Moving forward beyond the pandemic of 2020, the theme the world woke up to is that people want more…more home, more land, more entertainment, more goods. We learned that more is a scarce good today. The best phrase for capturing the mind of consumers today is what a partner of ours mentioned to us: The Race For Space.
Looking at the portfolio holdings of the Fund, you must recognize that we are optimistic about the future. We are particularly optimistic because the Race for Space has catalyzed a mindset that has been around in the developed world before, but it was comatose for quite a long time. Many people sought out homes in the suburbs. They did this for more space. Space could be a larger home, a larger yard for garden parties, more bedrooms for their kids, etc. The reasons are not individual. It is the wholesale mentality change from 2019 that interests us.
Prior to the pandemic, very smart people began predicting the decline of fossil fuel vehicles. The pandemic has swatted this illogical reasoning away. Consumers are driving more total miles today than ever before. People decided against sharing commutes on a subway or on buses. Young people, what we refer to as millennials, went out and purchased used cars to a level where we practically ran out them. This is all evidence that the psychological change which has transpired is so different from the pre-pandemic period. This evidence stands in contrast to the style of decisions made prior to the pandemic. Below is a chart that shows the move rate of Americans charted alongside the total number of moves.
Our suspicion is that the US Census Bureau data this chart is derived from is showing lagging information. We are very interested to see the 2022 data as we believe it will show an uptick of movement due to the Race for Space.
Some may believe that this idea is well understood, but we would interject. The types of businesses that benefit from this phenomenon are more cyclical and more tangible. You need real trucks and real people to move households, for example. You can’t store it in the cloud!
There is room for investments to flow into these types of businesses which we believe are very well represented in the total capitalization of European and Canadian equity markets in comparison to the US markets as noted by the S&P 500. A chart that we believe shows the capacity for European investors to bring cash from the sidelines to local equity markets is below.
Source: Bloomberg. Data for the time period 1/1/1999 – 12/31/2021.
There is still excess liquidity to be invested out there in historically large portions. As the chart notes, when this spread was the tightest, there was little excess liquidity in savings to grow the economy of Europe. We have had similarly high savings rates in the US. This excess savings has and will go into the economy and be consumed. Our guess is that it will find its way to the Race for Space.
Inflation has been shooting toward the moon recently. The first time we went to the moon was during the space race in 1969. It’s no different in the Race for Space. Below is CPI in the UK, US and the EU looking back over the last ten years.
While it is impossible to understand all the changes that have come with today’s Race for Space, this chart highlights that the only thing you know is that today is nothing like the last 10 years in the economies of the developed world. The stock markets of the world will have to reprice what this means in businesses. We are glad to sit in more asset-heavy businesses that benefit from the Race for Space. Recency bias would tell us that people may be anchored in what they saw prior to the pandemic and unwilling to understand the change afoot. We are pragmatists and believe that markets reward scarcities. The next time you try to buy a home, car, major appliance, specialty good or an airplane ticket, only to find that there are few/none left, think about the businesses that have to produce these goods and check their stock prices. The Race for Space is providing great opportunities for objects right under our nose.
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