Fintech Expert Eugene Plotkin Talks Recession
A global recession feels closer every day. After weathering the financial shock of the Covid-19 pandemic, the Russia-Ukraine war sent the world’s supply chains into chaos that is still not contained. To make sense of what this means for markets at home and abroad, we caught up with Fintech expert Eugene Plotkin.
“The scenario we’re seeing right now is the hardest one to deal with,” he said. “Prices, interest rates, and unemployment are all going up, meaning that everything costs more just as people are making less.”
Eugene Plotkin made his name as a high-level investment banker with Goldman Sachs, where he developed an acute sense of the ups and downs of financial markets.
“Right now, the risk of recession is a lot higher than anybody likes to see,” Plotkin says. “Supply and demand are both down, the consumer is on the run, and companies are more focused on cost-cutting than ever. At the same time, governments are hamstrung by inflation and cannot cut checks as they did during the pandemic.”
According to Plotkin, policymakers and businesses have learned from mistakes that led to the Great Recession, but this new environment presents a fundamentally different set of challenges.
“We have seen trillions in value wiped away in a matter of months,” Plotkin says. “Right now, companies have to focus on cash flows rather than stock price. Given the problems with supply chains and the drop in consumer demand, companies must retain a buffer to survive.”
Adding to the complicated picture is the boom that many economic sectors received during the pandemic. When consumers were stuck at home, flush with stimulus funds and eager to spend, money flowed freely and created multiple bubbles according to Eugene Plotkin.
When spending slowed, reality hit. Some companies that did not prepare properly for a return to normal life saw their valuations plummet. The last few months have been an unpleasant wake-up call for many startups and early ventures that took too much investor money and spent it quickly, Eugene Plotkin notes.
By way of example, he points to data showing that many Fintech companies are experiencing a market correction.
“Many of the recession risk factors come from a confluence of government actions, corporate decisions, and geopolitical events,” Plotkin explains. “We saw it from both private and public sectors. When supply chain issues led to product scarcity, more than a few companies exploited the situation and raised prices. At the same time, some government efforts may have rewarded consumers too much and boosted spending power to the point that inflation was inevitable.”
As consumers face higher interest rates and energy bills, spending habits are changing quickly. Fewer Americans have the extra money in their checking accounts at the end of the month and more report they are not making progress toward financial goals like saving for education.
“People aren’t spending as much and are certainly not investing, which limits the amount of money businesses can use,” Eugene Plotkin says. “Startups, whether in the Fintech space or elsewhere, must adapt.”
Economists have been increasing the risk of recession. Eugene Plotkin’s advice is to keep a sharp eye on the markets over the next few months.
“The most difficult markets offer the best investment opportunities,” Plotkin explains. “You don’t have to time the bottom, just conserve your capital on the way down and be willing to invest on the way up.”
