If 2020-2021 was the party, 2022 is the hangover. You’re seeing it everywhere, and I suspect that most reflections are occurring in areas that have gotten hit the hardest. In this case, many financial assets like crypto and equities. I think we’re right in the middle of the hangover there, where most investors are surveying the damage from the party last year and piecing together what in the world we were thinking:
Wait.. we thought people would spend how much on an exercise bike?
Hold on..Zoom is more valuable than Exxon Mobil? (Mid-2020)
There were dislocations everywhere, and the wild excesses of the past couple of years are all over the place. The “wisdom of the crowd” took things to strange places, and the market rewarded them. One example: If anyone mentioned they were starting a streaming service, it immediately received a wild multiple and each parent company’s stock got a pop. Then, we were flooded with every networks’ useless “+” streaming service.
Until now when everyone’s stock is down 40%, inflation rampant and the customers are “puling the plug” on pulling the plug. Did we really need CNN+? I’m sure they wished they had their $300,000,000 back. And not to pick on CNN, that was just the most visible blow up, I’m sure more are heading out the door.
Netflix is only as “woke” as the market allows them to be:
The hangover is clearly in the crypto markets, especially in the aftermath of the Terra/Luna blow up:
You thought what was “risk-free” 20% annual returns…?
Hard lessons should have been learned with this one, but the guys from the party came back to try to get their booze they left behind with their next exit liquidity event, I mean, Luna 2:
I’m afraid the party is winding down in other sectors, and we may have some “hangover” related reflections coming our way, specifically in housing and labor. The scar tissue from 2008 may unnerve everyone in housing, but a cooling housing market is well overdue. There was a perfect storm in 2021 of uber-cheap mortgages, Fed stimulus, demographics and the office suddenly becoming an archaic place that no one will ever return to.
That is, until most all of those factors unwind.
I keep hearing in multiple conversations that the general consensus is “housing will flatten but not go down”. I believe that’s wishful thinking reminiscent of the pre-GFC days of “housing never goes down”. The echos are pretty strong there, and I think its PTSD of 2008. I don’t know what it will look like with a larger percentage of homeowners with negative equity, but we may find out in the next 12-18 months.
The initial glaring examples only seem silly after the party is over and the place is trashed. My argument here is that it’s a good thing, because clear thinking is making a comeback.
This clip from Bankless with Vance Spencer, co-founder of Framework Ventures, stuck out to me over the past several days. The whole interview is great, but I agree wholeheartedly on his point within the crypto space that this downturn has refocused everyone on a good product-market fit, and the lean times forced many teams to eliminate many of the excesses throughout the space:
Most importantly, its within these times that great things are made, as I’ve written in a previous post but its worth revisiting briefly here:
Bottom line? We’re well on the path of better product market fit within crypto and Web 3, and most of the excesses have been washed out. Financial markets have generally reset to push and pull capital to what matters most, and we’re paying for the excesses of 2021 with a pretty brutal hangover that came in the forms of inflation and a swift drawdown.
I can still hear the music pounding in the housing and labor markets, but for us on this side of the party, we’re glad to be here.
Will