Weekly Update: When No News is Good News

A few highlights from the relatively calm week of 11/21

Please share seeking disruption with colleagues and friends! 🙏

The WCLD cloud index rose 1% this week, closing the holiday-shortened week at $25.14

It was a quiet week in the markets. In fact, on Wednesday the VIX, a popular measure of stock market volatility, closed at its lowest level in more than three months.

In this case, the market “news” is the lack of news. Most notably, there hasn’t been a piece of bad news about inflation for what seems like ages (OK - it’s only been a few weeks). Meaning the market doesn’t see the Fed hiking past 5%, meaning we probably aren’t headed for a “hard landing” recession

Phew.

This could bring some much-needed stability into tech, where the market’s massive dislocation has generated deal gridlock. As discussed last week, growth stage VC has slowed down considerably. Similarly, M&A activity is lethargic.

Jason ✨Be Kind✨ Lemkin  @jasonlk

So M&A is sort of broken right now. Every founder with something good and enough cash still won't sell for less than 20x ARR. Every big acquirer is ready to buy now. But at about 5x or so. A so-called downturn doesn't always make M&A easier.

When there’s a sudden price decline, seller expectations take time to reset.

This doesn’t only apply to the tech and M&A markets - there’s a similar phenomenon in real estate, where a market that was booming a few months ago has dramatically cooled. From a recent post summarizing October real estate activity from my favorite real estate expert, Bill McBride:

The big story for October existing home sales was the sharp year-over-year (YoY) decline in sales…and new listings were down about 16% year-over-year in October.

The painful hangover from the Covid Bubble is evident across asset classes.

Market participants - sellers, in particular - could use a quiet period to digest the new market conditions and adjust expectations. No big news in the markets over the next month would be a lovely holiday gift to help the deal markets find a healthy footing going into 2023.

Podcast Recommendation of the Week:

2022 has been a good year for Jim Chanos, the famous short seller. While I think Chanos deserves some credit for the accuracy of many of his bearish predictions, I think he deserves a lot more credit for the prescience of his underlying analysis. His current view is that there are still some of last year’s speculative darlings that have yet to be “taken out to the wood shed.” Yikes. The Odd Lots podcast recently conducted an entertaining interview with Chanos:

Reading Recommendation of the Week:

Bad news tends to get more clicks than good news. That’s why you might not be familiar with the really, really, really good news on a novel class of anti-obesity drugs known as GLP-1 agonists. Novo Nordisk, the Danish pharma conglomerate, is the first to market with a drug known as Wegovy that was found to reduce body weight by 15% in clinical trials. Lilly has a competitive offering that will be available soon that caused weight loss of 15-22.5% in study participants! These new drugs run circles around anti-obesity drugs of the past.

They won’t be cheap: a four-week treatment of Wegovy will retail for $1,349 (although insurance will likely reduce the out-of-pocket costs for patients). That said, the drugs are poised to significantly reduce the costs of obesity-related health problems for countries around the world, representing a profound gain for the global economy. The FT recently had a good write-up that’s worth a read. (link)