Morning Notes - May 6, 2020
Ye Xie of Bloomberg Macro reports that during China’s Golden Week tourism is down 68% and restaurant revenues are down 46%. This could provide an indication of reopening patterns in other economies. It will be interesting to overlay these numbers on the equivalent numbers for July 4th, US Independence Day weekend.
Ye Xie highlights several other trends on which we agree:
Nasdaq Composite continues to outperform the S&P500. We’ve noted that the COVID-19 crisis seems to have bifurcated the economy into two hemispheres: Tech/Healthcare and everything else, ”New World” and ”Old World”, with ”New World” having most of the winners, think Amazon, Netflix, Zoom, Gilead, etc. This pattern will continue.
Treasuries - short term debt will remain near zero for several years. Longer-term yields will increase slightly, largely manufactured through MMT. Faced with a $4T deficit it looks like both parties have signed on to MMT (Modern Monetary Theory). And with USD demand surging, timing couldn't be more opportune. The market forgets that the US dollar is the world’s reserve currency. In times of geopolitical instability demand for dollars increases dramatically. The closest alternative is the Euro, but even the Euro doesn't offer the stability of USD (think Brexit, Itexit, etc). This pattern of USD strength won’t change anytime soon. It is important to note that ”real interest rates” will rise and yield spreads will widen for corporate borrowers.
COVID-19 has catalyzed and accelerated other changes.
Supply Chain - Expect production to be moved closer to the point of consumption. Robotics is the cheapest source of labor. This will trigger capital expenditure in local markets as plants are built and/or refitted. Someone needs to design, build, install, program and repair robots, so jobs in that area will surge.
Real Estate -
Office/Hotels- The Zoom revolution won't go away. Workers spending less time commuting, reduced corporate office costs, and reduced long distance travel will pact demand for office space and hotels.
Excess office space will be repurposed into hybrid work/manufacturing/residential communities depending on location.
Retail property - retailers are already mobilizing to reduce space in order to maintain profitability. Malls will shift to more entertainment based venues with a blend of ”retail experience centers” where people can see, hold and experience products before buying online.
Industrial Real Estate - most industrial RE emerges as a clear winner post-COVID-19. This is especially true of logistics centers, especially those with refrigeration.
Multi-family - work force housing will be the strongest segment of multifamily rental housing post COViD-19. However location will be critical to the stability of rental income.
How do these post COVID-19 trends impact your investments? For a more detailed analysis contact us.
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About the author:
Karl B. Douglas is the Chief Investment Officer at Insight Family Office. Mr. Douglas has a career that spans over 30 years of investing in private and public companies. Insight Family Office provides bespoke investment advisory services to family offices, high net worth individuals and institutions.
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Note: This article is not an attempt to provide investment advice. The content is purely the author’s personal opinions and should not be considered advice of any kind. Investors are advised to conduct their own research or seek the advice of registered investment professionals. The author does not own shares or any equity or debt interest in any companies mentioned in this article before or at its publishing. #karlbdouglas #karldouglas #familyoffice