Beyond the 2020 pandemic, the theme the world has woken up to is that people want more…more home, more land, more entertainment, more possessions. We have learned that more is a scarce commodity today. The best phrase to capture the minds of today’s consumers is one that one of our partners told us: The space race.
Looking at the Fund’s portfolio holdings, you have to recognize that we are optimistic about the future. We are particularly optimistic because space race catalyzed a mindset that previously existed in the developed world, but had been in a coma for quite a long time. Many people looked for houses in the suburbs. They did it for more space. The space could be a bigger house, a bigger yard for garden parties, more rooms for their children, etc. The reasons are not individual. It is the wholesale change in mentality from 2019 that interests us.
Before the pandemic, some very smart people started predicting the decline of fossil fuel vehicles. The pandemic has swept away this illogical reasoning. Consumers are driving more total miles today than ever before. People have decided not to share metro or bus journeys. Young people, what we call millennials, have gone out and bought used cars to a level where we’ve pretty much run out of them. All this proves that the psychological change that has taken place is so different from the pre-pandemic period. This evidence contrasts with the style of decisions made before the pandemic. Below is a chart that shows the rate of Americans moving, as well as the total number of moves.
We suspect that the US Census Bureau data from which this chart is derived shows lagging information. We are very interested to see the 2022 data as we believe it will show a slight increase in movement due to space race.
Some may believe that this idea is well understood, but we intervene. The types of companies that benefit from this phenomenon are more cyclical and more tangible. You need real trucks and real people to move households, for example. You cannot store it in the cloud!
There is room for investment in these types of companies which we believe are very well represented in the total capitalization of European and Canadian equity markets relative to US markets, as indicated by the S&P 500. A chart which we believe shows the ability for European investors to bring margin liquidity to local equity markets is below.
There is still excess cash to invest there in historically large portions. As the chart shows, when this spread was tightest, there was little excess liquidity in savings to grow Europe’s economy. We’ve had similarly high savings rates in the United States. This savings surplus has been and will be injected into the economy and consumed. Our guess is that it will find its way to space race.
Inflation has recently headed for the Moon. The first time we went to the moon was during the space race in 1969. It’s no different in space race. Below is the CPI in the UK, US and EU over the past 10 years.
While it’s impossible to comprehend all of the changes that have come with today’s space race, this graphic highlights that the one thing you know is that today has nothing to do with it. do with the last 10 years in the economies of the developed world. Stock markets around the world will have to reassess what this means for businesses. We are happy to sit in more asset-heavy companies that benefit from space race. Recency bias would tell us that people may be rooted in what they saw before the pandemic and unwilling to understand the change that is taking place. We are pragmatic and believe that markets reward shortages. The next time you’re trying to buy a house, a car, a major appliance, a specialty good, or a plane ticket, only to find that there’s little or nothing left, think about the companies that have to produce those properties and check their stock prices. The space race offers great opportunities for objects right under our noses.
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