner than you think. that's next. this is bloomberg. ♪

emily: it might sound like the stuff of sci-fi, but the reality of flying taxis may be closer

than you think. >> if you have the option of going from point a to b, would you take it? what if it was in the sky? the question is how will people perceive this flying object. the goal is a fully electric aircraft design for the inner-city. it's placed for higher safety, low noise, and for electric flight. one big setback is not a single flying taxi is in place.

regulators will take time to ensure flying vehicles are actually safe. we have 18 fully electric motors, and if we lose one or two, we can still safely perform our mission. >> airlines have an ambitious target of turning carbon neutral by 2020. flying taxis are not expected to replace airbus 350's or boeing 757's any time soon. you can see it is a two-seiter and this is the autonomous version. we will have a pilot sitting here and a passenger and in the

economy version, you don't need that anymore. >> the big question is how much these things will cost. eventually it is projected to be about the price of a taxi. for more stories like this, please join us on your favorite platform. emily: finally, a billion-dollar auction may become an from one of silicon valley's most prolific art collectors. around 150 items from late microsoft founder paul allen are set to be auction at christie's this fall. christie's says all proceeds will go to philanthropy. that does it for this addition of "bloomberg technology." monday, we will hear from the

ceo of cube about the downsides when it comes to funding in a downturn. have a wonderful weekend, everyone. this is bloomberg. ♪

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david: it is all about time. 20 years since we last saw euro-dollar parity, and counting down less than 30 days to the next fed decision. this is "bloomberg wl re