The Capitalist Investor - Episode 17

What will the psychological impact of the recession look like? What are the short, medium, and long-term impacts of the economic shutdown on consumers and business owners? Will the economy reopen May 1st? Or be pushed further out—possibly to June 1st? In this episode of The Capitalist Investor, Derek, Nate, and I discuss what our future may look like. It’s an episode packed with hypotheticals, meant to be thought-provoking and eye-opening.

Outline of This Episode

  • [0:15] What 2nd quarter GDP tells us about the financial impact
  • [2:25] The curve appears to be flattening—but the data is skewed
  • [5:48] Now is NOT the time to go house shopping
  • [7:47] What will consumer behaviors look like when we reopen
  • [12:58] Commercial Real Estate may no longer be a safe bet
  • [16:02] Humans were meant to connect—not isolate
  • [17:15] The Bottom-line: We need more information
  • [19:34] Understanding the psych of the small-business owner

The ONE factor that will drive change

We’re hitting record-setting jobless claims and the numbers keep climbing. The last count put unemployment numbers at around 22 million—completely destroying the last 10 years of progress. We’re at around 12-15% of the workforce being unemployed and the numbers will likely cross 20%. On top of that, there was a 30% retraction projected in GDP for the 2nd quarter based on the economy reopening May 1st. If it’s pushed to June 1st we’ll likely see GDP drop to negative 60%.

The coronavirus curve seems to be flattening, with fewer cases and deaths reported in NYC. But testing is a problem. Until every American citizen is tested (a positive test is required TWICE for a confirmed diagnosis) we don’t really know where we stand. Many people can’t get tested and are simply told to go home and self-isolate for 14 days. With reported false-negative tests we’re left to wonder how many carriers are walking the street.

The bottom-line? Not much will change in the psyche of the average American until there is a vaccine for this virus. Until we have more information and know what’s safe and what isn’t people will be uneasy. Only when there is a supposed ‘cure’ will the population feel peace of mind. The question is—when will that happen?

How will consumers act when lockdowns are lifted?

There are two types of people—those who return to life as normal and those who will emerge from this pandemic skeptical. How many people will head back to movie theatres? Who will feel comfortable heading to a baseball game? Major League Baseball is talking about starting back up again with a long list of restrictions (and ZERO fans in attendance).

What about going to amusement parks? Or shopping in malls? Odds are the average consumer—and parent—will think twice about putting themselves and their families into situations where they could feel exposed. Every person you come into contact with could be a carrier. Most people aren’t mentally prepared to face that possibility.

The impact on commercial real estate

Most consumers will likely think twice about heading into a bar or restaurant. Even if businesses are allowed to reopen at half-capacity, how long will they be able to afford their lease? Will their business still be viable operating with half the patrons? Their lease is their #1 biggest fixed cost. Many may have to close their doors until we can operate at 100%.

Anyone who owns property in the hospitality industry—hotels, office space, malls, restaurant chains, and cruise lines—may find themselves in a tight spot. What was once hot real estate may soon be a closed business. While this is all hypothetical, we wonder what the impact will be. A rosy outlook may not be in the realm of possibility.

Will small businesses survive this crisis?

Anyone still employed doesn’t feel secure in their job. Everyone is worried and fearful they’ll join the long list of the unemployed. Many people are left wondering if their finances can withstand more rounds of this virus. Legitimate sustainable businesses are positioning themselves to be lean and mean. People are being laid off—and they may not be hired again. Businesses are going to question whether or not they need to rebuild their workforce.

Will these businesses change their mindset forever? We project that many will stop investing in their employees, infrastructure, and growing their business. The status quo and a steady stream of cashflow may be the norm for quite a while. When things start to rebound and businesses begin to regroup, perhaps they’ll regroup with a smaller workforce. People may stay unemployed far longer than anticipated. Listen to this episode for a full discussion on what our economy will look like when we open up.

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Episode 6:
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Episode 7:
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