Roughly two months in from the actual confirmations of COVID-19 starting to spread across nations and was declared a pandemic here are my thoughts on the future.
Neither represent my employers beliefs nor are they based on research. These are my opinions based on intuition and an attempt of connecting the dots I suppose.
- The crisis have gone from a crisis to a new normal
- This new normal will have significant long-term impact on economic models and behaviours
- I am starting to think 2-3 years out rather than 3-9 months.
What is the new normal (1)?
New behaviours across all social demographics and geographies (by way of simplifying let’s consider developed economies). Where work from home for service industries (and more) as well as consumption of home deliveries will take a much bigger part of our economies. Curious to find out how our previous behaviours of showing off how we were winning in the consumption society is going to adapt to this new normal on Social media and more.
What is the long-term impact (2)?
Trying to keep it brief, let’s first look at some fundamentals of a crisis:
- Safeguarding assets will become a priority – before new investments
- Profitability will matter
- Groups with liquidity will try to make great deals – meaning not being heroes – because you won’t be paid for saving a sinking ship and the days of driving valuation to raise more money are gone. Pushimg for long-term returns with less risk is the new black.
geopolitical issues like the current oil supply demeanour drives impact apart from the vivid. The world typically would consume 100 M barrels of oil per day and now consume less than 75. Production however still remains at roughly 100. Meaning supply is ≈30% above consumption per day -> driving price down. That effect has significant geopolitical consequences I’m not going to speculate further on.
To safe-guard from these (oil and covid) companies should consider (at least) a 24-36 months runway to weather the economic downturn we’ve only seen the beginning of, in my opinion.
Apart from the oil stuff. Economies will suffer long-term from:
- The vast number of unemployments – that will take time to restore
- Never in the history seen before rescue packages (all that money has a price and needs to be repaid)
- States will see tax revenues be reduced which will have as a consequence that all the crisis packages and debts will be harder to repay – leading to a longer term downturn.
- The healthcare effects of more or less all resources being focused on COVID related issue right now will cost time and money to solve
- Credit lines being reduced or withdrawn as an effect of banks shrinking balance sheets as current assets and their valuations are being revalued and some certainly under distress going forward
All of the above indicate 24-36 months of runway (at least) are going to be needed to safeguard the interests of shareholders and employees in any business.
So the 2-3 year outlook (3) is a – at least – consideration as we move further into this new normal. All of course depending on – and here comes the really scary part:
How states and economies chose to value the cost/price of a life now versus the cost/value in the future. The Great depression’s cost of a life wasn’t established until the nuclear bombs were dropped and the war ended. Maybe so that the cost of a life from the Spanish flu wasn’t even established until then?
My belief is that we will weather this. Our view on the economy – as we know it – will change and it will have significant impact on lives directly affected by the COVID-19 pandemic and the consequences of how we chose to handle it. This piece is simply thoughts on how to try to weather the storm from the fundamentals we adhere to.
The prepared survive.
That being said, stay safe and remember to:
- Adhere to social distancing
- Follow authorities’ guidelines
- Wash your hands
- Take care of yourself as it will have a direct effect on other people’s lives
- To safeguard jobs and micro economies – chose to establish profitability and a long runway sooner rather than later.
Because this will last until we find a cure, a vaccine, reach heard immunity and our debts are repaid.