Investment and economic perspectives post-Covid

On investment communities and forums, people are asking how to invest in this crisis, how to best prepare oneself, what sectors and stocks will recover the fastest, or how the economic landscape will change.

The media keeps talking about the US economy ‘having shut down’ or ‘being reopened,’ as if the US economy is some centralized entity that can be turned on or off at will, yet there is still tons of activity going on. Amazon is booming. Media publications such as the New York Times, Vox, Washington Post, etc. are churning out more content than ever. Same for YouTube content and social media. Microsoft, Google, Facebook, etc. seeing record usage and sales. The decline and shuttering of restaurants and brick-and-mortal retail is replaced by online retail, food delivery, streaming content, and social networking. Meetings are being replaced by Zoom. Rather than the economy shutting down or shrinking that much, rather it’s being rearranged and evolving into a new configuration, with new winners and losers.

Unemployment has surged, but given how smoothly things are running in spite of so many jobs and businesses closed or lost, makes you wonder how necessary many of those jobs and businesses were to begin with. This lends credence to the ‘BS jobs’ theory, as popularized by David Graeber, that the US economy generates too many jobs that don’t create enough value to justify their existence and or are redundant, so such jobs being eliminated should not hinder the ability of the economy and society to function and remain cohesive.

The closest historical analogue to where we are today is, is as recent as the 2008-2009 crisis and the 2009-2020 bull market and recovery, at the time the longest ever, and which finally saw its denouement only after worst pandemic in 100 years. My outlook can be summed as: the trends that were in place during 2009-2020 will continue , but even more so.There will be no meaningful changes to the status quo, politically or economically. In retrospect, this virus will amount to little more than a large pothole or hiccup in what is otherwise an uninterrupted trend.

This means:

The US-global economic and geopolitical hegemony will remain as strong as ever

As demonstrative of this hegemony, US dollar will be stronger than ever, and stay strong even in spite of the US being hit hard by the virus and surging deficits. Although the US was also hit hard by the 2008 financial crisis, it also recovered the fastest and sustained the biggest and longest recovery of all major countries, while Europe, Russia, South America, and emerging markets struggled with corruption, high inflation, and or stagnation. The same will be the case post-Covid.

In spite of China possibly being culpable for the virus, US-China trade and diplomatic relations will not be hurt. Things will return to normal, with no hard feelings by the US.

Inflation (as measured by CPI) and treasury bond yields will remain persistently low in spite of massive deficits and stimulus, similar to in 2009 when all the same people, such as Peter Schiff, who predicted high inflation due to bank bailouts and the Obama stimulus stimulus were wrong then too.

But other forms of inflation such as rent, real estate, healthcare, and college tuition will keep surging relative to the CPI, with the virus-induced recession being just tiny respite.

Similar to the post-2009 economic recovery and bull market, the labor market will remain weak long after the stock market, corporate profits, and earnings recover. The labor force participation rate will fall but the stock market will not be hurt by this due to corporate profits recovering quickly.

Similar 2008-2009, the biggest losers in this crisis are energy, retail, and financial companies, in addition to low-skilled workers and jobs. The post-2008 trend of the rising college wage premium will continue, too. As always, low-skilled workers get hit the hardest and take longest to recover.

High-skilled tech jobs, especially in coding, will thrive due to increased demand for ‘remote work solutions’, streaming content, video conferencing, food delivery apps, and online retail, as a consequence of the quarantine. Now would be a great time to learn how to code, to kill time while in quarantine.

Just like 2009-2020, the Nasdaq–which is composed of huge, massively profitable companies that are largely immune to the pandemic, as opposed to retail,energy, financials, and travel, which have thin margins and much more macro economic sensitivity– will outperform all other indexes. Big tech FANG stocks, including Microsoft, will continue to thrive.

Retail’s loss is tech’s gain, similar to 2008. Amazon will be even stronger by picking off the remnants of dying retail companies, not only as a consequence of the shutdowns and closure of small businesses, but also due to increased Prime subscriptions during the quarantine. Same for Netflix and Facebook and Google. Uber will also do well, due to growth of Uber Eats. The virus ending does not not mean people will cancel their Netflix, Uber Eats, or Amazon subscriptions.

The gig economy will boom. As the pandemic swept the nation, gig workers voiced their frustration online about losing their gigs, but the gig economy will come roaring back due to salaried/traditional jobs being permanently lost. Unemployed retail and other low-skilled workers will turn to gig work to supplement their already meager incomes. Uber, Task Rabbit, and Fiver will see continued growth due to this trend.

Uber’s ride business will recover, too, once the virus subsides. People who were hoping/expecting that Uber would go bankrupt will come up empty-handed yet again.

Tech investment in Silicon Valley will resume where it left off as if nothing happened. The virus will have no lasting impact. No bursting of tech bubble anywhere.

Payment processing companies such as Visa, MasterCard, Square, and PayPal will also continue to thrive.

Tesla stock is another great buy. It’s going to $3000-5000/share soon. The wealthy people who buy their cars are unaffected by this virus.

Bitcoin will continue to suck as an investment. Stay away. Over 2 years later and Bitcoin is still 50% lower than when I said to sell. It is never going above 14k again.

In conclusion, we can expect little to change economically, but similar to the aftermath of 911, which saw the rise of the ‘surveillance state,’ quarantines, shutdowns, and mandated social distancing will be new tools for governments to overreach their power.

Continued Part 2