2022 was Really Weird

crypto, commodities, fed, vc, housing, and humans

What a year!!

As a quick update on me: Oh my goodness, this year has been a gift - thank you so much for coming on this ride with me. I have had the opportunity to interview Mary Daly, President and CEO of the San Francisco Fed (?a dream?), spoke at MIT, taught a class on crypto, appeared on Plant Money, Marketplace, Fast Company, and Bloomberg, wrote for the NY Times, and so much more. Thank you for being here. I am endlessly grateful for your support. Very excited for 2023 and please reach out with any thoughts or suggestions you might have!

This is going to be a more concept focused piece, with reflections on core ideas that I think¹ shaped 2022. The following three quotes are some of the most emblematic of what this year brought us -

• “It is easier to fool a man than to convince him he has be fooled” - Mark Twain

• "Panics do not destroy capital. They merely reveal the extent to which it has been previously destroyed by its betrayal into hopelessly unproductive works” -John Mills

• “One of the saddest lessons of history is this: If we’ve been bamboozled long enough, we tend to reject any evidence of the bamboozle. We’re no longer interested in finding out the truth. The bamboozle has captured us. It’s simply too painful to acknowledge, even to ourselves, that we’ve been taken. Once you give a charlatan power over you, you almost never get it back.” - Carl Sagan

I think that being fooled, unproductive allocation of capital, and continuous bamboozlement were unfortunately big themes this year - this was the year of scams, after all - but there are many golden moments to reflect on too.²

Crypto

This year, the crypto world came crumbling down in so many ways - from the emperors absolutely losing their clothes (SBF, 3AC, Do Kwon) to the ponzi triangle inverting (turns out you can just make up a token and assign billions of dollars in value to it, but you really really shouldn’t), and to the moon became a whispered rallying cry reminiscent of a different time.

The problem of the web3 spectacle was how far removed from reality it ended up being.

• Apes: Vitalik said it best “I don't hate apes, I just want them to fund public goods!” And that’s the problem. Apes don’t fund public goods. It’s a status symbol, a display of wealth, which is fine - but in a world that is teetering towards real world resource scarcity, the lack of intrinsic value became prevalent.

• Make money: The whole ethos of web3 was haunted by the ghost of “make money”. Everything became centered on greed, rather than participation. People didn’t buy NFTs for the art, they bought it to make money. And that’s really just a function of the ZIRPy world that we’ve been in, human nature etc etc - why not froth it up more?

• Imagination vs Reality: And! If the Fed isn’t going to print dollars - welp, crypto will for them.

The world economy was collapsing and people were buying ape land.

It felt almost like a dream state (and it sort of was - web3 was full of bots as most games were 50% bots!) It was an alternate dimension, where things were happening sure - but like, not really.

Reality caught up to all of us.

A land war erupted in Europe. Supply chains cracked in half. There were worries over food supply and energy resources. The Fed shook markets up from their stupor. And all the sudden, the half baked decentralized social web3 metaverse game token world shattered. web4 became commodities, not game tokens that could be manipulated by bad actors.

I still wholeheartedly believe in crypto - I think there is room to rethink our current systems, and its important to actively challenge how things work - but progress doesn’t come from punk profile pictures, it comes from helping people access a world beyond what they currently can. And crypto needs to return to that.

Commodities

This year was a wild year for oil! And turns out, oil trickles down to everything. Energy is the common denominator into everything that we do, so if oil goes up in price, so does our pain! Gas prices became a political signal, heavily influencing how people felt about politicians and the economy.

And web4 *really is* commodities.

• Tech who? It’s the new FAANG - fuel, agriculture, aerospace, nuclear, green energy

• Foundations: We can’t have a consumer tech driven world if we can’t keep the lights on, and a lot of people realized that this year.

• We are sort of stupid: But Anthony Lee Zhang said “as resources get cheaper, we find progressively dumber uses of them”. We have so much Stuff. Things are cheap, but its expensive to repair. We place a lot of value on Buying Things, so we end up Buying Too Many Things.

The world is very good at producing things, but things are not unlimited. Alternatives have to be in place, both in terms of energy production and how we grow the economy.³

The Federal Reserve

Expectations are all that matter. Jerome Powell summarized it best -

"No one expects that bringing about a soft landing will be straightforward... Very little is straightforward in the current context”

Yes! Very little is certain, and most things are just unknown.

Now the Fed is ripping, and the risk assets are tumbling - together. Because, turns out, risk assets are tied together for collateral, things aren’t worth what they used to be, and boy oh boy, things are dominoes. The Fed will likely continue to raise rates because they have credibility to protect. They were behind the ball on raising them, now they have to prove that they can *keep* raising them.

• Fed Cred is #1 always and forever: The most important thing that the Fed has is people believing in the Federal Reserve - and they cannot lose that.

• They are Fed Flexing right now: Even if maintaining credibility means spooking the economy into knowing who the boss is⁴

But for now, the Fed is facing the verifiable metrics slowing inflation contrasted against the heavy burden of Ego. Now, their main focus seems to be proving to all of us that they do indeed, got this under control - which ultimately, might make them lose control in the end.

Venture Capital

Oh man. I’ve written about misaligned incentives here before, but this is a weird thing because the incentives are quite misaligned. It’s all about high multiples, making money, and OF COURSE it is, but also this is meant to be funding our future? A lot of VC-backed companies end up being copy-paste hypecycle versions of things that have sort of worked before, and it creates a really weird vortex.

• What P really matters here? Powerpoints determine viable businesses, not profit, as Aaron Levie pointed out.

• VC is an important undercurrent: And of course the powerpoints are important - 20% of the largest 300 US public firms would not have existed or achieved their current scale without an active VC industry!

But as we’ve seen this year with SBF, Adam Neumann, and the fallout of others - the focus of the venture ecosystem sometimes ends up being on venture funds and founders, not on building enduring companies as Matt Slotnick wrote. And that’s not great. The incentives sort of make things feel gross. As Shannon Vallor wrote

The saddest thing for me about modern tech’s long spiral into user manipulation and surveillance is how it has just slowly killed off the joy that people like me used to feel about new tech. Every product Meta or Amazon announces makes the future seem bleaker and grayer… There’s no longer anything being promised to us by tech companies that we actually need or asked for. Just more monitoring, more nudging, more draining of our data, our time, our joy.

There is totally and completely a world where tech brings us joy again!⁵ I believe this! And VC and other Funders of the Universe have a big part in that process - and hopefully, the PowerPoints guide their hand kindly.

Housing

Mortgage rates went absolutely bananas this year.

Private equity firms nosed their way into mobile home parks, nursing homes⁶, student housing, etc in an attempt to find inflation hedges (because of course, students Who Are Historically Very Wealthy can afford rent spikes).

• The collapse of the American Dream: Our housing world is really weird because it was The American Dream - leverage up, get the picket fence, and roll out.

• And the red flags: But now, it is very difficult to get a home - buyers are frozen out because sellers aren’t budging, mortgage rates have absolutely skyrocketed, and home supply isn’t great. Housing supply is always the problem.

As Dustin Jalbert said “housing is in a very deep recession” and Edward Leamer wrote the wonderful paper Housing is the Business Cycle - a great paper that analyzes how important housing is to the economy⁷. Weakness in housing is a core part of recessions, and that’s mostly because the world is driven by *consumers* not businesses. Residential investment is important because *people are important*. And we are seeing huge red flags in our housing market right now - meaning that a soft landing might not be the base case.

• But we forget the importance of people at times! We forget that the world is really made up of people and that capital appreciation really isn’t the core point of everything, ever. People are what matters. Always.

Zooming out of all of this, making sure that everyone has a place to live should be really, really important to us.⁸ If more people have a place to live, then the economic wheels turn smoother, things run better, we have less fear and worry threading into our everyday actions!! Of course, some will mutter “ah, but the world is unfair, how could you say everyone should have a place to live” and of course the world is unfair, but that doesn’t mean we shouldn’t hope it can become better.

Economy

I wrote a lot this year about Vibecessions and asked “Do We Need a Recession?” because a lot of people were like “I can’t wait for the economy to crater so I can buy stuff on sale.” Which, okay sure, maybe.

• Maybe not: But also, if the economy craters, we all have a very big problem on our hands! Buying stuff on sale is easy when money is free flowing and jobs are abundant, but a bit harder when it isn’t.

• The semantics of a recession: This became confusing too, with it become synonymous with “I don’t like what is happening” and the whole a recession-actually-isn’t-2Q’s-of-negative-GDP-growth became a big talking point.

Everything stopped making sense.

• For markets

  • Bonds and stocks moved together which isn’t supposed to happen

  • Market fundamentalism where markets dictate policy as we saw in the U.K., became dominant - this has always been the case, but this year it was Very Much a Big Thing

• The structure of the economy:

  • In some aspects, this is very much built around millions of people going to an office 5x a week - and that has to evolve. People like remote work. The office industry does not.

  • How we think about labor (tech and finance layoffs versus continued hiring in construction etc) had to evolve too - more reliance on atoms vs bits.

We have underinvested in core parts of the economy, and we are paying the price for that now. It’s all fine and dandy to have flashy things, but the consequences of focusing perhaps a bit too heavily on grocery delivery and ape pictures is a bill that is coming due.

• There is also a funny-ironic side thread here - from Jareau “did Apple just privacy us into a recession?” The Fed is ripping rates, sure, but Apple is absolutely shredding up the possibility of innovation. They are wrecking the online ad industry! And our markets (the big bois of the S&P) are kinda weirdly reliant on ads! Therefore, Apple!

So the Fed might be ripping, but like, so is Tim Cook.

Human Behavior

One thing that was very striking to me about how 2022 unfurled was the constant anger that bubbled underneath the surface. As markets cratered, so did people’s hope. Nothing was working the way that it was supposed to in this new non-zero interest rate world. We were still dealing with after effects of the pandemic, shipping constraints, energy costs, and natural disasters like droughts, floods, and fires. A war unfolded.

• Doomerism became the salve for a lot of people’s anxiety - if you listen to people yelling about how bad the world is, it might make all of this feel a little bit better.

• After all, the key to success is convincing people you have the key.

• If you can overcomplicate simple things loudly, people will pay attention. Nothing is that complicated, nothing is that convoluted, but we often spiral into becoming too “clever” for our own good.

When things don’t make sense, when we don’t really understand what is going on but pretend we do, we make systems that trap us further. As Paulo Freire said “when education is not liberating, the dream of the oppressed is to become the oppressor”. And that seems to be happening in microcosms around us - I wrote about Tom Nichols’ thread on American psychosis a few weeks ago but this part is increasingly concerning

There is no bill you can pass, no social program, that will solve the problem of a dentist or realtor who has decided that life is just too goddamn dull and that they're gonna spice up their week by getting some tactical gear and cosplaying the Second Civil War.

And of course, there have been many pieces written about the psychology of the United States, including The Strange Disappearance of Cooperation in America, Why America Can’t Build, This Is How America’s Culture War Death Spirals, Patriotic Progress: National Pride and Optimism about the Future, and the very good Why the Past 10 years of American Life have been Uniquely Stupid.

It feels as though life has becoming increasingly fragmented.

There are elements of it which feel like we are being pushed towards a monoculture - streaming consolidation, less content (or content not getting renewed), less room for experimentation - and the irony of all of this is that now is the moment that we should be leaning into creativity and expression, right?

But the landscape is static, in a sense. And it’s odd, because aesthetic is inherently human inspiration. Beauty (and not pretty things, but true, striking, human spirit) is a virtue. But now, profit and growth have redefined how we interact with product.

Pretty much everything that makes life better and the earth more livable is not fucking profitable because what’s most profitable is causing problems and then selling partial solutions hope this helps

All of this goes against our intuition, right? It makes us uncomfortable to watch the same startups launch some website with the same gradient color scheme, try to sell the same products, try to convince us that This Meal Square is the Answer to All Your Problems. We want beautiful things - as Christopher Alexander said:

“Each one of us has, somewhere in his heart, the dream to make a living world, a universe”

Ivan Illich wrote about this in Tools for Conviviality, the idea that people *need* tools to work with them, rather than tools that for them. We need to be able to MAKE THINGS

People need not only to obtain things, they need above all the freedom to make things among which they can live, to give shape to them according to their own tastes, and to put them to use in caring for and about others.

And we try to do this! But it doesn’t always work.

Illich also talks about how we “are degraded to the status of mere consumers” as the power of machines increase around us. And there is a world where humans and machines grow together - AI can make humans smarter, for example - but we have lost so much in how our companies grow. Consumer culture wants us to consume - and that requires being glued to our phones and our computers, which is just not very good for us. Even the news that we read is “catastrophic and confusing” and “is not designed for humans.”

We are constantly getting riled up.

The worst part is the things that we are getting riled up about are often essentially figments of our imagination. They are real, of course, but there is whipped cream on top of them, fluff and froth to exacerbate each and every issue so we become reactive and angry and MAD.

This has created a very deep and prevalent sense of nihilism in Gen Z because we are constantly marketed this idea of Realness - but in the throes of the simulcra and simulation:

We live in a world where there is more and more information, and less and less meaning… What every society looks for in continuing to produce, and to overproduce, is to restore the real that escapes it.

In The Artist’s Way, Julia Cameron talks about how many people end up in fields *adjacent* to their real dreams, just to feel close to what they truly want. And of course, we can’t always get what we want - the world does not exist to serve our every desire.

But carrying that truth - recognizing where our passions are is really important. The more that we can say “ah this is what I care about, this is what my community cares about” the better that we can be! And of course, it isn’t easy. We have to find each other again, but in all honesty, that might not be the answer either. We are stories upon stories, and as Kazuo Ishiguro said

“But in the end, stories are about one person saying to antoher: this is the way it feels to me. Can you understand what I’m saying? Does it feel this way to you?”

It’s reconnection. As Norm Macdonald said “We are not superior to the Universe but merely a fraction of it”

To prevent more aphorisms and extrapolations, I will stop here. I’ll have another piece out next week reflecting more on the *events* that went down in 2022, but I think these thematics are important to pay attention to as well.

Thanks for reading.

Disclaimer: This is not financial advice or recommendation for any investment. The Content is for informational purposes only, you should not construe any such information or other material as legal, tax, investment, financial, or other advice.

1. *Think* is an important part of that sentence!

2. Here are my full notes for this piece!

3. Consumer spending is ~70% of GDP growth, and we started to see that rotate away from goods and more towards services, but man, we live in a high-waste, high-consumption Shein era that will likely leave bruises when we reflect on what happened in a few years.

4. If the market lets them, we all have to answer to someone at the end of the day, and if markets scream, Fed will likely listen

5. Of course, VC funds more than just tech but this is just one example

6. Yasmin Rafiei once read a piece that cited “when private equity buys nursing homes, death rates go up 10%” and published When Private Equity Takes Over a Nursing Home - a great read on what it really means to “make a bet” on people’s lives

7. He said that the goal of the Fed is to “make us happy” - with a focus on smoothing the business cycle, focus on encouraging productive work, limit the redistribution of wealth, and have a reality lens on the balance sheet.

8. And there are of course constraints like the excellent teams at John Burns Real Estate Consulting highlights in their work