No one wants to hear this, especially not someone sitting on a stock portfolio they had dreams of milking through retirement, but it must be said: The current market crash is necessary.
It is hard to hear, because the pain is very real.
By now it is clear to most Canadians that ultralow interest rates fuelled the unprecedented housing price boom since 2015 – and particularly so since the pandemic erupted in March, 2020, when rates were slashed to zero.
Record levels of venture capital financing, in the middle of a pandemic, never made much sense, because no one knew what the future looked like.
When investors gain 10 per cent, they feel good, there’s an extra bounce in their step.
Returns on unprofitable private companies over the past decade were so outrageously high that the venture capital mentality of backstopping startups for years and years to help them build scale bled into public markets.
By late 2019, the likes of SoftBank, which purposely flooded its unprofitable startups with endless cash, purely to help them outlast their competitors, warped venture capital norms to such a degree that a reckoning was finally brewing.
Then the pandemic erupted, and the outrageousness set records that were once unthinkable.
In October, margin debt in the United States hit a record high of US$936-billion, 70 per cent more than the amount borrowed for investing purposes in February, 2020.
With cash flowing like water, venture capital firms were raising unthinkable amounts of it – and deploying it just as quickly.
Mispriced mergers and acquisitions are some of the worst value destroyers known to humankind – just ask any mining investor who endured the last commodity supercycle.
Yet a year ago, mere months before the tech rout started, Montreal-based Lightspeed Commerce Inc.
But then the economy caught up, inflation set in and the mere fear of rate hikes ignited the tech sector rout.
There is a new economic order for the next little while at least, just nothing close to the one many investors once assumed would play out.
“Underneath the surface, two big COVID demand reversals are happening this quarter,” they wrote.