Mid-Week Updates, No 38
Pain in the innovation economy, political chaos in the US and another drama in Iran
Another week has gone by and it is with some concern that I am viewing the markets. Rising interest rates, a wobbly stock market, none of which is helped by the political mess that is enveloping Washington, DC. And where the public markets are the leading and early indicators, private markets will follow eventually. Over the past few quarters there has been a real contraction in early stage investment with investors now sitting on the sidelines where their reserves collect a healthy interest rate or dividend if they deploy their capital in some of the newly cheaper quality stocks. There is a reset in investment land happening which affects all asset classes, including real estate.
One of the things we should realize is that it was cheap capital that fueled the innovation economy. We have witnessed it almost daily since governments and central banks pulled us out of the 2008 crisis and doubled down during Covid: the money press kept going. It lasted close to fifteen years and given the current macro environment with high inflation and piles of debt wherever you look, it is unlikely that this monetary expansion is to be repeated any time soon. In fact most governments will seek to bring their financial house in order while central banks will keep rates at a relatively high level for some time to come. It will have a deep impact on angel and venture financing and tech companies will start to feel the pain. And by that I mean those that are early and or under-capitalized, those that have traction or some early investment in, can count on portfolio support from existing investors. And in doing so they will not invest in new start-ups. A chill wind is blowing through the tech world.
US Elections
The chaos in the US played itself out in the House of Representatives where voting out the Speaker now has created a situation where there will be even more uncertainty once the 45-day deal to keep the government running expires. And even more doubt for Ukraine about getting ongoing support. In New York at the same time we got to see another part of that drama with Trump finding himself in court on fraud charges. Do note that of all the charges these are the far lesser he is currently facing and had he retired quietly no prosecutor in New York would have thought of pursuing these, but that is not where we are. Now look at this chart (the most comprehensive polling data and averages come from RCP):
To go with Trump is a real risk for the Republicans, wouldn’t you say? If they swapped him for Nikki Haley they would all of a sudden have someone who could create a real gap with Joe Biden. Now Haley is too moderate and is unlikely as of today to get to the top of the ticket, she is currently running third behind DeSantis. The Democrats would equally do well to get rid of Trump and hope DeSantis takes his slot, but if neutering Trump gets them Haley, Biden is not in a great position to win. I know, I know, it is early and anything can happen, but we are going into the season where campaign decisions will have a real and lasting impact. The only reason I bring it up now is to encourage you all to watch each and every move the parties and candidates are making. Biden vs Trump is far from a done deal. And yes that includes counting on Gavin Newsom who has been making some moderate moves that might alienate the progressive wing of the Democratic Party, but could position him as a ‘Clintonite’ centrist. And if that is the case you have to re-run all the numbers of how he would poll against each of Trump, DeSantis and Haley.
This will be the most contested and wildest presidential run ever. Enjoy, but also fear. The outcome will have a far reaching impact on the rest of the world.
Another Tragedy in Iran
And so a year after the murder of Mahsa Amini another young Iranian woman is beaten up by morality police and now in a coma. Armita Garavand is sixteen years old. The news made its way globally yesterday through ‘X’ with mainstream media now picking up the story. Photos of her being dragged from a train where it happened and unconscious in a hospital bed are making the rounds. Apparently, Iranian police has confiscated the family’s cell phones to prevent the further spread of these images.
It is always hard to find the exact words to condemn totalitarian brutality. It is even harder to describe the depths of depravity where religious fervour legitimizes beating teenagers into a coma. Well, we can say this: time to wipe this evil regime and its adherents off the face of the earth once and for all.
Photo: Vancouver’s Yaletown area on a crisp September morning.