How (alt)tech holds up in a market crash

Many tech businesses, and particularly the behemoths such as Facebook and Google, have built their business model squarely around advertising. Advertising is heavily sensitive to the business cycle — it tends to be the first expense to tack on in an expanding market and when the times are good and improving. It’s also the first expense to be cut during a slow-down.

Companies don’t cut back on because advertising is an unnecessary expense, it’s because in a down-turn, the potency of all advertising activities decline as consumer spending and discretionary incomes decline. The ROI of marketing campaigns decline, and businesses pare back on their campaign expenditures. It’s really that simple. It matters little how sophisticated the advertising campaigns are, or how clever the underlying ad serving technology is, if the consumers hold their purse strings tightly shut, and that’s what we’re about to witness.

In other words, this spells big trouble for big tech. Many products and services peddled on Facebook are discretionary, and to a large degree, even unnecessary in a post-corona world. Facebook had an opportunity to price their service more as a utility and emphasize the value added to consumers to such a degree that they were paid-for, but instead they built a crude money machine built on the business model of 1995. It’s built solely on ads — they just slapped on some surveillance technology, but it’s still just plain old ads. During the coming times, people will pay their Internet bill, their phone bill, their water bill, their electricity bill, but they won’t be ordering that online course they saw a Facebook ad for. In fact, they can live without Facebook, because it’s not a utility and it’s not essential.

In fact, many of the companies in the NASDAQ represent non-essential goods and services; yes, including Apple, Amazon, Netflix, etc. These were the quickest to rise during the bull market, and they may be the quickest to decline during the crash. We may or may not get a relief rally from here — 20% is possible, but, it’s going to be a small consolation, as the general direction is going to be down. We haven’t even started getting Q1 financial ‘results’ yet, and it’s going to be a bloodbath.

What about the start-up space? It almost goes without saying, that it’s about to go into an ice age. The signs were there all along — for example, the failed WeWork IPO, Tesla with their self-crashing cars, the sardine-cans-on-wheels called Cybertruck, people investing in VirginGalactic on the daydream of conquering space, an Uber clone IPO:ing for billions of dollars. Pinterest IPO:ing! What were we thinking? It seems like a different era in history already, and it is. It’s interesting to see just how quickly not only the investment sentiment changes, but day-to-day-live and the primary issues. Climate change, feminism, the border wall, gender issues, they are suddenly just an afterthought; philosophical luxury items.

What about alt-tech? Alt-tech, meanwhile, is hugely speculative; it’s an off-shoot of tech; a play on the niches. It’s going in for hibernation. It will come back out. If you can hold your nose, soon is the time you’d want to buy even more Bitcoin, Basic Attention Token, Ethereum. Can they go down 50%? Sure. But what’s the upside once this has finally blown over? The survivors will stand tall. There will eventually be another tech-boom. It’s far into the future, but it’ll be there. And soon is the time when real fortunes are made. 

We did learn that Bitcoin is decidedly a risk-asset — it is not a safe haven. Bitcoiners have repeatedly said that Bitcoin is different from any other asset class, in that it’s crashed but gotten back again repeatedly, and that his supposedly means it’s different, it’s safe, it’s a prudent investment. It’s not. The reason it rose again after the previous crashes, was because we were still in an absolutely frenetic, risk-on, bullish general market conditions. That said, Bitcoin looks like it’s bottoming — but it did not play the role of a real safe haven. This may change, if we experience more outright issues pertaining to banning cash, rationing, restrictions on bank transfers to try to stave off panics, and if we start seeing banks experiencing liquidity or even solvency issues. Still what we do know, is that Bitcoin could not be used to hedge other assets, such as stocks or anything else.

Speaking of stocks: like I anticipated, we’re going down further. (Not financial advice, mind you!). Why are we heading down? In past downturns, markets have basically been slashed in half during the recent crises (Dotcom, 2008), but during these downturns, monetary policy worked. Markets were gullible enough to be wowed by whatever-it-takes policies and grandiose statements by central bankers.

This time around, markets are shrugging off everything the Fed is doing. Now, when the Fed lowers interest rates, the markets view that as confirmation of a further crisis. What was previously seen as supportive, is now seen as confirmation of trouble and further downside. Still, neither the Fed or the ECB are just going to throw their hands up and give up. They may not try to resuscitate the stock market again, they’ve no doubt seen that it doesn’t work, but they are now setting their sights on bailing out ailing and failing industries, such as the airline industry.

The Fed may also try to disperse currency to the population at large, i.e. distribute ‘helicopter money’, but that won’t help either. You can’t print food, vaccines, ventilators, or water any more than you can eat fiat currency. In fact, this could spell the end of easy money and the Keynesian experiment.

In any event, people will remember where they got their coronavirus prediction, recommendations and news from — especially if these news gave you a chance to prepare early. People will continue to use their trusted sources, but the ones that were proven right, even more so. Judging by the content I’ve enjoyed on the platforms such as Minds.com, Bitchute, etc, this would have given me a leg up in preparation. I’ll be continuing to rely on these to get an alternative take, especially when that tends to be proven more truthful.

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