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10 Reasons To Be Cheerful (About The Macroeconomic Outlook) August 31, 2010

Posted by bernardlunn in capital markets, Predictions.
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I made my 2010 Predictions in Dec 2009 and half year update in June 2010. My predictions were gloomy on the macro picture but positive on tech and online media. In June I turned more positive on the macro picture. Here is why;

1. Bull Markets “climb a wall of worry”. They always have and always will.

2. Too many commentators are bearish, much of it crazy doomster talk that sells blog page views (and is good for canned food, Montana cabins and guns). I am not simply being a “knee jerk contrarian” by pointing out that this consensus pessimism is positive. When all the commentary is negative, traders/investors move to cash. And cash needs to get a return somewhere, so people will invest and some of that investment will lead to great companies and good jobs.

3. Most commentators are US centric and so are reporting from where this recession originated.

4. This recession hit the “chattering class”  worse than usual. The old saw applies, “it is a recession when your neighbor loses his job and a depression when you lose your job””. So the chattering class, often blogging for free or peanuts, will tend to talk about depression a bit more.

5. GDP and other macroeconomic statistics miss all the free agent and entrepreneurial activity, particularly in the most dynamic job market – America.

6. The global rebalancing is happening. This means that global demand is no longer dependent on the American “consumer of last resort” (who was actually just using their house as an ATM). Wages are rising in China and India (“Chindia”). The labor arbitrage is narrowing and a that means jobs will return to Western economies. The higher wages in Chindia means that Western firms will have a couple more billion consumers to sell to.

7. The American rebalancing is happening. This is shifting investment from property (fundamentally dead money other than construction jobs) to investment in business (when I read about a “seed financing bubble” I get optimistic).

8. People follow trends beyond reason. When things are going up they exaggerate how far it can go up. When things are going down they exaggerate how far it can go down. We are clearly in that latter phase.

9. This point is deliberately left blank. Most people miss the downside surprise. But equally most people miss the upside surprise.

10. We are animals and need our animal spirits, so we will work, trade, invest and shop our way through problems. Cheers mate!

In case you think I am a “perma-bull”, here is one example of my gloomy view and advice from Oct 2007..

Half Year Checkin On My Predictions For 2010 July 3, 2010

Posted by bernardlunn in Predictions.
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Here were my 10 Internet Biz Predictions For 2010, made in Dec ’09. They are reproduced below at this half year checkin to see how they are faring against reality so far:

# 1. The US economy will have another dip and unemployment will stay close to current levels. The creative part of creative destruction does not keep pace with the destruction part.

Most people now think this is likely as well. I hope we are all wrong. The unemployment prediction is sadly totally accurate. Being a contrarian – as conventional wisdom is now bearish – I think we will avoid a double dip, mainly because Bernanke will  shower us with cash to prevent it. His theory (I think he is right): deflation is today’s risk, it is to be avoided at all costs including the risk of inflation (which will come later and will have real costs).

I will do another post on “reasons to be cheerful”. But my theory is that the official statistics are OK at measuring destruction but lousy at measuring creation, particularly if creation is of the entrepreneurial, free agent, contractor type that makes the US economy so resilient.

# 2.The stock market will be up for the year, despite some nasty moments and despite a lousy economy, as interest rates will remain low

Sticking with this one. Basic reason is as above, Bernanke will shower us with cash, that will make bonds a bad proposition, so it will go into equities.

# 3.Return of the Internet IPO. Media heralds the “golden age of the Internet” but we are all careful not to utter phrases such as dot com that recall funneling $100 notes into a furnace.

Not yet. A few small fry, no biggies yet. Tesla is not Internet but it is uncannily like the Dot Com IPOs -a) big story we all want to believe in, b) charismatic entrepreneur and c) no profits. So an Internet venture like LinkedIn that has a) and b) but with real profits should do well. OpenTable has performed well and they are small and in a niche market.

# 4.LinkedIn IPO is the poster boy for the return of the Internet IPO perfectly timed for the combo of a lousy economy and rising stock market.

Come on, make my prediction come true! I think LinkedIn has the strongest story of any Internet venture.

# 5.Facebook does NOT IPO and there is lots of Blogosphere chatter trying to figure out why not.

Sticking with this one. And I won’t join that Blogosphere chatter yet!

# 6.Twitter is acquired by either Microsoft or Google for an amount that creates a lot of talk about a bubble.

Sticking with this one, despite the “we won’t sell, building for the long-term” talk.

# 7.VCs find it easier to raise money in aggregate. But almost all the real returns go to a very small number of firms and most struggle for a sustainable role.

Got this one wrong. Missed the rise of the super angel. It was staring me in the face and the tax change on carried interest (which even if it did not pass yet will do, the politics are clear on that) will make rich individuals bye-pass the funds and invest direct.

# 8.25% of the financial services industry find work doing something different and some of them will be very successful and create a lot of positive impact.

Got this one wrong. I missed Wall Street’s amazing ability to find new booms to create bonus pools. But this prediction will come true – not sure when – for the simple reason that the financial services industry became far too big a % of GDP in the last 30 years. That is simply unsustainable.

# 9.Google’s stock underperforms a broader Internet stock index as pundits focus on their lack of advantage in the golden triangle of social + mobile + real time

Yep:


# 10.Do Not Track legislation roils the behavioral marketing market and the smart bets on monetization move to transactions and subscriptions.

Sticking with this one. Legislation has not yet passed but political pressure says it will and entrepreneurs are already changing in anticipation. Actually the impact is much bigger as “behavioral marketing” is basically what social networks do to make money.