24 Dec

Merry Christmas, Thank You, & 5 Predictions for 2021

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First off, congratulations. If you are reading this you are a survivor. This year has, in more ways than one been the most tumultuous in decades, depending upon where you are in the world. Most of us likely know someone, a friend, colleague or family member perhaps, who has succumbed to COVID-19. I know some of you reading this have recovered from it, and maybe even the majority of us have been exposed to the SARS-COV-2 Virus but not developed symptoms.

Merry Christmas, and to everyone a happy new year. Earlier this week we passed the Winter Solstice, the shortest day of the year in the Northern Hemisphere, and longest day of the year in the Southern Hemisphere. Earlier in the month was Hannukah, so best wishes for those celebrations and observations as well. In the words of S.N. Goenka,

“May all beings find real peace, real harmony, real happiness.”

As an analyst, I am supposed to tell you what I think, so here are some predictions based on my observations, for the coming months, beginning with 2021.

1

Leisure travel will recover more quickly than business travel

This may surprise some people, and of course I could be wrong but based on what I am seeing, leisure travel will recover more quickly than business travel. Many important events that were canceled, at least in their traditional format, remain online for 2021, or are offering “online optional” formats.  As I write this, several countries have newly imposed travel bans from the UK due to a highly contagious mutant of the SARS-COV-2 Virus.

Further, many companies and governments have travel and safety restrictions in place that limit visitors to their facilities and prohibit discretionary travel such as sales calls and trade shows.  On the other hand, the vacation and leisure travel business is desperate for business, and we see travelers’ built-up frustration with lockdowns, quarantines, and curfews looking to “get away.” The resort town of Cancún México has been receiving almost 400 international flights per day from Europe and The Americas in recent days. Whether it is a good idea or not is a separate issue, but people are tired of being shut in, unable to go to a concert, bar or amusement park. Large employers in North America & Europe may be exposed to liability for unnecessarily exposing employees to infection due to travel, but people visiting foreign resort and leisure destinations at their own risk can’t “blame the man” when things go awry health-wise.

2

The switch to telework is permanent 

Whatever you call it: work from home, work at home, remote work, flexible working, the relationship between employer and workplace has changed irreversibly. Many jobs cannot be done from home, but for those that can, there is less reason to rush back into the office, especially considering the commute some have to endure, with traffic, weather, distance and living expense.  Now, if you can work for a Manhattan or Seattle employer, but no longer have to commute to Manhattan or Seattle every day, why would you? As (San Francisco) Bay area workers are already showing an exodus to lower-cost environs. Traditional business capitals have long been losing their allure. American Electric Power moved from New York to Ohio decades ago. More recently, Boeing moved its headquarters from Seattle to Chicago. Oracle is moving from Silicon Valley to Austin, Texas. Tesla & Space-X founder Elon Musk earlier this month said he is finished with California and also moving to Texas less than a year after California’s governor Gavin Newsom sniffed that he was “not worried about Elon leaving any time soon.”

Stripe, Microsoft & Facebook have all announced that employers will be able to work remotely indefinitely. Some employers, including I believe, these three, also want to share in the cost savings and are expecting employees to take a lower salary for the “privilege” to work from home. My personal opinion is that this is a big mistake and will damage company culture in the long run. For starters, yes, the employee may save money on commuting cost and general cost of living based on geography, but the employer will also save big on real estate costs. The employee doesn’t need to live in a high-cost locale, but the employer doesn’t need to rent or own space in that same high-cost locale.  It’s one thing if you are a highly paid executive making millions per year, but even on a salary of a few hundred thousand dollars annually, global capitals like New York, London or Tokyo can end up being so expensive that one’s individual cost of living and disposable income is lower than employees on much more modest salaries working in more affordable venues. For example: According to the Economic Research Institute, using Atlanta, Georgia as a baseline, the cost of living in Manhattan, New York is 216.9% as expensive, while salary earners in Manhattan only earn a 23% pay premium over their colleagues 10 hours (by car) to the south.

Where companies that want to pay lower salaries are likely to fail is in the war for talent. Their workers may now work remotely but may also work remotely for someone else not demanding a pay cut. Screw your employees and they will notice!

As workers are able to vote with their feet and move from high tax / high-cost locations to low tax / low cost locations, real fiscal winners and losers will emerge. New York and Massachusetts have long taxed commuters into their states residing in lower-cost New Jersey and New Hampshire respectively. Commuters have crossed the border from Indiana into Chicago, Illinois, and from Toledo, Ohio into Detroit. Some New York employees have even endured a 2-state commute from Allentown, Pennsylvania across New Jersey and into New York. What happens though, when they no longer need to make the commute? Those high tax cities and states will lose out on a lot of revenue from non-residents.

A case has been presented to the US Supreme Court involving over a dozen states, with low-tax states demanding that high-tax states be prohibited from taxing nonresidents who no longer work in the states they once commuted to. This likely sounds convoluted to those of you not from the US, where citizens pay federal income tax, and then depending upon where they live, state and / or local income  taxes. Some states have income taxes, others don’t. Some cities have income taxes, others don’t; as local and regional governments have the right to levy taxes approved by their voters or legislators. For example, Florida has no state income tax, but rather high sales taxes—that are partially paid by the tourists and travelers who visit the state. On the other hand, California and New York have relatively high state taxes, and then local city taxes on top. With the same income, a New York commuter’s income tax rate will differ significantly simply based on which side of the Hudson River he or she lives. The post-pandemic telework environment will have real consequences for taxing authorities, and I suspect analogous effects will be observed worldwide.

3

Retail will never be the same

Offices will not disappear—neither will retail—but workplaces and stores will lose their place as the default venue for employment or transactions. We have been forced to use delivery, and businesses have been forced to establish delivery networks and options.  In the US, grocery delivery was something that existed in New York City and a few ethnic immigrant enclaves. Now it seems every chain store has their own delivery infrastructure or relies on a third party like Rappi in Latin America, UberEats, DoorDash, or of course Amazon.

The very high and very low end will be relatively unscathed, with the mid-market retailer suffering the most. Retail businesses that offer a destination experience, whether the custom tailor, family outing experience such as Bass Pro Shops, Ikea, or Eataly; or the low end closeout specialists like Ross, Marshalls/TJMaxx and Big Lots. Also at the low end, consumers are less likely to employ e-commerce channels. Dollar General and gas-station convenience stores will be fine, as well as roadside fast-food outlets that are built around on-the-go convenience and unplanned purchases. Over a decade ago, I spent a few years in commercial real estate portfolio management for Jones Lang LaSalle in Ohio, Indiana & Florida. The question I asked myself every day was: “How do I get the public into my malls?” That question is infinitely harder to answer now than it was then. The best advice I can give is this: People don’t go to Cedar Point or Disney World for the food, but they almost certainly eat while they are there. If you are an executive for JCPenney or Kohls, how do you get people to look forward to going to your store? When people go to the corner bar, it probably isn’t for the beer. You can buy Corona, Heineken, Budweiser, Guinness or Presidente at the grocery store. It is for the experience and maybe the interaction. Traditional retailers, if they are to survive must “stop selling the beer and instead sell coming to the bar.”

4

Political Exhaustion

Presidential elections are over in the United States and it appears that the European Union and Britain have reached an agreement on post-Brexit trade negotiations. As author and professor Peter Turchin predicted almost a decade ago, 2020 was a year of social unrest in both western Europe and North America. Beyond the scope of his predictions, the past months going back into 2019 have been an almost global year of discord, with the Hong Kong democracy crisis, massive protests in South America and Nicaragua, border wars between Armenia and Azerbaijan, a civil insurrection in Ethiopia, and an attempt to steal the elections in Guyana (if not also in the US).

The good news is that Professor Turchin’s research also shows that these great social trends from conflict to harmony and back again tend to be cyclical. For example, the US went from social unity following World War II victories in the late 1940s to deep social conflict in the late 1960s. Few people remember that in an 18 month period between 1971 and 1972 the FBI counted 2,500 separate domestic bombing incidents in the United States. That number is not a typo. We rightly worry about social divisions in the US now, but things have been worse in the past. On May 22,1856, Massachusetts Senator Charles Sumner was nearly beaten to death on the floor of the US Senate, in front of his colleagues, by South Carolina Senator Preston Brooks. With Sumner bloody and injured, Brooks walked out of the Senate unmolested, and was considered a hero in his home state and throughout the South—that would soon attempt to secede from the union, leading to the US Civil War.

Things can still get worse in the US, but many of us are hopeful that we have hit a cyclical nadir. While I am neither a Democrat (not Republican, either) or fervent admirer of President Elect Joe Biden, the fact that he won shows a rejection, even within his own party of the more radical elements. His early personnel decisions have already angered the US Democrats’ far left, signaling that he intends to govern as a centrist and not a radical. For many of us, “Back to Boring” could be an attractive political slogan. In today’s headlines, a Sidhartha Kumar Mathur of West Friendship, Maryland was arrested by federal authorities for threats to a US Congressman, with Mathur leaving voice and computer messages for the Congressman (officials would not release the victim’s identity) saying:

“If you even mess with my vote, I’m going to come, and I’ll slit your throat, and I’ll kill your family…I know where you and your family lives. You will be ended. You’re a . . . animal that needs to be tortured and skinned alive.

Speaking as an American, I am exhausted with drama, extremism and polarization, whether from the right or the left, and I think many others are too. Most of the electorate is neither Trump-nativist nor Bernie Sanders-socialist.

Threats to progress and recovery in the US are still out there. Economic fragility leading to an unexpected shock to incomes and financial stability, conflict driven by irresponsible news and social media platforms, or the nascent populist/nativist movement morphing into something more virulent are all real threats. Even Professor Turchin says that these periods tend to go on for some time, as we saw during the last period of discord in the US between 1967 and roughly 1972.

From Time Magazine’s conversation with the professor:

Turchin says societal crises, which are triggered when pent-up pressures seek an outlet, can typically last for five to 15 years. If the underlying roots of unrest are not properly addressed, turbulent events are easily set off again.

With Brexit’s divisive history reaching the close of at least a chapter, as a fait accompli, the British people can now at least unite on the task of implementing the agreements and learning how to deal with the aftermath. I am no expert on the British, but one possible outcome is the further weakening in their own union. Actor Sean Connery died this past year, but besides being the most iconic James Bond actor, the Scottish actor was a noted Scottish independence advocate. That movement is still alive, and Brexit will have significant implications for both the Republic of Ireland and Northern Ireland that go far deeper than trade provisions.

Elsewhere in the world, China’s takeover and absorption of Hong Kong appears to be unstoppable, and the cries of the city’s pro-democracy activists will be noted in the history books; not much else will be done by the rest of the world in their favor.

There will always be conflict somewhere in the world, but we are living in a period that hopefully (and I predict, likely) will be seen as a spike in uncertainty and instability. In fact, things potentially would have been far worse in terms of public unrest had not everyone been under lockdown and quarantine around the world.

For more on the cyclical trends I have mentioned I highly recommend a reading of Peter Turchin’s works, especially Age of Discord.


5

Cybersecurity & State-Backed Cyberattack

This problem is no longer new, but it is mushrooming and taking on new forms. As workers leave the controlled environment of an office and corporate network, entirely new threat vectors are created. Web-conference provider Zoom and its users have already suffered security breaches—including charges that a Zoom employee collaborated with Chinese government security—and they are not necessarily from traditional computer hacking methods. Intruders have been able to log on and participate in—or surveil—private Zoom calls without authorization, and in many cases without the knowledge of many of the participants. We are rushing to e-commerce, but not every vendor or platform is as secure as it could be.

Your computer may be properly secured, but what about your other smart devices, and your networking equipment, including your routers, modems and switches? Beyond hacking, can physical intruders detect your presence in your home by pinging or querying your smart devices?

5 Things CIOs / CISOs Must Do Now To Prevent Hacks Like SolarWinds

IT Networking company Solar Winds it turns out, along with up to 18,000 of its corporate clients were victimized by Russian cyber-spies. SolarWinds sells software that allows companies and organizations to monitor their own computer networks. The hackers were able to modify the SolarWinds software to potentially give themselves access to not just SolarWinds assets, but assets of every company that installed that particular SolarWinds software!

Just this month, several critical US government agencies have admitted being penetrated by Russian hackers, including The Department of Homeland Security, The State Department, The National Institutes of Health, The Department of The Treasury, and The Commerce Department.

Technology firms such as Belkin, VMware, Nvidia, Microsoft and Intel were victims of the Solarwinds penetration, and even cybersecurity firm FireEye was victimized. FireEye actually discovered the hack and sounded the alarm. Cisco and Deloitte are said to also be victim.

How important is IT security to your company or organization, and are you really doing enough to counter the threat? Set business aside for a minute. What about your own personal cybersecurity? Antivirus software is no longer enough!

Other big hacks of 2020 (a small sampling) that I have written about:

Ge your house in order, my friends. Take this seriously. The threats are multiple:

  • Data theft, including customer records
  • Ransomware — holding your data or systems hostage
  • Hijacking your systems, such as to post ads and links on your websites or use your resources to mine cryptocurrency
  • Intellectual property theft —stealing or modifying valuable information
  • Theft of customer, patient or employee data for extortion or embarrassment
  • Cyber-vandalism

I don’t pretend to be an IT security consultant, but in one case recently I discovered, based on my Unidotrak web monitoring platform that all of you should be using—reply to this email and I will set you up with a free trial—that one of my government clients had been hacked and their web site compromised. The hackers were a ring of thieves that stole intellectual property such as books, movies, music…and pornography, and then resold it. They did this by placing the material on a hacked server that they pointed to for web downloads by their illicit customers. This meant that the government agency was an unwitting purveyor of stolen and illegal material. I alerted them to their data breach and they were able to quietly rectify the situation, but had it been discovered by opposition politicians, the news media, or simply the concerned public, it could have been the end of many careers at least, possible civil action from the owners of the stolen intellectual property, and even criminal charges. Some countries are very strict about possession of certain material and claiming you didn’t know you had it is not a strong defense.

In 2021 we will see, I predict, cybercrime and cyber-espionage reach new levels. Along with this, we will continue to discover ways that we have been manipulated by social media algorithms and artificial intelligence driven active measures (Political Warfare) In the past it was done with pamphlets and posters. Today it is done with Twitter and YouTube by organized troll farms, often run by foreign militaries…or domestic political hacks.  These things are already happening, but I do believe 2021 will be a crescendo year.

If you have read to this point, that to me is a gift in itself, so thank you! Let me know by sharing your own opinions, especially where you disagree. Did I leave anything out or miss the point somewhere? Reply to this email, it comes straight to me.

Stay safe. Wash your hands and wear your face mask in public for now. I appreciate my friends and colleagues, so let’s figure out how to do great things this coming year. Enjoy time with friends and family, and if you are up for it, let’s schedule a call sometime in the next three weeks.

Happy new year, you made it this far!

 

-Loren

 

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