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New abnormal is actually just normal

“I very frequently get the question: what's going to change in the next ten years? And that is a very interesting question; it's a very common one. I almost never get the question: what's not going to change in the next ten years? And I submit to you that that second question is actually the more important of the two — because you can build a business strategy around the things that are stable in time … When you have something that you know is true, even over the long term, you can afford to put a lot of energy into it.”— Jeff Bezos, CEO of Amazon

These are extraordinary times that this generation will never forget, with more than 270,000 known deaths from the Covid-19 and tens of millions of people forced to give up their jobs. We all agree that both the health and economic impact is unprecedented and concerning. I come across a lot of commentaries and predictive discourse of how the world after-Covid (AC) will be for ever altered and changed. Ironically a lot of what is mentioned or suggested is nothing new. In fact, a lot of the secular themes and social conditions are just continuations of what has been going on for some time. If anything, these trends have just been accelerated in terms of adoption or prevalence.

Let's discuss six briefly:

1, Inequality

Financial assets are held, in the majority, by a small fraction of the wealthiest in society. With the stock market on the ascension (S&P 500 has rallied over 31 per cent from its intraday bottom on March 23) while the economy continues to deteriorate, those with assets have fared relatively well. Those with liquidity, savings, and investments may have even taken advantage of the weakness in the recent sell-off, only furthering their accumulated share of wealth. The gap between the rich and the poor will only widen further, but this has been happening for some time. Income inequality in the US has increased by about 20 per cent from 1980 to 2016, and incomes have increased faster for the most affluent families — those in the top 5 per cent — than for families in the income strata below them, according to the Pew Research Centre. Since this crisis will likely disproportionately affect the less affluent and those workers who cannot work from home, it will only perpetuate this trend. Especially since the recovery will be likely U-shaped, and those with savings can weather the storm.

2, Technology and working from home

Although the scope and scale of the work from home (WFH) industry has exploded, given its forced requirement, this trend is nothing new. Companies have already been moving to flexible work arrangements, remote working and the digitisation of business. The AC environment will only accelerate the pace of change and scope of this. Still, cloud providers, software as service providers, and data centres have already been benefiting from this move. According to Gartner, worldwide public cloud service revenue already grew by about 16 per cent from 2018 to 2019 and is estimated to grow by about 17 per cent for 2020. As they stated in November 2019: “Demand for strategic cloud service outcomes signals an organisational shift towards digital business outcomes.”

3, Oligopolies and Winner Takes All

Even before the pandemic, mom-pop shops were already seeing pressure. This crisis is mainly a small business story. The area of the economy to be hit the worst unfortunately be felt the most by the small and medium-sized businesses with no access to the public markets and/or financial flexibility much larger and dominant companies have. As a result, the majority and prevalence of small business failures will likely be large in comparison to dominant and large public companies. Large and dominant public companies are likely to only consolidate their power and influence as they garner more market share and take advantage of opportunities that arise from competitors who are struggling to simply survive. I have written about this before generally but also specifically for Bermuda in “Competitive capitalism is the key” (https://tinyurl.com/yb8urjyx).

4, Death of Bricks and Mortar

This, again, is not anything new. The destruction of the brick and mortar-based retail model has been happening for some time. Trends in almost all lines of consumption, from hard and soft retailing, have shown a steady increase in online ordering and consumption. Retail e-commerce sales worldwide, according to eMarketer, have risen from 10.4 per cent in 2017 to 14.1 per cent in 2019 and is likely to be 16.1 per cent in 2020. The most recent example is the news that JC Penney is preparing to file for bankruptcy, closing approximately 850 stores. The future of the 118-year-old department store chain is in doubt, along with their 85,000 employees.

5, Globalisation and nationalism resurrected

We may see more onshoring for certain industries like healthcare, but globalisation was already slowing long before Covid-19 though. In January, McKinsey Global Institute postulated that globalisation had already peaked in the mid-2000s. There has been a continual shift from cheaper labour to more efficient technological manufacturing and an overall shift in consumption of services over goods. Both have naturally reduced globalisation already to some degree and fostered an almost clandestine form of nationalism.

6, Travel and tourism

There is one significant present change that I think will not remain permanent. The tourism and travel industry have been slammed by the global pandemic. I don't, however, believe that the desire for travel and experiences will be hurt in the medium to long-term. I think people will become emboldened and less fearful as this crisis fades. Humanity is resilient and defiant when it comes to conflict. I am pretty sure the “selfie generations” will not put their life plan to see the world on hold indefinitely with some intangible fear of future pandemics. People will fly again, stay in hotels, and even take cruises. Once the concern of the disease fades because we get a vaccine, or the headlines will simply fade from the front page and the enormous increase in risk aversion will dissipate. Although the turn may take a year, ultimate demand is not likely to be permanently destroyed. Life will go on.

But don't take my word for it. Reopening day at Shanghai Disney (although capped at about 30 per cent) just sold out. People still want their kids to go to the “Most magical place on Earth”. In the cruise industry, bookings are already rising for 2021. CruiseCompete.com has seen a 40 per cent increase in its bookings for 2021 over its 2019 bookings. UBS found that 76 per cent of people that cancelled for 2020 chose to receive a credit for 2021 rather than a full refund and booking volume for 2021 was up 9 per cent.

CruiseCritic.com recent poll of over 4,600 people found 75 per cent plan to continue cruising at the same level as before the Covid-19 pandemic. Royal Caribbean just noted that “the booked position for 2021 is within historical ranges when compared to same time last year with 2021 prices up mid-single digits compared to 2020”. Note that a lot of what is discussed is cancellable bookings and surveys so by no means a clear and definitive indication. Still, I believe that with the proper price incentives and confidence, travel, and tourism will return with strength like it was seeing before. The industry just needs to survive in the near term.

The nations, industries, and people who bravely move forward will be winners. Those who hunker down, hide, and isolate will not fare well. This is no different than what happened in prior periods of uncertainty. The world may be changing, but a lot of what is developing is simply the same.


Cruise ship bookings for 2021 are already on the rise despite multiple Covid-19 outbreaks


Cruise Ship Bookings have Increased for 2021


Royal Caribbean Group Provides Business Update, May 08, 2020


Gartner Forecasts Worldwide Public Cloud Revenue to Grow 17 per cent in 2020


Trends in income and wealth inequality, by Juliana Menasce Horowitz, Ruth Igielnik and Rakesh Kochhar, Pew Research Centre


“Competitive capitalism is the key”, by Nathan Kowalski, http://www.royalgazette.com/nathan-kowalski/article/20190701/competitive-capitalism-is-key

“Global e-commerce 2019 e-commerce Continues Strong Gains Amid Global Economic Uncertainty”, by Andrew Lipsman, Jun 27, 2019


“Globalisation in transition: the future of trade and value chains”, McKinsey Global Institute, January 2019

https://www.mckinsey.com/~/media/McKinsey/Featured per cent20Insights/Innovation/Globalization per cent20in per cent20transition per cent20The per cent20future per cent20of per cent20trade per cent20and per cent20value per cent20chains/MGI-Globalization per cent20in per cent20transition-The-future-of-trade-and-value-chains-Full-report.ashx? mod=article_inline

Shanghai Disneyland sells out opening day tickets,


Nathan Kowalski CPA, CA, CFA, CIM, FCSI is the chief financial officer of Anchor Investment Management Ltd and can be contacted at nkowalski@anchor.bm

• Disclaimer: The sole responsibility for the content of this article, lies with the author. It does not necessarily reflect the opinion, policy or position of Anchor Investment Management Ltd. The content of this article is not intended to be relied upon as a forecast, research or investment advice, and is not a recommendation, offer or solicitation to buy or sell any securities or to adopt any investment strategy or for any other purpose. The information and opinions contained in this material are derived from proprietary and non-proprietary sources deemed by the author to be reliable. They are not necessarily all-inclusive, are not guaranteed as to the accuracy and are current only at the time written. Past performance is no guarantee of future results. There is no guarantee that any forecasts made will come to pass. Reliance upon information in this material is at the sole discretion of the reader. Investment involves risks. Readers should consult their professional financial advisers prior to any investment decision. The author may own securities discussed in this article. Index performance is shown for illustrative purposes only. You cannot invest directly in an index. The author respects the intellectual property rights of others. Trademark or copyright claims should be directed to the author by e-mail.

Tourism will rise again: sources are reporting that cruise bookings for 2021 are at healthy levels (File photograph)

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Published May 11, 2020 at 9:00 am (Updated May 10, 2020 at 9:58 pm)

New abnormal is actually just normal

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