1/ We have said that recent years of low interest rates + cheap capital is like a tractor beam—pulling 20-year far-out FUTURE ideas forward to the PRESENT into 20-month frenzied projects.
Similarly be it in TECH or CHINA or GDP abundant cash has taken DEMAND from future years...
2/ And concentrated that DEMAND into a few recent yrs—which gave (illusion of) higher than normal GROWTH (in tech, China, GDP).
But it was borrowing from the future
Recent GROWTH narratives + market multiples awarded to HIGH GROWTH are being readjusted as incremental DEMAND...
3/...slows or wanes. If co’s just sold in ‘17+’18 their accelerated demand for ‘19+’20, their out years sales growth may slow.
IF they built UP expectations + fixed costs + debt (operating + financial leverage) presuming linearity—THEN they + their investors will be let DOWN...
4/ As example this happened w/ John Deere yrs ago when cheap financing + accelrated depreciation incentives...
...pulled forward DEMAND with farmers updating their tractors—-followed by a big drop off.
Same with autos + big ticket items.
When the hungry get sated—they rest
5/ The current narrative is changing from ABUNDANT growth across sectors (tech, China, autos) to SCARCE growth.
SCARCE growth will be VALUABLE—
—But the QUALITY of the growth (like quality of earnings) will be more valuable + scrutinized + matter more than ever.
You can follow @wolfejosh.
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