The Weekly Distillation No.74
Difficult Conversations; Turning Points; Commodities; Markets; Web 3; Ukraine; Belarus
This newsletter is written for entrepreneurial leaders who want to learn about the moment we are living in but don’t have time to read broadly; who want to grasp the key themes; and who want to create better ways of advancing their mission. The Weekly Distillation covers a broad range of topics with the intent to curate the key narratives of the week, how they fit the broader themes of society and to pose questions that help you to think deeper on the application in your context. You can read more about the key themes I see here.
People once said………..
“My policy on cake is pro having it and pro eating it.” - Boris Johnson
“The Web as I envisaged it, we have not seen it yet. The future is still so much bigger than the past.” - Tim Berners-Lee
“There can be no keener revelation of a society's soul than the way in which it treats its children.” - Nelson Mandela
“I looked at Putin and was terrified from the very beginning. That makes me look very prescient because he actually turned out to be exactly the monster that I thought he was.” - Masha Gessen
Skim it in a minute
The news just keeps coming
What a year for news this has been. In fact, what a last few years - Trump, Global Financial Crisis, Brexit, Scottish independence attempt, Ukraine war(s), Inflation, Covid, Markets Crash, Inflation etc etc. The news just keeps coming and the headlines keep writing themselves. I often thought in Covid times that the hardest part was often finding a new angle after writing about the same topic for 2 years. But then there’s the Supreme Court. We need to be able to have more difficult conversations. I found myself recently discussing education, gender identity, same-sex marriage, colonialism, Black Lives Matter, post-modernism, and Scottish independence over dinner with some people I know well. We definitely did not share the same views but it was so healthy to share views and to listen to one another around the table. It was a good test for me on my views, as well as an opportunity to listen to counter-points.
I never talk about abortion rights, it’s rarely part of the UK conversation unlike in the US. But it would be good to have that conversation, to go deeper and to listen and discuss with other perspectives - not because there is moral equivalence in both arguments, but because the conversation is what brings us together and keeps us a civil society. I don’t believe that the workplace (or school/university) should be a place that is used to advocate for social engineering (which is different from a corporate and its employees seeking to have a social impact such as practically caring for the poor, fighting climate change or tackling the water crisis) but I do think having difficult conversations between colleagues, friends, and neighbours is more critical than ever.
The first step in that has to be about creating spaces for these conversations. The second has to be inviting people in who will come from different worldviews, political viewpoints, experiences and backgrounds. The third is to cultivate an environment where people can speak boldly and be listened to and debated with fairly and respectfully. Substack isn’t the place for me to lay out my views but I’m always up for that conversation in a tighter environment.
Will we see a turning point soon?
The markets continue to slide, and the economic news remains brutal - expectations of recession in the UK are now a consensus, in the US it’s 50%+ it seems. Inflation hits rates that last time this happened interest rates were >10%. Taxation is going up, energy prices have gone through the roof, discretionary spending is falling, layoffs are on the rise, public sector strikes are increasingly frequent and their are signs of disfunction in many places - Government, Transport, Supply Chains etc etc.
If you read my bear case for 2022 (written in the spirit of a contrarian view in January when the consensus was that 2022 would be better than 2021 because Covid was over) you’ll have seen that most of it has come to pass (we still need a Taiwan invasion (hopefully not) and a disastrous Covid development to make it a clean sweep but the other points pretty much came to pass). Sentiment is falling rapidly - Purchasing Manager indices are negative, recession expectations and rising and unhappiness with politicians is rising to extreme levels (see the by-election results in the UK this week for a 30% (!!) swing from the Conservatives to the Liberal Democrats as one example).
Have we reached peak bearishness? Probably not, as there is still the reality of fears around the coming recession, rising unemployment, strikes and high inflation to kick in for 2023. However, are there signs of hope out there? The Freightos Global Container Index (Baltic) peaked at $11k in Sept 21 and has fallen to $7k in June 22. In the last two weeks WTI oil has fallen from $122 to $108. Copper peaked at $10,600 in Oct 2021 and has fallen to $8773 now.
Iron Ore peaked in July 2021 at $218 and has fallen to $128. So we have freight rates falling (and I’ve had this confirmed anecdotally too) and commodities prices falling reflecting a slowing economy and a reigning back on new investment and infrastructure. Retail sales growth in the UK has been slowing since January, with April and May negative figures (and it’s hard to believe June won’t be negative also). The Gfk consumer confidence balance in the UK fell in May to -41, a new record low for the second month in a row.
Could there be a scenario where rates don’t have to rise too far to slow inflation quite rapidly? We already have the consumer (the majority of the UK economy) slowing their spending, especially on discretionary items but increasingly on non-discretionary items like food. Businesses are reigning back investment and preparing for a recession. Banks are (anecdotally) tightening lending criteria and preparing for tougher times for their borrowers ahead. Commodities prices are falling and the supply chain pressures are easing.
What might 2023 look like if rates peak out at much lower rates than expected, wage inflation doesn’t go up, general consumer inflation peaks out and falls back to more normal rates and the stockmarkets recover. Could 2023 be much better than everyone expects?
Ukraine vs Russia
Russia is still winning. Ukraine has just conceded its latest city, Severodonetsk. This gives most of the Luhansk region, alongside most of Donetsk - together, the Donbas region. Russia’s recent pivot away from Kyiv came with the statement that they would seek to control the Donbas and it seems that they have now almost achieved that. This is despite promises from the EU & US of ISR, weapons, training and long-distance artillery. However, it seems the reality has fallen short of the promises and the Russian army is not quite as poor as the Pentagon and UK MoD made it out to be. What next is the question? Does Russia hold up and reinforce its Donbas positioning, to go with the Crimea? Or does it push on to Odessa and Moldova and down into the Balkans? Or does it refocus on attempting to take Kyiv?
Belarus is also getting interesting this week. Russia has launched missiles into Ukraine from over Belarus.
The President of Belarus believes that Lithuania refusing to pass Russian goods through its territory to Kaliningrad is war. And Putin has said he will start putting nuclear-capable Iskander missiles in the hands of the Belarussian air force.
The war is far from over and Russia is still advancing. Whilst the West is fixated on culture wars, inflation and markets, the greatest threat keeps getting closer.
Web 3
Three things stood out to me this week in the Web3 world:
Packy McCormick’s newsletter on whether there are real-life use cases for Web3 yet or whether it is all just hype
This example of a DAO over-ruling an agreed set of terms for an investment in its associated legal entity. The precedent set here is bad for DAOs and reinforces the need for coded rules-based boundaries on the limits of DAO proposals. Even in DAO-land, you still need rules.
MagicEden, the NFT Marketplace, raised funding at a 10x higher valuation than its last round. This in a time where NFT volumes are falling and value falling even quicker due to the collapse of cryptocurrency prices.
I think Packy’s reference to the Gartner hype-cycle is spot-on. In 2000 the slowing economy led to a reappraisal of the value of long-duration, high-growth, high-hope stocks and the collapse of the dotcom boom. Off the back of that we got many of the Web 2 greats launched, built and scaled and the internet and smartphones took over our lives. This time around Web 3 has been met by a shift from QE to QT, higher rates, inflation, slowing growth, tightening access to venture capital, a closed IPO market, war, as well as all of the usual ineptitude of early-stage markets and new technologies. The hype is unwinding but the long-term trends to support decentralisation, permissionless systems, democratised governance, new properties for digital assets and the rethinking of finance for the masses all suggest there’s a lot more to Web 3 than is currently being talked about. It remains the most interest trend in tech since 2000 in my view.
I’ve not written since June 5th, which pains me, but I hit a period of work that involved 20 hour days at points and writing had to go on the backburner. Unsurprisingly, when you run like that, your body also starts to pack up after a few days. There’s some great work going on, but I’m conscious of unsustainable patterns and am grateful that those moments i. However, in the midst of that, it has been great to be at dinners and lunches in Scotland and London for work and be met by people who say they read this newsletter and love it. The summer season starts this week and will run in to September - which is creating more space for delivery and focus, as well as some development projects which have been on the backburner for a while. In the midst of turmoil, war and market collapses, I feel more fired up than ever. There’s something special about getting to work and help entrepreneurs who are building the future. Today involved a birthday party and refereeing a football game for 17 children, watching the kids play in the water and reading about thermonuclear weapons. Just another Saturday. Have a great rest of your weekend.