COVID-19 is first and foremost a healthcare crisis, and its impact on the world has been devastating. That said, as investors, we must try to determine the long-term economic consequences of the pandemic. Below are some economic developments we think the virus is bringing about or is accelerating:

• The transition from bricks and mortar to online retail. E-commerce as a percentage of all sales jumped five percentage points this year to 16.1%. The competitive pressure on traditional retailers, and  owners of retail real estate, should continue. Ironically, much of traditional retail real estate could survive if it is retrofitted for storing and shipping goods purchased online.
• Rethinking how and where we work. Eventually, we will go back into the office, but companies are likely to keep a meaningful percentage of employees working remotely post-pandemic. Cities will likely see lower tax revenues as workers no longer commute in, while landlords will need to repurpose an untold amount of excess corporate office space.
• The decline of the four-year university. Undergraduate enrollment has been falling for years; demographics, cost, and the rise of remote learning, along with other forces, will make it very difficult for traditional universities to attract enough students to cover their expenses. The way education is “delivered” will need to be reimagined while hundreds of universities will likely close.
• Inflation or deflation. Our policy response to the pandemic has been unprecedented, with the Federal Reserve cutting interest rates to zero and launching a massive securities purchase program, and the federal government running historically large fiscal deficits. Those actions will likely either feed inflation  as the economy reopens or feed deflation as accumulated debt weighs on economic growth. While it is too early to know, the impact on interest rates, and with it the expected rate of return across asset classes, should be dramatic.