As the old joke goes: it’s hard to make predictions…especially about the future.
And generally, making predictions is unnecessary for good investing.
That’s because index investing allows you to “piggy back” off the wisdom of crowds. As the smart money moves capital to growing businesses and growth areas of the economy, money in an index fund follows automatically.
But having said that, it’s only human to speculate about what the future might look like. Plus, as long as we realise that we might be wrong, it can be helpful for financial planning to think about what might change in our future.
Here are some things that might change:
1. Manufacturing is coming home
Right now, manufacturing supply chains are being re-evaluated everywhere. If all protective equipment and generic pharmaceuticals are made in China or The Philipines or other countries, what happens when there is a crisis? If there’s a shortage, who are they going to prioritise? To ask the question is to answer it.
The medical and pharma supply chains are fiendishly complicated but over time they will be simplified and key aspects (e.g. manufacture of PPE & generic drugs) will be re-shored even if (when) its more expensive than buying from overseas.
Things like 3D-printing and increasing automation will gradually make domestic manufacturing more price competitive. But this is an emergency and its not about price, it’s about security and resilience. We’ve cosied up to China for too long. This is why, although consumer goods will continue to be made overseas, the manufacture of medical supplies and other essentials is coming home.
2. More flexible working
Commuting sucks. Reclaiming say 2 or more hours per day of extra time is a HUGE win. It’s like getting a 25% payrise without any extra work and with LESS stress.
Even before CV-19, working from home was on the up. Did you know that in the UK, every employee ALREADY has a legal right to request flexible working? You can put a flexible working proposal to your employer to:
- reduce your hours / work part-time
- change / have flexibility with your start and finish time
- do your hours over fewer days
- work from home or elsewhere
- share the job with someone else
They have to consider your proposal and respond reasonably. It’s not binary (all or nothing); you could propose just one day a week working from home.
Can your employer say no? Of course. Are there career (promotion) risks to asking? Of course, there are risks in everything. This may mark you out as an independent thinker and many employers don’t like that. The key is to choose your moment, your arguments and your evidence carefully. Pitch it in terms of the benefits to the employer, not the benefits to you (obvs).
If you can show that your productivity stayed the same or increased during lockdown then you’ll have a strong case. So now is one of the best opportunities you’ll ever get to win a big quality of life upgrade.
Do you have a business case for this ready to go for when lockdown is lifted? The 4 Hour Work Week by Tim Ferris has some good tactics for negotiating with your boss.
3. More cycling
From a personal finance perspective, cars are money incineration units.
Cars burn money and are an incredibly inefficient use of space in towns and cities. Our cities should designed around people and community…not around cars.
In a world where we need new transport solutions and a transformational improvement in cardiovascular health and fitness (and a reduction in obesity), bikes are the perfect solution. In a rational world, we would see an explosion in bikes, cycle lanes and those little electric skateboards / scooters (which were everywhere in Paris when I was there earlier in the year).
Cycling is booming and you should join the party. Now is a good time to ask your employer for more showers, bike racks and office changing facilities.
4. House prices are headed down
Right now, the housing market is screwed.
Most deals have fallen over or been put in the deep freeze. Problem is, any price agreed before CV-19 is now a terrible price for the buyer. Rational buyers will seek price cuts or pull out of these deals where they are not yet legally committed.
In a housing market crash, prices are “sticky” and slow to adjust downwards as sellers resist price cuts. Transactions dry up, people stay put and it can take years for prices to adjust fully and the market to function normally again.
Much of the adjustment happens via inflation (see below). In other words, house prices can flat-line for several years whilst inflation cuts those prices in real terms. The last proper UK housing crash was in 1990 and it took over 5 years for the market to clear and normalise.
Many Buy To Let Landlords won’t be able to collect rents during the crisis and will realise that their safe-as-houses asset is more risky and more hassle than they realised. Immigration is (temporarily?) headed down whilst air travel is on hold. And interest rates can’t go much lower.
And finally, a bunch of office space will surely be converted to residential (see point 2). If I was a mixed-use property developer or architect or landlord, I would be making BIG changes in my plans.
Lower demand and higher supply mean lower house prices; good news for those looking to “get on the ladder”.
5. Inflation risks are rising
As I wrote in How The Magic Money Tree Works, the Government has turned to printing money to finance an exploding deficit between government spending and tax receipts.
Hopefully this will be temporary. But once voters realise that there is a Magic Money Tree (at least in recessions where the economy has spare capacity) will this become a permanent feature of the political landscape and the policymakers toolkit? There is huge scope for abuse resulting from the interaction of public opinion with politician’s desire to retain power.
I’m not predicting high inflation. I’m just saying that the “tail risks” are increasing.
As a result, there will be an upsurge of chancers selling speculative products dressed up as anti-inflation hedges.
In the 1970s / 80s / 90s gold coins and bullion adverts took off whenever inflation fears rose.
Today, we are more likely to see crypto-currency adverts in our Youtube / Facebook / Google newsfeeds (I am already seeing this online).
6. A break-up of the Eurozone?
In times of crisis, people remember the value of the nation state.
The CV-19 crisis is testing EU solidarity. The French President has warned of the EU unravelling and the EU president has apologised to Italians for the EU’s (lack of) response to the crisis. It’s now looking increasingly possible that Italians will vote for a “leave” government.
The big problem is that countries like Italy, Spain, Ireland etc don’t have the ability to provide helicopter money to their own people without the European Central Bank, based in Frankfurt.
It looks to me like The Euro, if it is to survive long term, will need full-blown quantitative easing in order to ease adjustment and recovery and reduce government debt burdens. This is printing money and its been anathema to the German political classes with their folk memory of Weimar Republic hyper-inflation.
Are you overweight EUR denominated cash? Remember The Ice Sculpture, The Turkey and The Rollercoaster.
7. A greater awareness of health
Personally, I wasn’t very worried about getting the virus at the outset of the outbreak (certainly not worried for myself but I do have elderly parents). Since then, I’ve got even less worried about it, having heard more about the low mortality rate for people without other conditions.
To me, CV-19 has been a reminder to focus on what you can control and ignore the noise in the media. I’ve been eating clean, walking and taking vitamin C and D (sunshine) which are either free or cheap as chips and are an investment with asymmetric payoffs (no downside, big upside).
When it comes to health, average just isn’t good enough anymore. We need to improve health rather than just treat sickness. We have got too used to popping pills to treat the diseases of abundance and sedentary lifestyles.
Drugs are sticking plaster solutions with side-effects and they are poor substitutes for natural food, exercise, sunshine etc. I think (hope?) that people will re-prioritise health as it becomes clearer that most Covid casualties had pre-existing conditions.
8. P2P Lending gets massacred
I’ve been warning about the risks of P2P Lending for several years and am able to confirm that this doesn’t win you any friends or any thanks from novice investors. 😉
In The Ice Sculpture and The Turkey I described most P2P Lending as a form of sub-prime lending where borrowers who couldn’t get loans from banks go to fund lifestyles they can’t afford. This is a turkey strategy and it looks like Christmas came early this year.
In a downturn, people get reminded that fixed income returns depend more on the return of your capital rather than the return on your capital.
9. Less travel, more expensive?
Right now, planes look like super-spreader hotspots: metal tubes filled with people packed together breathing each others recycled air.
Once the virus has receded, its certainly possible that we’ll quickly bounce back to the old normal with hyper-mobility and ever-increasing air travel.
But I do wonder whether governments looking for new sources of tax revenue will get together to introduce more border controls, levy tax on aviation fuel and perhaps levy visa charges on tourists to enter other countries? The result could be a world with less air travel: fewer foreign holidays and less business travel as people get more used to Zoom and MSFT Teams.
Will any of this come to pass? We can’t know for sure but it will be interesting to see how things play out.
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