In many ways these failings were masked, or worse even ignored, during the successive rounds of stimulus during the pandemic. As we effectively hit the dimmer switch on the economy the interventions, including the $1.9 trillion CARES Act, filled a demand hole that averted the likes of a 1930s-style Great Depression. This era of virtually free capital was also an accelerant to the businesses of the future, e-commerce, communications technology, biochemistry, meme stocks, cryptocurrency values, and more. Since the beginning of the pandemic, real estate values skyrocketed in the emerging new technology hubs like the one in which I was born and now live, Austin. With all the numbers up and to the right in so many P&Ls, everyone could play genius as we minted unicorns by the hundreds.
But first, we saw this bounty of liquidity squeezing supply chains as demand overwhelmed supply. Inflation began creeping up. Then came lockdowns in China, a grinding war in Ukraine with no end in sight, and soaring energy and commodity prices. There are few better illustrations of the ensuing dynamics than of yet another noun-turned-verb, Zoom. The company’s share price on NASDAQ was $67.28 on the first day of trading in 2020. On October 18 of that year, it had zoomed to $559. As of Friday, it was in the neighborhood of $109. If you’ve been patting yourself on the back for buying property in Austin, Miami, Denver or other digitally friendly destinations, consider today’s reality of new mortgage rates. A house bought today on a 30-year mortgage – any house – is effectively 67 percent more costly than it was in January.
As I was finishing this essay, the World Bank issued its sobering assessment of all that is hammering the global economy. What grabbed the attention of most headline writers was its forecast of 2.9 percent growth this year – down from 5.7 percent last year. What might have been given more attention was the bank’s prediction that “subdued growth” is likely for the remainder of this decade and we may be looking at a repeat of 1970s “stagflation” (i.e, paltry growth and cambodia whatsapp number data high inflation). Some heavyweight economists challenge the comparison with the 1970s as overwrought for reasons like the fact that interest rates remain far below inflation levels globally, giving policymakers tools they lacked four decades ago. There’s also encouraging evidence of oil price turmoil boosting investment in renewable technologies of solar, wind, and geothermal. This year, for example, we’re on track to add a record 320 gigawatts of green power generation, according to the International Energy Agency, an amount roughly equal to the entire electricity demand of Germany.
Indeed, we may get lucky, although the inflation print of 8.6% on Friday was not an encouraging sign. And blowing on your dice and hoping your fortune will change is a ritual best saved for Las Vegas (coincidentally, where we are right now for the Snowflake Summit). What is indisputable is that we are suddenly in what investors like Bill Gurley call a “risk-off” environment. This is a planetary reassessment of how business models will fare and it means safe bets only for the foreseeable future. Practically, this means businesses everywhere are turning to the conventional, three-part inflation times playbook: cut costs, trim margins, and – if you can – raise prices.
Now I don’t mean to diminish the importance of the conventional playbook, which we are going to need. One of the best roadmaps in my realm of venture investment, “Adapting to Endure,” was just produced by Sequoia Capital. And while I can’t share it, as it’s “confidential”, it’s been reported upon numerous times and CNBC did a very effective summary. In this “crucible moment” as Sequoia calls it, companies will be forced to accept lower valuations based on revenue multiples, scrap projects and R&D for tactics that can generate cash, get real clear and honest with their stakeholding investors and employees, and focus on identifying immediate opportunities such as extended terms for the strongest customers.