Week 13: Narratives, Decentralized Telecom & Valuations

Briefing: Narratives drive markets. Sometimes the news is so persistently negative that people forget that good news is possible. | The decentralized telecom network Helium raised $200m after growing its network of active routers by 128% over the past six months. | Valuations in US equity markets are at, to slightly below, the 10-year average.

Narratives

Narratives have a big impact on market prices. For the past two years, we’ve had to contend with Covid and the narratives that formed around how it has and will continue to change our lives. More recently, markets have had to deal with many challenging narratives: Fed tightening, inflation, Russia/Ukraine, supply chain challenges, food supply shortages, the mention of nuclear war and some fairly severe cybersecurity issues. This list is not meant to be scary. I’m simply repeating the major headlines of the past six months that everyone has had to digest.

Oscar drama was the most talked about story of the week, which is as normal as it gets. According to our indicators, equity price trends flipped to positive last week and we are now back into a range that would indicate “normal” markets. That doesn’t mean we won’t continue to have serious challenges. Recession narratives and the “everything is a bubble” narrative are marking their rounds, but it doesn’t look like the market is buying it. There will always be sensible reasons to be fearful. There can always be more bad news that impacts markets. Recently the narratives driving markets have been all-consuming. Below the surface, companies are continuing to innovate, build and sell. After so much bad news, sometimes people forget that good news is even possible. We feel that many of the return opportunities at this stage are attractive. As narratives shift to a more positive tone, rewards will follow.

Decentralized Telecom Continues

This week the decentralized telecommunications network Helium raised $200m at a $1.2 billion valuation. Helium is my favorite non-bitcoin and non-NFT crypto project. You can participate in the Helium network by purchasing a Helium router and plugging it into your wall to provide local network connectivity to nearby IoT devices (internet of things). It operates on its own blockchain system via a Proof-of-Coverage mechanism. Router owners are paid in Helium tokens which companies like Lime purchase to track and connect their electric rental scooters. There are 684k active hotspots today. When we wrote about them in November, there were 300k active routers. That’s 128% growth in less than six months. You can track the map and growth rate here.

The project’s goal is to decentralize network connectivity and have the users own the components and earn a return for maintaining the network. As a heads up, the routers are so back-ordered that you may not see one for 4-5 months.

Valuations

We’re keeping this section short and to the point because valuation can be debated endlessly. US Equity Markets are below their 10 year average PE. The lowest point over the last ten years was at the onset of Covid in March 2020 and the highest was in 2018.

If you look into each sector, nearly all of them are at, or below, their 10 year averages. Notably, semiconductors and software are back to their 10 year average. Software multiples have been elevated since the start of 2018 and today are close to the lows of March 2020. Valuations aren’t cheap, but they aren’t expensive either.