2020 is here. The beginning of a new decade. The beginning of another major election year in the US. And an extension of what looks like to be a once-in-a-century (or two or three!) shift in the global economy. What seemed like an inevitable push towards globalization on all fronts a few years ago is now in flux, thanks to a combination of powerful trends. With it, the expectation is that we will see a rebalancing back to more regional innovation and localization of production, while an inevitable redistribution of wealth begins to occur as Indy Brands step in to fill the trust void created by many untrustworthy actors in the markets.
Stock Market in 2020 – Down*
The stock market – as a proxy of the global economy – could take a big hit in 2020. That’s because we have several trends that are working against expansionary growth, including:
>The credit cycle is getting long in the tooth, although some places more than others. More than 10 years from the GFC, the credit markets are starting to tighten, a signal that a recession is coming.
>Negative Interest Rates (NIRP) have eroded confidence, especially in the EU, and have failed to stimulate any growth. Central Banks are trapped, as both raising and dropping rates will cause problems.
>The 2020 US Election will create some significant uncertainties about the future, depending on polls and signalled policy shifts. As the US has arguably carried markets in recent years, this will cause problems.
Perhaps most importantly, the Trade War has shown a new phase in the global economy. As globalization and large supply chains become disintermediated, regional economies in the West will need to rebuild their productive capacities. In the long run, this will create serious opportunities, but in the short term it will likely cause contraction.
Bitcoin in 2020 – Up*
Bitcoin (BTC) roughly doubled over the last year; however, it is down almost 50% from the peak in June of this year. Therefore, BTC is arguably in continuous bear trend within the context of the ‘Crypto Collapse’ since the bubble burst in January 2018.
What are the catalysts for a rise in 2020?
Bitcoin has separated itself in many ways from every other Cryptocurrency in the market by being a decentralized, open-source ledger. It has become an asset comparable to Gold, which is starting to build more and more momentum in the global Macro backdrop. In this context, many will buy Bitcoin as a hedge. It’s not that one would expect Bitcoin to become a currency, but a digital asset with several unique characteristics compared to everything else that exists.
Part of what makes Bitcoin interesting is that it could go to $0 or it could go to $100,000. Because it is pseudonymous and difficult to regulate, there is an opacity that makes it difficult to analyze in a systematic fashion. But generally, Bitcoin profits when traditional markets get rattled.
*These predictions are not to be construed as advice, just observations on bigger-picture trends that drive innovation in one way or another. As always, DYOR (Do Your Own Research).
VC Brands – Down
Silicon Valley shot to the top of the charts in the last decade. Hard to imagine how companies like Facebook, Google and hundreds of others were ‘startups’ only 10 years ago. As a result, top Valley VCs have made a king’s ransom. But now the trust in the Valley is plummeting and it seems like the Valley’s Vision isn’t catching fire outside California (CA). That means that many VCs will likely see their portfolios take a haircut this year, worldwide.
Anti-trust, criminal investigations and civil lawsuits are on the docket for many of ‘the disruptors’ at the top of the food chain. If the publicly-traded disruptors lose their luster and investor’s confidence, the ‘acquisitions’ gravy train – and thus the whole VC value chain – will be itself disrupted.
VCs have been the greatest benefactors of cheap money. As a result, their portfolio companies were able to raise gobs of capital to acquire users and monopolize the market, driving out their underfunded competition and making themselves ripe targets for the companies at the top with big balance sheets. But at a time in the business cycle when profitability and fiscal discipline become paramount, VC Brands are likely headed down. WeWork was likely the canary in the coal mine for 2020 and beyond.
Independent Brands – Up
Independent (Indy) Brands, by contrast, have had to grind it out. Indy represents independence, and that runs contrary to the values of most VCs and Private Equity firms. Indy Brands typically have to move along a more gradual growth arc and focus more on profitability in the early stages. Indy Brands generally struggle more to raise capital because their path to ‘an exit’ is more opaque than VC-backed companies.
But Indy Brands are accountable to their customers, not VCs. That means they generally have better products, more transparency, and less virtue-signaling in their marketing. The result? More trust.
The evolution of crowdfunding platforms (both donation-based and equity) makes it easier for these types of brands to raise capital (in most major markets). And many talented individuals will likely make the jump to firms that embrace capitalism (ie. wealth creation) without sacrificing their values. While it may be more difficult to make millions as an early-stage employee in an Indy Brand than a VC Brand, the tradeoffs will likely be rebalanced as the global economy continues to shift back to more regionalized products and services. Localization of labour will be a big trend in 2020 and beyond. Indy Brands should thrive as consumers begin to reprioritize around trust, transparency and regional innovation.
The Roaring ’20s
Beyond the year 2020, many have pointed out the parallels between the circumstances today and those 100 years ago in the 1920s, a time of great economic activity but also massive social inequality, cultural upheaval and ultimately a market crash that led to the Great Depression.
There are several differences though between now and then, at an innovation level, that will likely make a big difference. The internet allows for disintermediation of the media and open-source information sharing. If we see a reworking of major finance markets – including bonds, currency and equity markets – there will inevitably be new opportunities for entrepreneurship and innovation in ways we haven’t yet thought of. Technology is set to reshape major markets such as energy, health, finance, and food. When and where exactly these innovations will break out is yet to be seen, but when they do, it is likely that the diffusion of that information will open doors everywhere, instead of just one group being privy to the information.
This decade may bring some parallels to the Roaring 20s last century, but we expect more bark than bite. The corporate hegemony of the last decade is being unwound, and big-picture problems require solutions that decentralized groups of individuals and entities will be pushed to solve. Necessity is the mother of invention, and the need(s) are massive at this point in history!