Mon, 23 May 2022 04:51:01 +0000
The average used-car price in the U.S., which had spiked to about $29,000, will be lower one year from this point (around May 2023), due to demand destruction from higher interest rates.
“You tell me, is the price of the used car this time next year higher than 29 or lower than 29? It's going to be lower because we're destroying demand by raising interest rates.” View on YouTube
U.S. inflation will "roll over" (i.e., decline from peak levels on a sequential, month‑over‑month basis) over the ensuing months after May 2022, rather than remain at or above its then‑current elevated pace.
“So when you put that all together, you say, okay, sequentially, month over month, forward looking, this stuff's starting to tip over... That and consumer confidence tells me forward looking inflation is rolling.” View on YouTube
Over the coming years after May 2022, U.S. inflation will not remain in a persistent "hyper inflation" regime; instead, expected 10‑year inflation (as implied by TIPS breakevens) will be consistent with moderating inflation rather than continuously escalating prices.
“This is the break even. This is the bond market. When that goes positive, that means the bond market is saying that inflation is rolling over because this is the ten year inflation... That's why I don't think you should believe the hyper inflation narrative.” View on YouTube
Venture investments made in roughly the 18 months prior to May 2022 will, as a vintage, produce poor returns, while the vintage of venture investments made in the subsequent period (starting around 2022–2023) will generate comparatively strong returns.
“I actually think the upcoming vintage is going to start getting real. It's going to be a good vintage. I think that that was Bill's point. I think we both feel that way. I think the vintage of the last 18 months will be lousy. So the capital deployed over the last 18 months won't have a lot of return.” View on YouTube
Asset prices seen in the preceding 18 months (roughly late 2020 through early 2022), especially in venture and high‑growth equities, will not return to those peak valuation levels under normal conditions; they would only recur in an extreme scenario such as another pandemic or nuclear war that drives interest rates back to zero.
“Disabuse yourself one of the bill tweeted this last week. It's spot on. The biggest mistake we will all make is to anchor ourselves to prices that we saw in the world over the last 18 months. Pretend you never saw them... Because that is a delusional place to think we're getting back there. We're not. Unless we have another pandemic or a nuclear war and rates go to zero and then we have bigger problems.” View on YouTube
Over the three years following May 2022, only about 25–30% of the roughly $100 billion in actual VC capital within the cited $250 billion of committed funds will be deployed into venture deals (i.e., on the order of $25–30 billion of VC dollars will be invested over that three‑year period), with the majority of the overall $250 billion being deployed by traditional private‑equity/leveraged‑buyout firms.
“Over the next three years. Of the quarter trillion I think you're probably counting 50% of that is private equity or more, maybe 70% traditional private equity... So how much of the three... 25 or 30% depends on price adjusted.” View on YouTube
Software companies that were valued at about 100× ARR while doing around $50 million in revenue during the 2020–2021 boom are very unlikely ever to regain those valuation levels; future dilution and slowing growth will prevent investors in those rounds from achieving attractive returns.
“If you were slapping 100 x RR revenue or multiple on a company doing $50 million in revenue, it's highly likely that they will never see that price again. Whatever you paid for that asset, because the dilution and the deceleration in their growth rate will absolutely eviscerate any return you have as an investor.” View on YouTube
When looking back in future years at the 2020–2022 inflation spike, U.S. inflation will be seen to have rolled over (declined back toward prior trends), and the pre‑Covid disinflationary trends that held for roughly 20 years before the pandemic will have resumed.
“We will look back at this graph and that inflation will roll over. And I suspect that those trends will continue. So I'm willing to underwrite to that.” View on YouTube
By roughly May 2023, prices of growth stocks will be higher than they were in May 2022, although they may first decline, possibly significantly, in the intervening months; over that period, valuations for growth stocks will revert toward their five‑year historical average levels as macroeconomic conditions become more predictable.
“We will be higher for growth stocks this time next year, but we may very well get there by way of lower and potentially meaningfully lower, because the counterfactual to the hyperinflation argument is not you can't deliver the counterfactual for at least 4 to 5 months... my suspicion is we return to trend. Things become more predictable and investable again, and we bounce back up to the five year average.” View on YouTube