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While the English-speaking media focuses on the eurozone, people who live in glass houses shouldn't throw stones. The US and UK are showing signs of terrific strain as well. I believe the euro hasn't dropped more precipitously because the pound and dollar are also weaking - almost in step with the euro. It's too easy to predict another worldwide fiscal meltdown but there are many reasons for concern in 2011. Inflation remains high in Britain (+3% and rising), mortgage lending and housing prices are both down, and unemployment is stable to worse. The situtation stateside isn't much better. Although inflation is tame (for now), housing remains unstable, unemployment is high, and the US trade deficit continues to drift higher. I also believe that most western governments are falling into the same trap: high deficits; high unemployment; and debt-fuelled spending reported as growth. Without structural reform, growth is impossible.
Every crisis has its flashpoint and I believe we've reached a watershed with Twitter. It's feeling a bit like 1998 again as the company was valued at a staggering $3.7 billion while gross revenue is around $50 million. Even if we assume a 50% profit margin (approximately $25 million/year in EBITDA), the company is worth a jaw-dropping 148x earnings. We've been down this road before: a free service with lots of users; large scale investment by a venture capital firm; and no real revenue model. Everyone says this is a new era because Facebook is making money. However, as a private company Facebook's revenue estimates are likely inflated and assuming $2 billion in 2010 revenue and 500 million users, that's just $4/user. Like Twitter, it too has a shaky business model. Facebook gives away its service and is dependent upon an under 35 crowd to update their pages to keep it fresh. A free service, fickle clients, revenue based on ads - we've seen this model crash and burn before. Despite my doubts, Facebook is valued at $50 billion or more than 50x earnings assuming a 50% margin. It's feeling a bit like the dot.com heyday of 2000 all over again.
While the economy can stand a tech crash or two, I submit the entire US economy is a bit like Facebook or Twitter. The US has its own reckless investors (China) fuelling bubble-like valuations, tax revenues are dropping, and there is little to no prospect for creating meaningful income. While it's easy to simplify, little has changed structurally in the United States or Britain since the crisis of 2008. In fact, things are markedly worse. Soverign debt has exploded, unemployment is higher, the US is still fighting wars in both Afghanistan and Irak even though the latter conflict is said to be over. Rather than reform the US megabanks or force a restructuring of the mortgage industry, the Federal Reserve shoveled money to banks around the world and nationalized shaky debts by shifting liabilities to its own balance sheet. In an era of near zero growth, the Fed has taken to printing money and buying US debt to prop up the economy. The flashpoint was I believe the reckless political decision to extend the Bush-era tax cuts. Like the market's 148x earnings valuation of Twitter, the US government has lost touch with reality.
What does all of this mean for Spyns Tour de France clients? The United States is perhaps better at masking is yawning fiscal problems, but Europe and the euro will likely decline in the first quarter of 2011. This will result in a favourable exchange rate but the respite will be short-lived in my opinion. Mid to late 2011 will be a watershed year for the the US economy and the world.
Spyns is an active travel company based in Whister, BC (Canada) and Beaujolais France. Spyns specializes in Tour de France packages for both riders and non-riders. We specialize in providing clients with Tour de France bike and non-biking packages with Paris grandstand seats and VIP access. Spyns offers active holidays to Europe including trips to the 2011 Tour de France. For more information about Spyns 2011 Tour de France tours, please visit http://www.tdf-tours.com/ or http://www.spyns.com/. You can also call us toll-free at 1.888.825.4720.
