There is an ongoing theory that Wall Street and it’s financial media lapdogs promote every time a major bull market rolls around:
“It’s different this time.”
Of course it’s always that way until it isn’t and that’s when one begins to wonder why the average retail investor gets smoked during unexpected economic downturns or behavior.
As these pages once warned in Stock Market History Often Repeats With Great Pain, the “new, new” technology doesn’t guarantee immunity from the business cycle or market speculation leading to crashes and corrections.
This presents a good time to take a quick step back into the future to remind everyone of the following immutable fact:
Everything that is new and hot has never been tested in a severe economic downturn or period of major consumer stress.
If one has been following MacroEdge‘s layoff tracker, one might learn that perhaps the economy is not going to run perpetually in “bull” mode no matter how much fiscal or monetary stimulus the powers that be throw at it.
The following are not predictions, but examples from some, not all, of the “new, new” industries of the untested equities who have never endured a real bear market and/or economic downturn.
1. Cloud Computing Companies
So what happens when corporations cut back on investments in infrastructure and expanding use of the “cloud” occurs? Certainly this can not be good for AWS (Amazon Web Services) especially if consumers cut back spending with corporations simultaneously:
2. Gig Companies
The assumptions and underlying business models are sound in good times, but what about an era where the services are unaffordable due to reduced income or fear of losing income?
3. Streaming Services
During the pandemic, the idea of streaming services became hotter than ever. Because let’s face it, we were all going to die from this bad cold and would be stuck watching content the government approved of or videos of dancing nurses and doctors forever, right?
But what happens if during a real economic downturn, disposable income reduces the ability of the middle or lower class consumer to afford the luxury of streaming services? Roku probably should start trying to find a larger partner to dance with that has a more diversified consumer lineup beyond traditional media or cable.
4. Artificial Intelligence
This one X posting from last night sums up the warning the industry should be listening to:
Needless to say, if it’s 30% in this report, it’s probably closer to 50% of all AI software companies and those multi-level corporations like Apple and Microsoft who are just now expanding their ventures in the arena.
The question is though, what happens when corporate America realizes that the first iteration of artificial intelligence does nothing to improve profitability, efficiency, or reduce headcount?
The first company to be impacted will probably be the most publicly held one and most speculative. As these pages have written in the past, Nvidia certainly reminds one of the .com equities of the early 2000’s.
My bad, wrong but similar chart. Let’s try this again:
Ok, one more time…
I think my readers get my point by comparing all three charts in context.
5. Time Sharing and Short Term Vacation Rentals
Even though some people think this is a singular focus on Air BnB and its issues, the reality is that this could be Hyatt Vacation Club or Marriott Vacation Clubs. Regardless, none of these businesses have had their model tested domestically or internationally when and if the US consumer cuts down travel due to economic stress.
AirBnB has other issues like domestic regulation, party homes, etc. to deal with, but the model may not be so viable if nobody wants to sleep downstairs in a household owned by the Sawyers in Texas no matter how cheap it is.
There are numerous other stocks that have yet to be tested in a stagflationary or recessionary event, but as demonstrated during Powell’s over inflation of the economy throughout 2022, many stocks deteriorated greatly as the only comparison was to the 1970’s.
So what happens to these same business models and equities should it become a full repeat of that era, stagflation and all?
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