QuickHit: We’re not going to normalize
In this episode, our expert guest Grant Wilson of Exante Data said that “we’re not going to normalize” and that countries need to make the very difficult decision to risk re-infection or re-outbreak in order to reopen the economy.
Grant Wilson is the Head of Asia Pacific for Exante Data, a macro advisory and data analytics company based in New York, with a broad global client roster. Exante Data was one of the first to identify and analyze the impact of Coronavirus with detailed data.
You can also check out our previous QuickHit episodes: How do we use up all the corn now? and How ready is the military to face COVID-19 and its challenges?
GW: So we saw COVID very early – mid to late January. In fact, I positioned it as a key risk factor for our clients. And as the situation evolved we just stayed with it.
We moved the firm increasingly towards all data through this period because we’re trying to assess how the virus is affecting the economy: [what are the] different scenarios to restart in different countries, different sectors, which is really the most germane question at the moment.
TN: Where do you think we are? I think the initial shock is past. Do you think we’re on a path to normalization or are we still in a hesitation phase before we get on to that normalization path or something different?
GW: I think it’s something different. I don’t think we’re going to normalize. I do think there are going to be industries, which have fundamentally changed coming out of this. People want to put a time frame on it, and I think you just got a run with it.
But to give you some examples, I’m extremely pessimistic about commercial real estate globally. The way people work has changed fundamentally, and it’s not going to change back. Whether the virus comes off a little bit more or whether we do get a second wave. The fundamental changes that are happening in terms of office environment, the digitization of communication. Those things are not going to turn around. So if you’re a large landlord or a sponsor of CMBX, derivative structure, you’ve got some real problems, and it does not matter where the virus is.
Similarly like public infrastructure. People are clearly using less trains, less buses, obviously less planes. Interesting that there could be a shift back to private car usage. We are trying to think through the secular things coming out of this.
And then for the virus itself, one of the most peculiar things is that there’s only probably a couple of countries globally that can truly achieve elimination, like to totally get rid of the virus within a proximate, self-contained environment. New Zealand’s a very good example of that. In Australia, the case counts are extremely low. So the rest of the world will not eliminate this thing. They’re gonna have to pick and make these really, really difficult decisions about how much of a virus risk and re-outbreak that they want to tolerate as against the imperatives of restarting the economy.
TN: A lot of the talk was about flattening the curve, which was about reducing the kind of overwhelming capacity going into hospitals so they could actually treat people. That flattening the curve discussion has changed to something different. And it seems to almost be approaching a zero-tolerance discussion where we have these lockdowns and people can’t go into work and make a living.
In the States, we recently saw Elon Musk threatened to move his company out of California to Texas potentially so that he could get his company to work. And the State of California or the county relented and let them come into work. Are we in a period where there’s selective lockdowns? Does flattening the curve mean anything anymore? What are you seeing in terms of the economy, industries?
GW: The thing is that a lot of companies, retail, hospitality, mass events, you know football games, basketball, things like that, they don’t really work in this model where you have social distancing. And so, you either really just have to go for full eradication. But it’s not possible in many of these places. You’re going to have to tolerate some reinfection risk and get on with it.
I’m very far away from the U.S., but we’re tracking it very closely state-by-state that there is sort of a polarization developing where Republican states are more inclined to try to restart the economy and sort of run this risk. Democratic states are still more tolerant of lockdown. And it seems increasingly politicized, and that’s not a great surprise given you’ve got a big event at the end of the year.
I’ve contrasted to Europe. When you listen to Angela Merkel, not Britain because Britain was very late and very confused in terms of their strategy. She’s a scientist by training and she explained very, very clearly that the first part of the strategy was to make sure that they didn’t blow through their ICU constraint. And now that they’ve achieved that, indeed they have flattened a curve. They’re not gunning for elimination. They know they can’t get there. And so they’re just trying to manage what’s known as the r0 so it doesn’t pop back up above one and you have a real explosive re-acceleration. But they’re having to live with it.
What still hasn’t necessarily gotten through to people, is that business models that worked previously don’t work anymore. It’s very hard to see how a lot of small and medium-term enterprises are going to make it out of this. And I think that’s the Chapter 3 or Chapter 4 version of it. But that’s the concern. There’ll be some winners and there’ll be some adaptation of the economy. But the legacy and the tail on this is just immense. It’s immense.
TN: So tell me this. Is there anything good that’s going to come out of this?
GW: There’s probably going to be a very significant re-think about climate change. This is going to be one of the first years where carbon emissions globally are going to fall. Effectively, it’s because we shut things down. It was the way that people actually wanted to get there. That’s probably one interesting data point. If you look at that area very closely, we’ve never been able to run a real-time experiment like this. So it will be very interesting to see how the effects sort of percolate through.