The last article I wrote for the blog sounded an upbeat note for 2021, comparing the 2020s to the “roaring” 1920s. Since then we’ve a new strain of the virus, chaos at Dover, and the continuing Brexit drama, with no deal in sight.
All looking a bit bleak again.
However, some more thoughts to try and keep us smiling over the festive period.
Part of the reason for my optimism was clients reporting that there was a “lot of cash looking for a home”. Well, I’ve been looking at that a little bit more.
According to Refinitiv, 2020 has been a bumper year for raising finance. Initially, much of the money raised was “defensive” in nature (in April Carnival Cruise Lines raised $6.25b in debt, and Boeing sold $25b in bonds around the same time), however by the summer more business were raising finance presumably because they saw opportunity. The cash now held by non-financial firms is around $7.6t, up from $5.7t last year.
That’s an awful lot of “cash looking for a home”! Where will it find that home?
Bluntly, I have no idea, but there is one thing that’s clear – the pandemic, and the various lockdowns have driven innovation. Business have been forced to change dramatically, and people are beginning to realise that the things they thought would be “too hard” or would take too long are actually a lot easier than they thought. Change and innovation isn’t as difficult as we all thought.
So, we have a situation where businesses have lots of cash and are less fearful of new ideas and change….! I suspect some of that cash may “find a home” in technology and innovation investments!
And there’s something else.
Productivity is the engine of growth and prosperity. Doing more with less drives increases in income and living standards. However, since the financial crisis productivity in the western world has remained pretty static.
Economists debate why that is. However, one theory is that it takes time to work out how best to deploy new technologies effectively. Think about the “dot com boom” – everybody knew that the internet would revolutionise the world … but it took a while to work out how that would happen – hence the dot com bust. It takes time for businesses to work out how best to use technology and make the organisational changes that let them do it.
Well, the pandemic has forced our hand. There has been more organisational change, and technological innovation in the last year than many people expected in the next 5 years.
Now combine that, with all the “cash looking for a home’ and it makes you wonder if we are looking at a productivity boom in the 2020’s…..!
The more I think about it, the more I can see reason to be optimistic … and the more I want to learn the Charleston!
David Calder, Managing Director