Coachella Valley is having a Black Swan event of its own. Black swans are unexpected or very low probability events that have a significant negative effect on stock markets.
Where the coronavirus was the contagion, it has been the reaction to this serious health event that is causing an economic shock to businesses throughout the Coachella Valley. Because of that cancellation of the tennis tournament and delay of the Coachella festival, many small, local businesses that rely on these major tourism events for a bulk of their profits will go into the summer struggling financially.
The economic slowdown caused by virus concerns may be slow-lived for other parts of the country but it will have a lasting impact locally that will cause some businesses to fail. This bleak result is a natural outcome of an already short selling season as is the case in a resort community and a black swan event like the cancellation of major tourism events. While some businesses will fail, most will be hurt as lower revenues lead to lower tax receipts for our local cities, which could lead to cuts in spending. Hopefully, cities will utilize rainy day funds as this qualifies as a local monsoon for many parts of our economy. Beyond the businesses and people that directly work at those events, people who rent out their homes for the festivals, drivers for Uber/Lyft and most restaurants will miss out on their most lucrative times of the year.
Each dollar that is spent or not spent has a multiplier effect across the economy. What you spend at one business is then spent on their staff, suppliers and others who then go about doing the same thing over and over again.
While we cannot know as yet whether the extraordinary actions taken by people, governments and businesses are appropriate actions or excessive overreactions, we can be certain that the result will be a weaker economy here in the Coachella Valley as tourism is one of our primary business engines and this hit at just about the worst time of year possible. Without tourism, this region has an awfully large oversupply of everything from houses to restaurants to pretty much anything that you can think of.
While older people are rightfully concerned for their health given that their susceptibility to grave outcomes from any strong cold or flu strain, the vast majority of us will be fine. In truth, Coachella Valley residents have a greater risk of mortality from Desert Fever than the coronavirus at present, yet we hear very little being done to address and attempt to cure this often-deadly disease.
The federal government appears to be ready to provide some targeted assistance to those who cannot afford to miss a day of work. They are also crafting a method by which small businesses will be able to apply for low/no interest rate loans. Will this assistance come quickly enough to mitigate the economic damage that is being done every day to our local economy? Like the drastic measures taken to control the spread of the coronavirus, we will find out in time.
Until then, the absolute worst thing anyone can do is overreact and panic…which seems to be happening. Buying enough toilet paper to last longer than your food supplies seems rather myopic and (I have to say it) ass backwards. A better approach might be to learn how to buy online and have groceries delivered to your home. By shopping online, you can get everything that you need without ever leaving your home. If you are worried enough about your health to fill your car with paper products when gathering flats of beverages, stay at home or in your car until the worst of flu season passes by.
Haddon Libby is the Founder and Managing Partner of Winslow Drake Investment Management, a Fiduciary Investment Management firm. For more information on our services, please visit www.WinslowDrake.com or email HLibby@WinslowDrake.com.