Space Jam

Why did Warren Buffett do a complete about-face on the airline stocks and sell them at prices significantly below where he had been accumulating them just a few weeks before the pandemic? It’s obviously not because he panicked. Panic isn’t even in the Oracle’s repertoire. It might be because the world had so significantly changed that the classical recession playbook – buying assets in distress and being patient – was no longer valid.

My friend Vitaliy Katsenelson wrote about Bobby Fischer’s invention of random chess – leaving the pawns in place at the start of a match but completely shuffling the pieces in the back row. There are 960 starting variations for your army in this version of the game, which means there is no way to have any grasp of what the opening five or ten moves will (or can) be. Vitaliy equates this particular recessionary environment to a randomized chess board – leaving those relying on classical and textbook opening sequences in the dust.

Here’s an example of how differently things may play out from recessions of the past:

I visited Russia in 2008 for the first time since leaving it in 1991, and I discovered something interesting: When people talk, the distance they maintain between each other is much shorter than in the US. Americans keep at least two or three feet between them. Russians are comfortable with one foot. I (being Americanized at this point) found myself slightly uncomfortable being in such close proximity to friends I talked to, and I kept stepping back. It did not take me long to realize why social distance in conversation is different in Russia. Despite Russia’s enormous size, public transportation is always packed, elevators are tiny, and apartments are cramped. This built environment has shaped how people interact socially.

Will this pandemic permanently reshape distancing requirements for us – will two feet turn into four or six feet? Over the last few decades the airlines, trying to lower their costs, increased the number of seats on planes and thus shrank the distance between passengers. Will they have to rewind the clock and make seating more spacious again? If they do, ticket prices will have to go up, and may go up a lot, since airlines’ operating costs will not decline; they will only go up. Higher ticket prices may reshape air travel. Flying may turn into a luxury item again. You’ll have fewer planes flying. Businesses may substitute Zoom calls for travel. You’ll need fewer planes and fewer hotel rooms. Thus, if you are in the business of making flying buses (planes), your industry might go from 4-5% forever growth – this was the expectation as people in emerging markets became wealthier and started traveling – into a glacial decline.

Josh here – five months ago, it would have been hard to envision the air travel experience backing away from the “more capacity” chase of the last few decades back into a 1960’s Jet Set era of luxury. Once upon a time, people flew rarely, and when they did, they got dressed up for it. It cost a lot, the food was a big part of the experience, and even the lifestyle of the stewards and stewardesses was coveted. Air travel was more akin to a cruise line experience than the utility we know it as today.

It’s hard to imagine work-related travel bouncing back to 2019 levels in the near future. Not just because people are worried about getting infected, but because the pandemic period has shone a light on a line-item expense that is probably unjustifiable. If we can school children on Zoom, why can’t we agree to a supply contract for plastic knives and forks? I love going out to speak at conferences and eating lunch with clients all over the country – but it’s not like I’m going to sit around doing nothing in the absence of it. Are you?

How many business trips of the future have been canceled in advance of their own existence, like Marty McFly fading away in family photos from the future when it looks as though his teenaged parents may not end up falling in love? How many family vacations just became driving excursions? I don’t think we can know, but if I had to guess, I would say less flights, higher prices, less business travel, more drivable family vacations. And the space requirements – I already never want to go back to how things were. I like the increased distance and personal space with only a few exceptions (I miss concerts and baseball games).

A friend of mine who works for a major global investment bank in Manhattan was saying “What if it’s the other way around – what if every business leasing an office actually takes more space given the new distancing requirements? That would actually be bullish for commercial real estate!” I patted him on the head, like a child. No sweetheart. That’s not what corporations are going to do. Get comfortable working at home, my little lamb. 

Oh, and “What about a vaccine? What about a treatment?”

Yes, these will bring economic activity and travel back. But all of it? To the previous levels? And how much more accustomed will we all get to working / shopping / living remotely between now and then?

Source:

The Fischer Random Chess Stock Market (Contrarian Edge) 

UPDATED:

We had Vitaliy come on to explain the problem with one-decision stocks and why Buffett was buying airline stocks two weeks before he sold them all…

This content, which contains security-related opinions and/or information, is provided for informational purposes only and should not be relied upon in any manner as professional advice, or an endorsement of any practices, products or services. There can be no guarantees or assurances that the views expressed here will be applicable for any particular facts or circumstances, and should not be relied upon in any manner. You should consult your own advisers as to legal, business, tax, and other related matters concerning any investment.

The commentary in this “post” (including any related blog, podcasts, videos, and social media) reflects the personal opinions, viewpoints, and analyses of the Ritholtz Wealth Management employees providing such comments, and should not be regarded the views of Ritholtz Wealth Management LLC. or its respective affiliates or as a description of advisory services provided by Ritholtz Wealth Management or performance returns of any Ritholtz Wealth Management Investments client.

References to any securities or digital assets, or performance data, are for illustrative purposes only and do not constitute an investment recommendation or offer to provide investment advisory services. Charts and graphs provided within are for informational purposes solely and should not be relied upon when making any investment decision. Past performance is not indicative of future results. The content speaks only as of the date indicated. Any projections, estimates, forecasts, targets, prospects, and/or opinions expressed in these materials are subject to change without notice and may differ or be contrary to opinions expressed by others.

Wealthcast Media, an affiliate of Ritholtz Wealth Management, receives payment from various entities for advertisements in affiliated podcasts, blogs and emails. Inclusion of such advertisements does not constitute or imply endorsement, sponsorship or recommendation thereof, or any affiliation therewith, by the Content Creator or by Ritholtz Wealth Management or any of its employees. Investments in securities involve the risk of loss. For additional advertisement disclaimers see here: https://www.ritholtzwealth.com/advertising-disclaimers

Please see disclosures here.

What's been said:

Discussions found on the web
  1. Eat Verts commented on Sep 22

    … [Trackback]

    […] Information on that Topic: thereformedbroker.com/2020/07/08/space-jam/ […]

  2. is blazing trader a scam? commented on Sep 27

    … [Trackback]

    […] Here you will find 28197 more Info to that Topic: thereformedbroker.com/2020/07/08/space-jam/ […]

  3. blazing trader commented on Sep 30

    … [Trackback]

    […] There you will find 36802 more Info to that Topic: thereformedbroker.com/2020/07/08/space-jam/ […]

  4. easyweb td online banking commented on Nov 26

    … [Trackback]

    […] There you can find 28625 additional Info to that Topic: thereformedbroker.com/2020/07/08/space-jam/ […]

  5. intcasino.net commented on Nov 27

    … [Trackback]

    […] Read More Info here to that Topic: thereformedbroker.com/2020/07/08/space-jam/ […]

  6. scotiabank digital sign in commented on Nov 27

    … [Trackback]

    […] Find More on to that Topic: thereformedbroker.com/2020/07/08/space-jam/ […]

  7. 토토사이트 commented on Dec 09

    … [Trackback]

    […] Find More Information here on that Topic: thereformedbroker.com/2020/07/08/space-jam/ […]

  8. replica watches commented on Jan 24

    … [Trackback]

    […] Info on that Topic: thereformedbroker.com/2020/07/08/space-jam/ […]

  9. cibc online banking sign in commented on Jan 27

    … [Trackback]

    […] Information on that Topic: thereformedbroker.com/2020/07/08/space-jam/ […]