what a most astonishing year is behind us, and what an exciting one has started. Deaf from all the corona noise around us, distorted from the constant media attention on Trump tantrums, and feeling imprisoned from the restrictions and admonishments by our governments with a profound impact on our daily routines, we tend to lose focus, while the financial markets are telling us, that all is great, and the party has just started. It is still unclear who will have to shoulder the corona bill which handed out trillions of helicopter dollars to citizens and corporations, the famous bazooka but this time on steroids, and loaded with the global “whatever it takes” bullets. All this additional cash will stay in the system, waiting to fuel an economic boom once the World will resume the play mode after the forced corona break, but will we really just go back to the past normal? Does it not already feel like nostalgia seeing movies where people party in restaurants without masks or travel around the world, and how banal is it to go to an office for work?
If 2020 was the year of pandemic firefighting, 2021 will show whether we (or who) will rise from ashes or whether we will simply rebuild old legacies. The world and all the main players and everyone will stand in front of a crossroad leading to a rapid boom or a descent into a painful recession. Arguments can be found for both directions, and luckily, we are not yet in auto-drive mode. While we tend to lean to the optimistic scenario, it might be wishful thinking too long for a 1920s style revival pushed by the astrological start of the Age of Aquarius or the ox taking over from the infamous pandemic rat with the Chinese New Year.
We have decided to abstain from bone reading and predicting the unpredictable, but to look into some of the factors and developments to watch out for in 2021, the factors that will play a decisive role in the global well-being:
- New Marx on the Block: very soon in 2021 discussions will start who will have to shoulder the corona bill, especially in the case that the economy turns sour and we will no fast outgrow the additional pandemic debt burden. The current spending spree of politicians will be difficult to reign in, so governments’ share in spending will stay high, in some countries above 50% of GDP. Together with the rapid redistribution and concentration of global wealth in the hands of a combination of old-boys networks and tech billionaires, the nasty erosion of the middle classes, and the growing barrier for the many to afford homeownership, we have a perfect cocktail for new socialism to rise with less freedom for the individual, intense government control and unseen levels of taxation. The targets are already clear: real estate, big tech, wealth and inheritance, CO2, imports. Luckily, so far there is no charismatic leader of the radical left around yet but watch out for the New Marx to come.
- Bad Debt Avalanche: In 2020 government aid programs, furlough schemes and state-ordered bankruptcy breaks were holding back a large wave of corporate insolvencies. All of these barriers will end in the late spring of this year. Next to the real business hit that many companies had to take, especially in the services industries, the pandemic led to turbocharged changes in industrial value chains, consumption patterns, and the digitalization of service offerings. Weak and slow competitors, zombie corporations that could survive so far in a negative interest rate environment will go down in a necessary wash-out of evolution, but the sheer amount will drive the financial system to its limits. This is in our view not sufficiently accounted for in current market sentiment and the existing amounts and level of corporate borrowing has all the potential to trigger a bad debt avalanche. In our view the biggest threat to economic development in the coming 12 months. Watch out for banks and lenders, commercial real estate developers and investors in retail/office/hotel, travel, and tourism, entertainment, on-premises retail, emerging markets.
- Techfrenzy: Rocket fuelled by a huge global liquidity surplus, accelerated digitalization in sectors from education to sports and the zooming of the professional work environment, and driven by a new generation of entrepreneurs, we might experience a huge wave of innovation and another shift of big money from old industries into technology. Academic and school education that experienced only marginal changes in their processes and systems are prone to see tectonic shifts in business models, curricula, and access or participation modes. The re-inflamed blockchain and crypto boom might be a leading indicator for things to come.
- Chinaphobia and the Wuhan Factor: For now, it looks like China is the big winner of the corona pandemic. First one out of the corona woods, infections under control, provider of support and vaccines to poor countries, and most important – economy already back on track; with Trump out of office, China is projected to become even faster and within this decade the economic leader of the world. But hold on. Will the rest of the world really just get back to normal and forget the virus lab in Wuhan. We don’t believe so. Once, the emergency state is passed, more citizens, states, and governments will want to investigate responsibilities and seek a scapegoat for the billions of dollars spent and apparent own mismanagement of the corona crisis. Combine this with a profound anti-China stance in the US, that will not pass away with the incoming Biden administration, but on the contrary, might be re-enforced by a joint US-EU axis. This axis will try to slow down China’s ascent, aggressively seek the truth on the virus origin, and ask for corona reparations. For sure, China’s appeal to the Western world has suffered.
- Climate Change Cartel: One of the first executive acts of the Biden administration will be a reversal of Trump’s exit from the Paris accords on climate change. In order to cement the progress in the environment and climate-oriented processes, we expect the pendulum to massively swing in the opposite direction of Trumpism, leading to intense rules, regulation, and taxation regime with the objective to change profoundly and permanently corporate and consumer choices for the sake of the climate. The EU, which has just voted to put climate on the top of its seven-year planning period, will greet this political agenda with open doors. And this newly formed climate cartel might soon agree on new corporate reporting standards, auditing, enforcement, policing, and even spying. The times of pollution go easy are definitely gone.
- RIP UN: Unfortunately, the UN bears more and more likeness to the League of Nations in the late 1920s. Ineffective, without impact, toothless, hugely politicized. From the covid crisis to the JCPOA on IRAN and Trump’s sanctions warfare on the world, and from climate change to the recent Karabakh conflict, the UN in 2020 had no say whatsoever in the resolution of any major global conflict. It is very unlikely that the UN will regain its post-WW2 position and influence. This unfortunately in a time of rising needs for conflict resolution and de-escalation.
- The Empire Strikes Back: One of the most interesting things to watch in 2021 will be the US response to the SolarWinds hack into US federal systems and Microsoft by assumed Russian cyber forces. In order to stay credible in the global cyber battle, the US will need to show the strength of the force and this even publicly. We expect a massive cyber attack on Russia by the US and its five eyes allies in the coming months.
- Game of Drones: The Karabakh conflict between Armenia and Azerbaijan has put the potential of drone and unmanned warfare into the spotlight beyond the known lethal surveillance and anti-terror operations of the US and Israel. Next to an unseen boom of the development and sale of weaponized drones and drone control systems, we expect this decade to be the final turning point from manned to un-manned military and lethal combat. The real-world Tony Starks (from Avengers) and their governments will hurry to develop, produce and market advanced drones, self-driving tanks and armored vehicles, underwater drones and androids, and the accompanying steering systems. An enormous industry on the rise. The succeeding nations might find themselves in similar strong political positions as the nuclear powers today.
Many additional and other things will be fruitfully watching this year, from the UK enjoying its new liberties as the not so hot single in the global village, the progress of the vegan food revolution, the post-Trump development of the GOP in the US, China’s military build-up or the development of the new halal-kosher friendship. Last but not least we will miss the Twitter tirades of @Potus, and it will be interesting to watch media outlets fill the sudden content vacuum. Luckily, there is hope for some political gossip in 2021: Paparazzi should most concentrate on a) Boris, as he needs to find a new best buddy and might soon post his profile in the political tinder game, b) on Ivanka preparing her senate run in Florida as NYC has turned sour on the Trumps and Kushners, c) on Vladimir’s successor following the granted lifetime immunity for himself and his friends and family (something Donald is craving for), and d) the inheritance battle in Germany to succeed Angela and become the most powerful leader in Europe.
We start this year with many positive vibes, hoping that the financial markets got it right, and see currently clearly more of the early 1920s than of 1929. But beware, we are also living through turbo times, so parties and hangovers might be time-wise closer tied to each other than ever before, and potential black swans there are many.
VI2 stands ready to support you and your organizations in profiting from these trends in 2021.
To all of you, a cheerful, successful, and healthy year 2021 with fewer masks, more freedom, and huge cashflows.
Dr. Marc-Milo Lube