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Economic Micro-Burst During the Viral Ceasefire
From:
Albert Goldson --  Indo-Brazilian Associates LLC Albert Goldson -- Indo-Brazilian Associates LLC
For Immediate Release:
Dateline: New York , NY
Wednesday, May 20, 2020

 

The Trough Between the Viral Waves

As the easing of restrictions unfold there is a particular type of pent-up demand that consumers will grab before a potential second resurgence of the virus compels governments to impose another lockdown.

I’ve identified two types of people during the delicate period between the first and second waves: the ants and the grasshoppers. Adhering closely to the Aesop’s fable “The Ant & The Grasshopper” the ant is the industrious prepper who takes advantage of the reopening of businesses to acquire whatever is needed before the second wave arrives forcing another government-mandated lockdown, whenever it may occur, often at the most inopportune time.

On the other hand the grasshopper is the naïve Pollyanna believing that things will inevitably - slowly but surely – return to almost pre-pandemic normal. In a Stephen King twist to Aesop’s fable, a nasty turn of events converts these grasshoppers turn into crazed, ravenous locusts – aka looters.

My intuition says that this viral ceasefire will conveniently fall between Memorial Day and Labor Day before the arrival of a second viral wave to the point that state and municipal governments require another lockdown.

Big Business for Mom & Pop

Mom & pop shops will benefit most during this “phony war” trough of indefinite and unpredictable duration between the first and second waves. Just as the Spanish flu had three large waves, I project that Covid-19 will follow a similar pattern.

The pent-up demand may compel these small shops to extend their hours of operation, and gladly so, to soak up as much revenue as they can. These are the 1,001 little things everyone takes care of piecemeal throughout the week never imagining that time will stop for months without any of these tasks getting completed. Let’s review some of those basic services provided by these mom & pop shops that were already vanishing pre-pandemic:

·         Dry cleaners & clothing storage: winter coats, sweaters and other winter garb require cleaning before they’re stored away because of the seasonal change.
·         Tailor: The critical in-person fittings with the required PPE and inevitable repair of tears and adjustment of newly purchased garments whether pre-lockdown or online during the lockdown.
·         Hairstylists & Barbers: After weeks of lockdown most people probably look more caveman/cavewoman and who rightfully exclaimed with an air of understatement, “I can’t do a thing with my hair.”
·         Shoemakers: A dramatic increase in reconditioning footwear more so than ever because of the newly unemployed, under-employed and those who are fearful of becoming the former two.
·         Watches: Replacement of batteries for quartz models. Time may stop but life carries on.
·         Dentists: Getting that check-up and cleaning for those still with healthcare benefits.
·         Autos: Even vehicles were furloughed and urgently need servicing such as the change-of-season oil & filter changes and general servicing for late spring through fall driving.

HOSPITALITY AND TRAVEL INDUSTRY READY FOR TAKE-OFF

You may not think of Boomers and fatalists having much in common and in fact they don’t except under extreme circumstances such as between the waves of a pandemic.

Boomers

The oldest Boomers (the generation born between 1944-1964) will be in their 70s in 2021 with the oldest being 77. Long-retired and denied the opportunity to travel in 2020 due to cross-border closings and lockdowns, this sub-demographic of Boomers probably has the miserable preview experience of being in an assisted living facility or nursing home.

For this reason these Boomers with more disposable income than younger generations will be racing to the airline departure gates because of fast-approaching decrepitude with or without a vaccine. Furthermore add their fear of a subsequent pandemic requiring more extended lockdowns and eliminating any future opportunity to travel because they’ll be too old. For Boomers the sands of time are running out. It’s a fatalistic yet logical choice for those in this demographic subgroup with the attitude, ““Damn the torpedoes full speed ahead!”

This travel demand will increase further trend among the middle and younger Boomers will take hold when a successful vaccine is developed at scale and administered for the same reasons.

Fatalists

This demographic is partly made of Boomers and a generous demographic chunk of the younger generations who refuse to wallow in misery. Because their future job prospects are bleak or non-existent, instead of deferring their travel dreams, they’ll fast forward their pleasures applying “carpe diem” to the max. It’s far easier to regret credit card bills than lifelong regrets. The former can be paid back, the latter never. These fatalists would rather that a stunning landscape take their breath away rather than a virus.

The Travel & Hospitality Industry

In this seller’s market there will inevitably be far lower demand than during the pre-pandemic era however higher prices due to limited capacity will not deter this Odd Couple demographic. The industry will reopen in whatever format demand meets capacity.

On the other hand business travel growth to shrink far below pre-pandemic levels through enhanced and upgraded teleconferencing technology that will substitute face-to-face meetings.

With respect to business travel I believe that there will be a tepid recovery but far below pre-pandemic levels. The success of business communications during the extended lockdowns has convinced firms to invest in new technological communications systems and reduce, if not eliminate, business travel altogether.

The travel capacity with respect to aircraft in particular will be limited due to the inevitable bankruptcy and restructuring of every airline with a slow and selective entry of mothballed aircraft back into service. For this reason I expect airline prices to be expensive. Nonetheless because of the aforementioned reasons Boomers and fatalists will be willing to travel at any price.

According to the following chart The Industries Worst Affected by the Covid19 Job Crisis provided by the US Bureau of Labor Statistics and presented 11 May 2020 by Statista, an online German statistical firm, the hospitality and leisure industry has hit rock bottom with an unemployment rate of 39%.


This presents a superb opportunity for investment in anticipation of its albeit limited recovery driven by the aforementioned forecast demand.

Because of the lingering effect of mass employment across all industries and projected permanent unemployment of those workers, the travel & hospitality industry will not return to pre-pandemic levels. However the short-term opportunities as outlined should be seriously considered.

Recommendation

For the investors stock picks for specific airlines and hospitality firms are highly speculative because each firm has their particular financial and labor challenges that will determine whether they will survive or die.

For this reason investment travel & hospitality indices are preferable for investments such as Dow Jones U.S. Travel & Leisure Index (DJUCG: Dow Jones Global Indexes).


Copyright 2020 Indo-Brazilian Associates LLC.

Indo-Brazilian Associates LLC is a NYC-based think-tank and advisory service that provides beyond-the-horizon contrarian perspectives and risk assessments on energy investments, geopolitical dynamics and global urban security.

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