We receive questions regarding economic and market risks going forward and the following thoughts are offered. No one can see the future, but the past is the best guide that we have.
When will this end?
The proximity of a vaccine or vaccines indicates that next year should be a recovery year.
What signs point to an economic recovery?
- Pent up demand as evidenced by the remodeling boom and evidenced desire to get out to restaurants as tables open up, among other signs.
- Many retail service businesses will, very unfortunately, close. But that is part of any major economic dislocation. Mainstay products and service businesses are experiencing significantly decreased demand but can weather though this period. That is especially true of those businesses that did not accumulate an inordinate amount of debt prior to the pandemic. Those businesses that did accumulate unsustainable debt are filing for bankruptcy, usually Chapter 11 which allows them time to reorganize, shed unprofitable location leases and get back into a more profitable configuration.
- American innovation is evident in creative ways to solve problems. An example is the purchase of a major bankrupt retailer by two large shopping center operators. This lease flexibility and financial backing will potentially allow the retailer to reconfigure for today’s marketplace and also allow the shopping centers to retain an anchor tenant to help hold the smaller retailers in place. Nothing is guaranteed, but this clearly illustrates innovative thinking and approaches to today’s problems. It personifies the American spirit and a guiding expression of the U.S. Marine Corps: Adapt, improvise and overcome.
- The unprecedented amount of money afloat in the economy is a motivating factor for sustainability and recovery. We will have to pay the bond holders eventually, hopefully through an increased GNP, but for now it will help keep us afloat. Here history continues to provide a guide. The last time we had this amount of debt to Gross Domestic Product (GDP) was after World War II. There was palpable concern then that we would return to the Depression. But the investment in the rebuilding of Europe and later the U.S. highway system put millions of people to work and spurred consumer spending. We grew ourselves out of that unfavorable debt ratio and instigated one of the best of our economic periods. Job creation and business on-shoring are planks of both party platforms in the current election.
Are there other hopeful indicators?
- This is the biggest one. Every calamity spurs innovation and this time is not different. Hotels, other travel related businesses and retailers will have to innovate. The work from home momentum will create winners and losers, but the net result will be productivity gains. New products and services will arise. Societal pressure will create new ways of looking at things and thus new markets. Look at the non-fiction best seller lists for examples. For historical perspective, look up the origin of the ball point pen and consider what it did to the fountain pen and school desk industries. Remember that we had ink wells in elementary school and then new desks were created. I could go on about other fun examples but you either are getting the idea or have already tuned me out, so I won’t.
What is so redeeming about this crisis is that we can see the other side and that science is catching up to what we need. Think how you felt in March when you thought you might not have a ventilator if you needed one. Now contracts for building them are being cancelled. We are moving on, slowly but inexorably, toward our future and it always has opportunity sown in.