The Omicron variant caught up with me on New Year’s Eve. Thankfully, isolation rather than illness is my lot but it is somewhat unsettling that a third calendar year will still be dominated by a global health crisis. If only there was just one global crisis. Yes, that sounds a little over-anxious given financial markets are at all time highs, Apple is now a $3 trillion company and global GDP is about to hit $100 trillion for the first time. So, is this just solitary confinement clouding my 2022 thoughts? Yes, and no, or should I say Netflix. I had a different article and set of 2022 themes ready for publishing before I watched the black satirical comedy “Don’t Look Up”. Then my pace of thought changed.
Leaving aside a plot and satire possessing all the subtlety of a sledge hammer, there was an overwhelming sense of speed in the movie; the comet hurtling towards earth, the 6 month countdown clock ticking faster than executive thinking and the rapid evolution of a universal truth into a polarised ideological/political position with calamitous consequences. The climate change crisis is the obvious 2022 analogy but “speed” can also be applied to other themes which require attention. In previous articles I have listed themes as forecasts for particular calendar years but, as always, the big risks and opportunities are multi-year themes. Specifically, themes which reach an inflection point and then accelerate dramatically can generate a stark range of outcomes.
Think of the mobile data ecosystem steered by hardware, software and cloud storage and then think of Apple. It took 42 years for Apple to become a $1 trillion company, a further two years to get to the $2 trillion mark and just 16 months to add its next trillion dollars. Oh, and Blackberry just unplugged its iconic handsets this week. Game over. However, there are other ecosystems out there which have only just moved into acceleration phase. For me, the standout unexpected thematic accelerations of 2021 were in two areas:
- Web3: The entire ecosystem of cryptocurrencies, NFTs, blockchain and DeFi/DAO formation exploded onto our screens in a big way. Who saw a year ago the cryptocurrency universe reaching a $3 trillion market capitalisation, the corporate embrace of NFTs from Nike to Sotheby’s to Visa, and one of the FAANG stocks going full metaverse with a Meta name change (Facebook)? Game on. And, for those querying an ‘acceleration’ please note that Bitcoin has been around since 2009, just two years after the iPhone appeared.
- Business formation/funding: Companies raised a record $12 trillion (source: FT/Refinitiv) in 2021 by selling stock, issuing debt/bonds and accessing new loans. No surprise then to see the total value of IPOs smash previous records with $600 billion raised globally. Global M&A also had its hot streak with $5.6 trillion worth of deals breaking the 2007(!) record of $4.55 trillion. Indeed, it was difficult to ignore the trickle-down effect as central bank liquidity sloshed through the financial system. Global venture capital investment in start-up businesses hit $160 billion per quarter in Q3 which is a pace 2.3x faster than 2020 and the US saw 1.4 million new businesses registered in the first 9 months of 2021. But ….the most eye-catching speed statistic for me was the 335 investments completed by Tiger Global in the past 12 months(source: Crunchbase). That’s basically a deal done every single day of 2021. This Tiger mix of fast cash, premium valuations and a hands-off approach to investment has forced the VC industry to re-think its entire business model.
So, those were my “fast” 2021 themes but what about “fast” 2022? I’m thinking a bit of old economy, a bit of new economy and a bit of truth. Let’s start with the old.
Old Economy:
When truck companies like Rivian and Lucid have yet to deliver trucks but are gaining $100 billion valuations you know the market is speeding up its thoughts on future electric vehicle(EV) penetration. Tesla is already a trillion dollar company but at least it’s on track to delivering 1 million EVs annually. However, our 2022 focus is more likely to be what powers these EVs and what will be needed if consultants, McKinsey, are correct in estimating one in every four vehicles purchased in 2030 will be electric. Every time I look at these projections, I’m thinking one thing….
Batteries – the world will need to pay a bit more attention to the batteries powering EVs and the raw materials used in their production. ABB, the Swiss-Swedish, engineering giant reckons global battery production capacity will need increase 6-fold in the next 10 years. In Europe alone gigafactory capacity will need to expand 16-fold! Raw materials and the mining sector are critical to battery production and I’m seeing supply projections for lithium, graphite, nickel and cobalt which might be a half, or even a third, of what demand projections are telling us. Forget about non-fungible-tokens (NFTs) what about Not-Fueling-Teslas? Expect the market to accelerate its focus/anxiety on production capacity, new battery technologies, new mine openings and perhaps new chemistry(rare earths)…..
New Economy:
Of course, there is a technology aspect to old economy battery production but the next theme is very much of the future. It has been a criticism of cryptocurrencies, NFTs, tokenomics etc that they are solutions in search of a real world problem. Indeed, Bitcoin in its relatively long 12 year history has a smallish utility value to date compared to its usage on trading platforms. So, here’s a problem crying out for a decentralized finance (DeFi) solution which cuts out intermediary costs, assists verification, assigns title and builds trust – how do you include more people in the global financial system? There are 1.7 billion people who are still ‘unbanked’. The following graphic from Global Finance shows some startling numbers and surprising representatives in the unbanked rankings….
Perhaps I am being overly optimistic but there has been a massive talent shift into the Web3 world where lots of applications and business models are effectively in experiment mode. We have written before about the play-to-earn game Axie Infinity. The gaming platform doesn’t just have almost 3 million monthly users and a $6 billion token universe it also has a thriving “scholarship/academy” programme. It really is early days yet and my sense is that crypto wallets like Metamask will be built upon to bring millions into the banking system. I was surprised to learn that there are now 21 million people like me using Metamask. However, for perspective, note that this is the equivalent of just 0.7% of Facebook’s monthly users or the number of internet users back in…. 1996. Early days but we live in hope
The Truth:
We did mention hope so we really have to touch on truth. We could adopt the approach of most stakeholders in “Don’t Look Up” and just not look but there‘s something up….and it’s very big. The United States remains the most powerful economy in the world and its percentage share of global GDP and capital markets is unchanged from 20 years ago despite the emergence of a $16 trillion Chinese economy. Technology has been key to this retention of US global leadership but it also poses an existential threat to the nation. If that feels alarmist how do we square the following?
- Geopolitical risk consultants, Eurasia Group, have just stated that for the first time in its history US “political instability” features in their top 10 list of global risks.
- A just published IPSOS poll shows 64% of Americans think democracy is “in crisis”. Other polls show more than 80% of both Republican and Democrat voters believe democracy is going “in the wrong direction”.
You might ask where technology fits into this crisis but you don’t have to look very hard. As the US tears itself apart over voting rights, election results, female health, vaccines, masks, the January 6th assault on Capitol Hill etc. there is a glaring absence of a “shared truth”. Social media and traditional media platforms have been instrumental in burying the truth in a wall of noisy misinformation. It is simply staggering as the evidence of illegality snowballs that there is any debate over the Capitol Hill riot on January 6th a year ago. The comet hurtling towards US democracy is that an attempted coup failed but there will likely be another attempt. In the meantime the media continues to give air time to an orange-tinted mob boss who feeds the “Big Lie” to his cult.
The repeated airing of a belief that an election was won and stolen is dangerous. Incredibly, an ABC poll has found a majority of Republican voters believe those involved in the Jan 6th attack on the US Capitol were “protecting democracy”. Enough is enough. If the US body politic cannot agree on a shared truth about January 6th and subsequent accountability, what hope is there of dealing with world crises like climate change, rapidly growing income inequality or additional global pandemic emergencies. Well, there is some hope. We talked about speed earlier and the following developments suggest we might be surprised in 2022 by the pace of change which is brewing beneath the surface of corporate and political life.
- Social Media: Twitter founder, Jack Dorsey, has stepped away to focus on Web3 and Facebook under anti-trust scrutiny has already changed its name to Meta. One senses these social media platforms and their leaders see the wind changing. Certainly, their algorithms face serious challenge. Any algorithm or business model which prioritises the spread of misinformation and lies is likely to face sustainability issues. Apart from the chances of a break-up of Facebook, the $53 trillion of investment capital (per Bloomberg) which apparently is guided by “sustainability” principles can carry a very big stick when it comes to global threats like public health/pandemics and climate change.
- Government: Governments around the world have had first hand experience of fighting disinformation while trying to protect their citizens from a deadly virus. So too might UK voters one day wonder about a world-first decision to reduce trade and influence based on misinformation and fantasy. However, some governments are beginning to fight back. Sweden has launched an agency dedicated to defending the country against disinformation, propaganda and psychological warfare. Expect more governments to understand the socially corrosive effect of allowing truth to be trashed by those trying to influence with corrupt and often lethal intent.
- Accountability: There might be some who are sceptical about government driving change but there are other powerful instruments to be used. Start with the rule of law. Those who use disinformation to cause harm must be made accountable. There is increasing evidence that the US Department of Justice will be in a position to charge not just the 700 or more rioters on Jan 6th but also members of Congress, US cabinet officials, White House staff and even the former guy with an attempt to block a “peaceful transfer of power”. More interestingly, it looks like members of the right-wing media will be in the crosshairs of law enforcement. Check out the request of the House January 6th Committee to interview Fox celebrity broadcaster, Sean Hannity. The increasing text evidence of complicity of Fox and its stars in a coup attempt should focus the minds of corporate advertisers using Murdoch-controlled media assets. It is very possible $53 trillion of investment capital could render Fox ‘unsustainable’ as a commercial proposition.
One final thought on accountability, sustainability and influential capital. Or maybe it’s a question for corporates who on a daily basis profess their dedication to sharing the values of their customers. When the leadership of a political party condones illegality, funds illegality, misrepresents the truth and fails to report illegality does that party itself become a criminal entity? All senior corporate executives and their major customers should be acutely aware that there must be a tipping point where trillions of dollars of sustainable capital could suddenly decide that any perceived embrace of an organization engaged in criminality is, in truth, unsustainable. Look up. The truth is on our screens every day. When customers and investment money start to run, they will run very fast. Oh, and the total word count for this article at the end of the last sentence was 1984. Says it all really.
“The party told you to reject the evidence of your eyes and ears. It was their final, most essential command.” – ‘1984’ George Orwell.
