Monday, January 18, 2021

Morning Note: Uncommon Sense

In many of our client reviews we've been discussing the pent-up demand narrative that so pervades Wall Street think of late.

Per those discussions, I'm on board for sure, but only for, let's say, a few months once herd immunity is had, that is.

Make no mistake, tons of stimulus-induced spending on tons of stuff literally got pulled forward months/years. I.e., much of that stuff would've been bought in the future; stuff that, let's say, folks don't buy twice over a short period of time. 

We, therefore, remain very aware of what will likely be a letdown in stuff-buying sometime after we're fully up and running.

But, absolutely, there's the services sector that's bound to see quite the boost.

And, then again (the actual numbers/economic impact), there's this common, well, apparently, on Wall Street in particular -- uncommon -- sense from one of today's more thoughtful commentators, economist/strategist Dave Rosenberg:
"...yes, a quarter or two of jubilation and celebration. Then the reality of redressing massive public sector deficits and debts as well as the insufficient level of precautionary savings heading into the crisis will come into full view.

But then, there are the actual numbers. The areas where there will be pent-up demand comes to the grand total of 6% of total consumer spending and barely more than a 4% share of GDP.

Restaurants command a 4.3% share of consumption, but frankly, we spend nearly twice that amount annually on groceries. I will be the first one to tell you that, with or without a pandemic, we still have to eat. 

So maybe there’s a nice bump in restaurants and bars for a few months and again, reality sets in. 

Not just the added expense of eating out, but all the food sitting in the pantry and booze in the cabinet that we bought this past year. And the cost of remodeling the kitchen and all the fancy new appliances we bought —this investment will not be put to waste. 

The fact that gardening supplies and cookbooks flew off the shelves these past ten months is a tell-tale sign of how attitudes towards food consumption have been altered for a very long time. Eating in is in, eating out is out—beyond a quarter or two of the post-pandemic bounce. 

Too many pundits live in the old paradigm of conspicuous consumption and not enough see the secular change in consumer behavior, towards a more frugal future, that lies ahead.

A boom in amusement parks? Knock yourself out. This is 0.3% of total consumption. Same for hotels and motels. Air travel—you would think we all fly somewhere every day based on all the narrative about air travel. It represents the grand total of a 0.4% share of household expenditure. Casinos? Well, they account for a 0.6% share even when Vegas is jam packed. Oh—movies and theater and sporting events? Well, they account for a 0.1% share."

As you know, the inspiring words of the remarkable individual whose life we celebrate today are many. While the following of course do not nearly do him justice, they do speak to the investment process:

“Rarely do we find men who willingly engage in hard, solid thinking. There is an almost universal quest for easy answers and half-baked solutions.”

“Everything that we see is a shadow cast by that which we do not see.”
-- Martin Luther King Jr.


Have a wonderful day!

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