Over the last week I have had some discussions with friends over what the post-pandemic world will look like. There is a consensus that a huge pile of cash is waiting to be unleashed and if you look at some of the numbers that are circling around it does seem that way in North America, but also Europe. What the numbers do not tell us is what people are actually doing with their savings and more importantly, what they plan to do once the lockdown phase recedes.
So I did some inventory on a year in lockdown looking at the Dorsman cash register. Spending on gas, eating out and of course travel is way down, but then spending on groceries, books, online subscriptions and charitable donations has gone up although they are not consuming all of those savings. What did increase was investment: in the stock market, in angel investing and in a number of new business activities we have been developing. So on a cash basis we are not better off necessarily, but money now flows a bit differently and I see our savings seeking a place for potential higher returns. This is not just us, the inflows into our angel fund reached absolute record highs over the past six months and if I look at the data coming out of the various angel initiatives we are involved in I see financing rounds closing quickly, at increasing valuations.
This points to an investment cycle generally that remains on the uptrend and I somehow suspect that the growing pile of savings will continue to move into areas where higher rates of return can be obtained, not into consumer spending. Real estate has also been on a tear recently, helped by low interest rates and the realization that you don’t have to live in a city anymore to work. Yes, we will be travelling again (I can’t wait honestly) and yes this summer will see a nice uptick in eating out and sports activities, but I find it really hard to conceive of a post-pandemic consumer boom. And the underlying reasons are simple: (1) the pandemic is not over yet and a return to normal will be gradual at best; (2) people have found a new balance and may very well be quite comfortable with the new ways of cash and asset allocation in their lives, and (3) the cash surplus applies to only those whose income levels were largely unaffected during the crisis, the definition of the ‘mass consumer’ as we know it may have to be adjusted quite a bit.
The last point is something to think through. We are seeing another wealth shift benefitting only the mid to higher income levels. And the concurrent higher asset prices, great if you are raising for your start-up, is only to the benefit of a small segment of the population. To be clear, the trends of economic inequality have gathered pace during the pandemic, the NYT has a good round-up of some personal stories of how people fared over the past 12 months. It tells you that the less fortunate are even more threatened by the fact that the pace of globalization has only intensified during the pandemic with jobs shifting to places where incomes are relatively low. The aid packages and government supports are all great, but they don’t help people in the long run. They’re band-aids that mitigate the pain of the current moment. With that I have some serious doubts over a post-pandemic boom and all those big summer parties that will bring our economies back into shape miraculously. They won’t.
Photo: Schiphol Airport, Amsterdam in March 2020. One year on it is as quiet as it was then.
In our case the same pattern holds, though we contributed to the boom in home spending by doing quite a bit of work on the house. One needs a place to put all those extra books! The main investment us in upgrading the basement into office space.