The Roaring 20's

"History doesn't repeat itself, but it often rhymes."

Permanent Equity isn't in the business of making predictions, and we generally run our operations with an emphasis on maintaining financial strength no matter what economic climate prevails. However, we can't help but notice the quantitative - and more importantly the qualitative - trends that are unfolding before us.

In 1920, after World War I and the Spanish Flu Pandemic, people craved human support, connection, and interaction. The world was a different place from a mere ten years prior. Historians estimate that nearly 100 million people died worldwide from the 1-2 punch of WWI and Spanish Flu. People were desperate for comraderie.

Most historians credit the combination of these two macro events for what would become known as 'The Roaring Twenties.' Culture developed, music flourished, parties ensued, speculation was rampant, and the good times rolled. Indeed, it's almost as if the 'laws' of human psychology mimic the physical laws of nature. As Newton postulated, every action has an equal and opposite reaction. Is there a kernel of truth to this in human psychology as well?

If we apply this logic to the present, are we on the precipice of another reaction similar to the 1920's?

The early data is encouraging:

- Job postings are up 20% over last year
- Rail traffic is up compared to pre-covid levels: "Total combined U.S. traffic for the first 11 weeks of 2021 was 5,493,350 carloads and intermodal units, an increase of 3.5 percent compared to last year." - AAR Rail Traffic
- Manufacturing supply chains are stretched and demand is booming
- Daily flights have all but recovered from their 2020 lows back to 2019 levels (166,000 on March 24th in 2021 vs. 179,000 March 24th in 2019)
- Walk-in dining is steadily recovering from a January low of -60% from comparable 2019 time periods as more people get vaccinated
- Personal savings are up more than any prior year since 1984: "US households ended 2020 with about $1.6 trillion of excess savings from the increase in disposable personal income and the reduction in overall consumption (equivalent to about 7 percent of GDP)."
- In a recent 'friends of the firm' piece, Dr. Hedlund, research fellow at the St. Louis Federal Reserve, believes that businesses need to "prepare for a coming surge in consumer demand, particularly in food, clothing, utilities, household supplies, and personal care followed eventually by travel and other experiential goods and services that have been suppressed during the pandemic."

And there is more to come as more people are inoculated with the vaccine.

Sure, some of these data points are exacerbated by policy responses to the coronavirus pandemic and shifting demand from one industry to another. But the root cause of another roaring '20's won't be economic - it will be psychological. Social distancing has been encouraged everywhere and mandated in almost all states for a year at this point, and just like the law of gravity, humans tend to gravitate towards one another psychologically as well. If there is one prediction we'll make, it is this: the depressing isolation of coronavirus will be replaced with a manic flight to socialization at scale (e.g. Miami Beach Spring Break).

Perhaps we will see a roaring 20's. Perhaps we are in for more of a bumpy ride. Either way, we aren't banking on constant wind in the sails or sunshine forever. But we wouldn't be disappointed if history rhymed again.

After drought, disease, and now COVID, old-world winemakers adapt as only ancient businesses can (Fortune)
+ "With restaurants and bars mostly closed across Italy and in most of the rest of Europe, attention turned to non-traditional export markets where the virus has been under control—most notably in Asia. Online wine sales have also boomed. Nomisma, an Italian consultancy, reported in February that more than 8 million new customer accounts had been created with online sellers in the previous year. Internet searches in Italy for the term “vino online” doubled in a year, Nomisma said. According to Gianni Gagliardo, owner of the well-regarded and eponymous Barolo-producing wine estate in Piedmont, some of the changes the industry is experiencing will be long-lasting. The labor situation, he said, will return to normal. But the emphasis on Asian export markets is here to stay."

The distributed service sector: WFH will increase productivity growth (Noahpinion)
+ "This shift to remote working has got to improve productivity because we’re getting the same amount of output without commuting, without office buildings, and without all the goods and services associated with that. We can produce output at home and transmit it to the rest of the economy electronically, whether it’s an insurance claim or medical consultation. We’re producing what people really care about with a lot less input of things like office buildings and transportation. In a profound sense, the movement to working from home is going to make everyone who is capable of working from home more productive…It’s very possible that the transition to working from home – once we get the rest of the economy sorted out – will give us a sizeable jump in the annual growth of productivity."

Existing-home sales descend 6.6% in February (NAR)
+ "Existing-home sales fell 6.6% in February to a seasonally-adjusted annual rate of 6.22 million, but sales are still 9.1% higher than last year. The median existing-home sales price rose to $313,000, 15.8% higher from one year ago, with all regions posting double-digit price gains. As of the end of February, housing inventory remained at a record-low of 1.03 million units, down by 29.5% year-over-year – a record decline. Properties typically sold in 20 days, also a record low."

People bought boats like crazy last year (The Hustle)
+ "According to a report by the National Marine Manufacturers Association (NMMA), sales of boats and related marine gear hit $47B in 2020 — a 9% bump from 2019, and a 13-year high.

Per Boating Industry, all types of big-boy water toys saw a bump in 2020:

• Freshwater fishing boats and pontoons: 143k units (+12%)

• Personal watercraft (Jet Ski, Sea Doo): 82k units (+8%)

• Wake boats: 13k units (+20%)"

What has covid-19 taught us about remote work? (Matt Clancy)
+ "While productivity has been, on average, unchanged or even improved by the shift to remote work, there are some signs that maintaining productivity and innovation in the long run faces additional challenges. One of the critiques of fully remote work has always been that it deprives workers of the social environment of the office which allows for clearer communication, the growth and maintenance of social networks, and serendipity."

What a Year of WFH Has Done to Our Relationships at Work (Harvard Business Review)
+ "One of the biggest and most worrisome changes we saw across these studies was the significant impact that a year of full-time remote work had on organizational connections — the fundamental basis of social capital. People consistently report feeling disconnected, and in studying anonymized collaboration trends between billions of Outlook emails and Microsoft Teams meetings, we saw a clear trend: the shift to remote work shrunk people’s networks."

Spain is going to trial a 4-Day work week. Could the idea go mainstream post-pandemic?
+ "It wasn’t long after her company switched to a four-day workweek that Pilar Meseguer began noticing the benefits. Absenteeism fell nearly 30% at Delsol, the software firm in southern Spain where Meseguer is deputy director, and satisfaction rates among both her co-workers and their customers rose. But there were also some smaller, more personal gains. “I could go to the supermarket on Friday instead of Saturday when it’s packed with people,” Meseguer says. “It’s a simple thing, but it makes a big difference.”"

Amazon briefing: private equity is zeroing in on the Amazon ecosystem (Modern Retail)
+ "Over the past year, the pandemic has fueled a boom in third-party businesses on Amazon, which spawned the first set of Amazon-native IPOs and a soaring average sale price of e-commerce business. Now, established players — like boutique private equity firms — are increasingly investing in Amazon businesses."

How to operate an airport in Antarctica (Flight Radar 24)
+ "The original construction of the runway was done over two years and accomplished using a laser cutter to level the blue ice near the station, which is located 250 kilometers from the ice shelf at -72.011, 2.52. Completed in 2005, the finished runway is 3000 meters long by 60 meters wide."

We'd love your help.

If you stumble across something great, send it to weekly@permanentequity.com.

If you know an owner, operator, or someone who works with SMB's, please give us the highest compliment and send them our way. You can find previous The Weekly issues here.