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Are We At the Top?
The stock market has corrected some, but things are still frothy in the financial world. Unfortunately, when things are frothy, the economic forces of gravity come into play at some point, and the pain ensures. Why do I think things are at the top?
I believe t is several things. First, the Fed has flooded the economy with funds through the CARES Act, the Main Street Lending Program, to name a few. The money has to go somewhere, and there is FOMO – Fear of Missing Out – so everyone is piling into the leading tech stocks. Further evidence is:
1. Junk bond debt issues, as shown above. The demand for yield is high as government debt, and AAA debt is offering such low yields. Thus record amounts of questionable paper have been issued to meet this demand.
2. SPACs. Look no further. Everyone and their dog is jumping into the SPAC space. These blank-check companies have raised about $41 billion, year to date, which is more than the last ten years combined, and Since July 1, about $29 billion. Currently, I understand that over 40 SPACs are looking for merger partners. As I have mentioned before, SPACs tend to overpay, reducing the returns for investors. Given that there are so many buyers right now, we can expect the prices of merger partners to rise and the quality to fall. Of course, the people who make the real money buy the founders’ shares and get the “promote.” Take the case of Alec Gores, who put just $25,000 into his SPAC when went public in January. Once their acquisition is closed, their 0.6% stake will be worth $96 million. Not bad work if you can get it. However, if the founders are doing so well, my advice is to stay away. The SEC is concerned that investors don’t understand how the incentives relate to pay in a $PAC compared to a traditional IPO. There may be regulation.
3. Is Palantir the latest WeWork? According to the Wall Street Journal, bankers have told investors that shares may start trading at $10, valuing Palantir at almost $22 billion when it goes public through a direct listing on September 30. Valued at $20 billion in 2015, Palantir has seen some increase in value. However, in the private markets, it is trading below $20 billion, and this month PitchBook valued Palantir at just $8.8 billion. As I mentioned last week, Scott Galloway in PalanThiel: The Uncola pointed out that “But at 17 years of age, and after raising $3 billion, the ‘start-up’ has never made money. In 2019, Palantir lost $580 million on approximately $740 million in revenues. The idiot client they serve (U.S. government) lost 25 cents on the dollar ($1 trillion deficit vs. $3.5 trillion in revenues) in 2019 vs. 78 cents at Palantir. The firm spent $911 million in marketing over the last 24 months, roughly half of what Tide detergent spent over the same period. The firm has 125 clients, 3 of them accounting for 28% of revenues. Palantir feels more like a services firm, with tech at its core (e.g., Accenture), but one that, unlike a services firm, is massively unprofitable.” Driving all that success if CEO Alexandar Karp, who paid himself $12 million. If the market is valuing this at $20 billion, we must be close to the top!
The Housing Market
For those that haven’t noticed, the housing market is booming. Many of us stuck inside have realized that we don’t like our homes are moving. In August, new-home sales increased at the fastest rate since 2006. All this demand is causing a supply and demand problem driving up prices.
However, not for long. As I predicted in April, many people are straining to pay their mortgages. Industry analyst Keith Jurow expects “several million” people will have gone nine months without making a payment when the Federal Housing Finance Agency’s foreclosure and eviction moratorium expires at the end of the year. In July, 17% of FHA-insured mortgages were delinquent, according to the Department of Housing and Urban Development. In NYC, 27.2% of mortgages were delinquent in July.
With so much new supply coming online soon, prices may drop, and those that bought now may find they purchased at the top.
Recent Posts
Boosting Common Sense Decision-Making in Your Organization
Do You Understand Your Costs to Ensure Profitability?
You can only determine profitability when you know your costs. I’ve discussed before that you should price according to value, not hours. However, you still need to know your costs to understand the minimum pricing and how it is performing. Do you consider each jobs’ profitability when you price new jobs? Do you know what you should be charging to ensure you hit your profit targets? These discussions about a company’s profitability, and what measure drives profit, are critical for your organization.
Sunk Costs Are Just That, Sunk!
If you were starting your business today, what would you do differently? This thought-provoking question is a valuable exercise, especially when it brings up the idea of “sunk costs” and how they limit us. A sunk cost is a payment or investment that has already been made. Since it is unrecoverable no matter what, a sunk cost shouldn’t be factored into any future decisions. However, we’re all familiar with the sunk cost fallacy: behavior driven by a past expenditure that isn’t recoupable, regardless of future actions.
Do You REALLY Know Your Business Model?
Bringing clarity to your organization is a common theme on The Disruption! blog. Defining your business model is a worthwhile exercise for any leadership team. But how do you even begin to bring clarity into your operations? If you’re looking for a place to start, Josh Kaufman’s “Five Parts of Every Business” offers an excellent framework. Kaufman defines five parts of every business model that all flow into the next, breaking it down into Value Creation, Marketing, Sales, Value Delivery, and Finance.
Ideation! Harder Than It Sounds
Bringing in new ideas, thoughts, understanding, and logic is key as your organization faces the challenges of a changing environment. But when you do an ideation session in your organization… how does it go? For so many organizations, many times, after a few ideas have been thrown out and rejected, the thought process slows down very quickly, and a form of hopelessness takes over. How does your organization have better ideation? I’ve come across a new approach with a few teams lately.
Recruit, Recruit, Recruit!
An uptick in business has begun this quarter, and companies are rushing to hire to meet this surge in demand. What amazes me is how many are so unprepared to hire. Continual recruiting is key to the survival of a company. It isn’t the same thing as hiring—continuous recruiting is building a pipeline of people that you would hire if you needed to fill a position, or “A players” you would hire if they were available.
We All Need Clarity
If your organization is focused on obscurity over clarity, whether intentionally or not, your “A” player employees are vulnerable. There is a looming talent crunch. As we start to emerge from COVID, demand is increasing, and many are scrambling to fill positions to meet that demand. Headhunters and recruiters are soon going to be calling your key “A” employees. Have you been giving them a reason to stay?
Not Another **** Meeting
As Leonard Bernstein put it so well, “To achieve great things, two things are needed: a plan and not quite enough time.” Your meetings can be shorter, more fruitful, and engaging, with better outcomes for the organization, employees, and managers. It’s time to examine your meeting rhythms and how you set meeting agendas. This week, I break down daily, weekly, monthly, quarterly, annual, and individual meeting rhythms, with sample agendas for each.
Is Your Company Scalable?
Let’s start here: Why should your company be scalable at all? If your business is scalable, you have business freedom–freedom with time, money, and options. Many business leaders get stuck in the “owner’s trap”, where you need to do everything yourself. Sound familiar? If you want a scalable business that gives you freedom, you need to be intentional about what you sell, and how.
Are you ready for the Talent Crunch?
Companies are gearing up to hire. Unfortunately, many are competing within the same talent pool. Some experts are currently predicting a strong economic recovery starting in May or June. But as the economy booms, there is going to be fierce competition for talent. How will you fare in the looming talent crisis? Your organization should be creating a plan, now, so you can attract the talent you need in the year ahead.