Never waste a good crisis
Chicago mayor Rahm Emanuel has a colourful reputation. He was known as former United States President Bill Clinton’s most productive fundraiser in the 1990s and Barack Obama’s ‘‘get s... done’’ guy. More broadly he was a reputation for not only finding silver linings to clouds, but exploiting that silver.
One of his famous quotes is ‘‘never let a serious crisis go to waste’’.
It’s a phrase that came to mind over a week that has seen Wall Street’s SP&500 index drop 12 per cent in a day, talk of national lockdowns and the Government announcing a $12 billion rescue package in response to the coronavirus. Events that are hard to get your head around.
As frightening as the global context is, it can also provide financial, social and political opportunities.
It provides businesses with the ability to undertake activities they previously thought impossible, or indeed to rewrite a historical disconnect.
The latter was in evidence this past week with the news that Google holding company Alphabet is working with the United States government to build a national digital tool to provide information about Covid-19 coronavirus symptoms, risk factors, testing and triaging.
According to United States President Donald Trump, the tool will enable self-assessment as to whether testing is needed. A new life sciences division called Verily is tasked with the job and expects to first test the tool in the San Francisco Bay Area.
Obviously this is a good thing and to be applauded. Most of the engineers that I know at Google are genuinely good human beings, so I know that there is altruistic motivation here.
But politically it’s incredibly useful to Google.
United States regulators have had America’s third most profitable company directly in their sights for apparent market dominance for several years now. All 50 state attorneys general are conducting an antitrust investigation into Google.
Meanwhile, Trump has been openly critical of the company, regularly noting that its aim was to make sure he loses in 2020.
So to be able to turn this dysfunctional relationship around, to the point that the president is now tweeting supportive messages and officials are working with the company, rather than against it, is very smart.
Investment companies are also making the best of a bad situation, seeing opportunity in despair. Global markets have just had the longest bull market in history, 11 years of equity growth. This had led to a general feeling that equities were overpriced and the market was overdue for a correction of some sort.
Sadly, the past month wasn’t so much a correction as it was a decimation, but that’s not to say that it doesn’t provide investors the opportunity to buy blue-chip stock at prices 25 per cent down on six weeks ago.
Obviously jumping back into the market brings some risk, but that’s not to say you can pick up some bargains, particularly if you give certain industries (such as airlines, energy and travel) a miss.
So it should be no surprise that firms are doing this.
A recent report from Marketwatch.com found US chief executives are buying into their companies in volume, including the likes of TripAdvisor, Newell and Kinder Morgan.
Likewise, trading levels of market tracking funds like the Vanguard stock exchange-traded funds have been unusually high.
Historically the ‘‘buy the dip’’ strategy has worked out profitable so long as you get the timing right – though as a wise woman reminded me last week, anyone can buy on the way down but only one person buys at the bottom of the market.
Opportunity also exists for those companies whose functionality and technology fit a sudden and unforeseen change in behaviour. A couple of industries where this will be evident is media consumption and video-conferencing.
As people are forced to avoid social gatherings and hunker down at home, theatre, cinema and concerts will haemorrhage revenue. The flip side of this is that video streaming and TV-style services will boom. Nielsen data on previous crises in the US has found 60 per cent increase in TV usage.
New Nielsen data has found that Seattle teens, unable to attend school, showed a 104 per cent increase in TV (including streaming and video on demand) consumption.
Meanwhile video conferencing services like Zoom, Google Hangouts, MS Teams and Skype are having a blinder at the moment. With restrictions around travel and venues, along with the move to home working, video conferencing is at record levels.
The interesting thing here is that airlines, already looking down the barrel of commercial apocalypse, face a bigger challenge if businesses find that video calls can be used as efficiently as face to face meetings. If that were to happen then, as The Economist this week noted, passenger aviation businesses may never recover from the impact of Covid-19.
There’s no doubt coming weeks and months will bring worries aplenty, but for those prepared to take on risk, they also bring opportunity.
As a wise woman reminded me last week, anyone can buy on the way down but only one person buys at the bottom of the market.
Mike ‘‘MOD’’ O’Donnell is a professional director, writer and strategy adviser.