Plum Alley Investments — It’s a Wrap!

Look Ahead 2022: Fireside Chat with Michael Cembalest, JP Morgan

By Andrea Turner Moffitt

On Wednesday, December 1, Plum Alley Investments hosted JP Morgan’s Michael Cembalest for a conversation on where the US stands now in terms of infrastructure, inflation, supply chain challenges, climate and investment, and what is on the horizon for 2022. As a venture firm, we are always following the greater market trends and considering the implications and opportunities for our portfolio company founders, as well as our investors and LPs.

Art by Louise Kushner, Plum Alley Investments

Michael has been with JP Morgan for 34 years and now serves as Chairman of Market and Investment Strategy JP Morgan Asset Management. He also has an incredibly in-depth podcast called Eye on the Market where he shares his insights on a monthly basis. We had a great conversation ranging from the crisis in shipping to inflation to venture. Here are our exciting takeaways for the year ahead and a highlight video here.

• 2021 Exceptional Growth: This year has been marked by the arrival of mRNA vaccines, low interest rates, free flowing money supply and strong earnings growth. The reopening had a tremendous boost on earnings for companies. Spending has also shifted dramatically, and while consumers cut back on experiences, Americans invested heavily in their homes, cars and other goods leading to the generational supply chain shortages we haven’t seen in the US in decades.

Andrea Turner Moffitt, Plum Alley Investments; Michael Cembalest, JP Morgan

• Supply Chain Relief: 2022 should bring some relief in certain areas of supply chain shortages. Michael shared his prediction that things like semiconductors will benefit from capacity investments with expectations for those to come on line by early summer. As a result, the US and European GDP will get a boost as supply shortages eventually dissipate, and as inventory levels are rebuilt from very low levels, relative to sales. The US should also see a boost from the US infrastructure and reconciliation bill spending.
• Labor Challenges Ahead: The US will still face challenges with labor shortages moving into next year attributable to a COVID-driven surge in retirement, declining immigration and the fact that the US has one of the largest unvaccinated populations in the developed world. There is also a growing mismatch between those workers looking for work and the more highly technical jobs in high demand for being filled. We spoke briefly about Plum Alley’s portfolio company Bitwise Industries, which is doing its part to train the next generation of technology workers while rebuilding economies across 2nd and 3rd tier “underestimated” cities in the US.

Image: The Guardian

• Ports Present A Nagging Problem: The US is not winning any awards for the efficiency of its ports. Michael shared some eye popping stats highlighting that the LA and Long Beach ports rank #328 and #333 in the world in the IHS/Markit Container Port Performance Index. Importantly, CA is the gateway for most of the country. But, other US ports are not much better. The low rankings are reasons related to working hours, resistance to greater automation, labor costs, Customs Office weekend closures, etc. We chatted briefly about our portfolio company Einride — in hopes that their electric and autonomous freight technology platform will play a key role in helping to create greater efficiencies and sustainability through the US transport system while also helping to create new jobs. A notable highlight: Einride just hired the first autonomous desk truck driver in the US. And, she’s a woman — check out their US launch video.
• Inflation Highs: Powell is No Paul Volker: Michael shared some fascinating statistics and a good history lesson around inflation. Some numbers are up as much as 5x; levels not seen in the last 30 years. While the Fed expects the current level of inflation to be temporary, Michael predicts that the real interest rate may not catch up to inflation to reach a stabilizing level until the end of 2023.
• The Outlook for Valuations and Private Investments: With the prospect that the Fed will be slow to raise rates, the money supply will still remain relatively high historically, leading many investors to continue to look for yield and growth in areas like private investments. Michael highlighted that large state defined benefit plans are actively deploying more capital into private markets, including venture capital, as they seek to earn greater returns to offset their liabilities. Slow rising rates may have some impact on valuations. But, he shared some anecdotes on why in his view the market is very different from the Dot.com bubble in the early 2000s. In today’s market there is a higher percentage of companies representing real businesses with meaningful revenues and earning potential.
• Venture Capital Having its Moment: Michael highlighted that there is nothing better to demonstrate the value of innovation and venture capital than the mRNA vaccine. Years of investment, innovation and research have led to tremendous impact and growth for those companies and investors that have served as leaders in bringing the vaccines to market at warp speed. We see this in other areas of innovation as well with tremendous opportunities to invest in growth and positive outcomes as we consider the opportunities around climate innovation, retraining workers, digitizing and modernizing industry, building food systems for our future, breakthrough medicine and ensuring we build equitable economies for all.