The Light At The End Of The COVID-19 Tunnel

It is easy to get a little bit confused when one takes a step back and looks at the unfolding public reaction to the COVID-19 pandemic in the U.S. — because the reactions are a bit inconsistent. On the one hand, it’s easy to find pictures of empty stores shelves, deserted restaurants and once-bustling streets in New York and San Francisco and conclude that Americans as a whole have, in fact, #hunkereddown with plans to stay secluded indoors for the next several weeks.

Or one could look at the snapshots coming in from Spring Break full of crowded beaches, bars and clubs — and quickly determine that an awful lot of young people haven’t gotten the social distancing email or text just yet. Florida Governor Ron DeSantis finally took matters into his own hands and formally closed all bars and nightclubs in the state for 30 days — after news reports of spring breakers converging on Florida’s beaches en masse created public pressure for him to do something. But in other parts of the Gulf Coast, celebrations seemed to carry on undeterred — although a swath of spring breakers interviewed did indicate they plan to self-quarantine just as soon as they leave the state.

And it’s that weird back-and-forth where people are treating the outbreak like it’s the end of the world as we know it and also like it’s not a big deal, Continental Advisors Partner Paul Purcell told Karen Webster in a recent conversation, that is injecting even more turbulence into an already rocky and uncertain situation.

It’s also, he noted, a symptom of what has become a wave of somewhat “irrational behavior” that seems to now be running parallel COVID-19: People are loading up on goods they probably don’t need, and kicking off supply chain disruptions that didn’t need to be happening. Or wearing masks despite that, they aren’t sick and doctors have specifically asked them to stop because it’s not helpful. Or injecting trillions of stimulus into the U.S. economy as fast as possible without a solid picture of whether or not that much in funding will end up being completely out of scale with actual costs of COVID.   In short, Purcell noted, a lot of people react emotionally to important questions instead of thoughtfully – which in itself is a bigger threat to the public good that the virus is likely to be, since one is 20 times more likely to recover from COVID-19 than to die from it. At least, he says, that’s the evidence from China, according to the John Hopkins University of Medicine’s Coronavirus Resource Center.

“I mean, we are putting ourselves into a severe near-term recession, right? And what worries me here is what the duration of the behavioral irrationality is. My hope is that it is short, and I think this is one of those cases where I think it is a good thing that Americans have very short-term memories, so I think we will go back to normal very quickly,” Purcell told Webster.

Normal, however, will not mean the same, and the chessboard might look quite a bit different when the dust has cleared, with many important lessons learned for both investors and innovators.

Starting with global supply chains and the fact that China was and still is sitting as a single chokepoint through which so much of manufacturing runs. That, he says, is likely to look much less appealing in a post-2020 world than it has for the last two decades or so. China, he notes, isn’t going to love that, and may even see attempts to diversify supply chains as inherently hostile. But, Purcell noted, “investors are going to come after” firms who have that big a piece of risk exposure in the wake of this global pandemic and the impact of it on the flow of goods and services.

Purcell said that there are also going to be plenty of firms who take no lessons at all from this event because they aren’t going to exist past this year — many malls and brick and mortar retailers that were on life support anyway because they didn’t jump to digital fast enough. He predicts that they probably won’t survive the systemic shock they are facing, nor will they be able to respond fast enough to recover.

“What I think what this really exposed for a lot of these firms is that they were already dead, buried, 6 feet under. They might argue that they aren’t or weren’t, but the market trends were telling a different story,” Purcell said. “COVID-19 just put an exclamation point on it.”

From the macro-level perspective, the market trends were also telling a story of a correction that was coming, and maybe even overdue. The public markets were frothy, the venture capital markets more so. The “next big things” of the mobile commerce era didn’t quite live up to their initial billing: DoorDash and Uber have underperformed on the markets thus far, while WeWork imploded in a spectacular array of fireworks. Winter has been coming to the economy for a while and it seems it’s arrived in force all at once.

But, Purcell noted, for all the losses inevitably coming down the pipeline, there will also be winners, progress and quite a few players who come out far ahead at the end of this from where they were at the beginning. Starting with firms like Uber and DoorDash, which he believes will both be better positioned at the end of this than they were going in — possibly even the beneficiaries of consolidation that is almost certainly coming in the aftermath of this correction.

“I actually think that this event is going to be really good for that part of the market, particularly the gig economy. And by the way, some of those companies are behaving with great community conscience though this crisis: waiving delivery fees, screen information and the like.”

Also on the likely winners’ list, he noted, are going to be the firms in tele-education and telework: Slack, Zoom Video, Google Hangouts — all of the stuff that is enabling the wave of telecommuting underway.  This is also likely going to be the great separating of the wheat from the chaff in terms of tele-education.

“I do believe that there’s going to be a tremendous amount of innovation in this area going forward because the level of differentiation in what is out there is shocking,” Purcell explained. “We have kids in three different schools and differences between how the schools were prepared, how they communicated to the parents, what the online work product is that they’re delivering to the students, has blown me away.”

Purcell suspects he won’t be the only one who will have been blown away, or eager to innovate to fill the gaps.

And in fact, when the dust clears from this — probably more quickly than the most dedicate doomsayers are forecasting — there will be a lot of gaps that innovators will still be looking to fill. Given the federal interest rate cut and the stimulus funds earmarked to begin entering the market presently, odds are there will be funds to follow interest. The economy will recover, and even feel normal again — and might even emerge improved, Purcell noted. Provided people can settle down, and think rationally about how we can all get to other side of this crisis.

“You know, sometimes unexpected events are the cause of really good things to happen, so I think that that will be a positive outgrowth of this.”