Historically, there have been three great peaks: in 1929, 2000, and a third that reached its high last December. For Jainz, that process of reversion is now well underway. Inflation causes interest rates to rise, which then wreck the delicate fiction of a young technology company’s discounted cash flow (DCF) model, on which its valuations are based. Rising interest rates mean future earnings don’t look quite so rosy.
It means that $100 in the future is worth even less today than it was with lower interest rates. It’s not that the projections look less rosy, it’s that they’re simply worth less.
Another of Son’s big bets, Klarna, now looks like the biggest potential casualty of the crash. To critics it is little more than a payday loans operation, only one tapping into a market of borrowers the credit market spurned, for the very good reason they make rather bad debtors: impulsive Gen Z-ers. Klarna is racing to an IPO as its valuation crumbles.
Well, yes, the grand secret of banking. There’s no shortage of money to lend, nor of people to lend money to. There’s a shortage of people it’s worth lending money to though…..
Klarna’s USP is offering credit on a whim to the small fraction who don’t already have credit cards. Their problem is the lack of repeat customers, in a competitive market. It’s not a strong position.
Bagehot: “Banking is a watchful, but not a laborious trade.”
He knew a thing or two, did the Badger.