It’s getting crazy out there. After a couple of months of quarantine we’re now seeing riots break out across the United States. The protests seem to be a mix of both the Floyd incident and upheaval around economic inequality highlighted by chants of “Eat the Rich”. As the economy opens back up we’ll see what the real unemployment rate looks like (our guess is that double digits will remain, somewhere around 10%). Also. We’ll see how many companies adopt work from home initiatives and reduce back office jobs.
Technology Will Move: This is one of the main beliefs we have. Having a programmer work in San Jose, London or a cabin in Colorado doesn’t make a difference in the function of their job. In fact, the main reason people show up to offices is for “face time”, ie. management is usually insecure/micro-managers. After this experiment the companies have realized employees just wanted more autonomy and are willing to work *harder* if they can work from home. So their initial assumptions were flawed. We stopped tracking it but Facebook, Coinbase, Twitter, etc have all become accepting of the work from home environment.
Looking across other sectors of the economy… Anything that can be done with a phone call is likely going to move remote as well. In short? Knowledge workers. Anyone who earns with their information/insights can simply work from anywhere. Think about the blogging industry as it’s the easiest to understand. If someone write a post in China or Australia or New York… Does it make a difference? No not really. Apply this to many white collar professionals and you’ll find that many of them can quickly go remote as well. If you’re simply being sent documents to review and load them up to a secure work area… Lawyers could easily do this from a home office as well. You’re just reading, correcting and loading items to the cloud.
So while Tech will move first, the other white collar professions will move second. Sure. There are several positions where face to face interactions are critical. And. Those positions will still be reduced from a pure numbers perspective. Once you have an established relationship with a client a zoom meeting will suffice for a large number of interactions. Instead of assuming that businesses will operate the same (they won’t) look at what areas will be impacted first and follow the bread crumbs from there.
Physical Migration: After we’re past the first phase or two of the re-opening, it would be wise to think about the “flow of people”. Similar to the concept of fund flows. If we can agree that a lot of technology jobs will allow remote work, where will these employees move to? It seems likely that someone living in San Jose/San Francisco would move to a place like Los Angeles if they wanted to stay in California and live with better weather. It seems likely that someone in New York/Boston would want to move to Miami or perhaps the Carolinas for a similar reason. People who cannot afford the major cities would then move to “similar” cities with a “similar culture” – just think of political affiliation for this one.
This is probably the most important question for our readers. Forget about what major city you want to live in now, ask “which major city will have the better environment in 2023”. This is not the same question anymore. With this much economic disruption, the amount of migration is going to be quite high. We wouldn’t want to be living in a concrete jungle with high taxes and poor weather in 2023. As mentioned on Twitter, the weather is probably a good starting point for choosing your new city to live in (if you plan on moving).
Wealth Tax? This is another concerning issue. With high unemployment and billionaires becoming richer by the day… A wealth tax is likely going to become more and more popular. In fact we think this has a decent chance of going through. When you think about the ramifications here, it is a lot easier to follow the bread crumbs. What items are easiest to tax and track? Quite simple: 1) real estate, 2) bank accounts and 3) stock accounts.
This has a lot of implications for all of our readers. It means the value of physical assets goes up 1) physical cash, 2) physical gold/silver, 3) crypto currencies and 4) rare collectables. Why is this a big deal? It’s a big deal because the current environment seems to be pushing for inflation on necessary goods and deflation on aspirational goods. Right now, rich people are not able to spend on much. They are being forced to live pretty standard lives which means the price of basic items like food and drinks are going up while the price of “attention goods” such as a BMW/Porsche are going down.
As usual, we’ll jump to the conclusion. Instead of worrying about a wealth tax, it’s a good time to go ahead and set up a small home vault/security system. What does this mean? A way to hide physical assets at your home in a safe manner. At the low-end a high quality safe with a couple of cubic feet of space is going to cost anywhere from $200-350. This is nothing compared to the amount of money you can store in there (using a combination of gold and physical cash you’re easily storing over a million dollars in value). If you throw a crypto currency wallet like a ledger or nano inside, the number is then infinite by definition.
If you’re in the ultra-high net worth camp, call it $20M+, then looking into vaults/secret doorways is another viable option.
We realize the last two paragraphs make this post seem ultra paranoid… that said with interest rates at 0% and no return profile on cash anymore, at home banking solutions are now viable. For example, if you think the price of gold only goes up 1% per year for the next 10 years, then what’s the downside of holding $250,000 worth in a completely hidden area? That’s a lot better than a safe deposit at a bank since it can easily be seized. In short, we’re fine with appearing crazy for this move as we see limited downside in creating a worst case scenario exit plan. If you’ve followed the advice on this blog for the last 8 years you’re making more money now vs. pre-pandemic and on top of that your investments are up anyway. Taking 5% of current net worth and creating a “worst case scenario set up” is pretty reasonable. The real key is the “set up”. Make sure you can quickly move more and more assets into your new security system if taxing the rich becomes popular. Again. Laugh if you like, billionaires build bunkers out in strange islands/places preparing for such scenarios so our solution is tame and cheap.
Currencies Are a Mess: Look no further than Brazil. The country decided to ignore the pandemic and now they have a catastrophic health issue and the Brazilian Real has devalued to 5.33 per dollar from 3.92 per dollar in a single year. This is a substantial issue for them as their ability to import items just went down significantly. Hong Kong is also going through a lot of protests. Individuals are rapidly exchanging as much as they can from HK dollars to US dollars. If there is a decoupling of the Hong Kong dollar and the US dollar, the citizens do not want to suddenly lose purchasing power.
Who knows how this plays out. If we want to place a bet, it would result in more countries defaulting on their debt. Argentina defaulted already and there is a high chance of more to come. This means the carry trade is still alive and well (take debt out in foreign currency and convert immediately to more stable currency and pocket the spread when it collapses).
The chances of some sort of V-shape recovery are slim/next to none as restaurants, airlines, cruises, hotels etc. are all going to be under headcount restrictions. If people can’t move around and spend, there is no way for GDP to grow. While the opening will allow for some return to normalcy (an improvement) believing we’ll be back to 4Q19 levels any time soon is simply delusional.
Onto Some Action Steps: The good news from all of this is that e-commerce is going to see structural increases in demand. This has happened for the last 10 years and the pandemic is just going to increase the market opportunity. If you are still on the fence about this we really can’t help you anymore. You have riots on the streets a global pandemic and high unemployment. Online sales is going to flourish like never before and there is no reason for you to personally go outside to purchase goods either. What is the point in going to a retailer when you can order the exact same thing, avoid travel costs and decrease exposure to COVID-19 at the same time? It makes no sense to go out, simply order in and wait until the pandemic is officially over. The looting and rioting is just going to spread the virus faster.
In simple terms: Step 1) continue to order everything you can online, avoid going out to any area with serious looting/rioting. Step 2) take up some sports that are isolationist in nature – golf, rock climbing, etc.. Step 3) go ahead and cancel the gym membership and order all of your at home items now. It’s clear that the gym will not be a great location for the foreseeable future. Step 4) build your at home banking system, no other way to describe it. Step 5) try to order everything in bulk, this refers to non-perishables, food that can be frozen etc. Step 6) begin testing various ad campaigns, when the economy opens up next month people will realize how inefficient retail shopping is; time to take more market share. Step 7) carefully package and store your luxury items, you don’t want to stand out as rich during a potential riot in a major city. Step 8) set up alerts for housing in any major city with a nice beach or good weather. Step 9) continue to stack up physical assets if you can and Step 10) it is a very good time to lie down in front of friends and family, use the pandemic and riots as an excuse to tell people you’re *losing* money. Don’t be stupid and flex in public.
Final Note: Not much has changed in terms of preparations: get online business running and begin down playing your success by a wider margin – by an extra 20% or so. That said, we’re much more concerned given the amount of riots we’ve see. The chances of full employment by year end is incredibly small. Too many companies have learned that a lot of fat can be trimmed due to software and the use of new technology. So. We’d recommend doubling down on your internet ventures and taking the more cautious tone to heart for the remainder of 2020. When we’re past the COVID-19 situation (officially) it’ll be time to get aggressive in buying/investing and riding out the next bull cycle.
