Chaos Creates Opportunity – Focus on Execution
A great deal has been made of the failure of Silicon Valley Bank and Signature Bank over the last few days. The President has spoken, and it seems that everyone is back to business as usual. Which seems nuts. Nothing to see here. If Monetary Policy was the Fast and the Furious Franchise, it would have looked a little like this: FF 1 – QE Covid ‘Where is the Nitros’; FF2 – QT Post Covid ‘I Think We Used Too Much Nitros’, FF3 – QE Infinity ‘Does Ukraine Need Nitros’; FF4 – QE The Final Solution, ‘Banks Fail From Too Much Nitros, Lets Guarantee Deposits So They Can Manufacture More Nitros?’ Is it crazy to suggest some form of significant financial crisis was inevitable?! It seems in today’s world, any entrepreneur and investor needs to thrive in chaos.
In our next video, Asena CEO Peter Harper sets out why we think we made it here and when we expect to see opportunities in the short to medium term.
Peter Harper: Hey, guys. Peter Harper, managing director and CEO of the Asena Family Office. For those of you who are not familiar with the business, we advise foreign family offices and founders on U.S. direct investments, and mergers and acquisitions.
Peter Harper: So, what a start to the year. It’s kind of been pretty nuts, albeit not totally unexpected, right? You know, as we’re thinking about the current shape of the global economy and how it’s, you know, impacting our clients and the decisions we’re making, it’s kind of interesting to look back at the timeline of events, right?
Peter Harper: So, in 2020, for the Q1 for 2020, when the Covid pandemic was really kind of getting started and launching, a lot of folks prior to that were saying the world was generally due for a slowdown; due for a technical recession, right? This was largely missed because so much fiscal stimulus was pumped into the system. You know, record amounts of money, easy money, washing around, facilitating these crazy economic growth numbers for a lot of businesses, and further facilitating excess debt binges in all sectors, not just technology, right?
Peter Harper: Come through to 2022, as that stimulus starts being unraveled due to the war in Ukraine, and the global economy is running too hot, and inflation being out of control, the Federal Reserve and countries around the world were going to start a process of quantitative tightening, right? So, you know, pretty simply, you’ll put a lot of fuel in the system; we’re now going to start taking it out because we need to slow the Juggernaut down, you know, which is what started happening. Interest rates started going up, right? Everyone clearly understood that inflation was not transitory. Inflation was there, and reserve banks around the world consistently moved to squash that with the main lever they have in their arsenal, which is interest rates.
Peter Harper: So, you know, 2022 was a pretty rocky year for a lot of folks like growth was hard, right? Some people were still making money, but as we entered in Q4, it felt different, right? Everyone was still; there were kind of lagging indicators where a lot of folks were still employing folks that were anchored toward the technology sector. Maybe there was, you know, we’re seeing a lot more sort of layoffs there than everyone, but I think that was really also an opportunity for a lot of people to make decisions around inefficient hiring that maybe had happened during Covid, right, and conditions were changing. So, leading into the end of the year, there are a number of factors that we’re starting to point towards, you know, a major slowdown.
Peter Harper: Coming into q1 of this year, if you were to look at the numbers being reported for service-based businesses, service-based businesses are, in many situations, kind of perceived as a canary in the coal mine. There are a lot of factors that are pointing to a major slowdown. M & A activity had kind of evaporated, interest rates were continuing to go up, and this notion of a soft landing just seemed like total nonsense, right? And, you know, when I think about, you know, this state of the economy today, and when you think about history and go back to 2008; the financial crisis and the flow and effect from that, I mean I think a lot of people probably have, you know, this kind of a permabear way of thinking, like, okay, what’s going to be the next thing, right? Well, you put a huge amount of capital, excess capital, into liquid private equity and venture capital markets, right, at zero interest rates. So, you go, okay, these are generally high-risk investments anyway. Let’s chuck a bunch of leverage on it, right, and maybe in businesses where, quite frankly, you know, excess leverage, it doesn’t make any sense because there’s enough risk in there. In an environment where there’s no read to mark to market those investments, right? It felt like that was always going to be, you know, the point for the next or the baseline for the next crisis, right? You know, which it’s turning out to be, right?
Peter Harper: I think the big thing in the discussions that we’re having with a lot of our clients, I think, that kind of rings true is, like, you never let a good crisis go to waste, right? I think, you know, I felt this way during Covid, you know? Asset prices have been out of control, and competition has been fierce. You know, people that maybe shouldn’t be in business because they’re, you know, not the best at their game, we’re able to make it through the laissez-faire of the government, right, and that should change, right? It should change, right? We need there to be some form of economic slowdown for asset prices to get under control and for people to get back in the market to buy and sell stuff at reasonable prices, right? Hopefully, that happens in the next six months. You’re going to be kind of “strap yourself in” type of stuff because it’s going to be pretty crazy. The biggest kind of an outlier in all this is, you know, is the Fed is going to underwrite deposits, you know, all deposits for a period of time within the U.S., right? Because if it is, all it’s going to do is make the inflationary issue even worse, right? We underwrite and say we’re going to guarantee deposits. What are those banks going to do? Those regional banks; they’re just going to go out and lend more, right? So, we probably need less liquidity in the market to get asset prices under control. That’s going to be a really crazy dynamic for a lot of folks if it happens. I hope that happens, right, because I feel like we need a reset, and I think that long term, that’s better for everyone, but let’s see. I mean, that’s what people should be thinking about. If the government does, you know, again puts on the quantitative easing spigot again to resolve this issue, you know, various investments are going to look better than others. If it doesn’t, it should be, you know, it’s time to go to work. It’s time to do the work and look at stuff in your business and in the market that makes sense in that environment. Asset prices will come down. There should be good deals out there if you’re on the hunt and you’re doing the work, right?
Peter Harper: So, we’re, you know, we’re concerned about the market, but we’re excited because, you know, with all these different things, you know, awesome opportunities should present themselves. Cheers.