B J Arun-TiE Silicon Valley president-
The COVID-19 pandemic is an emerging and very rapidly evolving situation. We saw health advisories regarding not hosting gatherings of more than 1,000 people, being changed to 250 and finally 100, literally on a daily basis this past week. We saw dozens of conferences either get canceled, postponed, or moved online, all having a dramatic impact on the local economies where they were to have been hosted. The cancellation of just two of these gatherings: The Mobile World Congress 2020 in Barcelona had an economic impact of close to 500 million euros, and that of South by Southwest in Austin, Texas, over $350 million. We ourselves at TiE had to make the difficult decision to postpone TiEcon 2020, our flagship conference on entrepreneurship that has been held continuously over the past 27 years since we did not want to put the wellbeing of our over 5,000 attendees, staff, and the community at risk.
Not only are airlines and cruise lines bearing the brunt of this scourge, but everyone in the hospitality industry has already started seeing a major impact on their bottom line. As an increasing number of companies are asking their employees to work from home and not attend face-to-face meetings, people’s behavior patterns are seeing dramatic changes. A lot fewer patrons are visiting restaurants for meals, going to gyms, malls, movie theaters, sporting events and concerts, etc. This new behavior of not going out is going to cause a significant drop in business for these retailers and merchants.
Barely any people are still traveling for business or leisure and therefore not using services of gig economy companies such as Uber or AirBnB. I know people who were managing multiple AirBnB units, and they will now find it difficult to pay the rent or mortgages on these properties. I always chat with my Uber or Lyft drivers during long rides to the airport, and many of them have shared that they had invested in new vehicles and driving for these app-based ride-hailing services was their primary source of income. One estimate puts these gig-economy workers and contractors as numbering 15 million or roughly making up 10% of the US workforce.
Whenever businesses start seeing such an impact to their bottom line, they have no option but to downsize to stay afloat. When people don’t have jobs, they obviously will not feel very bullish about purchasing new homes, cars, or consumer goods such as phones, clothing, etc. The US will now be much less impacted by what everyone thought would be the supply-side shock (because of so much of what we consume being made in China), but moving forward our economy will experience a bigger downturn because of the demand-side shock.
The stock markets losing more than 20% of their value over the past couple of weeks will also have a major impact since the decade long bull run had what is called the wealth effect. The fact that we are already in a bear market is expected to have an impact on consumer spending, and some estimates predict it will shave off more than a full percent of our economic growth. Warren Buffet, widely considered one of the most successful investors of all time, said the combination of the coronavirus and crash in oil prices is a “one-two punch” to the stock market. In his annual letter released on Feb. 22, the “Oracle of Omaha” cautions that “Anything can happen to stock prices tomorrow. Occasionally, there will be major drops in the market, perhaps of 50% magnitude or even greater.”
Governments are scrambling to do their best to try to minimize the impact on their respective economies. The US Federal Reserve just made an emergency announcement that they are slashing interest rates to zero. The central bank also announced that they will be using their full range of tools to battle the economic impact of the virus and has authorized a Quantitative Easing in the form of at least $700 billion in asset purchases. The Feds are also issuing $1.5 trillion in short-term loans to banks to boost treasury market liquidity.
One can only hope that aggressive containment of the coronavirus by conducting widespread testing, quarantines, and social distancing will dramatically decrease the number of new cases.
While the next few months are going to feel like we are in a recession, some experts feel that we will see a nice bounce back in the third quarter.
Given the uncertainties around the spreading of this infection and its social and economic impact, my personal take is that we should do everything we can to curtail its spreading in the community. While we should be well prepared and take a wait-and-watch attitude over what is going to be a very slow summer, nothing good will come out of panicking. The world has seen many different crises and economic downturns, and history proves that this too shall pass.
[B.J. Arun is presently TiE Silicon Valley president, a successful serial entrepreneur who was till most recently CEO of July Systems, a mobile internet company acquired by Cisco in August 2018. He was the founder and CEO of California Digital, one of the market leaders in High-Performance Computing. In addition to various awards and recognitions, Arun was awarded the prestigious Karnataka Rajyotsava Day Award by the Chief Minister of Karnataka on Nov. 1, 2004.]