Covid future: Business as Usual or New World?
When amid any period of high uncertainty, I have a rule that guides capital allocation. Assume 50% probability that consumer and business behavior converges to the mean, that we return to pre-crisis behavior - business as usual (BAU). Humanity hungers to ‘get back to business’ and return to a familiar pattern of life. For my Red State friends, getting back to business is an affirmation of American exceptionalism.
That leaves a 50% chance that markets, behavior and spending takes a new path.
Details on each path task our imagination. When one is drowning in a crisis it is hard to imagine it passing and a return to normal. And amid the crisis it is equally hard to target opportunities and envision business in a radically different world. I’m hedged on Covid – 65% probability of business as usual, and 35% probability of a radically changed business environment.
Because I’m an Eagle Scout, a strategic planner, and protective of family and friends, I prepared for food and energy supply chain interruptions for the energy crisis of 1979 and 1990 and also for Y2K AND most recently for the risk of COVID induced hiccoughs. I have been right about the energy interruptions twice, wrong about timing of the energy price collapse (oil in the mid ‘80s; gas to <$3/MCF a decade ago). But I was wrong each time about broader supply chain breakage. America the resilient? I think I may still have a case of beans from Y2K. My supply chain planning only cost me some dignity.
In my life, there have been four cycles of real estate collapse and also four cycles when pundits hailed the end of American economic power. Each time I applied an 80% probability to BAU. Today I’m applying an 80% probability to American resilience. Pity the automaker pressured to ramp up ventilator manufacture knowing that the acute crisis of ventilator shortages would last just 90 days, while their ramp up would take 120 days.
Help me forecast the future in radio broadcast and parking.
RADIO Industry giant iHeart Media cash flows from radio operations fell by 33% in Q1 2020. Radio will be dampened for a while we are not driving. How much? Pre-Covid, Deloitte predicted radio attracting ~9% of ad revenue, rising by 1% last year. 85 percent of US adults listen to radio weekly – 90 minutes radio a day. For 18–34-year-olds TV is falling - by 2025, they will spend more time on radio.
PARKING Parking revenues have collapsed by >90% across most sub-markets. Work from home will cut commuting overall. Viral fear will cut 61% of mass transit riders for > 6 months. Parking will lift as some commuters shift to auto travel. How does this net out? Survey reports transit users: “too concerned about disease transmission until doctors develop COVID vaccine or better treatments.” Help me forecast the net effect of WFH, less transit and a higher proportion of auto commuters.
So assume 65% BAU and 35% new world.