The good news is that the banks are *much* better capitalized than they were going into the Financial Crisis. The bad news is that they’re going to need every dime of that capital to stave off a crushing wave of bad commercial and CRE loans. Drive down whatever street near you has a lot of strip malls. I live in Mexico now but I drove down Broadway in Chula Vista the other day and just looked on either side of the street – restaurants, nail/hair salons, small hotels, miscellaneous services and retail… at least 1/3 of these businesses will fail by year-end. They simply do not have the wherewithall to survive. And the others will limp along for years afterward. Virtually all restaurants are fvcked. Even if they can seat using social distancing guidelines, only a small percentage can break even. It could be 18 months before there’s a “normal” restaurant business.
Drive around your town or city. Look around. Think about the businesses that aren’t coming back. Think about the folks whose jobs aren’t coming back for a long time. Think about how behavior is going to change even after things begin to normalize. Think about the leverage and how the banks are going to cope with all of this. Think about what this means for corporate profitability – short-term and long-term and then what that means for nosebleed-level stock valuations.
Meanwhile, our fair-haired Nero fiddles while Rome burns.
Discretion is the better part of valor. Sell.
I could be wrong. But I doubt it.[/quote]
So I just drove down El Camino Real in Encinitas which is basically a mile of strip malls. Pretty much everything is still there. There’s a J Crew that closed up and a Burger King that shut down but everyone else is making it so far. Drove through Downtown Carlsbad and Encinitas a few days ago and same story.
The stock market sits at record highs 7 months later. We have a vaccine and more stimulus coming. Homes around here are selling for insane prices with piles of offers coming in Christmas week. Not just near me but lots of places. Yes Im sure there’s plenty of work and years to clean up but it looks like we are gonna be fine from where I sit. Maybe Im missing something?
So here’s my follow up question for the OP. What happened that you did not foresee? What is the takeaway learning moment here?
