December 6, 2020
Last week in American Daily Consequences, we featured Doug Casey’s prediction for the 2020 decade, which read in part…
The U.S. is likely to provoke a major war, and not just a “sport war” like we had in Iraq or Afghanistan. This time it will probably be with China, possibly Russia or Iran… perhaps with all three. It won’t do well, since it will find that its aircraft carriers, F-35s, and the like are equivalent to cavalry before World War I and battleships before World War II.
And we’ve already seen a dramatic escalation with the targeted drone strike against terrorist supporter and Iran leader General Qassem Soleimani, who was “actively developing plans to attack American diplomats and service members,” according to the Defense Department.
How many more of the predictions we’ve featured will come true in the coming decade?
We suspect far more than you realize…
Take the “unicorn boom.” Last year, 142 private companies gained “unicorn” status with a funding-round valuation of more than $1 billion. In sum, these new unicorn companies added $216 billion to unicorn valuations, according to venture capital tracker Crunchbase.
But as American Consequences feature contributor Bryan Beach notes, be careful with these incredible valuations…
And if you want to make sure that your portfolio is ready for 2020 – no matter the potential for a war in the Middle East, economic turmoil, or Federal Reserve monetary actions – you have to listen in next week to a live video interview.
Now, here’s Bryan…
The Slaughter of the Unicorns
By Bryan Beach
The 2010s will go down as the decade of the unicorn. If you’re unfamiliar with the term, a “unicorn” is a privately-held company valued at more than $1 billion.
Unicorns used to be rare… But in the 2010s, they started popping up everywhere.
Fueled by cheap debt and Middle Eastern sugar daddies, there has been an arms race among venture capital firms like the SoftBank Vision Fund to invest as much money as possible, as quickly as possible, in any company with a cool logo and a remotely viable business model. The 2010s saw the term “unicorn bubble” enter the financial lexicon – there’s even a Wikipedia page describing the new phenomenon. How did this happen?
Jacob Goldstein, host of Planet Money, nailed it when he pointed out that “It used to be that startups competed to get money. Now money is competing to get to the startups.”
That’s a very important distinction. With so much money sloshing around Silicon Valley, suddenly the founders, not the investors, were the ones holding all the cards.
The traditional playbook has early investors – that is, venture capital firms – cash out their investment for a huge windfall via an IPO. As the 2010s pulled to a close, we’ve seen an unusual reversal of the traditional exit strategy. As it turns out, the public markets are not interested in paying Silicon Valley prices for bubbly, cash-gorged unicorns with lousy business models.
Since 2017, 11 venture-backed unicorns have gone public. Collectively, this group generated around $12 billion in revenues in the year before their public debut… and burned through around $6 billion of cash flows in that year. No wonder the venture capital firms were ready to cut them loose!
The public markets have not been kind to this herd of unicorns, with ride-sharing firms Lyft (LYFT) and Uber (UBER) among the worst performers (both down around 40% in the nine and seven months following their IPOs, respectively).
In the final months of the decade, the unicorn market suffered the ultimate indignity… The public markets rejected the IPO of office-rental giant WeWork. That is almost unheard of. The message is clear: the public markets have little appetite for venture-backed unicorns.
The inflating unicorn bubble was one of the most important trends of the 2010s. And I believe that the bursting of this bubble will be one of the biggest trends of the 2020s. Firms like the aforementioned ride-hailing giants, tooth-aligner SmileDirectClub (SDC), and social media wannabes Snapchat (SNAP) and Pinterest (PINS) will have a rough go in the years to come.
We’re also wary of cyber-security firm CrowdStrike (CRWD), one of the few unicorns whose price has increased since its IPO, and Peloton Interactive (PTON), which sells “happiness” in the form of stationary bikes.
No longer nurtured by the deep pockets competing for their affections, we’re going to watch these companies struggle in the harsh reality of public markets in the 2020s.
Is your portfolio ready for 2020?
If you haven’t reserved your spot yet, you will not be on the list to receive the name and ticker symbol of the No. 1 stock to buy for 2020. Click here to get access.
Now here are some of the stories we’re reading…
Secretary of State Mike Pompeo said in a Fox News interview Friday morning that the decision to kill the commander was “necessary” in the midst of what he called an “imminent attack” Soleimani had orchestrated. Pompeo said the purpose of the strike was to disrupt the attack and set “conditions for de-escalation.”
Who knows, if the economy enters a depression… we may all be raising hogs in our backyards. You can save this little memoir and refer to it at slaughtering time. Or, become a vegetarian.
Media credibility has declined steadily for the last 20 years, and journalism’s recent performance won’t turn that trend around… Frantic, misguided coverage of the Covington Catholic students in the nation’s capital last winter was a terrible way to start the media year. That was quickly followed by more media frenzy covering the ridiculous Jussie Smollett situation which, amazingly, was taken seriously and garnered much more space on the news agenda than was warranted.
The dollar had an awful December and things may only get worse. The currency is set to extend losses as a truce in the U.S.-China trade war and signs that global growth is improving sap demand for haven assets…
And let us know what you’re reading at [email protected].
Publisher, American Consequences
With P.J. O’Rourke and the Editorial Staff
January 6, 2020