The World Turned Upside Down

By: Pierre G. Villere

I am speechless, and in a state of shock.

I am reminded of the famous tune “The World Turned Upside Down,” an English ballad first published in the middle of the 1640s. According to American legend, the British army band under Lord Cornwallis played this tune when they surrendered after the Siege of Yorktown, devasted they had lost the American Revolution and their rich colony to George Washington and his army. As I sit in self-isolation at home writing this, I feel the world has truly been turned upside down.

Black Swan Event. Last month, I wrote about the coronavirus for our sister publication, Concrete Products, and its effects on the city of Milan, Italy. I noted it was a “Black Swan” event, an observation I have read in numerous business publications since I first wrote about the virus.

The name was derived from a common expression in 16th century London as a statement of impossibility, and was derived from the Old-World presumption that all swans must be white because all historical records of swans reported that they had white feathers. In that context, a black swan was impossible, or at least nonexistent. But in 1697, Dutch explorers became the first Europeans to see black swans in Western Australia, and the term subsequently metamorphosed to suggest that a perceived impossibility might later be disproven.

At the time I wrote that, I was startled at the events unfolding around Milan, and how a relatively small outbreak in the surrounding region has brought the local economy to a halt. Tourist landmarks were closing, as were the city’s universities and schools. Bars were shuttered, and the usually buzzing streets, trams, restaurants and shops were empty. And news footage showed designer fashion shows where all the seats were empty, with no one present except the models themselves. Startled by what was unfolding in Milan, I wrote:

“This is an example of how sentiment, in this case fear, can be self-fulfilling. I worry about the spread of the coronavirus to a major American city, and a reaction like the one in Milan, and how it could impact our industry. Despite my underlying belief in the strength of our construction economy, there is nothing we can do if a Black Swan Event grips our psyche, and swiftly and suddenly slows us down. Let’s hope for the best … and hope the spread of this virus can be contained before it damages our own economy.”

I wrote that exactly a month ago, when there were at a total of a couple of hundred cases in the U.S. At this writing, there are almost 42,000 cases, an exponential explosion none of us could anticipate.

My worst fears came true. But at press time Congress was poised to pass a more than trillion-dollar bailout bill, and the question on all our minds is how this will affect our industry. I’ll go out on a limb and give you my projection:

What the Future Holds. I think this will all taper off by summer, and no doubt the unemployment rate will have exploded. GDP will be in negative territory for the third quarter, if not even the second given the economic walloping we took in March when the virus exploded in the United States. But I think this could be a slingshot recovery; while we all feel deeply for the lower-paid hourly workers in the hospitality and other lower wage industries, the ones living from paycheck-to-paycheck, it is the average American family with disposable income who will come roaring back.

I think the planes will be filled with families traveling to previously postponed vacation destinations, boosting the hotel and rental car industries with disposable income that has been trapped in their bank accounts since the virus forced stay-at-home policies across the country. And of course, the all-important restaurant industry will be back at full capacity with their dining rooms packed from pent-up demand, including me.

Most importantly to us, the construction industry will report a few months of soft, if not horrible, financial results, and then will ricochet back with recovered traffic through new homes, and infrastructure spending contemplated by the Congressional bailout. It will be a tough few months, but expect that business will be climbing back by year end. I expect 2021 will be a home run in our construction economy.

Pierre G. Villere serves as president and senior managing partner of Allen-Villere Partners, an investment banking firm with a national practice in the construction materials industry that specializes in mergers and acquisitions. He has a career spanning almost five decades, and volunteers his time to educate the industry as a regular columnist in publications and through presentations at numerous industry events. Contact Pierre via email at [email protected]. Follow him on Twitter @allenvillere.

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