Megatrends Post Corona Virus
INTRO
I have put together a random list of trends I believe will define how we live for some time to come. Overall perspective relates, in our personal lives, to less interaction with others and universal pervasive increases in online activities in every genre, supporting all the businesses providing these services.
This theme of less interaction will have a corresponding negative impact on wellbeing given that we are social animals. Wellbeing is also hugely impacted by the financial and health uncertainties all of us have endured. This has been with enormous personal and business pressures on many, which in fact, unfortunately, will also be long lasting, and disheartening if not very disturbing and depressing to large segments of the population. Ultimately, the American spirit, generosity and ingenuity will be supportive and prevail.
A massive consolidation in favor of big essential businesses at the expense of the mom and pop is now accelerating. And people will be consuming less, given the intensity of this experience and associated health and financial anxiety.
Societal increase in awareness of the equality amongst ALL of us (yes, we were all equally vulnerable), and enlargement of the political center will have positive implications for creating more balance, but there will be a dramatic increase in vitriol at the far left and far right.
My observations:
BUSINESS IMPACT
Decline in corporate travel
Decline in general and vacation travel, with more local focus.
Significant decline in air travel, creating significant oversupply of passenger jets, and decline in their price with negative implications for those in the business for years to come. Likely increase in the cost of air travel, given high fixed cost and fewer customers but reduced costs for plane users, such as cargo shippers like FDX and UPS.
Major decline in hotel business
Big negative implications for restaurants. Margins on remaining restaurants will decline significantly given spacing requirements, leading to higher pricing, by necessity, for the restaurant experience.
Decline in office commercial real estate and another death knell for mall and retail real estate.
Further consolidation in the retail industry with a continued tsunami taking out traditional retailing, in favor of online and dominant Amazon, Wallmart, Costco, Home Depot, Shopify along with selective food and pharmacy operators.
Increase in manufacturing in the United States and corresponding demand for manufacturing real estate. Huge trend for American self sufficiency in every arena.
Increase in capacity to meet demand with surge manufacturing capacity in appropriate places
Increase in at home work with less travel to office and fewer business trips, leading to increases in productivity and increases in margins, along with declining corporate campuses.
Increase in businesses based from home, so Shopify, (SHOP)
Increasing at home study — implications for prep schools, colleges
Increasing use of Zoom, Cisco video conferencing in business and in personal socializing.
Accelerating digital transformation, hugely supportive of tech’s increasing role throughout society.
Increase in focus on internet security
Increase in virtual medicine
On the margin, decline in use of public transport, namely busses, trains, planes, and Uber type sharing, in favor of private cars.
But overall decline in demand for new autos, given loss of income and that people will husband resources. Sales will increasingly be focused on smaller cars given lower consumer wealth and increased consumer conservatism.
Decline in PGM demand given auto sales declines and smaller vehicles as well as general decline in economy and slower growth until on the other side of this, likely years away.
Decline in gas consumption and major consolidation in the energy industry.
Philosophical increase in demand for alternative energy, but limited by lower energy pricing.
Interest rates will increase from current low .7% US Treasury 10 year rates, given essentially unlimited supply of new Treasuries.
Demand for US Treasuries will remain given safe haven quality of that asset.
Increased demand for hi quality, hi dividend stocks with strong balance sheets, strong leadership in essential businesses.
Current environment bad for banks, given more defaults, including credit card defaults, and the government management of the yield curve, BUT major US banks are financially strong, have a critical role to play and are attractive at the right price.
Increased cloud demand, benefiting Amazon, MSFT, Google, IBM, Alibaba
Increased stay at home, so more work at home, eat at home, play at home, learn at home communicate from home. Hence laptop demand, demand for chips AMD, NVDA, MU, and the “pipes” T and VZ
As much as this demand increasing, society consuming less, and ad business revenues relatively far below pre crash levels even as people spending more time on media, and thus a bigger audience for ads
5G even more important given increasing movement to use of technology, and need for communication efficiency around virtual meetings, documents, entertainment, etc. MRVL
With 5G comes increased demand for security solutions (CSCO), storage ie cloud plays, visual experience (NVDA, AMD chips)
Gold likely to be rerated substantially higher given, amongst many other reasons, unlimited printing of money.
People will treat themselves, so booze, Starbucks, home entertainment, takeout restaurant eating.
Increased focus on healthcare and major focus on healthcare/pandemic planning.
Increased infrastructure so Cat
Ag focus, so Deere, which also has a construction/infrastructure biz
Infrastructure also means communications infrastructure. So all associated tech companies and T, VZ.
Weaker dollar. dollars flooding market, and while still a safe haven, dollar will decline, benefiting gold
Capital challenges for emerging markets, where far less focus, leaving huge issues, problems, in health, business.
Increasing value of content, benefiting sports, even as stadiums are empty, and also benefiting existing entertainment content.
Until a vaccine is available and universally given, challenges for businesses involved with groups of people, such as restaurants, bars, movie theaters, performance theaters, sports stadiums, making those venues not feasible, or at best, with significantly increased spacing leading to radical change in the experience and the margins.
Attractive business investment themes — strong balance sheets, strong management, strong biz models, important biz segments.
POLITICAL
Trump loses, but not a Democratic sweep. Disgust with Trump’s dishonesty, finger pointing, terrible mismanagement of pandemic, (tho the Fed & Treasury along with Congressional and Presidential support have done an excellent job with financial support of the system.)
Broader demand for accountability in Washington, DC
Increased taxes, with major focus including taxing the rich.
Increasing political center, but far greater vitriol on left and right
Increasing xenophopia around the world and certainly in the US
Increased focus on national defense
Retrenchment of the US in fact significantly opens the door for China to exploit opportunities around the world.
SOCIAL
People will want to get out and party, when this is all over, but this will still be very different than before the crisis, given restrictions and concerns that will remain in place.
Less interest in urban, so greater focus on suburbs and “de-urbanization” amongst those who can afford to move, with big cities viewed in part as petrie dishes
Planes and all confined and crowded spaces also viewed as petrie dishes
Increase of desire among a broader segment of population for sharing, equality, helping workers.
Societal trends will include indulgence in comfort, a new normal, intimacy and authenticity (watching CNBC anchors broadcasting from their homes creates bonds with viewers), zoom parties.
A new sense of pride felt by workers on the front lines of this crisis, from grocery store to sanitation AND importantly, an appreciation by all of us of the work being done … perhaps the beginnings of becoming a more overtly appreciative, respectful society.
Increased sensitivity to health exposures, so face masks, distancing, and by necessity, viewing everyone as potentially toxic, which unfortunately drives a wedge between the social tendencies of the human animal
Increased distrust, given surprise of the virus crisis, its impact, and dishonest leadership in Washington. This will have a depressive, negative impact on wellbeing and confidence. But ultimately, the American spirit and altruism, kindness, team work, self sacrifice, ingenuity prevail.
Increases in insolvency
Social mood involving less tolerance of authority with everyone “having it up to here” with required behavior due to virus limiting freedom of choice (even as most make that choice gratefully).
Big structural shifts, involving less use of labor
Quick recovery wont happen as damage too deep but forcing a significant shift towards a real social safety net.
INVESTMENT THEMES
Now owned: Cash, Gold, Gold stocks, SBSW, KL, CSCO, PFE, T, HD, COST.
Shopping list: Amazon (retailing, cloud), Shopify (retailing, small home biz), Advanced Micro Devices AMD (chips), Nividia (chips), Deere (agriculture and infrastructure). UPS (benefiting from home focus, and Carol Tome new CEO), Honeywell HON (capital goods), Raytheon Technologies RTX (defense), Wells Fargo WFC (great new CEO, others from JPM), Chevron CVX or Exxon Mobil XOM
FINAL THOUGHT
Preconditions for moving forward include universal testing and monitoring, therapeutics, and a universal vaccine… and all will take time.
