Mid-Week Updates, No 3

Gas, Putin, Markets, Sterling and a Smile

Putin’s Gas, Europe’s Heating

We all woke up yesterday to the news of sabotage on the Nord Stream 1 and 2 pipelines, the ones carrying gas from Russia to Germany. It was of course followed by intense speculation as to who might have caused this. Given the location of the leaks it was up to the Danish authorities to explain that all evidence pointed to some sort of human intervention, it was no accident. Today we are hearing reports of underwater drones. Who is behind it? What other lines could be targeted? Especially Russia was earmarked as having some motivation to disrupt supply lines of energy to Europe, but the US was also mentioned as conducting some sort of ‘false flag’ operation.

Interestingly, on the same day a Dutch poll found that public support for Ukraine had dropped from an initial 65% to 49%. Many respondents pointed out that if circumstances changed further, continued support for the war effort should not be a given. A change of heart no doubt as the economic damage of the war is beginning to be felt, not just by the Dutch but all over Europe. Note that the winter has not even started and Europeans are now already making it clear that their personal comfort is not to be traded away for a war that in which they have no vested interest. Other than getting cheap energy of course.

This is exactly where Putin plays, as he desperately needs a strategy to win. His mass mobilization is turning into an abject failure (protests, desertions and what is left is an untrained cohort of unmotivated men) and the nuclear button is of course always the last and ultimately losing option. But weakening the western alliance so that direct support for Ukraine is under real and increasing public pressure could be the one wining card that he has. So anything to disrupt energy supplies and anything that will create divisions and discord in the West. Not just by damaging pipelines, but also by manipulating the news we digest. Keep your eyes open I would say.

Markets

As we wrap up this year’s third quarter, the news from our screens continues to be discouraging. We are in bear market territory and all markets appear to be cooling down rapidly. Many people ask me what the impact will be on investing and in particular when it comes to early stage venture deals. There is no clear answer, but with rising interest rates valuations in both public and private markets will be under serious pressure for some time to come. Although innovation will continue at a fast pace, it will this time have to take place in an environment of rapid inflation and rising interest rates as well as increasing global tensions and market disruptions. That is the reverse of where we have been over the last 30 years.

We will also see a significant pullback in consumer spending, so a lousy climate for B:C deals for the next little while seems quite certain. Inflation and interest rate hikes, energy prices and the war in Ukraine are no blips on your screen, they are going to be here for a while.

The Brits under Liz Truss and her new chancellor Kwasi Kwarteng are facing the same misery and decided to boost the British economy with a massive tax cut. The critics were out in force pointing to the fact that the move was benefitting in particular the higher incomes. Very true, and I would add that opening the money gates in an inflationary environment and hoping it will kick-start the economy is in fact a sort of 1990s movie. Not the economic solution in 2022. Then you ask, why did they do it? The key reason is that with elections scheduled for early 2025 team Truss does not have an awful lot of time. There is a word for this of course, it is called ‘gambling’. The markets had similar thoughts and Pound Sterling has tanked, doing further damage to an already reeling economy:

Today the Bank of England intervened, highlighting how serious this situation has become now. Again, expect more uncertainty globally as our economies enter uncharted waters.

Your Smile for the Day

Some of you may remember how Dutch comedian Arjen Lubach became world famous after his show launched a video about the Dutch reaching out to Donald Trump following his election in 2016. It got 29 million views and is still funny six years on. But there is a new one out, again trying to position the Netherlands for a role embracing a superpower. Of course, it is Russia’s turn this time. Enjoy: