Friday, March 27, 2020

Corona Virus - Winners and Losers

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Just when things were cruising along nicely this year and the most spirited water cooler debates were upon whom would win the Batchelor this season or Democratic presidential hopefuls - WHAM! The reaction to COVID-19 has disrupted our world akin to the terrorist attacks of 9.11 or the financial meltdown of 2008. The new Marvel Incredicoaster at California adventure has nothing on our E-ticket stock market ride of late. Descending into bear market territory - the markets have been in free fall attempting to price in the future impact of economic uncertainty today.

The Losers. Our global economy depends upon the flow of goods and services. Read. People consuming. When the music stops as it has this week - folks put the kibosh on spending. Imagine the carnage of lost dollars from cancellations of sporting events, concerts, amusement park attendance, conventions, and travel. Our city coffers partially rely upon sales tax revenue generated from hotel beds, restaurant meals, and souvenir shopping. With the suspension of events such as the Big West Basketball tournament, visits to Disneyland, Long Beach Grand Prix, and postponement of NHL hockey games and the MLB season - revenue is lost - in some cases forever. Strained municipal budgets result. Will city layoffs follow? Businesses that rely upon conventions, concerts, and live sporting events as their lifeblood will suffer. Think about operations that build exhibits, printers who create banners and advertising collateral, companies who provide security or suppliers of temporary power for open air gatherings such as Coachella and Stagecoach. I’m aware of a local enterprise that rents lighting for large outdoor venues. Wonder how he is feeling about the future of his business? With students at CalState and UC schools now attending classes on line - the campus proximate coffee hangout now has no customers. You get the idea.

The winners. In my experience - with every economic downturn there are winners. Entrepreneurs who benefit - either by brilliance or dumb luck. So just who will find the silver lining? Because of a decrease in global demand and the Saudis and Russia playing footsie with supplies - oil is less than $30 per barrel. Petroleum based raw materials will become cheaper. Therefore anyone manufacturing with them such as molding plastic - medical devices, trash containers, kitchen items, coat hangers, and auto parts will all bring finished goods to market with less expensive components. Speaking of petroleum. Gasoline prices will tank - sorry - making that trip someplace more economical. Trucking can reap rewards as can driving your car - albeit to fewer places that are open. Delivery services should see an uptick in business as people avoid shopping in person in favor of on-line ordering. How about video conferencing providers such as “go to meeting” or Zoom? Zoom stock is up 60% as they fulfill record demand for their product. The biggest winner could be the mortgage industry - ironically the biggest loser in the 2008 slide. With a declining stock market - money seeks a safe harbor - such as treasuries and precious metals. As demand for T-bills increases - so does the price. Lower yields result - last week less than 1% - making that 30 year loan the cheapest ever! My sense is refi fever is stronger than the symptom associated with COVID-19.

In this author’s humble opinion - we are going to be OK. Sure. We must weather some short term pain - for some excruciatingly bad pain. But we’ve overcome tougher obstacles - a Great Depression, two World Wars, Orange County bankruptcy, 9.11, 2008 Great Recession. We are a resilient nation. We got this!

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