Long Take: Getting out of this macro hellscape
Gm Fintech Architects —
Today we are diving into the following topics:
Summary: Look on my Macro, ye Mighty, and despair! This week we blaze through the recent macro environment to construct, and in part make light of, the current negative narrative about the world. We highlight how inflation, interest rates, and global currency fluctuations are linked, and how their recursive loop is part of a bigger whole. Our goal is to show how important it is to have a positive story, and how one might start telling such a story starting with ourselves.
Topics: macroeconomics, civilization, politics, currencies, philosophy, central banks
Tags: United States, United Kingdom, Japan, Elon Musk, Bezos, Robinhood, Zoom, Peloton
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Long Take
The Importance of Story
Your feelings matter.
They control how much you spend, which in turn drives the economy.
Your feelings are based on stories. Financial stories, in particular, are reflexive, self-fulfilling prophecies. We hear about inflation and we experience it. We believe the government is printing money like there is no tomorrow for political reasons, in part because of what is in our pockets, and we expect more asset inflation and more money. We buy risk assets, inflation hedges, and real estate, financed by low interest rates. As we buy them, they become more expensive, and so we want more.
Then it becomes frightening. What if we can’t afford things any more? Perhaps a shock, like the Russian invasion, hits our gas tanks and our food costs with 50% price increases. Best take out money from those risk assets to create a buffer. Perhaps that’s a discretionary move, perhaps survival, or perhaps behavioral bias — doesn’t matter. Everyone runs on “the bank” and stocks fall, and crypto falls, and valuation multiples fall.
Look, we say, we need to get that inflation down immediately. There’s too much fat in the system. Inflation has run away to 8%! 15%! And so on. We’ve got to slow down the economy and make it expensive to chase risky things. This meme stock revolution, it is mere speculation. Morgan Stanley says that the entire day trader P&L, the Robinhood phenomenon, is down in performance since Jan 2020. And this crypto thing, well that’s just Gen Z playing with pretend Internet money. Let ‘em burn! It was never real anyway.
The Fed begins to crank it, hell or high water. Whatever people expect, it goes higher. Rates are at 3% in a wink. Inflation is still not changing, and war is only louder in the air. Will it be nuclear? Will there be a draft? What will the winter be like?
The denominator in a discounted cash-flow valuation is going up for the first time, and future revenues get cheaper and cheaper. We don’t trust those tech companies anyway, with all those things they said that weren’t true. Cambridge Analytica. Chinese TikTok. The wild projections of SPACs. And Amazon, taking away our jobs.
Then the let down from the pandemic hits again. Looks like you didn’t need as much Peloton, Zoom, and Netflix time as you thought. Looks like you are still a Homo Sapien, a strange social animal with a twisted panopticon of neural networks contorted in your mind. Looks like you still want to go to concerts and get pizza with your friends, and you can’t quite eat those Twitter-linked NFTs.
This just affirms our skepticism about digital techno bros and their evangelical hopium. What really matters are the banks! Finally, it is time for the banks to shine.