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This week: New York City is dead… or not; Market meltup; Part three of Coronavirus – USA; Reading list.
New York City is dead… or not!
To paraphrase F. Scott Fitzgerald, let me tell you about the very rich. They have differing opinions on New York City’s future.
A New York Post column by James Altucher declares in its headline that NYC is dead forever, a bold prediction given that most forecasts are unreliable beyond the next year or two, and that forever is quite a bit beyond that.
In the article, Altucher argues that large numbers of people left the City during the pandemic and that many will never return to live. He adds that the three main reasons to move to the City, business opportunities, culture and food have been decimated and will not bounce back.
Remote working, remote learning and remote everything have taken a step up in our lives during the pandemic. Altucher sees this as a permanent change that will keep people away from Manhattan office buildings and schools, and in their homes outside the city or in far-off states like Florida where he himself has taken up residence.
Not everyone is in agreement. A response column by Jerry Seinfeld in the New York Times does not mention Altucher by name, referring to him merely as “some putz on LinkedIn”. Seinfeld writes about New York City all the loving things that you expect from Seinfeld if you ever watched the eponymous TV series, itself a long ode to the thrills and challenges of Manhattan living. He writes about Altucher:
He says Everyone’s gone for good. How the hell do you know that? You moved to Miami. Yes, I also have a place out on Long Island. But I will never abandon New York City. Ever.
This is a potent message from a celebrity who is a cultural icon, a message that can be summed as follows: people like me Seinfeld will never abandon New York and we will continue to invest in its culture. Some culture requires geographic anchoring and identity. Not all culture can be produced and consumed just online.
Seinfeld makes another important point about remote working vs. being in New York:
There’s some other stupid thing in the article about “bandwidth” and how New York is over because everybody will “remote everything.” Guess what: Everyone hates to do this. Everyone. Hates.
You know why? There’s no energy.
Energy, attitude and personality cannot be “remoted” through even the best fiber optic lines. That’s the whole reason many of us moved to New York in the first place.
All true. The networking effects of in situ work and education are important and cannot be replicated online.
And yet, Altucher also made some good points. His article erred mainly in its extremist conclusion, not in every point made. For example, he is right about the current condition of commercial real estate, about the rise in crime, about the City’s shambolic finances.
NYC has a $9 billion deficit. A billion more than the mayor thought it was going to have. How does a city pay back its debts? The main way is aid from the state. But the state deficit just went bonkers. Another way is taxes. But if 900,000 estimated jobs are lost in NYC and tens of thousands of businesses, then that means less revenue from taxes — unless taxes are raised.
New York City will recover but the timing of recovery is unknown. Just as we are now seeing in the US economy, some parts will recover quickly and some will do so slowly or struggle indefinitely. It does seem however that its status as a “luxury city” or a playground for the global rich is imperiled not only by the pandemic but also by global economic and political trends.
In the end, the future will depend not only on what middle-aged professionals or the global wealthy decide to do, but on whether new generations of young people will continue to come to NYC.
The market meltup that we predicted in the Wednesday Briefs of 17 June and 8 July is well under way and the question now is what could stop it. If we look at the year 2000 as an analogy, that bubble did not end until the Fed retracted some liquidity and until many companies failed to live up to expectations. Worse, during the subsequent bear market, the receding tide bared evidence of many scandals and frauds.
The Fed is unlikely to pull in the reins any time soon and is in fact getting more lax about inflation targets. In theory, this will not only sustain equity markets but will also boost the price of gold at a time when the budget deficit (another vector for gold) is skyrocketing.
Regarding earnings expectations, it is possible that the best performing companies during the pandemic will see a temporary reversal if the pandemic in fact pulled forward some sales that would have occurred in the third or fourth quarters. For example, a family or a company may have upgraded its devices and technology a few months earlier, a shift that would have boosted Q2 sales for some companies but that could depress Q3 or Q4. It is possible that many Christmas 2020 iPads or computers were bought in the spring instead.
Scandals and frauds are out there as they always are but they are harder to see during a boom.
Three other factors must be considered, two that are exogenous to the market and one that is technical. The two exogenous are 1) the pandemic and its possible comeback in the US northeast as the weather cools in the fall and 2) the outcome of the Presidential election. We discussed some election scenarios in last week’s Briefs.
The technical consideration is that in August, market breadth (the number of stocks that participate in a rise) and volume are lower and the news flow on companies is less than in other months. This made a sustained rise such as we have seen in the Nasdaq this month more likely and less volatile. With September and the return of more normal conditions, breadth and news will both increase and some of the gains recorded in August may reverse themselves.
Part three of Coronavirus – USA
As predicted, the incidence of coronavirus cases and deaths in the USA has peaked and has been declining. The seven-day average of daily deaths is now below 1,000, still an alarming figure but heading in the right direction. On current trends, that average should fall below 700 within three or four weeks.
Part one of the pandemic was the spring lockdown. Part two saw the summer re-opening and the southern wave. The questions we now face as we enter part three is whether there will be another surge due to the cooling season and to school re-openings and how soon a remedy or vaccine will be available. We will know within weeks.
Recently read and recommended:
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