PROSPER OR PERISH #5 by Stephen Gross. Click here to read past issues.
1. The economy is still shut down but is showing early signs of gradual reopening.
A. People tired of quarantine
As shelter-in-place slows to a halt, people are emerging in larger numbers than expected.
B. Businesses are devastated
Seven weeks of shut down have permanently harmed millions of businesses.
- PPP money just now starting to be funded on applications filed a month ago.
- Many businesses have let go of employees, and won’t be able to rehire them which means they will have a difficult time using PPP money on forgivable expenses.
- If money is not used primarily for payroll, it will turn into a permanent loan, repayable in a few years.
- There will be many bankruptcies as businesses will have to start over.
C. Debris of economic disaster will start to show up in the next few months.
- Closed restaurants will be challenged to reopen, many will not.
- Vacant malls will become the norm, as storefronts don’t reopen.
- Theaters, concert halls, stadiums, and amusement parks will all be challenged.
- Resorts, cruise lines, and airlines will slowly restart, with uncertainty about recovering to past levels.
D. Society will change as a result
- Housing markets will shift as people leave cities with high density, high taxes, high rents, and housing costs.
- Millennials will look to escape density and high rents, and begin buying entry-level housing with low-interest rate loans.
- Online shopping is now normal, and mall-based retailers will move more to online, as habits have now permanently changed.
- Office space will be reevaluated, as administrative functions go the cloud, and office workers are now used to remote working.
- Real estate, both commercial and residential, will go through price adjustments, as behavior changes and revenues decline.
- Entertainment will be focused on streaming activity (virtual attendance) and large venue gatherings will not recover for a time, if ever.
2. It will take years to recover from the shutdown.
A. Small business bankruptcies will set owners back for years.
B. Public companies will have to recoup lost profits during shut down.
C. Recovery for business will be gradual – it will take time.
D. Government — the big question:
- Revenues down and deficits up will cause Big Liquidity issues for local, state, and national governments.
- A slow, gradual increase in the money supply has yielded to a flood of cash injected into the market.
- The U.S. will have $40 trillion in debt before 2021 ends.
- For the first time in history, debt has been greater than GDP (output of goods and services).
- Low-interest rates have blunted the impact of debt.
- DANGER – rising interest rates (market caused) could crowd out pensions and basic services.
- Taxes will rise greatly where the problem is worst (New York, N.J., Connecticut, Illinois, California).
- Local and state governments will try to bring in Congress/D.C. to solve their problems.
- Political choice is to threaten the U.S. dollar with vastly higher deficits or let states, as well as cities, go bankrupt.
We are facing difficult choices and situations. But, we can choose to lean into these problems and emerge stronger. What will you do?
About The Author
Stephen Gross, CPA, CGMA, CVA, CFE — EVP of Hegemon Holdings and Co-Founder of Trusted CFO Solutions — is a big picture thinker and connector, with 40 years of rich and diverse experience in the C.P.A., business consulting, and venture capital worlds. Steve was an early adopter and evangelist of cloud-based accounting, as well as the concept of a virtual C.F.O. or Controller as a method of outsourcing the position in small businesses and startups. Learn More About Steve…