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Market Analysis

Unpacking Market Insights: A Candid Discussion with DCA Asset Management Team

09/11/2023

In a recent internal conversation, the team at DCA Asset Management shared some invaluable insights into the state of both public and private markets. With a blend of experience and varying perspectives, Tony, Luke, and Anthony discuss everything from currency crises and central banking policies to the shifting landscape in venture capital and private equity. Listen in to their conversation in the video below or read on for insights pulled from their discussion.


 

Tony’s Take: Public Markets, Currency Crises, and the Carry Trade

Imminent Market Volatility

Tony starts the conversation with a cautionary tone about the public markets. His outlook for the coming weeks suggests volatility, citing the currency crises of the late ’80s and ’90s, mainly involving Asian currencies like the yuan and the yen.

 

The Central Banks and the Yen

According to Tony, central banks may have underestimated the weakening of the Japanese yen. This could have a ripple effect due to the yen’s role in carry trades, leading to larger market movements, potentially even a mini-crash.

 

The U.S. Economy is a Buy

Despite these concerns, Tony sees this as a “heck of a buying opportunity,” noting that the U.S. still has the world’s strongest economy and currency, even with its unsustainable borrowing pace.

 

Euro’s Impact on Individual Economies

He also critically examines the Euro, stating that its existence has effectively eliminated control from individual economies over their currencies and budgets.

 

Interest Rates and Global Real Estate

Tony closes his section by arguing that rising interest rates aren’t a sign of a strengthening global economy but rather the result of, among other things, Asian countries selling dollars. He also warns of China’s precarious position in real estate and banking.

Luke on Private Markets: Higher Interest Rates and Less Money Flow

Impact on Venture Capital and Private Equity

Luke transitions the conversation to the private markets, highlighting that higher interest rates will likely result in less capital flowing into venture and private equity.

 

The IPO Drought

With the interest rate hikes, Luke also predicts a potential dry spell for IPOs and less M&A action, particularly in technology companies.

 

“Dead Unicorns”

Most interestingly, Luke warns of the potential for bankruptcies among high-flying companies, something described as the potential for “dead unicorns.”

 

Anthony: The Seed Stage Feels the Heat

Seed Round Valuations

Anthony delves into how the macroeconomic pressures have finally affected seed round valuations, citing a recent PitchBook report that indicated a 17% drop in median pre-money valuations for seed deals.

 

The Series A Crunch

He attributes this drop to Series A investors raising their investment criteria and less favorable conditions for seed-stage companies. As a result, there’s an uptick in extension rounds and overall pressure on seed round valuations.

 

Conclusion: A Time of Opportunity Amidst Uncertainty

Despite painting a picture of uncertainty, volatility, and pressure, the overarching sentiment among the DCA Asset Management team is one of opportunity. Whether it’s the belief in the resilient strength of the U.S. economy or the evolving dynamics in venture capital, the consensus is that savvy investors who can navigate these turbulent waters might be able to seize exceptional opportunities for potentially high returns.

In a world where markets are complex ecosystems influenced by an array of factors, having seasoned commentaries like those of DCA Asset Management’s team can be helpful to investors striving to make sense of it all.


*One of DCA’s guiding principles is that we will communicate with our investors and prospective investors as candidly as possible because we believe investors and prospective investors benefit from understanding our investment philosophy and approach. Our views and opinions regarding the prospects of investments and/or the economy are forward looking statements as defined under the U.S. federal securities laws, which may or may not be accurate and may be materially different over future periods. Generally, the words “believe,” “expect,” “intend,” “estimate,” “anticipate,” “project,” “will,” “may,” “should,” “plan,” or the negative of such terms and similar expressions identify forward looking statements. Forward looking statements are subject to certain risks and uncertainties that could cause actual results to materially differ from an investor’s historical experience and current expectations or projections indicated in any forward looking statements. These risks include, but are not limited to, equity securities risk, corporate bonds risk, credit risk, interest rate risk, leverage and borrowing risk, additional risks of certain investments, management risk, and other risks. We disclaim any obligation to update or alter any forward looking statements, whether as a result of new information, future events, or otherwise. You should not place undue reliance on forward looking statements, which speak only as of the date they are made.

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