The straw that breaks the camel's back for not only the broader market, but tech stocks, could be the $2 trillion in student debt loans that could be canceled by U.S. President Joe Biden’s current administration.

About $1.6 trillion of the $2 trillion in loans that's owed to the U.S. federal government, as opposed to private loans, went into forbearance at the beginning of the pandemic.

The U.S. government already owes over $30 trillion in debt with another handout of $40 billion going to Ukraine yesterday and today another $100 million planned in weapons earmarked for Ukraine.

If we do a basic calculation, $2 trillion of possible forgiven student debt represents around 7% of total federal debt; and this will add additional pressure to the federal government, as they will absorb the debt and gaudy interest payments that will make their debt repayments even more arduous.

To be more precise, the federal government is about to give up $25 billion per year in interest payments from these loans, and that is $25 billion they won’t have to pay back of their own interest-based debt repayments.  

These current pro-inflation policies are on borrowed time for not only the people on the ground dealing with them, but some of these politicians.

Senator Mitt Romney and four Republican senators introduced the Student Loan Accountability Act, which would:         prohibit the Biden administration from enacting wide-scale student loan cancellation to forgive all, or some, student loans for borrowers; and include exemptions for existing targeted federal student loan forgiveness, student loan cancellation, or student loan repayment programs, such as public service loan forgiveness and teacher loan forgiveness.

Desperate times make for desperate measures.

What does this mean for technology stocks?

In general, it means lower price per share.

Another explosion of high inflation would force the Fed to become even more hawkish about raising interest rates.

Although I don’t want to beat a dead horse, the macro elements have completely consumed everything and anything going on in risk markets.

It’s almost not about the tech stocks anymore, even though they are guiding weakly.

Much of the fallout stems from the extremity of the exogenous events as the world barrels towards a food shortage in 2023 because many countries have banned food exports and Ukrainian ports shut down.

Much like the price of Bitcoin, technology stocks don’t perform well in a hyperinflationary environment.

Money is allocated to other needs, which is why we saw BlackRock's $10 billion momentum ETF dumping technology for energy starting next week.

Energy stocks are not in a bubble compared to non-profit tech companies in a high inflation environment. You have to ask yourself: what companies benefit more from higher inflation prices? Definitely the energy sector.

Russia’s current account surplus more than tripled in the first four months of the year to $95.8 billion.

Last week, the International Energy Agency said Russian oil export revenue is up 50% since the start of 2022 with the Kremlin generating close to $20 billion per month in sales.

Additional incremental capital allocation pouring into energy sets the stage once the student debt gets canceled, this money will be used to pay for even higher energy prices which in turn be used to return to shareholders via buybacks and dividends.

Energy prices will certainly be higher since the current administration enacted price controls by The U.S. House passing a bill on Thursday that allows the U.S. president to issue an energy emergency declaration, making it unlawful for companies to excessively increase gasoline and home fuel prices.

This will destroy more supply as smaller gas companies shudder in fear of being prosecuted, leaving only the big players and decreased capacity.

The money saved on not paying student loans will not go into technology stocks in the short-term, especially since the rising rates put a cap on price appreciation.

We are in the midst of extreme shareholder capitalism in the United States, anyone who can double or triple prices can and will.

This means that every industry needs to package itself the shiniest to get a sliver of the incremental capital.

Technology stocks are failing at this, and it was only just recently they were considered the darlings of the economy.

The shelter-at-home economy is long gone and same for the revenue that was pulled forward with it.

Revenue is now being pushed further back and the tech industry is panicking under the new rules of the global economy.

What’s around the pipeline for all these super leveraged tech hedge funds?

I’ll tell you what will happen, and it’s not pretty.

This has direct consequences for your fragile portfolio, so be sure to listen up.

Top quartile tech hedge fund managers wind up becoming liquidity providers due to bottom quartile managers agreeing to redemptions.

Yep, I just said it, we are about to enter a period of extreme redemptions brought on by the massive underperformance of tech stocks by tech growth hedge fund managers.

Apply the same logic to top-performing stocks vs. bottom-performing stocks and people’s penchants for selling winners and keeping losers.

These capital redemptions are about to hit us and don’t think that hedge fund managers have trillions lying around just to return.

Most of their liquidity is already tied up in the market or better saying already lost in the market!

Many of these funds have been laser-like focused on tech growth stocks, just do the research, there are no gold-based hedge funds because they don’t sell well.

Tech has been outperforming the market for this entire bull market cycle and the way that manifests itself inside the hedge fund ecosystem is with more copy-paste tech growth funds.

When the Nasdaq drops 30% nominally like it did in the past 6 months and a fund is laden with the garden variety of growth stocks, these funds are in the queue for returns, and some possibly even shut down completely.

That’s exactly what’s been going on as we come back to reality.

These funds are proving that they aren’t living up to the hype of being nimble and flowing in and out of trades.

Their behavior suggests they are the opposite and just another ETF copycat, repackaged with the hedge fund marketing lingo.

So what’s the deal now?

Buy and hold in the face of accelerating rate rise expectations is hardly ideal, but that’s what these Harvard MBA-supported private hedge funds are doing.

I can’t make this stuff up.

Then even in this case, they overperform relative to a 30% drop in the Nasdaq of let’s say -10%.

Do we believe the incremental capital allocator will jump at a chance to lose 10% because it’s not losing 30%?

Maybe in U.S. President Joe Biden’s world, but not in the world of real people investing where they fight tooth and nail to preserve capital.

Take for instance some of these infamous guys like Tiger Capital which specializes in tech growth.

Back-of-the-envelope calculations based on the reported $35 billion size of Tiger’s overall public equities booked at the end of last year indicate that it has probably suffered a nominal loss of at least $15 billion in 2022.

To put that into perspective, Citadel lost 55% for an estimated $8 billion loss in the 2008 financial crisis.

Given that there were 82 trading days in January-April, this works out to be a loss of roughly $183 million every day that markets were open this year. Or $28.1 million every hour that US markets were open.

That’s what you’re overpaying for - these smart guys to lose your money.

Billionaire investor Steve Cohen’s Point72 Asset Management also removed the $750 million it invested in Melvin Capital Management.

Melvin Capital, the hedge fund at the center of the GameStop trading frenzy, lost 49% on its investments during the first three months of 2021.

Hedge fund managers Cohen and Kenneth Griffin had stepped in to aid Melvin Capital in January last year with Griffin’s Citadel and Cohen’s Point72 adding $2.75 billion to the firm.

What’s the fallout here?

The best employees, if they do exist, leave these cratering tech funds to either get another job at another tech hedge fund or start new tech funds themselves by raising new money.

Soon these funds, if they still exist, must fold because of the brain drain encouraging 100% redemptions; and as I talk to many friends today, this trend is accelerating.

To get redeemed out of existence looks bad on the resume.

Required liquidity due to losses in other funds is where we are now in this economic cycle.

Ironically, this could lead to several Bernie Madoff type Ponzi’s in the worst case, but the best case is after this bear market rally, there will be a sharp sell-off that will take us a leg lower in the Nasdaq.

This could be sped up by the US Central Bank talking up inflation even more frequently, and the market will need to fight through this to keep its levels.