Very Disturbing Realities are Coming to Life due to COVID-19.

It’s far too early to declare victory over COVID-19. However, in the interim, there are many things to celebrate. Projected USA deaths from this wave of the illness are angling towards 60,000. This is far less than the 1,000,000–2,000,000 projected very early in the crisis. New York is allegedly past the point of peak hospital resource usage and daily death tolls. Other states that are showing peak dates later in April or in early May are seeing flatter curves. The CARES Act and PPP program are rolling out (slowly and buggy, unfortunately), but money is being placed into the hands of individuals and small business owners to help soften the blow of this crisis. The country is not out of the woods yet on any front — economically, socially, physically, but the recent and alleged slowdown provides a few moments to think ahead some.

There will be many big winners in this crisis. Individuals and businesses will place more emphasis on hygiene and health. Medical facilities and elected officials will be more prepared for the next viral threat. New technology has been embraced that should provide many benefits to all stakeholders. Unfortunately, quite a few less palatable trends are likely to show up in the coming months and years once the crisis fully subsides.

Goodbye to W-2 Positions
3 things will occur due to the rush of unemployment filing and furloughed workers:

· Not all of them will be rehired for any role within the next 6–12 months;

· Many rehired, perhaps even at another role, will accept lower pay than prior roles;

· Many rehired will be asked to do so as a 1099 contractor.

Of course, W-2 positions will not entirely cease to exist. However, they will become less common. While no job is perfect, W-2 roles often come with access to subsidized benefits (e.g., health, vacation, 401(k) match, etc.) and consistent pay (e.g., monthly, weekly) that allows people to plan and budget for their purchases and family goals. One thing we have seen during this crisis has been employers' super quick trigger finger to layoff or furlough staff. While there are many dissenting viewpoints on the crisis, most can agree that (1) this is not a permanent situation; (2) everyone wants to get back to normal as soon as practical.

There is light at the end of the tunnel, yet companies have felt the need to terminate positions to preserve short-term cash. Of course, this makes fiscal sense, but are these employers considering the cost of re-hiring staff once they are out the door? A darker trend is emerging. Employers are realizing that it may be best to have fewer W-2 team members and rely more on usage-based team members. Quite simply, this crisis was a perfect story to eliminate positions and then not re-hire those same skills and roles in a W-2 capacity.

It will not be surprising for companies to replace once full-time roles with 1099 usage (e.g., hourly) based positions without any long-term commitment or agreement. Certain positions are already very susceptible to this model, such as call center agents or service industry workers. However, professional roles are also at risk. The marketing manager that earns an $80,000 a year W-2 salary (let’s call it $40/hr.) and has been terminated. He or she may be asked to return but for 10 hours a week or maybe 2 hours the first week, 8 hours the next week and then 0 hours the next 3 weeks before taking on 20 hours the following 2 weeks.

Ask any business owner what the most frustrating part is of being a business owner, and many will say cash flow. When payment will arrive — how much — and when the next deal will be awarded. Services do exist to help manage this cash flow, such as accounts receivable financing, but come at hefty costs — sometimes equivalent to 15%-40% interest.

For anyone that has only been a W-2 employee, some of the realities of having 1099 income or volatile income are beyond aggravating. These include high levels of reluctance from banks to provide financing for a business, to buy a car or even a home. The inability to apply traditional budgeting practices to your finances. While monthly income can vary, your mortgage or rent payment tends to always stay the same month after month. With many W-2 employees only tuning into their jobs for the consistent paycheck, the new reality for many will be a world of working without 100% confidence that every other Friday means direct deposit.

It is hard to quantify the USA where an increasing number of people do not have the luxury of consistent, periodic earnings. However, the impact on consumption will be significant.

More Wealth Transfer to the Country’s Top Earners
While this crisis has materially impaired many small business owners and individuals, it may end up being a huge boon to the country’s top earners. And I am not only referring to the ultra-wealthy (e.g., top 0.1%). There are a few obvious culprits and some not so obvious.

Declines in asset values and fiscal crises are exceptional opportunities for the well-positioned to take advantage and build wealth. A 30% decline in the stock market usually means catastrophe for the average citizen, but it is a cause for celebration among those with the dry powder to capitalize. While many Americans will sell their positions to meet margin calls or to pay bills, the ultra-wealthy can use their cash piles to acquire assets at depressed prices. We have already seen 20%+ returns off very short-term lows with most of the benefit going to those that had the means to buy stocks while things were trading at depressed prices. And while some economists suggest that there are more legs down on the stock market, those that are well-positioned can buy today, take some losses and then continue to buy in the future at depressed levels.

Provided the centuries-old trend holds true that the stock market continues to increase in value over the long-haul, 10–20 years into the future, when we look at the concentration of asset ownership in this country, it will be even more concentrated at the top than it is today. And we will be able to point to Spring and Summer of 2020. This same principle also will apply to residential and commercial real estate. Many financially marginalized Americans will find themselves in foreclosure or forced to sell their homes at depressed prices to get by — and create great buying opportunities for the equipped.

Some more subtle impacts of this crisis and financial inequality are showcasing itself among the workforce. While many lower-wage workers have been pushed to unemployment, many professional workers (often with higher salaries) have seen this crisis as an opportunity to cushion themselves financially. While nobody is immune to the economic impacts of this crisis (there have been layoffs across all levels), many salaried professionals have been able to retain their jobs. The economic shutdown means stay at home frustration and becoming a potato on video conference calls, but it also means quite a bit less is being spent on dining out, travel, retail, and other discretionary and disposable income purchases. This provides an exceptional opportunity for this group of citizens to deleverage, build up cash reserves or even acquire more assets. This is further accelerated by the CARES Act payments going out to 90% of Americans — many of which will remain gainfully employed and perhaps not have their incomes immediately impacted by the crisis.

For professional and salaried employees that have been laid off, many have been awarded generous severance packages. It is unsure exactly what these are, but several weeks or months of pay and access to benefits are likely commonplace. Who do you think is more likely to get this type of severance? A $100,000/yr. salaried worker or a $15/hour shift worker? In the coming months, this sort of stratification may see exceptional suffering among lower-income and middle-income workers and as a positive financial inflection point for those better positioned. Incidentally, many firms that are offering these packages are first in line to apply and receive government grants and specially termed loans.

A national crisis suggests it is a crisis for all and all should be suffering. In many ways, not only is this not the case, but many will be celebrating the benefits reaped during this crisis and this will further impact the wealth concentration in the USA.

Inflation or Deflation
Good news, you get to choose! Bad news, one or the other of these environments is a foregone conclusion. And it does not take a Ph.D. economist to figure this out. Nearly all of us have played the board game, Monopoly, and the game becomes decidedly less fun when players either (1) flood the market with ‘free parking’ money or increase the ‘pass go’ bonus to $2,000 vs. $200; or (2) stop transacting business. In scenario 1, things really get strange when the bank runs out of money.

Scenario 1 is more akin to inflation. Monopoly loses its fun because the prices of properties and fines are fixed and never increase and the exchange — making the dollars you have functionally worthless. Inflation in the real world is a lot more meaningful because the cost of living, food and everything else increases. The $1,200 CARES payment may be offset by increasing prices of staple goods, like eggs. Your 10% raise is meaningless is everything else around your costs 10% or 15% more. Inflation rates in the USA have been tame in recent years — in part due to the USA’s monetary policy which some attribute to being manufactured and may have superficially inflated the real performance of the USA economy. Inflation is not terrible by any means — if money is more readily available, spending, investment and hiring are foregone conclusions. The challenge now is that with higher-levels of inflation becoming a real possibility and a wrecked job-market (which was already being hit with low wage growth in prior years), things are going to get more expensive and people are going to have less to spend. And with interest rates already cut to near-zero rates, the Fed is nearly out of ammunition to use lower-rates to kick start the economy.

Scenario 2 is deflation and is far more sinister and more difficult to get out from under. Some of it sounds great. The price of goods and services falls. The USA is seeing this in some areas — prices of gasoline thanks to lower short-term demand and low oil prices are dropping. There will be fantastic discounts and sales on hotels, retail, and restaurants once the economy restarts. These lower prices will provide some early momentum to help businesses get back on their feet, but if more of the country is hurting than what has been calculated, demand will be tepid. Even worse, people may hold out for a better deal if it looks like businesses must reduce prices even more. It all sounds good on paper until businesses are then hard-pressed to give raises to team members or invest in advertising or new innovations — and then there are real problems. These cost cuts mean less profit to go around and make it more difficult for businesses and consumers to pay their debts.

The world’s most intelligent economists are torn as to what will happen next and while it seems there will not be an epic financial collapse, the post-coronavirus world in terms of finances for all USA residents will be altered and difficult to deal with.

New Regulations Meant to Help Will Hurt
There is likely to be an extended period of new regulatory actions — some self-imposed by businesses, others required by customers and some may even drive government intervention. In many ways, these new rules can have many benefits, but not without costs.

Jon Taffer from Bar Rescue foresees a new world that restaurants and bars must face — a world where there will be fewer tables as they are further spread out from each other. In term driving down revenues for restaurants, which could mean lower employment and money flowing through this sector — or higher prices to compensate.

Hospitals will no doubt beef up their capacity of resources to deal with another pandemic. Will we see new government regulations as we did with the banks in 2008? Or will the hospitals just take the initiative to make sure preparedness is increased? Medical facilities, both public and private, have often cited a lack of financial resources they need to keep things in a good spot. More regulations will come with more costs, which means higher fees payable to facilities and/or more cost-efficiency responses, such as job reductions.

Taiwan, for example, has a national health ID card. Will the USA see a similar item going forward? A world may exist where going to a sports game or getting on a plane requires a temperature check or health card registration that shows your vaccine status. These sorts of things may help people feel safer when it comes to going out and the safety of their health, but it will also be a cause for a great deal of frustration among consumers.

Are businesses now playing on a zero-accountability landscape? With only a few tough weeks of business endured, many of the country’s biggest and more recognizable names immediately pleaded with the government for massive assistance or risk dissolution. And all of this after 10 years of unrivaled economic growth and prosperity. In a world where businesses can mismanage funds or not have to pay the free-market penalties for their inability to prepared for a situation, this probably does not bode well for innovation, growth, and opportunity to be accessible to the country.

Lastly, liberties. The country was ordered shut down and many businesses were ordered to close. We have not seen riots in the streets (well, not yet) and, most places complied. Most businesses ordered to close did so without reluctance — but perhaps not without frustration or anxiety. It would be near impossible to have enforced a revolution of an entire city of restaurant owners that stayed open despite the orders. That is, it was very easy for the government to ‘request’ closure of the economy — it’s likely the next time a crisis arises, and perhaps one less virulent, the government may ask again and with just a few more restrictions. The power that the people of this country have extended to the government, both by embracing the lockdowns and taking the financial relief may have long-lasting, uncertain and scary outcomes for our society.