Recession Navigation

Welcome to Edition #2 of my monthly newsletter! You're receiving this exclusive email because you've referred at least one reader to Payload. I still need to come up with a better name, so by all means...suggestions welcome.

The macro markets are still incredibly depressing, so it's worth spending another month's post on how to navigate them.

Recession Navigation

I have the honor of being a guest on my company's own podcast next Tuesday...I wonder how that happened. But seriously, when Ryan Duffy (Payload's fearless managing editor) asked me to come on and discuss the macroeconomy, I couldn't resist. Since you're a loyal Payload reader and referrer, not only do you get early access to the deck, but I'm going to walk through the crux of the presentation in detail, and explain why it may be relevant to you.


In April 2019, Bloomberg Businessweek published this cover:

At the time, the annual CPI rate stood at 2.0%. Today, it's at 8.6% — the highest reading since Dec. 1981. Our first lesson? Some magazine covers can have a much longer “shelf life” than others.

The June CPI number is scheduled to be released on July 13. It’s a critical date that I'd mark on your calendars. If the number comes in over expectations (currently @ 8.7%), then you’re likely going to see another leg down in equity markets as it would imply that the Fed must continue hiking rates.

Two weeks after the June CPI print, we're going get the Q2 GDP number. Why is that important?

Recall that Q1 GDP growth was -1.6%. The technical definition of a recession is two successive quarters of contractionary GDP growth. If that Q2 number comes in <0.0% then the US economy will be in a technical recession. And BTW, the Atlanta Fed GDP model estimates GDP growth in Q2 2022 to be 0.0%. In other words...we’re looking a bit like Icarus and flying real close to the sun. Why does all this matter? Because it affects sentiment and ultimately dictates how much consumer and investors are willing to open up their wallets.

Consider also...

  • The June University of Michigan Consumer Sentiment Index reached an all-time low for the survey.

  • Conditions across car-buying and home-buying (also U. Mich surveys) have fallen off a cliff and are at 10-year lows

  • We're in a global food crisis. For the first time since 1972, both food and energy prices are rapidly increasing simultaneously. Wheat prices alone are up 45% this year, while global food costs are up 50% from mid-2020.

University of Michigan - Survey of Consumers | 06.2022

UN | 05.31.2022

  • The average stock in the NASDAQ, Russell 1000 Growth Index, and the Russell 2000 Small Cap Index is down 40%-50% from peak levels.

  • Chinese internet stocks have fallen 70% and now match the NASDAQ decline from 2000 to 2002.

  • We're witnessing a systemic failure in crypto markets, led by the collapse of Terra Luna.

  • IPO liquidity has fallen off a cliff. 2022 will not be another year of the unicorn.

Bloomberg | 06.29.2022

  • In private secondary markets, we're witnessing a record imbalance in seller supply vs buyer demand (i.e. there are more investors looking to sell out of their private company positions than buyers looking to add exposure).

  • In many cases, sellers don't want to accept the reality of where their positions are trading. Notable 2021 growth rounds such as Instacart, Epic Games, Klarna, Chime, FTX, and Gopuff are all down 30-50%. In Q1, only 5% of VC funding rounds were down rounds. This will definitely change.

  • Interestingly, the most actively traded sector in private secondaries was Aerospace & Defense (A&D), which we suspect is driven by SpaceX transactions.

Forge Global | 06.29.2022

The nature of this recalibration

Because of inflation, we can’t look to traditional mechanisms to support the market. In past crises, inflation provided a great backdrop for central banks to utilize monetary tools in response to market volatility. This is not possible today and we can’t expect a V-shaped recovery.

We are experiencing something never seen before in all of financial history—the deliberate bursting of a bubble by the Fed. The Fed’s dual mandate is “maximum employment, stable prices, and moderate long-term interest rates.” Because inflation is running too high for central banks to focus on anything else, a critical safety-net for stocks has been wiped out.

The key water mark to watch is when inflation peaks (IMF expects it to happen this summer). That will tell us if equity markets have bottomed as it will indicate how much central banks will ultimately have to tighten.

Digital vs Real World

The repricing of “real world” vs “digital world” assets is becoming increasingly clear:

  • Real world = companies linked to energy, mining, ag, and A&D

  • Digital world = companies linked to software, fintech, cloud computing, social media, crypto, and gaming. In other words, it's the Millennial (or maybe metaverse) portfolio.

Bloomberg, JPMAM | 06.23.22

Effectively, products directly tied to US infrastructure are catching a significant bid. The clearest example of this is the A&D industry.

The realest of the real: A&D

In the midst of the macro turmoil, a bright spot in terms of market performance has been A&D. As of June 29, the DJ US Aerospace & Defense Index has outperformed the S&P 500 by 23% and NASDAQ by 32%.

  • The conflict in Eastern Europe has accelerated both defense spending and the race for space dominance.

  • We've seen a breakdown in cooperation across launch services, spaceport usage, engine sales, and the International Space Station (ISS).

  • Global military budgets are increasing substantially particularly in Europe.

  • Congress is likely to approve the largest-ever NASA budget request of $26B.

BryceTech Startup Space Report 2022

But it certainly still is a tale of two cities. The SPAC market was initially considered by many as the catalyst for space economy investing, as it created liquidity for a sector that historically did not have an obvious path to exit.

Instead, it created poor incentive mechanisms that allowed for misguided behavior between management teams and investment banks. Companies that were still in R&D phase or stage of growth where market demand was still unproven went public and the result was expectedly bad for the companies and investors (but not for the banks).

Bloomberg | 06.29.22

What's next? Likely consolidation. Many companies went public too early in their lifecycle, failing to realize that as a public company, forecasts need to be met or your stock price has to reflect the new realities.

New Space realities

Anton Brevde, partner at Prime Movers Lab, recently wrote a great piece titled "2023 Will Be the Year That the New Space Bubble Pops," highlighting how "the glut of inbound capital has exacerbated the core systemic risk within New Space — the overfunding of startups with highly speculative business models at unsustainable valuations."

He goes on to highlight how New Space startups have been selling to each other via the use of bookings (future revenue that is yet to be recognized) as a milestone to raise additional funds.

Brevde brings up an important point: in that the last few years we raised records amounts of capital in space, which led to speculation on products that required one or two 1 or 2 additional layers of the space economy to develop in order to achieve business model viability. Is it a satellite imaging business that can launch and immediately generate revenue from customers? Or developing gas stations in space that require there to be a robust economy of satellites that have traveled long enough to actually now need more fuel? The companies that can generate real paying customers today are the ones that have the best chance of navigating the fundraising vacuum we're in. If you fall into the 2nd or 3rd order business model and you don't have 12-18 months of runway, government contracts to bridge the gap to commercial orders will be critical.

For investors, the below chart of the number of unicorns founded by founding year is worth highlighting:

Pitchbook | 12.31.21

Funds that deployed capital into a recessionary period were rewarded by significant returns in the form unicorn creation. Even though that was a period of near zero interest rates, 1.75% is a far cry from the historical average (since the 70s) of 5.5%.

The space race will be the biggest technological contest of the decade

Despite the challenging macro backdrop, the global space race is still one of the greatest-growth opportunities of this decade. Space exploration and discovery were historically led by the U.S. and Russia. Now, there are over 80 countries with active space programs aiming to generate economic returns.

China’s progress in developing space technology is unmatched. The country launched the first astronaut into space in 2003. Since then:

  • China became the first country to land a probe on the far side of the Moon, the second nation to land a rover on Mars, the third nation to successfully bring lunar soil back to Earth, built the world’s largest telescope, deployed Beidou (a next-gen competitor to GPS), signed an agreement with Russia to jointly build a lunar research base and is second only to the U.S. for the number of satellites in space (363).

  • What’s next? China will complete its space station later this year, aims to soon launch two mega constellations of 13,000 satellites, send crewed probes to the far side of the Moon for exploration and asteroid mining, and land humans on Mars by 2033.

  • AND the Chinese government estimates a $10 trillion-per-year return on investment from its planned activities in the Earth-Moon economic zone by 2050.

The space race is just getting started.


  • We will see a near-term shakeout in the industry (and that’s healthy), but it will pave the way for more efficient business models.

  • Space militarization is becoming a priority in a race for technological supremacy.

  • China’s rise in space technology is an increasing military threat for the U.S., as the country does not separate its commercial- and defense-related space activities.

  • The U.S. will have to significantly increase funding and prioritize its space strategy to retain leadership.

  • If you’re looking for inspiration…go watch “For All Mankind

Largest Space VC Deals - June 2022