Tuesday, May 5, 2020

It's only just begun ...

…. With apologies to The Carpenters for borrowing some of the lyrics to We’ve only just begun.

Sharing horizons that are new to us
Watching the signs along the way
Before the risin’ sun, we fly
So many roads to choose
We’ll start out walkin’ and learn to run
And yes, we’ve just begun

I was reminded of this song by Bulwark editor Jonathan V. Last’s observations on the “reopening” of our economy. He concludes: The economic disruptions have only begun.

And here is some of the reasons for pessimism. It all has to do with excess supply (see pouring milk and butchering hogs) and insufficient demand. If ag is not your thing, try airplane travel. Warren Buffet took his airline industry position to ZERO. Those excerpts and more follow.

At some point—hopefully sooner rather than later—we’re going to start loosening lockdowns and groping out way toward a new normal.

But this will not be a “reopening” in any sense of the word. People who think that it will be—that it’s just a matter of flipping the switch so that the country can get back to work—think that the problem is just supply: Consumers are desperate to buy and do stuff and all we have to do is unlock the flow of goods and services and everything gets back to normal.

This is a superficial and ultimately mistaken understanding of what comes next. Because what we’re going to face is a demand problem: People are going to change many of their behaviors and live their lives the way they did pre-pandemic.

Here’s an example from over the weekend:

The first of 40 U.S. Bad Axe Throwing venues to reopen since widespread shelter-in-place orders were issued across the country was in Atlanta on Friday. Bad Axe CEO Mario Zelaya expected business to be bad, maybe 10% of the hundreds of customers he would expect to see throw axes and drink beer on a typical weekend. “That was the worst-case scenario, especially with all the marketing we did,” Zelaya said. “The reopening weekend was a disaster. We had two customers all weekend."

You’re going to see a lot of this sort of thing.

What scares me—and should scare you—is that you don’t need a collapse of consumer demand to zero in order to create a catastrophe. There are lots and lots of businesses where even a 20 percent decline will mean unsustainability.

There’s a reason that Warren Buffett took his position in the airline industry to zero over the weekend. Because air travel is one of the sectors that is going to see demand crater no matter what any government’s official policies are.

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