This is really about what economic recovery will look like. Obviously, the key front-line issue will be consumer behavior. The U.S. economy has for many year relied upon an aggressive consumer, and not so much upon the nation's industrial base. The outcome, in a time of crisis has been quite clearly catastrophic as the economic concept of "globalism", once celebrated as economic evolution, in reality left the nation nearly defenseless in its hour of need. All in the name of margin, a nation could not produce its own medicine, its own personal protection equipment, its own ventilators. Do I need to mention rare earths. That's a national security issue.
All at the expense of independence, not to mention the hollowing out of the American middle class. Don't like the gap in income distribution? Don't embrace globalist policy views. It's that simple. Remember when the media used to knock economists such as Peter Navarro for his protectionist views back in the early days of the trade war with China? Yeah, that did not age too well, did it? He's just about the only one who saw this coming and tried to warn us.
Now, this will bring along some other questions as we bring the view down from 10,000 feet to street level. Just how aggressive will consumers be, now that they are far less financially secure? How aggressive will consumers be, now that credit will likely not flow quite so easily for the near to mid-term future? How aggressive will the consumer be, with tax payments, and monthly bills probably in arrears for the time being? The IRS might be cutting you slack until July. Your local township will likely still demand their pound of flash on time. I think this impacts the housing market in a big way. More sellers seeking cash. Less buyers will to go for the "dream home." What does that do to new construction? What does the "work from home" movement, once its a chosen behavior do to commercial real estate? I shudder to think of the impact on large urban areas.
Oh, the economy will eventually reopen in stages, but things have changed. Financial conditions have changed. Folks who once planned family vacations, now celebrate as a family when Amazon (AMZN) or Walmart (WMT) finally deliver a four pack of canned beans that were ordered on two day delivery up to four weeks ago. People text each other immediately if someone notices that a super market got a delivery truck. Who among us has not heard someone in the house open a cardboard box, and yell, "Yes, toothpaste !!" as if it were Christmas morning?
Digging Deeper
One thing struck me as odd as the president rolled out his administration's guidelines for reopening the economy in a staged, incremental sort of way to be controlled at the local and regional levels, which was a relief to hear, by the way.
I get the need to see two weeks of improving metrics before actually rolling the dice on opening things up. What I found odd was the number, or kinds of businesses that could re-open at this time as long as social distancing rules were observed.
Movie theaters. You going the first few weeks? Me neither. In fact, I have been watching movies on Netflix (NFLX) and Disney-Plus (DIS) of late. Never used to do that very much. I kind of like it.
Sporting events. Baseball games. College football. I like going to these games as much as anyone I know. Will I go? Not if my team is good, and can pack the house. Maybe, just maybe, if my team stinks and I can sit 30 rows away from everyone else. Certainly will not be there on Opening Day. That's for sure. ESPN will serve this purpose for me, once there are games that can be watched.
Restaurants? Yeah, right. I'll be okay will drive-thru, and home made for a long while. Three cheers for McDonald's (MCD) . Do I need fancy? No. Do I need food? Yes. Does a greasy cheeseburger taste better than an expensive New York steak? Depends, but it's not a clear choice one way or the other. The point is that behavior will not snap back immediately, and probably never will in full.
Saved My Favorite For Last
You kids see gyms on the phase one list? Are you kidding me? Just can't wait to get into a steamy spin class with a bunch of other workout nuts. Oh, the sweat, the breath, really can't think of anything more likely to give rebirth to a highly contagious respiratory disease. I mean gee whiz. Maybe you can tip toe around the gym, not take any classes, and wipe everything off aggressively before you get on and when you get off a weight-lifting machine. Hoping nobody walks behind you while you work out, because you were stupid enough to wear headphones and did not hear them coming. Sounds like a blast.
So, it was that Planet Fitness (PLNT) roared to the tune of more than 10% on Friday morning after selling off for a couple of days. So, it was that Peloton (PTON) took a 7% beating on Friday morning despite going parabolic the prior two days. Now, there is no doubt that for fitness chains such as Planet Fitness will finally see some cash flow once the gyms reopen. They charge members the monthly fee whether the members show up or not. Members would have to cancel, and at just $10 a month, there is a chance that they'll hang on to the vast majority of their membership. I think that if one wants to invest in this kind of business, a business with a broad recurring revenue business model, PLNT is not a bad deal, the shares could retake it's 50 day ($60), and 200 day ($68) SMAs. In fact, I think that likely. Just do not expect the business to grow like it used to.
That said, working out at home is something that has also likely taken root. As I have mentioned before, Peloton equipment is quite pricey. There are much cheaper options out there, competing in that business for market share. I work out in my garage with weights. I do on-line spin classes on a $500 bike, with a streaming service that charges $9.99 per month. I still sweat. With not one other person in the room. Do you think, coming out of this financial crisis, more folks will look to lay down a couple of grand for an exercise machine with unnecessary bells and whistles, or less? Just asking.
My Opinion
I am currently in neither stock, but I would much rather be long Planet Fitness than Peloton at this time. Not even close.
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