Nine predictions for 2021 from tech to finance. #1 the big tech/SPAC/bitcoin bubble unwinds.
After a momentous 2020, 2021 will represent a pullback in many dimensions such as tech valuations, cloud/eCommerce/telework penetration, and Asian vs. Europe/USA growth. Not because the trends have reverted, but rather because 2020 pushed them forward so dramatically that they will revert slightly to the trend line. Simultaneously, other areas like COVID, Big Tech regulatory action, Cyber, and Europe’s role will see a significant change. Finally, we will have to wait another year for the next iPhone moment and substantive action on our time’s problems.
Three trends will pull back after accelerating in 2020. Not because the underlying trend has stopped, but instead because COVID accelerated them far beyond the trendline.
- The Big Bubble unwinds. Tech markets, SPACs, and bitcoin are all seeing unparalleled bull markets. The underlying thesis is very similar for all. The government is printing money like crazy and driving interest rates to zero. Investors need a safe asset against inflation with good returns. Tech is the future, so tech is safe at any price. It also appreciates double digits, so it is too good an investment to pass on. We have seen this story before: real estate (several times), tech (2001), synthetic CDOs (2008), investment trusts (1929), portfolio insurance (1989), Nifty Fifty (the early 1970s), Tulips (the 1630s). The outcome is always the same. Once appreciation stops, investors get second thoughts and start selling. Once prices fall, the asset class is not safe, so the whole investment thesis collapses. Tech, especially SaaS, is undoubtedly very valuable. However, nothing is worth buying at any price. CISCO went public in 1990 at a $224 million valuation. With the internet, it became clear it was going to be a lot more valuable. Markets took it to over $500 billion in 2001, an x2000. Now, 20 years later, it is worth ~$200 billion, an x1000. CISCO was much more valuable, just not that last x2 valuable (small detail for the people who lost 80% of their investments from 2000 to 2002).
- Cloud, eCommerce, and telework stall. COVID has turbocharged cloud, eCommerce, and Telework. As things return to normal, there will be a slight pullback in 2021 vs. 2020. Still, the genie is out of the bottle, and we can expect tremendous growth over the next decade, just not next year.
- The West grows faster than Asia. Europe and the US have done a terrible job of controlling the pandemic when compared to Asia. Consequently, they have had significant GDP declines. The flip side is that in 2021 growth will seem faster in Europe and the US vs. Asia as they go back to normal. It is a blip. Asia will continue to outperform for the rest of the decade.
Other changes have started in 2020 and will shape 2021, transforming how we live and see the world.
- COVID goes away. With vaccines available, COVID will go away in 2021. Things will return to normal quickly. No one was wearing a mask or social distancing in 1920. No one will, at the end of 2021, with the pandemic under control.
- Big Tech on the back foot strategically. Big Tech’s reckoning has started. It will take several years, but the stage is set. Regulation and anti-trust action will level the playing field. No single industry or group of companies can be allowed to dominate the world. Governments have managed to avoid it since the railroad robber barons in the 1880s. Big Tech will not be any different. It is still difficult to picture a world in which Big Tech won’t control everything, but it is a matter of time.
- Cyber is considered weapons-grade serious. The US government hack through Solar Winds is the equivalent of a digital Pearl Harbor. We can expect a severe reaction across the world. Cyber is the new equivalent of panzer warfare and needs to be taken seriously at the highest government levels.
- Europe finds its footing. With Brexit behind it, we can expect Europe to regain the initiative. France and Germany seem aligned to push the union forward. The Digital Markets and Services Acts are great places to start, with strong obligations to create a level playing field in the digital domain. Regaining digital sovereignty, rekindling economic opportunity, and managing the migration crisis should be the priorities.
Two of the things I would very much like to happen won’t happen for another year.
- No iPhone moment. Since the tenth anniversary of the iPhone, pundits have been waiting for the next iPhone moment in tech. The next change of platform. Is it AR glasses? Ready Player One-style VR? Apple’s autonomous car? Quantum computing? Cryptokittens? It will happen in the 2020s, just not in 2021. I am intrigued to see what that turns out to be.
- No substantive action on climate change, inequality, or cloud democracy. The clock is ticking, but acting is too complicated. Only a real crisis will put our most significant challenges at the center. COVID has shown us that we can tackle them, but trying to play the ostrich and see if they disappear by themselves is too appealing.