Opportunities in the Transition to the Next Normal, Part II

Writers have pegged 2021 as a “year of transition.” A transition is triggered by an event, planned or unplanned. A planned transition might be marriage, career change, retirement. An unplanned transition may be a death, health crisis, career setback. An unplanned event, Covid-19, impacted us all, forcing our economy and many of us to transition toward some form of new normal.

Any transition is a challenge that must be managed. First, the event occurs. Then you hit the “now what?” stage as you figure out what to do.  The third stage is what innovator Susan Bradley, head of Florida’s Financial Transitionist Institute, calls the “passage stage.” That can get messy, fraught with indecision and stress as you wrestle with choices. The last stage, “the ending,” is when you’ve put Humpty Dumpty back together again, your life, finances, business, career, retirement dreams, etc., reframed in a “new normal.” On a global, national, and personal level, viral disruptions have complicated events already underway, causing challenges for all and opportunities for some. Where can you find opportunity and renewal in what’s coming?

It’s in our nature to explore and enjoy. When advisors discuss retirement activities with clients, travel often tops the list. As more people are vaccinated and confidence rises, leisure travel will pick up first. Business travel may take longer to recover. Per McKinsey & Company, after the 2008-09 crisis it took five years for international business travel to recover, but only two years for international leisure travel. Watch for promotions from airlines, 5-star hotels, cruise lines, tour operators.

Bouts of “creative destruction” always unleash entrepreneurial animal spirits. After the last Great Recession, in 2009 over half a million new business were launched domestically. It’s happening again with a flood of new business applications for tax identification numbers. Azlo caters to founders and freelancers who need digital banking and business services. During July, 2020, the company surveyed over 1,000 new clients nationwide. Forty percent said the pandemic was the impetus to start a new venture; 37% saw the pandemic as creating market opportunity; 39% of founders either have employees and/or plan to hire in the future; 96% of founders plan to stay in business; 54% of founders say their business is their prime source of income, while 35% will run it as a side gig.

McKinsey sees a rebalancing and shifting of supply chains as cost differences between developed countries like the U.S. and developing nations are narrowing, good news for American workers. Covid-19 shutdowns illustrated vulnerabilities in complex supply chains spread across multiple countries. Americans are concerned about being so dependent on China for drugs, medical equipment, and other crucial items. Expect more activity to return to our shores.

CEOs are rethinking the nature of the office. The McKinsey Global Institute estimates that more than 20% of the workforce, many in high-skilled jobs such as finance, IT, insurance, etc., could work effectively from home. Friday may become “work-from-home-day” with lighter traffic. But McKinsey also sees the office as serving a critical role in “creating culture and a sense of belonging.” Getting to know people personally and understanding their unique abilities fosters synergistic teamwork as well as mentorship, elements in developing human capital as a factor in building corporate value. You need a place to train employees, especially given fast moving technological advancements. A 2019 McKinsey survey showed that 90% of executives and managers queried said their firms faced skill gaps or expected to in the next five years. COVID-19 has exacerbated the need for technology upgrades in many sectors, a trend requiring concomitant skills.

America is transitioning away from coal and other fossil fuels as global leaders are increasingly concerned with pollution and environmental degradation. Green energy spending will explode globally, generating investment opportunities as well as wasteful boondoggles. Achieving net-zero emissions will not happen overnight and there will be political battles over keeping America energy independent. Businesses must be aware of and respond to the environmental and sustainability concerns of individual investors, large pension funds, and foundations.

Investors wonder about fallout from Uncle Sam’s growing national debt burden. Debt as a share of the economy has more than tripled over the last 20 years, approaching 100% of GDP, levels not seen since WW II. With projections for debt loads and federal borrowing to climb higher, some worry about crowding out the private sector, as well as what happens if interest rates rise and debt service costs squeeze the federal budget, forcing greater tax increases which extracts money from the private economy, investors, and creative elements.

Like anything else, there are reasons for optimism and grounds for caution. If history is a teacher, the “new normal” will be far different in many ways than the “old normal.” We always will be challenged to find opportunity while avoiding  potholes, as we prepare ourselves physically, financially, and spiritually for the next Black Swan event. Yin and yang go hand-in-hand.