The post-pandemic world is being second-guessed by cautious investors

Before we look at the post-pandemic world, let’s look at where we are today. China and Korea may be post-pandemic already while in Europe, except for the UK, countries seem to be on the downslope with some cautiously opening. Chaos reigns in the US. Everywhere, vaccines seem to be still many months away from general use. This patchy situation leaves everyone, not least investors, very uncertain and is seen most clearly in where people are putting their money. Investor sentiment is sometimes (not always) a reasonable way of gauging future directions of the planet.

Right now, investors are expressing their uncertainty through their preference for cash-like instruments. Gold is heading towards the August 2011 50-year high of around USD 1,825 an ounce and, despite the US chaos, the US dollar’s de facto status as the global reserve currency is keeping it strong. Even with the strong dollar, Bitcoin is back to well over US$ 9,000.

“Cash is king (or queen)” again.

The story on Bloomberg is that Asia is the place to be for investor value, especially given the growth opportunities and the fact that a number of countries in that area are in the post-pandemic phase. But we are more interested in the industrial sectors – it is here that the future of our world is being written.

In an earlier post I talked about the increasing trend towards digitization now that the enforced home-working and virtual education has become part of our daily lives and has been found to be at least acceptable and, in some aspects, even preferable to traveling to work and school. While it is not going to work for all organizations, jobs, or schools, certainly not all the time, enough people have seen enough benefits to want to continue to some degree. 

When Twitter CEO Jack DORSEY tells his almost 4,000 employees that they can work from home permanently, we know that the world has changed. When Warren BUFFETT, CEO of Berkshire Hathaway (ranked 3^rd on the Fortune 500 largest US corporations), sells all their holdings in US airlines we can be sure that the old ways of traveling, especially the profit-producing business travel, are not going to return any time soon, perhaps never. 

Corporations hit by the COVID-19 lockdowns are going to be looking closely at their costs: employees, offices, travel, . . .

Employees: Many firms have ‘let people go’ – a namby-pamby euphemism for firing people. Will they hire them back? Probably not in the same numbers, and probably not all on the same contracts. Will they push the already established trend of employing people on short-term, or project-based contracts? Will they outsource more noncritical functions? It’s a fair bet. They have seen that many of the firms’ business operations can work fairly well with home-working, so why not continue?

Offices: Prestigious city-center offices have long been a status symbol for many firms and seen as necessary for attracting the best people. With cash-drained Balance Sheets, are they still a necessity? I don’t think so. Many CEO’s will be asking themselves, “If we are not dragging people into the city-center every day, certainly not in the same numbers, do we need an expensive towering edifice?”  In the ‘old days’, many people favored the city life because of the theaters, restaurants, stores, and the rest. Will they want to face the risk of infection by being is these crowded places again? If not, then the lure of the city will be less strong. We can only guess the knock-on effect of these seismic shifts in the real estate markets and probably on personal vehicle sales; not forgetting the on the big stores now that home-delivery has become a new normal.

Travel: Having proven the viability of holding effective business meetings over Zoom, Skype, Meet, etc., and given the paucity of cash and profits, first- and business-class trips are likely to be severely reduced. Such ticket-sales are the lifeblood of airlines, and room rentals to these travelers keep many hotels operating. A reduction in demand will have a major impact on profits, even on the viability, of many travel-related organizations. Add the probable reluctance of intelligent people to congregate in crowded areas – such as aircraft and resorts – and you have the likelihood of a massive change in the fortunes of many travel and hospitality-related firms.

So, an interesting narrative but what are the financial analysts saying? In a recent excellent 85-page report, ‘The World after COVID Primer’, the Bank of America’s Securities global research team carefully analyzed the economy sector-by-sector, characterizing each according to whether they would be a beneficiary of, or would be challenged by, the pandemic.

Work and employment-related: a shift towards consumer staples and away from discretionary items such as cars, clothing, durables, luxury items, travel, and hospitality. On the work-from-home front: towards telco providers, new media, big tech, and away from old media (theaters etc.).

Offices and real estate-related: away from offices, shopping malls, and hospitality venues, and towards data centers, telco towers, rural and multifamily dwellings, and e-commerce facilities. With millennials more likely to rent than buy (out of necessity or life-style preference) housing and construction industries may well be further stressed. Further, in the ‘financials’ sectors, the decline in the number of bank and insurance branch offices, following the digitization trend, could put even more pressure on real estate prices.

Folks, this is just a glimpse at the post-pandemic world from my perspective. For more, especially on the critical education sector, look for future articles.

An article from the HBR: What will the work-life balance look like after the pandemic

Here

The impact of the pandemic, and after, on the oil industry

What do the crude oil prices tell us about long-term oil demand?

During the week when OPEC and Russia seemingly agreed to a 10% cut in production, oil prices continue to fall from US$ 27.30 to levels not seen since 2nd January 2002. Is this a harbinger of things to come? In my previous post, I mused on the possibility that our enforced home-working habit may have more permanent implications, not only on our own work but on our need to commute every day. Do we really need to get on a plane for a business meeting in another city or country? And, if we don't, what will be the knock-on effect on our demand for transport systems: private cars, aircraft? And, if we don't need these, will the demand for crude oil and its derivatives remain low?
Throw into the debate the, very proper, demonizing of plastics, to further exacerbate the drop in demand.

If so, what will be the effect on those economies that rely heavily on oil: Russia, and many countries in the Middle East, even the US's own WTI production where I understand that the cost of production in fracking is about US$25 a barrel - with prices around US$20 a barrel the implications are clear. However, those countries more reliant on oil revenue may see a rapid decline in fortunes. Will this have social implications? Many of these countries are effective dictatorships today; will their populations standstill when the money runs out?

Not all countries have followed the examples of Norway - with a sovereign wealth fund worth over US$ one trillion (US$ 195k for each citizen), or Dubai - which has developed a world-class service center in the desert.

Questions, questions, speculation, speculation. Let's have your ideas (comment section below).

P3Musings - what's it all about?

To unpack the blog's title: P3Musings = Pope's Post-Pandemic Musings.

Sitting in my room/office here in the village of Valbonne, France, in a house built in 1519 - the year of a pandemic in South America; Martin Luther was debating papal authority in Leipzig; and in China, a Ming Dynasty general put down the Ning Rebellion merely by threatening to use a French-derived simple cannon-type device - it is hard not to be a little philosophical about the future.

In such surroundings, I began to reflect on the world today and wonder what the world will look like after the COVID-19. Looking at the events that occurred during the year in which my home was built, those seemingly innocuous events were a foretaste of massive changes to come: the invasions and, mainly (we hope) unintended, genocide of the native populations of the Americas; the beginning of the end of the Pope's Western world domination; and the increasingly destructive wars of the future.

So, what will our world look like after the current pandemic? Looking at what we know now, this virus not going to slowly die away so that the world can go back to where it was. The threatened opening up of countries previously in lock-down is already having serious consequences: in Harbin, China, a substantial proportion of the Chinese citizens returning to their home from Russia are infected, risking a resurgence of infection that seemed (at least according to Chinese official media) to be under control. Further, it begs the question: if so many returning home are infected, what is the real infection rate in Russia itself?  Further, it warns us that pre-mature opening might lead to major re-infections worldwide at a time when political leaders are pushing to restart the economies that keep them in power. But, opening-up will happen, no doubt a long time before effective vaccines become available to the general populations around the world. Then what?

And, when vaccines are available, to whom will they be applied first. Will the less developed countries be last in the queue - as always? In the meantime, what will happen to their already devastated economies? Will they become even more vulnerable to take over by local, or foreign, dictatorships? Or, will they be even more vulnerable to resource-grabbing economies more powerful than themselves.

On the home front, for us in the developed countries, will our enforced change of habits to working from home change the way we are prepared to work in the future? Companies, individuals, even schools, are discovering that online working has its benefits. So, if we can work from home, do we really needed to commute to an office or a school every day? If we don't, then why do we need big expensive offices in city centers? Do we really need a car, or can we manage with the occasional Uber or pubic transport? If that is the case, what does this mean for the car industry?

Do we really need to shop or, as now, get much of our usual stuff delivered? And, if much of our stuff is being delivered, do the retailers need big, bright, expensive shops?  Taking all of these, do we really need to live in a city - to make daily commuting easier - or can we live anywhere?