RIP the liquidity cycle: born Q1 2025, died Q1 2025

Welcome to Cautious Optimism, a newsletter on tech, business, and power.

Happy Monday if you don’t hold equities. Monday, if you do. Yesterday, Cautious Optimism went on This Week in Tech with our TWiST co-host Jason Calacanis. If you want several hours of jokes, enjoy!

• 📈 Trending Up: Gaming stocks … Recession risks … foxes in henhouses … A U.S.-China trade war … juicing the stats … calls for calm … venture turnover … our economic adversaries … Paige Bueckers … press freedom in Russia … copyright wars …

  • Quote of the Day: “Whether or not the menu of tariffs causes a recession remains in question, but it will slow down growth.” — JPMorgan’s Jamie Dimon

  • Quote of the Day, redux: “Everything is getting killed, even good companies that will likely fare relatively well.” — EFG Asset Management’s Daniel Murray

  • Quote of the Day, one more time: “I'm 100 percent certain it's going to be better than what we've been dealing with,” Marc Andreessen earlier in 2025, as quoted by Reason.

• 📉 Trending Down: Bond yields … domestic GDP … clean governance … chip stocks … Apple’s margins … rule of law … irony? … antitrust? … rule of law, redux … the art of the deal … academic freedom around the United States …

  • Interest rates in the United States: Traders have priced in a 47% chance of a 25 bip rate cut at the May Fed meeting, and a 100% chance of the same by June. See, not all the news is bad!

The President who spent decades calling for higher tariffs on global trading partners, who campaigned on higher tariffs, and raised boosted trade barriers during his first presidency really meant that he wanted higher tariffs on trade.

Excuses abounded for weeks from folks who expected the President to do anything but erect new trade barriers. You heard that the promised tariffs were negotiating tactics, a multi-dimensional gambit, or a method to lower bond yields. It was all talk. The President wanted tariffs because he thinks they are a positive piece of policy. And so he went for it.

The asininely-calculated tariffs are attracting some domestic pushback. A conservative legal group is (fairly) challenging the authority the President is using to put them into place. There’s also movement in Congress to clip POTUS’s wings. But, as with nearly everything Trump has done thus far in his second term, it appears that the folks we’d expect to have a response ready do not.

According to an inteview with Commerce Secretary Howard Lutnick (CNBC transcript) we should have all seen it coming:

The tariffs are coming. He announced it, and he wasn’t kidding. The tariffs are coming. Of course they are. […] There is no postponing. They are definitely going to stay in place for days and weeks. [..] The president needs to reset global trade. Everybody has a trade surplus and we have a trade deficit

So, what’s the scorecard thus far?

The stock market is on fire

Starting in Asia, Japanese stocks fell sharply today. The Nikkei 225 index fell 7.8%, while Hong Kong’s Hang Seng index fell 13.2%. CNBC reports that the Hang Seng Tech index fell an even more painful 17.2%.

Shares fell less in South Korea (the Kospi index lost 5.6%), Australia, and India (the Nifty 50 lost 4.1%), but still lost ample ground for a single day’s trading.

Europe is similarly red. The Stoxx 600 is off 4.7%, Germany’s Dax index is off 4.3%, and FTSE 100 from the UK is off 4.5%.

Then there’s the United States. Here’s the futures scorecard as I write to you on this rainy Northeastern morning:

• Dow Jones Industrial Average futures: -2.0%

• S&P500 futures: -2.34%

• Nasdaq 100 futures: -2.7%

Those figures are less miserable than they were last evening when first figures came to light. Small mercies.

• Tesla is off 5.5% in pre-market trading, Coinbase is off 6.7%, Apple another 2.7%, Nvidia 4.6%, Palantir 7% — the list goes on and on. It’s a sea of red ink.

Crypto prices also took a leg down in the last day despite some hope that they would decouple from the movement of other asset classes. CoinMarketCap reports that Bitcoin is off around 7.5% in the last day, while ethereum’s token fell more than 17%. XRP, Solana, and Dogecoin also lost material ground.

To summarize:

• Asset prices are falling on slower expected economic growth, a less profitable global economy, and oceans of uncertainty.

• We did this to ourselves. On purpose.

What’s going on in technology-land?

We’ve already discussed how the stock market collapse has led to IPOs hitting pause. Klarna and StubHub are now in waiting mode. I doubt that Circle is going to go ahead in the near future. And if you were hoping that Chime would pull the lever, or Turo returns to the IPO hunt, sit back down.

The first quarter brought with it a gyeser of liquidity. Wiz’s sale put huge points on the board for VCs and their own investors, while a host of smaller deals helped catalyze hope that — at last — a meaningful chunk of illiquid private equity value would get unlocked by cash-rich incumbents on the prowl for talent and promising technology, and the IPO markets welcoming well-known names to their rosters.

RIP the liquidity cycle: born Q1 2025, died Q1 2025.

This is bad for more than just impatient investors with capital long locked-up in venture capital funds. No, the dramatic decline in asset prices — and especially equity prices — is harmful for technology companies in a number of ways:

• Venture capitalists will have a harder time raising new capital as potential LPs are less wealthy than they were a few days ago.

• Venture capitalists will also have a harder time raising new capital as many of their LPs have seen their other holdings lose value, boosting the share of their total assets invested in venture. Most major LPs have a venture allocation target, which they may now be over. If so, they may be unwilling, or unable to write more checks to investors. (A more lettered explanation here.)

  • More accurate venture marks of 2021-era unicorns could help here, ironically.

• Founders are now forced to sell into companies that are on edge, with more budget caution, and likely less interest in taking a risk on new technology.

• Founders may also find themselves taking a per-seat SaaS model to market in an economy more interested in cutting staff than kitting out an ever-larger employee base.

• And so on.

If you wanted the startup economy to boom, crashing the larger economy is a poor way to go about it. I sometimes think of startup investment as the second derivative of the growth of the global economy. In simpler terms, if the economy is doing well, startups rip. And if the economy slows, startups stumble.

That’s too simplistic a take to be used as more than a mental model, but it does underscore that — to lean on an old chestnut — startups could find themselves bedridden if the economy catches a cold.

Here’s hoping that the above is too pessimistic, too morose and that tariffs will be higher for less time than we currently expect. Anything to start rebuilding global economic trust and ties, frankly.

What else is going on in the world?

The news is not all bad. Here’s a few things to put pep in your step this morning:

• Signal Fire raised $1 billion for a new fund, Katie Roof reports.

• Some startups like Cursor are ripping regardless of the larger economic picture. Some startups can dodge the rain because they are moving so fast. Cursor (Anysphere) has doubled its ARR to $200 million in the first quarter alone, and Bloomberg reports that in “February alone, 4,000 to 5,000 companies reached out to Anysphere to express interest in trying Cursor.” Hot damn!

• Challenges to the President’s use of particular authority to wreck global trade are coming from opponents of all shapes and sizes.

• Fintech in France is showing signs of life, with Pennylane doubling its worth to €2 billion thanks to a new funding round.

• Meta released a new set of models, continuing the market’s steady drumbeat of newer, faster, better, and cheaper AI technology.

Let’s pause for a moment

About those new Llama models. In Meta’s explanation of how it made the new AI models, this section stood out:

Meta writes that when it trained its models on a lot of information, it came out left-wing. So, it’s changing the model to say something else. The company is politically skewing the model!

Now, imagine if Meta wrote that its model had trained on the world’s information and had come out more right-wing than left, and that the company was correcting that bias. Pitchforks! Fires on the walls! Fox News segments for days on how lefty tech companies can’t take the truth!

But when Meta decides that its model doesn’t comport with its own view of what politics should be — post-truth and sympathetic to viewpoints less predicated on data — it simply turned the dials. And no one really bats an eye.

What will this look like in practice? I can’t wait for AI models to tell me things like, ‘While some consider anthropogenic climate change to be a fact based on observable data, others dispute its existence, calling it woke.’

It’s also exciting that Meta has found the perfect balance between different political views. Good on them. Who knew they had it in them?

More tomorrow, friends. May the rest of the week prove less chaotic, and more fun. — Alex