The Capitalist Investor - Episode 27 Every recession has been preceded by some sort of ‘bubble’. The dot-com bubble was because internet-based companies were over-valued significantly—until their lack of revenue was brought to light and that bubble burst. The 2008 housing market crash was largely due to a real estate bubble and people receiving NINJA loans (No income, no jobs, no assets).In this episode of The Capitalist Investor, we talk about WHY we think this recession isn’t just due to COVID-19. We believe we were due for a recession due to two factors: commercial real estate and employee bubbles. Listen to this episode for our full explanation and what we think the future may look like.Outline of This Episode[0:15] The permanent destruction to the economy[3:50] What is the bubble this time?[5:35] Commercial real estate will never recover[7:56] Companies forced to embrace “work from home”[10:20] The employee bubble IS bursting[13:10] The National Bureau of Economic Research[15:52] Transforming moments in the future[20:28] What will be different with commercial real estate?Recessions are a healthy part of the economic processBefore the Coronavirus hit economic expansion was getting long in the tooth. Traditionally speaking, recessions are a healthy part of the overall economic process. They happen for a reason: to clear out excess. The COVID-19 virus has only served to deepen the impact of the recession that was coming regardless. We have to question—what will fundamentally change about our lives? How will making money in the stock market change from here on out?The commercial real estate bubbleCommercial real estate will NEVER get back to where it was before. Even companies who are reopening their offices and welcoming employees back are only bringing back 30% of their workforce. We don’t see businesses ever getting back to 100% capacity. Therefore, they won’t need the excess commercial spaces they’ve been paying for.With businesses such as JC Penny, Pier 1, Neiman Marcus, and Tuesday Morning going bankrupt we will see an increase in empty—and seemingly unusable—space. Small businesses aren’t going to need those large spaces.Companies who resisted the work-from-home movement have been forced into it to stay in business. Now, they’re beginning to realize they don’t need the office space. They’re realizing that they can be just as efficient and effective with their employees working from home.The employee bubble will burstBefore the COVID crisis unemployment rates were historically low at 3.5%. Now—as we exceed 20% unemployment—some employers are realizing that they can accomplish the same results with fewer employees. Some are realizing a chunk of their workforce wasn’t really working, but simply “looking busy” because they were in the office.Before all of this went down, it was difficult to hire. Because so few people needed jobs, businesses were having to poach from other companies to obtain the workforce they needed. They found themselves overpaying for B-rated employees because they needed anyone. Now, businesses are maybe doing 70-80% of what they were doing previously. They don’t need the full staff they had before.3.5% unemployment rates aren’t going to come back anytime soon—likely for years. The damage has been done to the economy, and there won’t be a bounceback like people expect. The National Bureau of Economic Research (NBER) released statistics, showing they believe that 42% of recent layoffs could become permanent.The transformative moments that will impact the futureIn two, five, or ten years what will be said when we look back on this economic crisis? What dramatic shifts will we see in commercial real estate? What shifts will we see in employer/employee relationships? After the housing crisis, millennials chose not to buy houses, but rent instead. Internet-based companies worth scrutinized carefully. Loans aren’t handed out willy-nilly.Derek and I believe we will see dramatic shifts in employer/employee relationships. We may likely move away from 40-hour work-weeks with strict 9-5 hours and 2-week vacations. Instead, we’ll see a shift towards effectiveness. What if people work 60 hours one week to take the next week off? Will millennials be more apt to work from home for a $5,000 pay cut a year?Traditionally, employers have valued “presence”. As long as you’re present in the office and being seen you’re perceived to be effective. Now, employers will look at the work being completed—and trim the fat if you aren’t productive.What do you think we will see when we look back on this recession? Listen to the whole episode for more detail!Resources & People MentionedMohamed A. El-ErianNational Bureau of Economic ResearchConnect with Derek GabrielsenTwitter: @DerekGabrielsenFollow Derek on LinkedInSend Derek a message hereConnect With Mark TepperTwitter: @MarkTepperSWPFollow Mark on LinkedInSend Mark a message hereSend your questions and comments to us at info@SWPConnect.comSubscribe to The Capitalist InvestorShow Notes by PODCAST FAST TRACK https://www.podcastfasttrack.com
