03-15-2020, 12:09 PM
** 15-Mar-2020 World View: The Real Economy
In analyzing how the crisis will unfold in the next few months, there
are three related issues that everyone is conflating, but which are
really quite separate:
What I'm particularly interested in is the real economy. The spread
of the virus is a potential disaster, and the stock market is a
potential disaster, but I believe that, although it will be hurt, the
real economy will do better than many people expect.
To show what I mean, here's what happened between 1929-33:
The GNP represents what I'm calling the "real economy." These are
ordinary businesses, often private businesses completely unaffected by
the stock market, that are scrambling to do everything possible to
stay in business.
If a restaurant or bar wants to stay open, then the owner will
separate the tables and place screens between them to create
compartments, and then sanitize each compartment after the people
leave.
If a factory wants to stay open, and it depends on supply chains
originating from one country whose factories can't supply them, then
the owner will look for new suppliers in other countries.
Here are some examples of businesses that are likely to do well in the
next few months:
Even in the worst case scenario, we can imagine a world that's as busy
and bustling as it was until recently, but now people are protected by
special clothing or compartmentalization or special safe modes of
transportation. These are all technically within reach -- and in fact
are really quite simple to implement -- but they just haven't been
necessary until now.
I believe that the real economy is going to do a lot better than most
people think, and possibly a lot better than the stock market, as it
did during the Great Depression.
So does anyone have any thoughts about businesses that will do well,
and possible surprises, during the next few months?
In analyzing how the crisis will unfold in the next few months, there
are three related issues that everyone is conflating, but which are
really quite separate:
- The spread of the virus
- The stock market
- The real economy
What I'm particularly interested in is the real economy. The spread
of the virus is a potential disaster, and the stock market is a
potential disaster, but I believe that, although it will be hurt, the
real economy will do better than many people expect.
To show what I mean, here's what happened between 1929-33:
- the stock market fell 90%
- but the GNP (gross national product) fell only 35%.
The GNP represents what I'm calling the "real economy." These are
ordinary businesses, often private businesses completely unaffected by
the stock market, that are scrambling to do everything possible to
stay in business.
If a restaurant or bar wants to stay open, then the owner will
separate the tables and place screens between them to create
compartments, and then sanitize each compartment after the people
leave.
If a factory wants to stay open, and it depends on supply chains
originating from one country whose factories can't supply them, then
the owner will look for new suppliers in other countries.
Here are some examples of businesses that are likely to do well in the
next few months:
- Suppliers of bathroom and medical supplies.
- Beds, furniture, and various "self-isolation" products
- Online education services
- Telemedicine / telehealth services
- Online entertainment and gaming
- Electric scooter rentals (so you won't have to take the bus)
- Adaptive clothing of all kinds (protection from virus)
- Air filtration systems
Even in the worst case scenario, we can imagine a world that's as busy
and bustling as it was until recently, but now people are protected by
special clothing or compartmentalization or special safe modes of
transportation. These are all technically within reach -- and in fact
are really quite simple to implement -- but they just haven't been
necessary until now.
I believe that the real economy is going to do a lot better than most
people think, and possibly a lot better than the stock market, as it
did during the Great Depression.
So does anyone have any thoughts about businesses that will do well,
and possible surprises, during the next few months?
