Post Covid-19

This is my attempt at setting up a framework for what the world will look like post covid-19 other than simply saying there will be recession. This is from the perspective of a credit investor and parent. Expect this to be update on a on going basis.

Key Sections

A. Finance
B. Sectors
C. Politics
D. Personal

Updated: 1 April 2020

A. Finance

Accounting, Taxes and Cash

  • We will be done with the weather related excuses for missed results! (at least for a year)
  • Instead will be looking at pre-cv and post-cv numbers
  • Taxes will go up
  • Will be interesting to see if Luxembourg and Ireland and other tax havens will sponsors those
  • Cash, paper cash will be dirty – expect faster move to a cashless society. This will help with those taxes
  • Peak dirty cash: paper cash will be at a discount to online cash and I don’t mean bitcoin here
  • Btw, bitcoin the safe haven just got a D-
  • Hedge funds will need to underline the market neutral part in their names if that applies as opposed to pure leverage

Bailouts and Banks

  • Its about keeping unemployment low
  • Its about avoiding social unrest
  • People will not accept a 2nd time for governments to bailout wall street and shareholders without having them to pay
  • Capitalism does not work if tax payers keep having to bailout the system
  • Stagflation? No idea, but it does worry me

Distressed 

  • HY docs have no teeth so it will be a while before they step in as a buyer – big drops ahead
  • Expect layering instead: secured debt in the teens with a spare key to the business in case of failure
  • Initially expect a lot of waivers approved as too many not prepared to convert debt into actual ownership
  • Direct Lenders potentially a more interesting space as docs have teeth and teams likely will be overloaded with work
  • CLOs – that will be fun…
  • Energy and energy services space looks nasty and its not like you are going convert those drill ships into cruise ships…

ESG

  • Will grow further simply on having dodged the oil slide to 20!
  • We will see a Medical twist very soon
  • Oil at 20 will be a challenge for many alternatives to beat
  • The real change will be if we get tax transparency. The cruise ships under tax free jurisdictions asking for a tax payer bailout are a prime example of a challenge here

B. Sectors

Healthcare

  • US may actually finally realise they need a real healthcare system. One for @elonmusk to lead the revolution there
  • Lack of social support makes people more generous in the us but healthcare needs to be a public good, just like law and police
  • Worst case scenarios will be back with significantly higher storage requirements of supplies
  • Visits to doctors and hospitals will drop as people see the risk of entering a potentially toxic environment 
  • Research funding will be up
  • Demand for medical talent will sky rocket
  • @billgates has been doing a lot on a global level, perhaps more to come

Military 

  • If they are smart in the US, they will volunteer to take over the future planning of preparedness and stability of healthcare
  • Otherwise budgets will probably be cut except for cyber and obviously bio areas – funds need to come from somewhere

Real Estate & Retail

  • Luxury retail will suffer unless online
  • Appeal of malls will further deteriorate
  • Venues without a temperature scanner will be something from the past at any prime indoor event
  • Cinema’s will see a similar faith – just imagine someone coughing during a show
  • Live theatre and operas shows likely to suffer even more in short term, the rich will find other ways to be entertained
  • Families will value houses over apartment
  • Summer houses will go up in value as a safer holidaying alternative to all inclusive with a breakfast buffet
  • However that apartment from AirBnb in Southern Europe, well that one is on offer
  • Wework not cool. WeStore instead. 
  • More work from home and less prime office needed
  • Discretionary and Staples will mean a lot
  • All those own brand products are not that bad or different after all. No need for the fancy brands, then again an affordable luxury versus going out!

Supply Chain

  • Rubber glove production is unlikely to migrate away from Malaysia but just in time supply chains will change instead.
  • Just in time will need to be scrapped in certain critical sectors. Storage, inventories and warehousing will need to go up. Nice one-off hit to all those working capitals numbers
  • National security in terms of certain supplies will be back on the agenda
  • Will make it difficult for countries to “get back to normal” without co-ordinating it with key trading partners. First country back will have limited upside other than less frustrated parents 😉

Tourism and Entertainment

  • Operating costs for all facilities will go up and visitors will be down
  • Expect bifurcation with some going for high risk volumes and others for high end safety and distancing
  • Buffets will only be a thing of the low cost players
  • Vacuum of new tv episodes will need to be filled with live streaming

Tech

  • Feel sorry for those Value investors staying away from tech…
  • Unfortunate also for those Value investors is that many of VC deals are not listed equities in benchmarks
  • Softbank – lets just call it Alibaba holdco and spare us all the schadenfreude press coverage to come

C. Politics

Politics

  • Some new heroes will be made, though most western leaders deserve a telling off for their ignorance of what was going in China in January
  • Same applies to many corporate “leaders” and socially responsible branded national blue chips. (Funny enough some banks had mask supplies!)
  • WHO – I am just hoping that the Swiss HQ is the only thing they have in common with FIFA
  • EU? What EU? Germany took some patients from Italy and France but otherwise I did not witness any Unity. Why did no one send any doctors to Italy? Or did I miss something?
  • Never waste a crisis – thank you Orban for that one
  • An yes Big Brother is watching, suddenly all that data your mobile throws off will be used by governments!

Emerging markets

  • The oil haves and have nots will turn tables for a bit
  • …More to follow

D. Personal

WFH (Working from Home)

  • More of that given any signs of an illness for white collars
  • Paid leave for blue collar workers
  • Demand for that extra room or cupboard

Families

  • Expect a wave of divorces, especially for those that didnt plan for having conversations and joint parenting with their spouses
  • Thereafter expect to see a drop and even a few marriage courses based a two week quarantine
  • As for singles – online dating surely continues to grow
  • Parents actually get insight in what their kids are doing in class
  • Expect huge problems upon return to class rooms between those that advanced and those that fell behind for valid reasons but also bad parenting

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