Posts from Current Affairs

We are in the middle of one of the great asset bubbles of modern times. It has been brought on by the easy money policies of central banks around the world aimed at weathering the global Covid 19 pandemic. Interest rates are near zero or negative in most developed economies and asset prices have gone way up as a result.

When interest rates are zero or negative, the value of future cash flows is huge and that is how you get PE and EBITDA ratios of over 100 and price/revenue multiples approaching 100.

The big question is how does this end?

I believe it ends when the Covid 19 pandemic is over and the global economy recovers. Those two things won’t necessarily happen at the same time. There is a wide range of recovery scenarios and nobody really knows how long it will take the global economy to recover from the pandemic.

But at some point, economies will recover, central banks will tighten the money supply, and interest rates will rise. We may see price inflation of consumer goods and labor too, although that is less clear.

When economies recover and interest rates rise, the air will come out of the asset price bubbles that have built up and the go go markets will hit the brakes.

When will that happen? Your guess is as good as mine. It could be later this year. It could be in a few years. It could take longer. A lot of damage has been done to the global economy and it is unclear how quickly it can recover.

A good chart to watch is the one year treasury bill.

When the one year treasury yield gets back above 2%, we are leaving the easy money era. We aren’t close to that right now.

A number of people have been asking me what I think of the Game Stop situation. This is not really my world. I don’t trade stocks, we hold them. I don’t use Robinhood, though I have an account thanks to my friend Howard. I don’t hang out on Reddit, though I visit it from time to time.

So I have not paid enough attention to this one, but it certainly is fascinating. The generational aspect of this is important. Boomer hedgies getting crushed by young folks self-organizing in social media. It feels like a moment where you realize that the power structure has shifted and things won’t be the same.

The financial system in the US, and in other developed countries, is a rigged system and has been for a very long time. Only big institutions can get into hot IPOs. Only rich people can invest in startups. Many of these rules are designed to protect “widows and orphans” but all they really do is make the rich richer and keep those without money out of the game.

Not anymore. Whether it is crypto (Coinbase) or day trading (Robinhood), the retail investor now has the tools to get into the game and win the game.

The new startup investing is buying into the Ethereum crowdsale. Had you done that in the summer of 2014, you would be looking at roughly 1,000 times your money right now. And that crowdsale was launched by a team led by a 20 year old. Though the SEC and others would like to impose the same rules on crypto that protect the rich and keep out everyone else, that has not happened and I pray that it won’t.

The new hedge fund is the Robinhood army self organizing on Reddit. They can move a stock more easily than the largest hedge fund.

There will be calls to regulate this “madness.” But it is the same madness we have always had. It is just a different crowd in charge.

I do worry that this Game Stop short squeeze will end badly and not only the hedge funds will get hurt. Markets can be brutal. But regulating markets to protect the small investor is not the answer. As we can see, the small investor is often a lot smarter than the large investor.

What we need to do is stop printing money to stabilize the economy. And start addressing the real economic issues that exist on main street, not wall street. Monetary policy is not the answer. Fiscal policy is. That won’t stop more Game Stops from happening. They are a by-product of markets. But it will get the money to where it is needed versus where it is just gameplay.

What the world witnessed yesterday was a temper tantrum by the President and his people who, two months after losing the election, still cannot accept the results and the loss.

These are sore losers. The kind that walk off the field quickly without looking you in the eye and shaking your hand and congratulating you. These are children who cannot control their tempers and want to wail and scream so everyone can hear how upset they are.

As sickening as yesterday’s tantrum and terror were, I am hopeful that the shame of seeing the halls of our democracy sullied will finally pull reasonable people away from this man and his followers.

A friend said to me that we finally hit rock bottom in the US yesterday. If that is true, and I think it may be, then we can start the recovery now. This country needs it badly.

Hi Everyone. Happy 2021.

Today, as is my custom on the first day of the new year, I am going to take a stab at what the year ahead will bring. I find it useful to think about what we are in for. It helps me invest and advise the companies we are invested in. Like our investing, I will get some of these right and some wrong. But having a point of view is very helpful when operating in a world that is full of uncertainty.

Let’s start with the elephant in the room. The Covid Pandemic will end in the developed world in 2021. I think we will see the end of the Covid Pandemic in the US sometime in the second quarter. I believe the US will work out the challenges we are having getting out of the gate and will be vaccinating at least 40mm people a month in the US in the first quarter. When you add that to the 90mm people in the US that the CDC believes have already been infected, we will have well over 200mm people in the US who have some protection from the virus by the end of March. By the end of the second quarter in the US, anyone who wants to be vaccinated will have been able to do so. All of this will be aided by at least two additional approved vaccines in the US in January and new and improved protocols, like emphasizing the first dose over the second one.

The second half of 2021 will be marked by two conflicting trends. First, we will see people returning in droves to offices, restaurants, bars, clubs, gyms, stadiums, concerts, parties, travel, theaters, and anywhere that they can be social with others, ideally many others. I personally cannot wait to do all of that when it is safe to do so.

But ironically, this mass socializing trend will not materially and/or permanently change many behaviors we adopted in the Covid Pandemic. I believe that we will continue to want to work from home, exercise from home, shop from home, watch first run movies from home, order in, livestream, and all of the other new behaviors we learned to enjoy and perfect in the last year.

Where all of this shakes out will be the big reveal of 2021 and will impact many tech companies and many tech stocks. As I wrote yesterday, I think the trends that were accelerated in 2020 will not reverse in 2021, although the slope of the adoption curves will likely flatten a fair bit.

While we are out mass socializing, we will also be picking up the pieces of our world that was shattered by the pandemic. In the US, we have racial equity issues that are longstanding, real and demanding to be addressed. We also have an economy that is in tatters. And we have sectors of our economy like retail, commercial real estate, carbon based energy, and more that will never be the same. The restructuring of our economy and government and corporate balance sheets and income statements that have been blown wide open will take a decade or more to work out.

Sitting above all of this is an atmosphere that is getting warmer by the day. As I wrote in last year’s looking forward post:

The looming climate crisis will be to this century what the two world wars were to the previous one. It will require countries and institutions to re-allocate capital from other endeavors to fight against a warming planet.

https://avc.com/2020/01/what-will-happen-in-the-2020s/

At USV, we have begun that reallocation of capital and we will be investing heavily in companies and technologies that can help the world address this existential threat. I believe that many of our colleagues in the venture capital world will do the same because not only does the world need this investment, it will generate fantastic returns too. Climate will be to this decade what cloud was to the last one.

The twin terrors of the Covid Pandemic and the Climate Crisis will drive the great US migration of the 21st century and we are already experiencing it. We will see it accelerate in 2021. If, because of what we learned in the Covid Pandemic, a good job no longer requires someone to live in a low lying flood-prone city like Miami or NYC or a city that is burning like SF or LA, we will see many people in the US choose to leave those places and adopt new homes that are less impacted by the climate crisis. We call this “adapting to the climate crisis” at USV, and this will be a huge investable trend for many years to come.

I believe that governments will respond to all of these economic challenges by continuing to print fiat money without restraint and by taxing and regulating innovative new companies to protect old and dying companies. This will lead investors to continue to allocate capital to new forms of money (crypto) and new ways of creating and financing innovation (decentralized projects and organizations). We are already seeing that happen in the finance sector, with breakout projects in decentralized finance in 2020 like Compound, Yearn, and Uniswap (a USV funded project). We will see this approach accelerate in 2021 and expand into areas beyond the financial sector. The idea of financing and executing innovation inside of a global decentralized autonomous organization is such a powerful idea and one whose time has come.

As I go back and re-read this post, I am struck by how obvious and unprovocative all of these predictions are. Either that means that I am not getting far out enough on the curve to see things before everyone else does, or it means that the trends that will define 2021 have been building for years and are finally coming of age. Maybe it is a bit of both.

In any case, 2021 will be a year of returning to normal, but it will be a new normal and not like one we have experienced before. Adapting to change is my mantra for 2021. Happy New Year everyone.

My friends at Zeta Global (a USV portfolio company) put together this report on marketing in 2021. It clocks in a 26 pages so here are some highlights:

Those ways that artists made money in 2020 to make up for a lack of touring revenue—intimate livestreams, catalog licensing and syncs and expanded merch offerings—will continue after the touring industry returns to normal.

Desiree Perez — CEO of Roc Nation

After nearly a year of isolation, the floodgates of social life, dating, festivals, and travel will open into a social revolution once vaccines reach the minimum threshold. Jokes about the new roaring 20’s will abound on social media, and the moniker will feel earned. Young people, most notably college students and recent graduates, will make up for lost time, checking off — and adding to — their bucket lists with abandon.

Lauren Weiniger — Co-Founder and CEO of The SAFE Group

Even with the pandemic lingering into the new year, 2021 will be a banner year for the sports industry. Fan engagement and the business of sports have never been stronger, which is NOT the story you’ll hear if you simply listen to people talk about decreased TV ratings. That would be the same as evaluating the retail industry by just looking at brick & mortar store sales.

Michael Rubin — Founder and Executive Chairman, Fanatics | Partner, Philadelphia 76ers

Social Impact and ESG focus and efforts by large companies will increasingly be measured and become reporting metrics for large institutional investors. All public companies will be required to diversify their boards and executive officers.

Thomas Davidson — CEO of Everfi

We will see the rise of live shopping in the U.S. in 2021.

Imran Khan, Co-Founder & CEO, Verishop

While the COVID pandemic has wreaked unprecedented devastation in our communities, in the health care arena it has ushered in an era of rapid advancement and deployment of technology, ranging from telemedicine to at-home disease diagnostics to wearable oxygen sensors.

Cat Oyler — Vice President and Integration Leader of Momenta Pharmaceuticals

There are many more good predictions in there and lots of sound advice on how to evolve a marketing program for the new world we are operating in. You can read the entire thing here.

Dan Frommer, who many of you likely know from his writing at Recode, Quartz, Business Insider and other places on the web, has teamed up with my friends at Coefficient Capital to create a 120 page report called Consumer Trends 2021.

Here’s a slide from that report:

There is no doubt that 2020 has changed a lot of things for good and consumer behavior is certainly one of them. This report does a good job of outlining what has happened and what the permanent changes are likely to be.

You can read the entire report here.

As years go, 2020 is not one that generates a lot of gratitude in my mind. Global pandemic, racial struggles, millions without jobs, local merchants closing up, a surreal election here in the US, and that is just what comes to mind in the time it takes me to write this.

And yet, I am hopeful and thankful as I sit here thinking about this Thanksgiving that is upon us. I see the light at the end of the tunnel with the pandemic some time next year, I see new leadership in the US that is long on empathy and short on drama, I see proof that science continues to be up to the challenge of solving huge problems for humanity, and I see a resilience in the human spirit on the streets of NYC.

We are going to need everything we can get from science and the human spirit because we are facing enormous challenges that will not end with the pandemic. Racial inequity, climate change, ongoing job losses (and gains) being driven by technological change, massive budget deficits in local governments. The list goes on and on.

I am an optimist in a business that requires it. I think we can and will rise to meet these challenges and I am thankful that I can play a small role in doing that.

I have New York State’s exposure alerting app on my phone and check it every day. It gives me great statistics about what is going on in my location. You can download it here for iOS and Android.

It will also notify me if anyone who is using the app and has been with me gets Covid. I have not gotten any alerts in the month or two since I have had it on my phone. That’s great news and I have been healthy and that is good too.

But there is an issue with the uptake of this app in NYS. The last numbers I have heard suggest that less than 10% of NYS residents have installed this app on their phones. That compares with closer to 20% and rising in some other states.

Part of the reason other states are doing better getting their residents to install an exposure alerting app is they are promoting both their own app (like the NYS app) and also the “native” exposure alerting that became available in iOS 13.7 and soon will be available in Android.

This “native” exposure alerting is called Exposure Notification Express and this Lifehacker piece explains how to turn it on in iOS.

I like having the full NYS app on my phone. But for those who would rather just flip a switch on their mobile phone, Express is the better option.

Because all of these apps and native operating system features run on top of Apple and Google’s Exposure Notification system (GAEN), all of these systems are interoperable with each other and you will be alerted if someone using any one of these services who you have been in contact with becomes infected.

Fighting this pandemic is hard. But we can make it a bit easier by doing a bunch of simple things, like wearing a mask, social distancing, getting tested regularly, and using an exposure alerting app or service.

When I go back and read my Jan 1st post on what would happen in the 2020s, I am reminded how hard it is to predict the future. The Covid Pandemic changed everything in 2020 and likely for years to come. And yet it was not one of my predictions, even though Covid was already spreading in China at the time I wrote it.

We are nine months into the pandemic in the US and there is light at the end of the tunnel. We have two vaccines that have reported fantastic results and will soon be approved for emergency use by the FDA. I have heard people who know about such things say that those approvals could come as soon as the end of November. They cannot come soon enough in my view. We have two safe and efficacious vaccines and we should get busy vaccinating people, starting with those in the greatest harms way (health care workers, first responders, essential workers) and then on to the rest of us. I would take either the Pfizer or Moderna vaccine right now if it was offered to me. Vaccines are the way out of the pandemic and we have known that since it started. What is amazing is how quickly safe and effective vaccines have been developed and tested by our pharma/biotech industry. Science to the rescue.

We are also in the third wave of virus cases in the US (and around the world) and it appears that the virus is everywhere these days. Our family has locked things down pretty significantly in the last week and we are hunkering down for a rough patch. We figure that we did it in March and April. We can do it again this winter.

The other big deal is the availability of rapid and accurate at-home tests. I figured out how to get cheap antigen tests from Asia for our family this summer and we have been testing ourselves regularly. They are not as accurate as PCR tests and they have not been approved by the FDA. But I figured some data that was fairly accurate was better than no data. It has helped our family stay safe and healthy and it upsets me so much that our FDA has not prioritized getting these tests into everyone’s hands.

There are also more expensive and not exactly rapid (30-60 mins) at home tests that are as accurate as PCR coming out now. This is a post about one of them. When you think you might be infected, a test like this is super helpful to have at home. And yet we have not prioritized these either.

Operation Warp Speed to get vaccines into the market quickly was a great success. But the lack of a similar coordinated strategy around mass, rapid, convenient testing was the big miss of the pandemic in the US. We should learn from that.

I believe this winter is going to be very hard. But getting through it safely will likely get us into the end game of this pandemic. So keeping things locked down, masking up out of the home, testing yourself and your loved ones, and following the rules seems like the thing to do. It is what we are going to do.