The Coming Change In Monetary Policy

Janet Yellen, the Chairman of the Federal Reserve, has been signaling to the financial markets that the Fed is going to raise rates towards the end of the year. If this happens, it will be the first time in nine years that the Fed has raised rates in the US. And it will be the end of an extraordinary period of near zero interest rates that resulted from the financial crisis of 2008. The near zero interest rate policy allowed banks and brokerage firms to replenish their balance sheets, work off their book of toxic assets, and regain their health. It also allowed the US economy to rebound from the effects of the financial crisis, it allowed homeowners to hold onto homes through difficult financial times, and it allowed businesses to borrow and raise capital at very attractive rates.

A side effect of this period of cheap money is that the tech sector, venture capital, and startups have enjoyed a valuation environment that has been extraordinarily friendly. I wrote about this in March of last year and said:

It is the combination of these two factors, which are really just one factor (cheap money/low rates), that is the root cause of the valuation environment we are in. And the answer to when/if it will end comes down to when/if the global economy starts growing more rapidly and sucking up the excess liquidity and policy makers start tightening up the easy money regime.

Yellen has also been signaling that the Fed does not plan to make rapid and large increases in rates. So the valuation environment in the tech and startup sector may not change quickly. But it will change. And so will the valuation environment in the stock market. This is because valuation multiples are inversely correlated to interest rates. When rates rise, valuation multiples fall.

So, I am going to watch the Fed’s moves and the market reaction with interest. This may have an impact on the venture capital market and startup valuations so it’s not something to ignore.

#stocks#VC & Technology

Comments (Archived):

  1. William Mougayar

    It’s all about timing.If they raise too soon, it means more unemployment. It they raise too late, it means some inflation.If they time the rate increase just right, the result is full employment without any increase in inflation.At least, that’s the theory.

    1. JLM

      .I cannot imagine me disagreeing with you more than your statement raising rates, if done correctly, will “…result in full employment…”.There is no economic experience and no theory which suggests that raising rates triggers hiring.Neither is there any economic theory that raising rates can be done absent inflation. Interest expense is a cost. By definition, inflation is a measure of increasing costs.One day, when we get serious about balancing the Federal budget, we will have massive inflation. We will pay back dollars with dimes but not until we are forced to do this.JLMwww.themusingsofthebigredca…

      1. William Mougayar

        meant to be “continuation of full employment” , because the assumption was that they would only raise rates IF (big IF) unemployment rates are low enough.

        1. JLM

          .We are nowhere near full employment though the numbers are purposely deceiving.We are at all time lows in Labor Force Participation Rate not seen since the 1970s. The LFPR is what creates the deceptively low U-3 unemployment numbers. U-3 operates on the fiction that someone who has dropped out of the labor force — either by failing to actively look for a job or being unemployed for more than 6 months — is not really unemployed.Yes, the US unemployment numbers that are touted are truly that moronic.When using the 1970s frame of reference, it is also important to note the relative difference in size of US population. That was 40 years ago.A thinking person can see this by looking at U-6/7.The rate of underemployment is as big an indicator of how fragile the economy is. The great irony is that underunemployed nuclear scientist working three jobs is counted as three F/T employees.The very definition of the upper end of the work force has changed dramatically. People are healthier and working longer. The work force is actually increasing.Job creation requires 140-180K jobs per month to simply keep track with high school graduates, college grads and discharged soldiers.JLMwww.themusingsofthebigredca…

          1. Salt Shaker

            If only Congress could get serious about repatriating jobs. The 2004 American Jobs Creation Act was a “head fake” w/ top corporations using this as opportunity to benefit their own interests rather than its intended use to stimulative domestic job creation. There weren’t circuit breakers and penalties to insure big corp fulfilled the desired objective. Similar to your supposition that the Fed won’t raise to insulate Hilary, Repub Congress likely won’t adequately address repatriating cash pre-election to protect big biz. They’re not gonna take a hammer to the hand that feeds them.

          2. JLM

            .I could not possibly agree more with you than you do with yourself.The wholesale manner in which we have allowed American employers to off shore jobs and, recently, fire American tech workers and replace them with visa-ed foreigners, is irresponsible and short sighted.The Republicans are no better than the Democrats and, in many ways pertaining to the economy, worse.We have nobody in politics who is actually trying to support job creation.JLMwww.themusingsofthebigredca…

          3. Anne Libby

            Except possibly their own job creation. (Wow, I’m kind of a downer today.)

          4. JLM

            .Sad but true.JLMwww.themusingsofthebigredca…

          5. LE

            Speaking simplistically many “jobs” are just shitty service type jobs as well. The question is why do people need so much money? A large part of the reason is to buy things that they don’t really need (for survival) it’s not always to just pay the rent (although it can be of course and is in many cases.).The great irony is that underunemployed nuclear scientistThis is an artifact of keeping up with the Jones. An example is the immigrant chemistry associate prof who will drive up from Delaware to install my soundproof windows. (He will make $900 for a day of work with his son..). Why do I say “keeping up with the Jones?”. Because the uncertainty of his current position along with the need to make more money (because his neighbors have things that he wants or he has to pay for college for his son) creates a situation where he has to work more than he would in the 70’s with the same job. You remember how small closets were in the 70’s in houses? You remember how many things you didn’t buy in the 70’s. You recognize how much money people spend on entertainment (and dining) now that they didn’t spend in the 70’s? You remember supermarkets in the 70’s prior to the packaging revolution?People are also lazier is my theory and also feeling entitled to have good times and good experiences in the present day rather than thinking about the future. Enjoy now, suffer later.

          6. Matt Zagaja

            I disagree in some ways, I think a main driver of the need for more income is increased cost of things like housing, healthcare, food, and education. Tuition prices increase YoY well above inflation, health insurance has been doing the same and housing keeps going up. I used to buy a burger and fries for $6 in high school and now it costs me $12. People are able to consume more entertainment now because that has followed the opposite pattern. I used to have to pay Blockbuster $6 or whatever to rent one movie, now I pay Netflix $10/month for all the movies. I used to pay $15 for an album, now I get all music for $9.99/month. You can pay thousands for computers today if you are a power user but HP sells pretty usable machines for $149.I think you’re right on about the cost of uncertainty. I’ve had a different job every year since graduating law school. Thus for the most part I spend my money like a poor college student because I like having the savings available if things go poorly. Whereas if I had a general idea of what my income was over the next five years I’d more likely buy a new car, a house, etc.

          7. Anne Libby

            Your chemistry prof is very possibly an adjunct — a highly qualified expensively trained professional who’s lucky if he’s getting getting paid $3K to teach an entire semester-long class at an accredited university.It’s not just what he wants, it’s about whether he’s one of many “work insecure” Americans, scrapping along to figure out how to meet his needs — the insecure middle class @JLM:disqus mentions elsewhere in comments today.If this is the case, it’s not a wonder he’d that he’d invest a day, plus the gas money, to spend a day with his son and split $900.(And while we could debate whether people should choose to get PhDs when this is an almost certain outcome for many of them, there’s tons of sad observations to be made on this circumstance/)

          8. LE

            I am going to ask him what he gets paid for teaching a course.He is from Turkey and said that he did construction there which is why he was somewhat qualified to install these (special) windows.He said it would take 4 to 6 hours of work (plus 2 hours portal to portal travel) plus he is responsible if he measured wrong. (I paid $75 for him to drive up and measure so I guess that’s another 2 hours ptop).If he was entrepreneurial he could make more by cutting out the place that I bought the windows from (in the west) that had to ship them in Fedex Freight. He could find an east coast factory and essentially do the same thing. If I had time I would talk to him about doing that and could easily set him up (while taking a cut..)

          9. Anne Libby

            Do ask him.I’ve been following the tale of the adjuncts for some years now, both watching the trends and also knowing a couple of people in this circumstance.(If it’s true that he’s an adjunct, my $3K guess is possibly a wildly optimistic estimate. And no benefits.)Part of what’s sad is that many of these people are fully invested in their work. Many are dedicated enough to spend time outside of class with students — as is expected of full time tenure-track/tenured professors, as well. Many adjuncts teach at more than one university, and/or have more than one job.

  2. JimHirshfield

    It will be slow and just a little at a time, as you point out, which to me means the effect on VC and startups will be slower and take even more time.

    1. pointsnfigures

      But, in the chain of money, interest rate moves have an effect because they change risk/reward and opportunity costs. Think about it from a Limited Partner perspective. Do I allocate money to treasuries, real estate, the stock market, hedge funds, private equity funds or venture capital funds? If they pull out of venture for anticipated higher returns somewhere else-that means VC has less to invest driving valuations down. Of course, in a five year fund cycle-it will just depend on where VC funds are in the cycle to the effect. Presumably, the same amount of funds get raised each year.

  3. JLM

    .I suspect that the comments by the Fed will turn out to be a big head fake.The notion that the economy, in general, is in recovery — or has been in recovery — is nonsense. The economy has been growing at such timid rates that one could credibly argue it is signalling another recession — by traditional two down quarters in a row orthodoxy.GDP Q1-2015 was -0.7% while Q4-2014 was an anemic 2.2%. These are not “recovery” rates of growth.If Q2-2015 were to be negative that fits the mold for a recession.Inflation in 2013 was 1.5% and in 2014 was 1.6%. These rates are so low as to be effectively unmeasurable.In 2015 YTD, it is -0.1%.Whatever the Fed is looking at must be in the bottom of a tea cup because the reported data doesn’t support any particular call for messing with anything.The Dallas Fed is, of course, in Dallas and they may be seeing something the rest of the branches are not.In another three months, the Presidential election is going to be in full swing and it is unlikely the Fed is going to make a big move at that time. If they do, it hurts Hillary and we don’t want that.Given the fragility of our economy, coupled with a continuing slide in median family income, it is difficult to see any other short term outcome from raising rates than contraction, a short term spike in unemployment and an acceleration of whatever bad trend is in the air at the time they pull the trigger.The labor force participation rate is at a forty year low. Fewer people working is never a good thing. You can take them off the employment rolls and pretend they are not unemployed but they still have to eat.The big driver is the combination of declining median family income plus out of control healthcare premiums and runaway deductibles. These three things taken together are killing the middle class, particularly the bottom half.Part of what the Fed is dealing with is battle fatigue. They have been so low for so long that they feel like they need to get their “raise the rates” gym shorts just to prove they still have that play in their playbook.We have become the first Lost Japanese Decade and there is no reason we should be pretending we are in a good enough situation to mess with rates.For all of the above, I don’t think they will in 2015 and not until after the elections.JLMwww.themusingsofthebigredca…

    1. William Mougayar

      JLM- the US will still have the HIGHEST GDP Growth of all OECD countries, projected at 3.2% in 2015, versus a world average of 2.9%.3 or even 2% on a 17 Trillion economy is not anemic by any relative measure.

      1. JLM

        .US GDP ACTUAL through Q1-2015 was MINUS 0.7%. This is coming off a very disappointing Q4 — as compared to expectations — suggesting a trend is developing.Don’t put too much money on US GDP growth being 3.2% through the year.To hit 3.2% for the year, the next three quarters would have to be almost 5%.The “whisper” numbers for Q2 are already disappointing. Q2 looks like a replay of Q1.In the last three years, the US has had one quarter of 5% GDP growth, so to suggest that the US hits 3.2% for the year requires a huge, HUGE, improvement in performance at a time that energy, a traditional driver of GDP, is fairly anemic.To the number itself — 3.2% is not a “recovery” number. A recovery number — the unleashing of pent up demand — would be in the 7% range.Qualitatively, an increase in GDP is considered to be a good thing and a boost to the quality of the economy. This is not necessarily true unless that boost can overcome the drag of gov’t spending.Federal tax receipts are at an all time high in the history of the US which means much of the improvement in GDP is going to the gov’t. The gov’t is spending it all plus some.Where the gov’t spends their record levels of income does not have a multiplier effect. More interest to China does not create jobs in Moline or Peoria.JLMwww.themusingsofthebigredca…

        1. William Mougayar

          You’re right that the 2015 projections have been curtailed by the OECD, after the bad Q1. The US is now projected to end the year at 2.4%. Even China isn’t’ expected to do 7%.

          1. JLM

            .The record of recent forecasts has been to consistently overshoot the mark.2.4% is me and you buying a second pack of gum. It is almost within the width of the chalkstripe in an economy as big as ours.JLMwww.themusingsofthebigredca…

    2. Rob K

      JLM- Yes GDP did decline, but there were 2 very large anomalous events in Q1. Historically bad winter weather in the Northeast played a large role in consumer spending, and a labor dispute in West coast ports played a large role in reduced exports. I’m not disagreeing that the recovery is fragile, but we can’t ignore these events when looking for more normalized growth in Q2-Q4.

      1. JLM

        .Fair play to you.It is always difficult to see what is “not normal” but the size of the economy itself flattens most of this stuff out. The magnitude of the loss is not explained by these phenomenon. It was a big loss and if you look a year earlier, it was MINUS 2.1%.It is difficult to see how a bit of bad weather does anything other than to postpone activity. People still eat, homes are still heated, etc. I suspect this is a bit overblown. Bad weather triggers panic buying at the grocery stores. I am a skeptic but have no opposition to it being right.We all just need to know the numbers and there is always a bit of useful context. Again, the size tends to flatten the bumps.As to the situation with the ports. This impacted imports as shippers used alternative ports to send merchandise out once they realized what was happening. This was a long standing and well known phenomenon.Much of the produce that was spoiled was insured and thus the impact on revenue which is the driver of GDP was not really impacted. I listened to a very good reprisal of this by the port manager.JLMwww.themusingsofthebigredca…

        1. Rob K

          Calling what happened to the Northeast in February and March “a bit of bad weather” is like calling Katrina a “rain storm. I live in Boston. Trust me, not only was it the most snow the city ever got in a season, but it was concentrated into a 6 week period. Our family, our neighbors, and the city (and the Northeast) hunkered down.As to the ports, what I read was that it impacted exports more than imports, but I don’t claim any unique insight into that.

          1. JLM

            .Fair play as to weather. I live in Texas, so I am particularly insensitive to the northeast.Though, I do remember a few days I had to put the convertible top up.JLMwww.themusingsofthebigredca…

          2. LE

            I so want to live in a place where the Sun shines most of the time. But from what I am seeing (looking at historical weather for Austin) precipitation (no way to see cloud cover) is between 2 and 4 inches on most months. Is it typically Sunny on most days historically or are you just saying recently?

          3. JLM

            .Exports — produce hit the hardest — sat there.Imports, which don’t really figure into GDP, found other ports once the game was revealed.JLMwww.themusingsofthebigredca…

          4. creative group

            Rob K:didn’t want to see the impact the winter weather had on normal folk but we (as in me) welcomed it to effect every Boston or Massachusetts sports team competing against Giants, Knicks, Yankees or Rangers.

      2. creative group

        Rob K:you took the comment right from my thoughts. And the thought of the Fed making a decision for Hillary benefit when the Fed is comprised of regional and both party appointments again reveals the sentiments of many posters. The data is the data. (Thanks again for your post)

        1. JLM

          .Bit of tongue in cheek, sometimes. Watch for it.The Fed is notorious, or famous, for not making public pronouncements that might impact domestic politics.As well they should be.JLMwww.themusingsofthebigredca…

      3. pointsnfigures

        Meh, they have been blaming weather for a few years now. It’s the policies.

    3. Matt Zagaja

      Strange to me that the S&P 500 continues to show extraordinary growth but GDP does not. The housing and rental market in the northeast also seems to be enjoying some kind of immunity.

      1. JLM

        .The stock markets — equities — benefit from two structural prods.There is no fixed income market and all that money has to go somewhere. Today, it costs money to hold cash and you get no real return on fixed income instruments.With the wholesale abandonment of defined benefit pension plans and the growth of defined contribution plans (SEPPs, Keoghs, IRAs, whatever) money flows in every month and gets invested every quarter.These investments are programmatic and tend to follow the allocation and choices of earlier quarters. More money chasing the same limited number of choices.This is not a bad thing; it is just a thing.JLMwww.themusingsofthebigredca…

    4. Tom Labus

      NOTE TO READER: Nothing positve about the economy can be mentioned by the author. It violates some agreement that he made when he went to Texas. Energy independence, elecricity costs and manufacturing in the USA.

      1. JLM

        .Tom –This is a good read. Somebody else sent this to me.As to the energy aspects of the report, it does beat a drum that I think belongs in everyone’s personal parade — the US CAN be totally energy independent within the next 5 years if we just get out of the way and let it happen.The geo-political and economic implications of true energy independence will be staggering — no oil, gunboat wars, to start with.The underlying assertion that the US economy has been on a slide since the Great Depression is kind of specious when you consider the massive benefits of the post-WWII growth period in which the US, essentially, jumped several families of growth curves and the quality of life exploded.Good read. Thanks.JLMwww.themusingsofthebigredca…

  4. JimHirshfield

    I think Regulation A+ will have a bigger impact on VC in the coming year. Thoughts?”Starting Friday, he will get equal access to similar future deals under new Securities and Exchange Commission rules that allow small investors (non accredited) to participate in equity crowdfunding, in which startups can raise up to $50 million through online campaigns.”…

    1. JLM

      .Crowdfunding of all stripes is still in the honeymoon phase. Nobody has yet seen massive flop sweat failures.When folks make four investments and all four of them turn to crap, then the fun will really begin.What VCs have, as a unique skill, is the ability to watch 80% of their best decisions turn out to be wrong and keep making decisions. This requires a steely nerve and a strong ego.The fact that they are using OPM and the fact that they get a piece of the upside without having to pay a portion of the downside — coupled with a management fee regardless of outcomes — makes this palatable.When Pajama Joe sees $200K disappear and Jane watches it with him, there will be consequences. Jane wanted new appliances and Joe said, “Wait.”Don’t get me wrong, I see no problem with the Reg A changes. It has been three years since the JOBS Act passed, no? The blink of an eye in SEC and gov’t time.This is going to get dicey and dicey is always fun.JLMwww.themusingsofthebigredca…

      1. JimHirshfield

        Yes, Pajama Joe will lose his pajamas shirt. And yes, early days. However, I expect relative explosive growth as measured by number of participants on crowd funding platforms as a result of this and the next level perhaps coming soon (up to $1M raises).

        1. JLM

          .More money chasing deals will bring more questionable deals to the market resulting in more failures.One is tempted to muse that crowdfunding deals may be those deals that did not pass muster with angels, syndicated angels and seed funders.If so, then the failure rates will be higher than 80% which will accelerate and magnify the angst.There are already plenty of $1MM raises out there right now.As an aside, the Reg D deals have been out there for a much longer time and broker-dealers who got into the game before Reg A have been at it for almost two years.JLMwww.themusingsofthebigredca…

          1. JimHirshfield

            “crowdfunding deals may be those deals that did not pass muster with angels, syndicated angels and seed funders.”AngelList, a crowd funding platform, is predominantly populated already by angels, syndicates, etc. So I don’t buy into your assumption wholeheartedly. If you’re raising a round, wider exposure is better (terms).

          2. JLM

            .Correct me if I’m wrong, but AngelList has not been doing Reg A or Reg D deals yet?JLMwww.themusingsofthebigredca…

          3. ZekeV

            My understanding is that very few issuers have relied on “crowdfunding” regs, b/c the information requirements are burdensome. Might as well do a standard Reg D, or maybe a Reg D with public solicitation. Plenty of money from accredited investors without dipping into non-accrediteds and triggering information requirements.

          4. JLM

            .I think that is correct.There is a bit of a knee jerk that a Reg D deal requires a broker-dealer, which it does not. Reg D offerings have been around for a long time. The big changes in the JOBS Act were the elimination of the B-D requirement and the ability to make direct and “unqualified” solicitations.The Reg A stuff is bigger and clearly does not require a a broker-dealer.It will be interesting to see how this plays out.JLMwww.themusingsofthebigredca…

          5. ShanaC

            i think it will make my personal life interesting. it is hard to diversify without being qualified in a way

          6. LE

            More money chasing deals will bring more questionable deals to the market resulting in more failures.Exactly. Same thing that happens during real estate bubbles, right? And those gamblers have way more experience but still get sucked in.One is tempted to muse that crowdfunding deals may be those deals that did not pass muster with angels, syndicated angels and seed funders.Additionally they will be deals where the presentation and slickness will matter more than the business model. Similar to sending a pretty girl in to try and sell office copiers. (That does get your foot in the door…)

      2. Richard

        Total lottery spending is close to 70B to year, I don’t think crowd funding (lotteries for the top 20%) is at risk nor is the startup space dependent on it.

        1. LE

          There is a big difference with lottery spending.a) With lotteries you get near immediate feedback that you have lost (or have won).b) Less “invested”: Everybody understands it’s pure gambling and the amount that people put down is obviously less than what someone would put in for a crowdfunding “investment”. (Exception being addicted gamblers of course possibly with lotteries).c) Because crowdfunding doesn’t provide near immediate feedback, and the horizon is long term, it’s quite possible for people to make multiple bets before they figure out that the outcome will never happen. And learn their lesson.d) People falsely think they have some kind of advantage or edge and will fancy themselves as being able to “do your homework” (ha ha ha).With respect to “d” this passage from the WSJ article applies:Mr. Amacio, who works as a quality assurance associate for a pharmaceutical firm, liked the closely held company’s business model and management team. We can assume he has no clue at all regarding why a company in an industry that he probably doesn’t know about at all “has a good business model and team”.

      3. LE

        Exhibit A for your statement is this passage from that WSJ article:Jocel Amacio thought he found a winner. While scouring the Internet, the amateur investor from Orange County, Calif., came across Digitzs Solutions Inc., a digital-payments company that was selling shares online in an effort to raise $750,000. Mr. Amacio, who works as a quality assurance associate for a pharmaceutical firm, liked the closely held company’s business model and management team. But the 35-year-old didn’t qualify under long-standing federal rules that largely bar small investors like him from investing in such projects. Without his help, Santa Monica, Calif.-based Digitzs, which launched in May 2014, surpassed its funding goal. “It’s not fair because you can lose out on great opportunities that the big guys get,” said Mr. Amacio.

      4. Dan Moore

        I had this experience with prosper. Would have been better off putting the money in a savings account.Fool me once and all that.

    2. Robert

      So apparently the legal work that comes with qualifying for this type of funding is too costly for small startups, so there is more (de)regulation in the works to allow for seed stage companies to participate in this type of funding as well?

      1. JimHirshfield


        1. Robert

          Should be interesting. The good deal flow would probably still be limited to a few VCs, but instead of a limited number of LPs they could have thousands of them all microinvesting.

    3. ShanaC

      yup. that will be interesting.

  5. Matt Kruza

    The magnitude matters. I can’t imagine rates being over 1.5% fed funds rate honestly any time in the next five years. The fact that they will raise 25 – 50 basis points only matters for the most sensitive instruments (long bonds >10 years and perhaps could be a knock on effect in the mortgage markets). VC returns are targeting 10-20% (ideally the higher end) from any good LP, so I don’t believe at all that 50 basis points matters. Now, I suppose that if this takes the “frothiness” or “irrational exuberance” out of the market if it is there, then some of the crazy M&A or “private IPO” might be affected, but that will only be because the fever of crazy valuations will have been broken

  6. pointsnfigures

    Yup. Watching very closely, and been trading some bond futures/options. The short term interest rate option market is saying 20-30% chance of a rate rise by this December. I don’t think the Fed moves this year, unless the Euro situation settles down. Yellen’s statement post FOMC was basically meaningless. “Data dependent”, but what data?Also, Japan is full speed ahead on devaluing the Yen, and China looks to be in trouble.

  7. Richard

    The sensitivity between the fed funds rate and VC funding seems weak in this case. funds have money locked in for 10 years and the macro tech cycle is too disruptive to be effected by 25 and 50 basis points moves.I’d be way more concerned about (tech) wage inflation. Just look at Twitter, if their average wages reverted to the mean, they would be a profitable company.

    1. Matt Kruza

      we made the same comment 😉 completely agree

      1. Richard

        Then again, I’m not out there raising money for a fund. You never know what the “group think” is in this space.

        1. Matt Kruza

          Very true. SHOULDN”T have big effect, but if everyone in the VC space thinks it will then it is a self-fulfilling prophecy

    2. fredwilson

      They are profitable. Just non cash stock based comp makes them look unprofitable

      1. Richard

        You made my point! Compensation is compensation. Look at the comp of @dickc alone. It was north of 250M.

        1. Salt Shaker

          Good piece in today’s NYT about funky accounting, which they refer to as “fantasy,” and companies not adhering to GAAP in earnings statements.

          1. Richard

            Timely piece

      2. kidmercury

        here is a comprehensive assessment of twitter’s profitability:1. negative earnings since going public using GAAP (the “official” method)2. operating cash flow was positive in 2013 and 2014, negative prior to that3. free cash flow has been negative since at least 2011

      3. ShanaC

        can you get into the details of that one day, not just for twitter’s sake, just so people understand the details of gaap

    3. mike

      25 or 50 basis points? you’re probably right. But just because money is locked in for 10 years has nothing to do with valuations. Valuations can change significant during a fund’s investment period … 3 – 5 years. Just look at the 2000 vintage year funds.

    4. JLM

      .I could not possibly agree more with you than I do.Fed Funds is an instantaneous rate.Allocations by pension funds to VC are part of a long term strategy to fund pensions over a half century into the future.Once these allocations are made, they almost never change.They are minimally connected if at all.JLMwww.themusingsofthebigredca…

      1. Richard

        Interest rates could effect exit rounds, but can easily be juiced away via participating preferred equity in the funding rounds.

      2. Girish Mehta

        It could (not will) have a couple of implications -1. Once the yield curve moves, it affects asset allocation choices and alternatives. Won’t affect investments from previous vintage funds, but can affect ability/size of raising fresh funds. I understand LPs already taking a hard look at the disbursements from venture in past several years.2. Interest rates rise – Bond markets move (wild card here is what will happen w.r.t. money flows out of emerging markets) — affect the public equity markets —affect the late stage private valuations.Just saying that there are connections. Who knows if they will come to pass…? At this point, not even clear when and how much Fed will move (enough people arguing it will be minimal).But since it is a question of IF there is any connection at all, I think there are connections. Esp given unchartered waters we have been in for the past 4-5 years. Thanks.

        1. JLM

          .When pension funds make their allocations to “other assets” — real estate, venture, private equity, gold — they are typically made initially as a percentage of the investable funds.In this regard, big pension funds such as TRST (Teachers Retirement System of Texas) or UTIMCO (University of Texas Investment Management Company), allocate by percentage of funds available to invest.When they think their underlying portfolio is out of balance, they may take current investable funds and use them to balance the entire portfolio by over or under allocating to specific segments.When the aggregate portfolio value grows, they also re-allocate.They are typically agnostic, as to interest rates, with the exception of the allocation percentage to fixed income; and, only then when it is overperforming.Most funds have 5-7% in the “other assets” category and there is no real rhyme or reason as to how they allocate within the category other than they all like the long term stability of real estate. An acquired taste.It was not too long ago that pension funds did not invest in any of these assets.One other thing, pension funds typically only use outside managers and consultants to advise them. They rarely do any internal work on allocation modelling. When I sat on a college foundation board, the staff and the board did nothing without an adviser in the room and commissioned specific advisers to answer those questions.Not once in ten years did I ever hear a mention of interest rates in the discussion of overall fund allocation.JLMwww.themusingsofthebigredca…

          1. Girish Mehta

            Possibly true of pension funds JLM….I was thinking about this from standpoint of the total money coming into startups. I conflated the point about traditional investors looking hard at the returns from the last several years (3rd sentence) and investors looking across alternative asset classes, my bad. There has been a significant increase in startup funding from mutual funds/hedge funds, often at late stage…see attached for data on Janus, Fidelity, T Rowe Price all cases, 2014 was a standout year. Similarly with hedge funds. These investors could possibly move across asset classes with a move in rates.…p.s. Separately, like I mentioned earlier, it any case won’t affect the investment cycle of funds that have already been raised. The direct impact of the interest rate move will be on the bond market (and emerging market outflows is the wild card). Thanks.

    5. ShanaC

      not in this case – the money has a weird commit cycle and people pull from funds. Part of the reason there was such an overcommit in the first place was the interest rate…

    6. creative group

      What happened to the money lock for the following companies? Were thefunding commitments internally? Just pledges to fund? The following bustsburned through a lot of funds during their day…..a. (Clothing)b. Webvan (Groceries, Part of Amazon now I think)c.,, and (Beauty)d., and (digitial currency)e., Musicbank, SpiralFrog and Riffage (Online Music)f.,, Razorfish, PETS.COM,Just a few to give an idea of what happened during the bust.What happened to the money locked (given and allocated that wasn’t burned through) ?

  8. pointsnfigures

    If I were a venture backed business that wanted to raise money, maybe look at valuation under different conditions. Figure a valuation in the current environment (easy), figure one at a 1% discount rate environment (hard), and a Black Swan 2%+ rate environment (about as good as the numbers a seed stage company can predict for year 5). If they take too aggressive a valuation now, they might have to face a down round with higher rates.

    1. Twain Twain

      Interesting that you suggest a two-outcomes model.I always do 4:(1.) Worst-case.(2.) Best-case.(3.) Realistic mixed, e.g. interest rates stay steady +/- 0.5 movements over 5 years.(4.) Black Swan.When building, ALWAYS plan for the worst whilst working towards catching that Black Swan.

      1. James Ferguson @kWIQly

        I like this – It makes me ask “why have I never included the Black Swan?”If failure is the massively most likely outcome – why not call as you see it “a dream” and try to catch it ?

        1. Twain Twain

          Ha, James, thanks. It probably won’t surprise you I have a thesis about Black Swans as it applies to technology, economics and data, right?For hundreds of years we’ve based a lot of our calculations on “most likely outcomes” and the constraints of Probability. This means everything under the normal distribution curve.When Taleb, Kahneman and Gladwell et al talk about “outliers”, the clearest and most obvious way to understand them is to understand that Probability and the normal distribution curve are simply NOT mathematically or economically adequate tools to deal with outlier factors.In the Oil&Gas sector this could be latent factors such as political stability as much as delays between catalytic conversion from crude to useful chemicals.This limitation of Probability then permeates across all the utility and accounting function equations which we’ve plugged interest rate changes into (from banking systems to technology)…to calculate……….VALUE.Anyway, since I was a product inventor before I became a strategic investor for UBS I decided to return to my inventor roots and…Invent the twin system to Probability…And to code it as a technology.Just as Bitcoin-Blockchain sets out to change 600 years of double-entry accounting ledgers, so my system sets out to change a few millennia of how we’ve measured and valued data.Plus my system’s necessary for the machines to understand the meaning in our natural language and how to value any thing — not according to quant alone but also qualitatively.A by-product of that could be they might know how to value human life and not wipe us out of existence.The main product being SIGNAL >>> noise across economic systems which is what I care about.

          1. creative group

            Twain Twain:is there anyway you can post a link to that thesis?

          2. Twain Twain

            What’s your interest in this thesis, thanks.

          3. creative group

            Twain Twain:”my system sets out to change a few millennia of how we’ve measured and valued data.”Your synopsis you provided is usually enough. Wanted to view the indepth thought on it. Not an issue. A Thesis is usually intellectual volley between a student and professor. Not written for mass consumption.Reading Clayton Christensen’s The Innovators Dilemma which discusses disruptive innovation.

          4. James Ferguson @kWIQly

            Fascinating – Is there anywhere I can see more of your work. I see an analogy with ours.In energy tracking systems there are probabilities of serial rather than parallel failures causing inefficiency, which is any case one sided – this means a Galton dist. fits waste better than normal dist.Furthermore (and this is where your woke me up), energy monitoring tools all focus on outliers from past norms (but we know building energy worth approx $2.4trillin $ or 4% global gdp) is about 30% operational waste. Outliers from norms are about 0.12 % – so energy efficiency targets are hugely conservative – much more can be done without Capex.So we plan to waste, rather than qualitatively looking at data (good form/bad form) and identifying waste patterns and eliminating them.So who know could be some common ground – can you give me a url/email / means to contact pls ?

          5. Twain Twain

            Sure, I’m twainventures [AT] gmail.

  9. LissIsMore

    Can you say Bubble? I knew you could. 🙂

  10. pointsnfigures

    Important to distinguish between the different interest rates as well:Discount rate-rate banks borrow money from the FedFed Funds rate-rate banks borrow money from the Fed overnight (in the US)Prime Rate-rate that healthy businesses can borrow from banksLIBOR-London Interbank rate is the rate at which banks loan to each other (outside of US)Here is where you can track expectations for Fed rate moves the best:… Prices move inverse to rates-so when prices are negative it means rates go higher. If you look at the options prices…, you can look at calls and puts and calculate the expected probability of a move to a certain strike price.

    1. Girish Mehta

      Since you were distinguishing between the rates…the Fed funds rate is not the rate at which banks borrow from the Fed. It is the rate of overnight inter-bank loans – rate at which banks borrow overnight from each other. Its a target …the Fed uses open market operations to make the “effective” Fed funds rate as close as possible to the “target” Fed funds rate.The discount rate like you said is the rate at which the banks would borrow from the Fed (the discount window). Used rarely….the objective is for banks first use the inter-bank borrowing at Fed funds rate. While the Fed acts as lender of last resort via the discount rate.The Fed funds rate is always a target (within a very tight range…so it looks like a hard number), while the discount rate is a specific number. Thanks.

    2. William Mougayar

      Good data. Another related point that consumers don’t realize: when you get a car loan or mortgage, the rate is based on what the interest rates will be in 5 years, not now. So, much of any rate increase starts to get priced into the current reality, sooner than we think.

    3. PhilipSugar

      Here is my question to you……Governments think they can control rates, interest, exchange, etc……until suddenly they can’t.Right now, because where are you are going to put your money??? We win.

  11. Paul Rubillo

    Human nature will be to ignore this concern and buy the market when any initial sell-off occurs. However, for those who have been witness to a steady bump up in rates that could occur over a 1-2 year period, the latter period is where the interest rate sensitive names and high-beta momentum stocks become most vulnerable. Eventually making for some pretty solid investment opportunities in the public markets when the cycle plays out.

  12. kidmercury

    i used to think a rate hike would send equity prices down. now, i expect equities to at least roughly hold their ground, though with perhaps greater volatility.first, the correlation between fed funds rate and stock prices isn’t really there.…second, rate hike will probably send bond prices down, which i think is the primary correlation and market mover in the current environment. if capital leaves bonds, where will it go? probably most will go to cash. but some might go to equities, which may soften the blow of more expensive margin trading that fuels higher’s all a casino beyond repair, though. the grand reset, whether it occurs at an international level through suprnational banking institutions (IMF, world bank, AIIB, etc), or at the digital level (through some descendant of bitcoin) is the real story, to which we inch closer each day.

  13. sigmaalgebra

    “Monetary Policy”?We’re forgetting history, some of the mostimportant history of all, some grimhistory where we all paid (@JLM) “fulltuition”, getting a flat F in Real Econ101, straining over gnats and forgettingelephants, playing with a fly swatter whenwe need fleets of steamrollers and more.We’re being as brain-dead as ahalf-witted, ignorant, indifferent,inebriated, uninformed, misinformed,anxiety-ridden, self-taught accountantsmoking funny stuff.We already know what consumers want in thefamous one word answer, “More!”.We already know what workers want — jobs.So, in terms of Theoretical Econ 101,there should be an equilibrium withmarket clearing.Uh, there’s a nice, clear proof of Nash’sequilibrium result in, sure, T. Parthasarathy and T. E. S.Raghavan, Some Topics in Two-PersonGames. So, why don’t we have equilibriumwith market clearing?Clear enough to me: We are really shorton some crucial assets not usuallycounted by accountants and economists –did I mention “crucial”? Theseassets are needed on both sides(sure, “of the table”, Mark) the employerand the employee:For the employer, to hire, they need agoing company, with after tax earnings ornew capital they can allocate to growth, amarket they understand and are ready toserve, and customers with needs and readyto spend. And there has to be bothearnings and demand enough to justifywriting job descriptions, recruiting,interviewing, offering, hiring, bringingon board, getting the new employeeproductive in the job — we’re talking,what, a lot of expense for, what, a yearbefore the new employee even starts tomake money for the company?So, that’s a lot of stuff that hasto be in place, a lot of assetsthat are not counted in the usualaccounting.Clear enough to me: The employers aredarned short on those assets.For an example drawing from the past, if awar broke out and ASAP the US DoD wanted20,000 F-22s, 50 Nimitz class carriers,100 Ohio class submarines, and 5000 B-2s,along with associated factories,shipyards, rail lines, subcontractors,etc., then that would move theneedle.Indeed, the story goes that once peoplestarted shooting at us, with such DoDspending we got out of The GreatDepression, everyone with about three joboffers, in about 90 days flat. It can bereally fast — if employers know that thedemand and money are really there.For the employees, sure, to be ready forwork, they need a car, a house orapartment near the job, work clothes,education, training, move andreroot the family, etc.So, maybe the employee needs to know truckdriving, backhoe operation, various casesof welding, computer aided design (CAD)software, how to build a pipeline, say,from Canada to Houston, how to build aliquefied natural gas port, how to erect awarehouse in a hurry, …, C, C++, Java,Objective-C, Swift, Ruby, Python, IronPython, various Python packages, Go, C#,.NET, Visual Basic .NET, JavaScript,JQuery, Node.js, …, LINPACK, SAS, SPSS,OSL, AMPL, C-PLEX, Guriobi, …, linearprogramming post-optimality, Lagrangianrelaxation, the Kuhn-Tucker conditions,….Again, that’s a lot of stuff thathas to be in place. So, that’s a lot ofassets that are not counted in theusual accounting.Okay, want to hire employees in SiliconValley? Hmm …. So, hire one guy whoshares a one bedroom apartment with fourother guys, rent, what, $10,000 a month,split five ways. Okay.But, again, there’re assets thatare not counted in the usual accounting:That guy in Silicon Valley is spending hisseed corn, i.e., had parents, ahome, an education, a college education,etc., but now can’t have a home andfamily.There’s an old joke in business: Know thedifference between earnings anddepreciation. So, the guy who shares thatone bedroom apartment with four other guysis not having kids and, thus, is living onnot just earnings but alsodepreciation, like a farmer sellinghis seed corn and not growing a new crop.Broadly, both employers and employees areshort on such assets.So, the US is short on various cases ofassets not counted in the usualaccounting.E.g., a lot of the people without jobsdon’t have a car to commute to the job, acomputer as needed to look for or do ajob, or even an interview suit. Did Imention assets? We’re talkingwhat, ballpark $30,000 this guy needs tobe ready for a job? Maybe he needs more,some weeks to learn, say, Google Docs orOffice 365, C-PLEX and SAS (uh, just whereto get copies?), ….In terms of these assets, a lot ofbalance sheets need to berebuilt.It has long been easy enough for the Fedto help rebuild balance sheets ofcommercial banks, but what about othercompanies and also the workers for theircrucial assets?E.g., we’re short on motherhood –literally. Indeed, we’re going extinct,literally. Why? The average number ofchildren per woman (at least of Europeandescent) is significantly under 2.1. InFinland, the number is 1.5 so that, let’ssee,(2.1/1.5)^10 = 29so that in 10 generations 29 Finns willbecome 1. Did I mention extinct? Howabout human depreciation and lossof human assets?The main reason not to print money is thatthe printed money can cause inflation. Wehave lots of examples, e.g., Argentina,Zimbabwe.But it looks to me like now in the US theFeds could start a lot of public worksprojects, hire lots of people, fund theprojects with bonds, and have the Fed buythe bonds and, then, just write them offon their balance sheet, until finally wehave everyone working, earning, buyinghouses, cars, and furniture, formingfamilies, having children, educating thechildren, and having jobs for thechildren. That’s a lot ofassets.I have to suspect that at this point thatwould be a lot of money to be soprinted.Why do we need to print the money? Toreplace was destroyed.What money was destroyed? Sure, variousassets of the kinds I’ve described.Or, it is not just the commercial banksthat needed to rebuild their balancesheets; now both employers andemployees need to, also.Indeed, sure, it’s nice to have newtechnology that disrupts old technology.But, guys, that old technology was someassets, and we just wrote themoff, that is, marked them on ourlarger balance sheet as worth$0.00. Guys, that’s a lot like burningmoney, a case of deflation, whetherthe accountants count those assets or not.That write off destroyed money. That’sdeflationary. That’s what caused TheGreat Depression and WWII and killedballpark 50 million people. Yes,inflation is ugly. So is deflation.In case of such deflation, we need toprint more money to replace what we justdestroyed.What’d we destroy?Sure:(1) The value of the copper cables ofAT&T.(2) The value of a TV station or anybusiness in TV.(3) The value of any computer more thanfour years old.(4) The value of any mobile phone, cellphone, or smart phone more than two yearsold.(5) The knowledge of any programmer whoknows any of the older programminglanguages.(6) The skills of a welder now replaced bya robot.(7) The skills of a draftsman who needs toget good with computer aided design.(8) The skills of any machinist who needsto learn about computer numerical control(CNC).(9) The skills of anyone in auto bodyrepair who now needs to learn how to workwith the aluminum panels of the new Fordtrucks or carbon fiber panels in, say, thenewer Corvettes and, soon, more.(10) The skills of anyone in auto repairwho needs to learn about the new eightspeed auto transmissions, full time fourwheel drive, turbo-charging withinter cooling, direct fuel injection,brakes with carbon rotors, computercontrolled engine and transmission pairs,hybrid electric drives, etc.(11) The skills of anyone good withMicrosoft Office but not Google Docs orOffice 365.(12) The skills of anyone good atfracking now that the Saudisdecided to kill off that industry.So, each such case puts workers out ofwork. Well, then, such workers mean thatwe do not have a shortage of workers. Buta shortage of workers is the main shortagethat causes inflation. So, print enoughmoney so that such workers are workingagain. Now we have the people workingagain and no inflation.As we know well, in a case of a workershortage, employers will hire based juston basic talent, etc. and do wonders totrain people. Heck, employers willsend out rock bands to recruit and theneach morning buses to get the workers tothe office — literally. If there islittle or no such training, as now, thenwe don’t have a worker shortage, arebasically in deflation, and are a long wayfrom inflation.If don’t want to print the money, thenwith each pink slip, attach a cyanidepill. Capiche?So, for each such case of adisrupted employee, Fed, print somemoney, and the chances of inflation arezip, zilch, and zero. Instead, you arejust replacing money that was destroyed.Same as needed to do that day in Octoberin 1929 — if had done it, then definitelywould have saved ballpark 50 millionlives.Right, we need a big helicopter moneydrop.Why is there no inflation after sevenyears of 0% APR interest rates? Becausewe are in essentially deflation fromdestroyed assets; prices don’t come downbecause of various cases of economicfriction, e.g., long term contracts,e.g., mortgages on real estate, car loans,etc.The crash of 2008 was seven years ago.Since then we’ve missed out on alot economic growth — innovations,businesses, jobs, marriages, husbands andwives, houses and homes, mothers andfathers, spending on food, clothing,shelter, transportation, recreation,medical care, insurance against risk,education for the kids, and retirementsavings for the parents. Are we learningyet?

    1. JLM

      .I agree with you. One other thing I would add is that individual worker productivity continues to increase thereby dampening demand for more employment.JLMwww.themusingsofthebigredca…

      1. sigmaalgebra

        Sure: That’s a corollary of what I’msaying and also a description of many ofmy examples.Sure, in building a house a nail gun ismuch more productive than a hammer.So, some framing carpenters got put out ofwork.We can (A) attach a cyanide pill withtheir pink slip or (B) print money enoughto get them a new job.What job? I outlined that in fairlygeneral terms: Provide the products andservices for food, clothing, … forcouples that want to have babies and,thus, have us not go extinct as we arenow.For having babies, the couples willconsume oceans of products and services.E.g., such a couple will want a house.Now maybe that framing carpenter can get ajob with a nail gun.A guy who had been building cinder blockwalls for house foundations can operate aconcrete pumper that pours solidfoundation walls, for the whole house, inabout two hours.Of course, he needs the knowledge –that’s an asset — to run theconcrete pumper.For this asset, he needs somecapital: Currently in software,for say, Apple’s new language Swift orGoogle’s new language Go, mostly we expectthat capital to be supplied by theprogrammer. Of course, that means thatthe asset that programmer had whenhe expended his own capitallearning C++ is now destroyed.So, we have a destroyed asset andneed capital to create a newasset, knowledge of Swift or Go.No fair saying that that capital isjust the responsibility of the programmer.Instead, the Fed has to print money forthe capital for the destroyed asset, thecapital pulled from the economy, the moneydestroyed, from wherever it was.For the guy to operate a concrete pumper,that might cost $500,000, he can’t teachhimself that on his own time and money –there it’s more clear than for theself-taught programmer that there needs tobe capital.Else we will have (A) the brick layerwon’t have a job and (B) the housinggeneral contractor won’t be able to findpeople to operate the concrete pumper –and that’s a single example of why intotal we have so many millions of peoplenot working now.But, if the Fed prints enough money, thenthe company that operates five concretepumpers at $500,000 each will train theformer brick layer as an operator.Ballpark, that’s how much money needs tobe printed.We’re just terribly short on money supplyfrom money destroyed by higherproductivity.Of course, we don’t want to be brain-dead:So, as people start to buy houses again,we don’t want Obama and his buddies tohave Fannie, the FHA, etc. back 30 yearliar loans at 2% and blow another bubble– like they did the last time.We’re short of money: We send lots ofmail that never sees a post office becausewe send e-mail. So, that was an increasein productivity, and it destroyed jobs,assets, capital, and money. So, have toprint some money to compensate.The printed money will cause inflationfrom a labor shortage? Heck no: We’rejust putting back to work people who losttheir jobs from the higher productivity ofe-mail.Else the limiting situation is Bill Gatesselling robots and everyone else too poorto buy any.As we have productivity gains, we have toprint some money or we will havedeflation and people not working.It’s print money or attach a cyanide pillto each pink slip.Economics is a “dismal” subject.We ignored money printing after 1929 and”paid full tuition”. Apparently we’veforgotten the lesson and are payingtuition again.If I’m correct, then it will be years andyears before the Fed will significantlyraise interest rates. That’s myprediction of interest rates.

  14. macro_fx

    The historical evidence shows that markets rally post rate hikes for 2-4 years. I think the main metric to watch for is how credit spreads trade and a widening of spreads is what would indicate compression in equity valuations..

  15. Michael Liu

    The last rate hike by the Fed in 2004 saw Fed Funds go from 1% – 5.25%. We are currently operating at unprecedented levels so the level and pace of interest rate movements will matter significantly.I do think there is clearly a structural change with regards to non traditional investment funds (ie hedge funds, mutual funds) investing in late stage venture backed companies in order to chase growth that higher interest rates will not necessarily change. With companies going public later, these funds will still want to try to capture value earlier despite the increase in cost of capital.

  16. ShanaC

    we’ll see exactly whenGreece is still a huge wildcardI will say this: after the clear out and rebalancing post raise of interest rates, I think it would be interesting to found a company again. This are a little too punch drunk

  17. TeddyBeingTeddy

    Would you consider raising a rainy day fund to sit on the sidelines and strike when ez money dries up? Would your investors have that trust/patience?

  18. Keenan

    Fred, I’ve been thinking A LOT about the impending rise in interest rates. I think the implications are going to be widespread and sweeping. I don’t believe modern history has any precedent of coming back from near 0% interest rates. Japan is the first country that comes to mind and they have not been able to get interest rates back up AND keep the economy growing.It feels to me we’re in uncharted territory and don’t really know what’s going to happen. Is it realistic to think we can slowly raise rates and not submarine the economy again? What happens to housing prices again, will it choke investment. What happens when you take money out of a system?Am I missing something? Is there precedent for coming back from near zero? What is the optimal rate or cost of money, 6%, 8%?Coming up from the basement seems like a much bigger issue than we realize.Would love this communities thoughts?

  19. Tom Labus

    This issue is overdone. This is a return to normalcy and should be treated as just that. If a .25 rate move and turn is that detrimental to your strategy,,something else is wrong.

  20. Ari Lewis

    At this point it’s an open secret that the Fed will raise interest rates. I don’t really understand why they haven’t done it already except for political purposes. The political side of me doesn’t understand why the government should have such influence over interest rates. They have artificially lowered the rates for the past 7 years and I think it will turn out to have many negative effects such as many companies going bankrupt or facing down rounds due to the lack of funding that will be available to them.

  21. Sam

    Late to the party, but seeing this reminds me of a conversation I had over the weekend… A friend of mine is a real estate developer of high end urban residential rental units. He has seen >2x asset appreciation and is the middle of an auction process to sell a couple of his properties. The interesting thing to me is that he isn’t selling because of anything fundamental about the properties and their value to their consumers / renters. He is selling because his property taxes are rising rapidly as this asset value increase is being noticed by the local tax officials in other real estate transactions, and they have begun marking up taxable asset values. The higher taxes is cutting into his cash flow return on investment significantly. He is projecting that, between rapidly rising tax rates and the potential for future interest rate increases hurting asset values, now is a great time to exit. And I think he’s exactly right.What kills me as a neutral observer of the economy, and I would expect the Fed views this as a problem as well, is that economic actors like my friend are taking significant decisions to sell assets that are not based on any underlying economic considerations.I see this in the labor markets as well when fresh grads are looking primarily to sign on with “the next unicorn.” Building a useful career skill set, driving a P&L directly, building a business with strong operating fundamentals that adds value for its consumers… these are secondary consideration. They are also chasing asset value.I think for these reasons the Fed is likely to take a more restrictive monetary policy stance in the coming months. And I don’t believe it will change slowly. Once it’s clear we are moving, asset values will adjust quickly.Won’t be fun for those holding long positions in the impacted asset classes, but in the long run, it might very well be what is in the best interest of the country’s long term growth trajectory.