[Note: This was originally published on my now-defunct Substack on April 16, 2020]
Day-to-day changes may be less drastic than you think...
First, let me explain "This time it's different..."
In a note to his clients last year, Howard Marks of Oaktree Capital quoted a New York Times article just before the 1987 stock market crash:
The four most dangerous words in investing are "this time it's different," according to John Templeton, the highly regarded 74-year-od mutual fund manager. At stock market tops and bottoms, investors invariably use this rationale to justify their emotion-driven decisions.
Marks' takeaway from that article was that investors must take heed when markets are riding the "this time it's different" wave. People were justifying the 1987 six-year bull run at the time by arguing, "this time it's different," but eight days (!) after that article was published, Black Monday happened, and the market fell 22% in one session.
It's really hard to escape the rules of order. Recessions happen. Stock markets form bubbles and inevitably plummet. Housing markets crash. Governments default. Companies go out of business. Countries go to war.
If you think those things can't happen at any given time, then you're thinking about it wrong.+ The fact that those can occur should be the baseline assumption, not treated as some kind of tail risk.++
Because trying to recognize "this time it's different" syndrome is one of the frameworks that I use to help guide my thought process, I take any claims that coronavirus is going to massively change something in our day-to-day lives with a grain of salt.
This week I wrote "Will New York and Chicago become permanent ghost towns post-Coronavirus? Um, no." I argued that all the calls for big, dense cities like New York and Chicago hollowing out are probably wrong (though I can't assign a 0% probability to anything happening).
More than likely, the streets of SoHo and the West Loop will be crowded with shoppers and diners in the not-too distant future. That might look a little different than it used to, but it's hard to see a fundamental change happening where there is mass-migration from Brooklyn to upstate New York, or from Chicago to smaller Midwest cities.
So what will change?
My guess is that the world post-coronavirus will accelerate changes that were already happening. Like working from home (or at least more flexibility to work from home). Here are a few more examples:
- Swiss watch industry: Rolex, Patek Philippe, and Chanel announced they wouldn't exhibit at the Baselworld watch and jewelry trade show in 2021 (Reuters). The 2020 show was already cancelled due to coronavirus. Swatch already left Baselworld in 2019, citing issues including costs. But this all came against the backdrop of Apple selling 30.7M watches in 2019 compared to 21.1M for the entire Swiss watch industry (CNBC).
- Speaking of conferences...: Company conferences like Facebook's F8, Okta's Oktane, and Google's I/O were cancelled. So was South by Southwest and Mobile World Congress and E3. Recode cited a study that said the cost of the cancellation of just 10 major tech conferences was $1.1B. But are companies really missing out by not attending expensive, flashy conferences? Okta held a virtual conference instead and generated 4,000 leads, more than usual for the in-person Vegas convention. The TV industry's upfronts were cancelled. CBS' head of ad sales said while she'll miss Carnegie Hall and the agency dinners, the company wont miss a beat.
- Sports on television: The NFL TV rights are up for negotiation, with talks set to begin within the next three months. But ProFootballTalk said that the stock market crash may weigh on bids from publicly-traded companies, who might not be able to justify multi-billion dollar commitments, which could push streaming companies to step up. Want a good case study in how expensive televised sports are? Morgan Stanley's Ben Swinburne also said earlier this month that ESPN will see a cost reduction from cancelled sports events that will more than offset lost ad sales generated from those broadcasts. Granted, less live sports would eventually lead to lower fees from carriers, but airing live sports seems to be a loss-leader, of sorts, for ESPN (don’t get me started on the Olympics). What does that mean for bidding rights for live sports in the future?
There are plenty of other cases like this, where companies will be forced to rationalize and wasteful spending gets cut.
Change, or just a shifted timeline?
How many of those changes will happen at the margin, rather than a fundamental shift? At the end of the day, there trends that started before coronavirus - TV, working from home, people skipping out on luxury watches - just get accelerated into the post-coronavirus world.
In case you needed additional proof that things will mostly stay the same...
+ Here's a summary to the excellent Ken Rogoff and Carmen Reinhard book, This Time Is Different.
++ That said, I fully recognize this kind of thinking leaves me exposed to underweighting tail risk events. Take the coronavirus pandemic, for example. I resisted thinking “this time is different” until it was clear that this time is different. Why? If you believe in this time is different thinking, then you overweight tail risk events, like stock markets not crashing. Like any good model, I need to use this experience to adjust my own to better account for those one-offs.