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IS TECH OVERVALUED? (Thread)
1/ What is “Value” what is “Growth”, these are constructs we form to try to help us logically understand a non-linear world. However, logic breaks down at the tails (paradigm shifts) and currently we are in uncharted waters.
@PhanVeeLeung
1/ What is “Value” what is “Growth”, these are constructs we form to try to help us logically understand a non-linear world. However, logic breaks down at the tails (paradigm shifts) and currently we are in uncharted waters.
@PhanVeeLeung
2/ There are arguments on Twitter that Tech is trading at ridiculous multiples, making the 2001 Tech Bubble appear to be amateur hour. I get it, but drawing parallels with charts and price velocity is missing the boat.
3/ 2001 Tech Mania was driven by speculation, this one is driven by Necessity (tech has been the only profit making business during Covid-19 & equities are treated as hard assets due to fiat debasement) — huge difference.
4/ I don’t see the point in arguing about Value vs Growth at this point in time, investors are not making rationale choices, but running for the hills of “capital preservation”. Incessant money printing lifts all boats, does it matter which ur on?
5/ The goal here is to survive, and I can see a reason why people will pay multiples for a productive asset at a time when productivity is scarce, Tech was the only sector that smashed earnings during lockdown.
6/ The “Value Of Productivity” then is the question to be answered and “Inflation” is the risk to be addressed with regards to continued expansion in Tech multiples.
5/ An asset can have intrinsic value, but what worth is its intrinsic value if it loses its productivity and utility function in an increasingly multi-polar world.
6/ Is value than used as a excuse for intellectual appeasement due to discomfort in facing the truth that we are in a brave new world driven by Modern Monetary Theory (MMT)?
7/ These things don’t make sense and we all know how it ends, but life is not about black and white, the main event occurs in the twilight.
8/ As trade evolves from a National Level governed by borders & agencies to a Supranational Level made seamless by the Internet and enabled by Supranational Corporations (AMZN, BABA, SE etc), Supranationals will capture a fraction of this value as they become the new gatekeepers.
9/ (The value in this is immense). Covid-19 has also ushered in a paradigm shift with regards to work. The effects of economic shutdowns has led people to embrace the Gig Economy and Decentralized working styles (work from home),
10/ this has made living in cities and renting offices unnecessary and costly overheads. The value destruction in these areas will be transferred to Tech companies that enables the Gig Economy and Decentralized work to thrive (Zoom Videos, Fiverr, Workday etc.).
11/ Factor in the the wing odds of asymmetric technological innovations as countries are embarking on fiscal packages akin to the Manhattan Project to build, innovate and engineer their way out of this crisis (Quantum Computing, Green Tech, Nuclear, Bio Advancements etc),
12/ the linear increase in Tech Multiples may not catch up to the exponential growth in the years head. The vantage point to judge from then, is the odds of this trajectory & value of the outcome (tech may even be undervalued relative to its eventuality).
13/ On the topic of inflation crushing growth due to rise in rates. That is the least of concerns at this point in the cycle. U.S. backstopping its own deficits due to de-globalization & de-dollarization should ensure rates remain sustainable (some form of yield-curve control).
14/ Out of control inflation is good for equities anyway (look at Weimar Germany), the mild-normal form is good for the government as it inflates away debt and according to MMT, can be addressed with taxes (drain money out of the system).
15/ The only reasonable way out of this crisis is through technological innovation, where the exponential rise in productivity outpaces debt creation. If we do not have that, humanity will continue to roll in the doldrums of incessant money printing till the day of reckoning.
16/ In both instances, it is ironically good for assets. We need nothing short of a Manhattan Project & a Marshall Plan (some semblance of it across the continents). Humanity has always pulled through in the darkest hour, there's reason to believe this time won’t be different.
