Corner of Berkshire & Fairfax Message Board

General Category => Strategies => Topic started by: Spekulatius on March 19, 2020, 03:49:58 PM

Title: The day after tomorrow
Post by: Spekulatius on March 19, 2020, 03:49:58 PM
1) What is the Economy going to look like when the epidemic is over?
2) How long is it going to take until the economy turns
3) Which industries may take irreversible damage, which may benefit?
4) Economic changes? Are tax rates going up or down? For whom?
5) Political changes?
6) Bailouts, what is likely to happen, who is going to pay for it?
7) Will there be lasting changes to the health care system in the US?

I hope we can do some crowdsourcing here and get some new ideas and variant opinions.

Title: Re: The day after tomorrow
Post by: Viking on March 19, 2020, 04:24:53 PM
I would love to hear from people who have first hand knowledge of what is going on in China, South Korea and Taiwan right now. Like how fast the economy is ramping back up (if it is).

Companies with operations in China, like Starbucks, will have an advantage as they will have already established Ďbest practicesí in China that they can now fast adapt to operations in other parts of the world.
Title: Re: The day after tomorrow
Post by: montizzle on March 19, 2020, 04:38:19 PM

Companies with operations in China, like Starbucks, will have an advantage as they will have already established Ďbest practicesí in China that they can now fast adapt to operations in other parts of the world.

I work for a global building materials company in Canada. What I've seen at work is spot on with what you've said. We began getting emails as early as mid january about the coronavirus and how it may effect operations, long before anyone in this part of the world was taking it seriously.

My workplace has been surprisingly more co-ordinated and prepared for all of this than from what I've heard from friends in non-international companies. I think a lot of it is corporate learning from experiences in China a few months ago. Interested to see what material impact (workplace infection rates, maintaining level of productivity, etc.) this preparedness will translate to.
Title: Re: The day after tomorrow
Post by: ValuePadawan on March 19, 2020, 04:42:14 PM
For how long Coronavirus effects last the way I've been thinking about it is the outer bound will be 18-24 months when a vaccine is available and mass manufactured. If developed countries can "pull a China" and lock down their countries for 6 weeks and effectively track back flow cases, cases coming in from other countries, I think domestic business less reliant on global supply chains and commodities can get back to normal whatever normal is at that point.

That will take probably at least 12 weeks from now and will only happen if they perform excellent at contact tracing once the cases begin to decline which is a big if in countries that have had responses that weren't exactly swift to say the least (looking at you Iran, Russia the USA etc).

The airlines are going to be hurting for the next two years at least and if I was the government dust off the Buffett playbook and go for perpetual preferred shares with warrants. Their investment will pay off so taxpayers will be happy and airline shareholders will be grateful for the liquidity. Both sides win.

I think this will make companies reconsider the level to which their supply chains are globalized and along with nationalism having a resurgence the last 5 years more companies will modify their risk by moving production closer to where the products are sold.

This is mostly speculation but it will be interesting how things shape up!
Title: Re: The day after tomorrow
Post by: fareastwarriors on March 19, 2020, 04:55:47 PM
I would love to hear from people who have first hand knowledge of what is going on in China, South Korea and Taiwan right now. Like how fast the economy is ramping back up (if it is).

Companies with operations in China, like Starbucks, will have an advantage as they will have already established Ďbest practicesí in China that they can now fast adapt to operations in other parts of the world.

Owner of a soap, shampoo/conditioner factory in Guangzhou is back to full capacity. They supply lower end SE Asia market. Probably still working through back orders...

His family is back to eating dim sum every day. I guess things are not That bad anymore.
Title: Re: The day after tomorrow
Post by: Jurgis on March 19, 2020, 05:24:15 PM
1) What is the Economy going to look like when the epidemic is over?
2) How long is it going to take until the economy turns
3) Which industries may take irreversible damage, which may benefit?
4) Economic changes? Are tax rates going up or down? For whom?
5) Political changes?
6) Bailouts, what is likely to happen, who is going to pay for it?
7) Will there be lasting changes to the health care system in the US?

I hope we can do some crowdsourcing here and get some new ideas and variant opinions.

Just for fun:

1) Same as it looked pre pandemic
2) Depends on how the pandemic is handled. Best case: 1-2 quarters, worst case: probably a year. Yeah, I know that vaccine is not gonna be ready for a year-18 months. Economy won't stop for 18 months. People won't shelter-in-place for 18 months.
3) Likely none. There will be companies that go BK though.
4) At some point tax rates will likely go up. Quite possibly not soon.
5) This is not politics section
6) Yes. Deficit will go up. Money will be printed.
7) No.
Title: Re: The day after tomorrow
Post by: Spekulatius on March 19, 2020, 05:32:41 PM
For how long Coronavirus effects last the way I've been thinking about it is the outer bound will be 18-24 months when a vaccine is available and mass manufactured. If developed countries can "pull a China" and lock down their countries for 6 weeks and effectively track back flow cases, cases coming in from other countries, I think domestic business less reliant on global supply chains and commodities can get back to normal whatever normal is at that point.

That will take probably at least 12 weeks from now and will only happen if they perform excellent at contact tracing once the cases begin to decline which is a big if in countries that have had responses that weren't exactly swift to say the least (looking at you Iran, Russia the USA etc).


I think the timeframe should be the starting point  to think about how this is playing out. There is still a lot of thinking going around (besides those that still believe in the flu variant) on that this is over in a few weeks. The longer it lasts, the greater the economic damage is going to be.

The 3 month timeframe until things clear up and the normal live more or less can restart sounds about right to me. When we look back at China, this thread got started early in January and now the normalcy returns mid March, so for us starting in March, it seems that June is our best case scenario, assuming a similar timeline. Most likely, it is going to be a longer drawn out affair though.

We do not know if this epidemic is seasonal, but if it is, it might reoccur in Winter. Then we are most likely talking Spring next year. Even if not seasonal, I expect new infection hotspots popping up, but hopefully they will be easier to contain when part of the population is already immune and the government and states know what to do. In any case, itís going to be a 3 month best case, but more likely one year affair.
Title: Re: The day after tomorrow
Post by: Cigarbutt on March 19, 2020, 06:33:21 PM
^Frankly, I don't even know what tomorrow will bring so forget about the day after tomorrow.
Also, from an advice you gave me in September 2018, the aim is to move from understanding to observation, as far as unknowables are concerned.

So, only 7) is discussed here. I'm more optimistic than Jurgis and I think that change will occur from the inside and/or will be imposed from the outside and that may impact many private entities involved in health care. And even if the virus is significant, it's the evolving status of the (economic) host that I worry about. Something along those lines just came out from somebody who is looking for an opportunity:
https://www.newyorker.com/magazine/2020/03/23/why-americans-are-dying-from-despair
Title: Re: The day after tomorrow
Post by: Viking on March 19, 2020, 11:01:48 PM
Here is a summary of where Italy is at. Not out of the woods yet. And lots of unanswered questions about what the future holds.

https://www.thelocal.it/20200318/when-will-the-coronavirus-epidemic-in-italy-peak
Title: Re: The day after tomorrow
Post by: cubsfan on March 20, 2020, 05:42:04 AM
So, only 7) is discussed here. I'm more optimistic than Jurgis and I think that change will occur from the inside and/or will be imposed from the outside and that may impact many private entities involved in health care. And even if the virus is significant, it's the evolving status of the (economic) host that I worry about. Something along those lines just came out from somebody who is looking for an opportunity:
https://www.newyorker.com/magazine/2020/03/23/why-americans-are-dying-from-despair

Cigarbutt - great article on the human side of the disaster.

thank you
Title: Re: The day after tomorrow
Post by: Spekulatius on March 20, 2020, 04:41:42 PM
^Frankly, I don't even know what tomorrow will bring so forget about the day after tomorrow.
Also, from an advice you gave me in September 2018, the aim is to move from understanding to observation, as far as unknowables are concerned.

So, only 7) is discussed here. I'm more optimistic than Jurgis and I think that change will occur from the inside and/or will be imposed from the outside and that may impact many private entities involved in health care. And even if the virus is significant, it's the evolving status of the (economic) host that I worry about. Something along those lines just came out from somebody who is looking for an opportunity:
https://www.newyorker.com/magazine/2020/03/23/why-americans-are-dying-from-despair

Yes, I am looking at this thread as a means to develop a framework. I am not keen on predicting the future, but I do want to have a framework in place, in order to understand what might happen. It is easier to make sense of events as they unfold, if you have a mental model (or several of them ideally) and then test them against the new developments and data coming in.

Simple example - Andrew Youngís UBI. This was fringe idea proposed by a fringe candidate and seems outlandish and quite frankly it is socialist, but look at where we are know? This idea has gone from fringe to mainstream and Trump may sent out checks very soon. Thatís a huge paradigm shift.

I asked in the Coronavorus Thread if a health insurer could go bankrupt. Most seem to think no, which probably is right. But what happens if we get a pandemic and it makes a large insurer like UNH insolvent? Quite frankly, their capital cushion isnít all that impressive and if there is a huge surge in claims, I could see that happen. What would happen then? Nationalization? Bailout? In what Form? And what would happen to the insured? Medicare for all? ItĎs just a possible scenarios and purely speculative, but I guess we will see in the next 12 month things that we never thought to be possible.

At least thatís my thinking. I also like the term New Deal 2.0 because I think that what I think we will be getting. I have no idea what it will look like though.

Itís an interesting time to be alive and hopefully stay that way.
Title: Re: The day after tomorrow
Post by: Cigarbutt on March 20, 2020, 05:12:42 PM
...
Itís an interesting time to be alive and hopefully stay that way.
...I guess we ain't seen nothing yet.
https://www.youtube.com/watch?v=g9S93bE06H0
It's the story of a guy who got a transmissible gift because he didn't think that flattening the curve mattered that much in the heat of the moment.
The best is yet to come and we'll make it, somehow.
Looking forward to your framework(s).
Title: Re: The day after tomorrow
Post by: Castanza on March 20, 2020, 05:37:14 PM
^Frankly, I don't even know what tomorrow will bring so forget about the day after tomorrow.
Also, from an advice you gave me in September 2018, the aim is to move from understanding to observation, as far as unknowables are concerned.

So, only 7) is discussed here. I'm more optimistic than Jurgis and I think that change will occur from the inside and/or will be imposed from the outside and that may impact many private entities involved in health care. And even if the virus is significant, it's the evolving status of the (economic) host that I worry about. Something along those lines just came out from somebody who is looking for an opportunity:
https://www.newyorker.com/magazine/2020/03/23/why-americans-are-dying-from-despair

Yes, I am looking at this thread as a means to develop a framework. I am not keen on predicting the future, but I do want to have a framework in place, in order to understand what might happen. It is easier to make sense of events as they unfold, if you have a mental model (or several of them ideally) and then test them against the new developments and data coming in.

Simple example - Andrew Youngís UBI. This was fringe idea proposed by a fringe candidate and seems outlandish and quite frankly it is socialist, but look at where we are know? This idea has gone from fringe to mainstream and Trump may sent out checks very soon. Thatís a huge paradigm shift.

I asked in the Coronavorus Thread if a health insurer could go bankrupt. Most seem to think no, which probably is right. But what happens if we get a pandemic and it makes a large insurer like UNH insolvent? Quite frankly, their capital cushion isnít all that impressive and if there is a huge surge in claims, I could see that happen. What would happen then? Nationalization? Bailout? In what Form? And what would happen to the insured? Medicare for all? ItĎs just a possible scenarios and purely speculative, but I guess we will see in the next 12 month things that we never thought to be possible.

At least thatís my thinking. I also like the term New Deal 2.0 because I think that what I think we will be getting. I have no idea what it will look like though.

Itís an interesting time to be alive and hopefully stay that way.

My opinion of this bailout is changing very quickly. Seems like there is no hope of it being a loan and therefore no personal responsibility attached. I plan on mailing mine back if this is nothing but a handout.
Title: Re: The day after tomorrow
Post by: RadMan24 on March 20, 2020, 06:28:30 PM
The focus is always on the vaccine which is so far away, but I think there's positive outcomes in anti viral or other treatments in reducing inflammation in severe cases that's causing most of the deaths. If a treatment is approved here in the next week or two that greatly reduces deaths, the quarantine we're all in should reduce cases in a month or so that business can start to rebound, and the load on the health care system won't be too bad. This is all unknown, but at today's prices for quality companies with solid balance sheets in beaten down sectors, it's about as good as it gets.

Also, there's no way the vaccine takes longer than 12 months. Even Regeneron is prepping doses just in case its effective along side clinical trials.There are 19 other developments as well, but a Vaccine could hit the market as soon as Summer if stars align.

And, to be frank, it needs to happen or people won't trust the industry any more nor believe the efforts in R&D are worth the sky high drug prices, high health care costs, etc. and this industry will be hit hard going forward, imo in such a case..

Title: Re: The day after tomorrow
Post by: bergman104 on March 20, 2020, 09:16:32 PM
I'm sure there are other health professionals on this, but I'm a surgical resident at a large academic center in the midwest. The reports we are hearing from people across the world are pretty startling. In the US were are in the early early innings of this. I very much hope I am wrong and the economy bounces back in 4 weeks, but I'd be pretty shocked. This is going to get bad folks.

My reasoning is simple. The vaccines and drugs are not going to help simply because there won't be enough time to test them. The anti-inflammatory drugs like chloroquine have only shown to be beneficial in a petri dish, not in large groups of people. No physician I know would actually prescribe chloroquine to their patient unless it was a hail mary. By then it will likely be too late. We simply have no way to fight this other than physically distancing ourselves. The problem with that economically is it drags out the process. My best would be late June or July.

We are 1 week in. I'm waiting 5-6 weeks and hoping like hell I'm wrong and miss the rebound.

Title: Re: The day after tomorrow
Post by: ERICOPOLY on March 20, 2020, 09:47:16 PM
The anti-inflammatory drugs like chloroquine have only shown to be beneficial in a petri dish, not in large groups of people. No physician I know would actually prescribe chloroquine to their patient unless it was a hail mary.

Montefiore Medical Center in New York has already started seeing the surge of Covid-19 patients that public health experts have been warning about. The hospital is participating in the remdesivir trial and is giving Covid-19 patients chloroquine. ďAll of our patients get put on chloroquine, as well as on antiretrovirals. Weíre using Kaletra. Different places are using different antiretrovirals,Ē says Liise-anne Pirofski, chief of infectious diseases at Albert Einstein College of Medicine and Montefiore. ďEverybody gets that, unless they have some contraindication.Ē

https://www.wired.com/story/an-old-malaria-drug-may-fight-covid-19-and-silicon-valleys-into-it/
Title: Re: The day after tomorrow
Post by: Packer16 on March 21, 2020, 05:53:00 AM
IMO the key is an effective treatment not a vaccine.  Treatment will prevent deaths.  There a tension between closing stuff down (which has a huge economic impact on everyone) and public health.  I think if this goes the way of China which IMO should be the mid case (as we are learning from others & should have a better treatment available within weeks) is 2 months (January to March).  Maybe folks are in panic mode to such an extent when someone uses China as an example, they cannot even count the months correctly.  My concern is an over ambitious politician that will keep the close business order on too long.  We still have essential services operating so most of our economy is running fine.

I think this crisis has shown how fragile some portions of our economy is & how levered certain portions of our system.  We are seeing margin calls which are causing contagion in other unrelated sectors (especially real estate and banks).  The unknown here is contagion or fear of contagion reflected in some security prices.

Packer 
Title: Re: The day after tomorrow
Post by: Uccmal on March 21, 2020, 06:15:08 AM
I'm sure there are other health professionals on this, but I'm a surgical resident at a large academic center in the midwest. The reports we are hearing from people across the world are pretty startling. In the US were are in the early early innings of this. I very much hope I am wrong and the economy bounces back in 4 weeks, but I'd be pretty shocked. This is going to get bad folks.

My reasoning is simple. The vaccines and drugs are not going to help simply because there won't be enough time to test them. The anti-inflammatory drugs like chloroquine have only shown to be beneficial in a petri dish, not in large groups of people. No physician I know would actually prescribe chloroquine to their patient unless it was a hail mary. By then it will likely be too late. We simply have no way to fight this other than physically distancing ourselves. The problem with that economically is it drags out the process. My best would be late June or July.

We are 1 week in. I'm waiting 5-6 weeks and hoping like hell I'm wrong and miss the rebound.

I would agree with your synopsis, and I am not a surgical resident :-). 

There are far more questions than answers.  The West, particularly the US is going to get hit way worse than China.  China has high level leadership. 

Its many times more complex than working out a chess game 20 moves downstream for a human being. 
Title: Re: The day after tomorrow
Post by: rb on March 21, 2020, 06:22:19 AM
1) What is the Economy going to look like when the epidemic is over?
2) How long is it going to take until the economy turns
3) Which industries may take irreversible damage, which may benefit?
4) Economic changes? Are tax rates going up or down? For whom?
5) Political changes?
6) Bailouts, what is likely to happen, who is going to pay for it?
7) Will there be lasting changes to the health care system in the US?

I hope we can do some crowdsourcing here and get some new ideas and variant opinions.
For the economic side the answer really depends on what was the real shape of the economy before covid hit. If the economy was in decent shape like the headline numbers would suggest then the economy is gonna snap back. If the economy was more sluggish the the recovery is going to be slower.  This can very well be the case because other indicators were softer than the headline numbers would suggest. Inflation was weak in 2019, you had a rate cut, and the 10 year yield was coming down way before every finance guy started looking up the word "epidemiology".

I'm actually quite optimistic about this despite being in the economy was more sluggish bucket.

This basically started with a supply shock (china) but then got hit with a massive demand shock. The way to think about it is that it's equivalent to the Fed doing a massive rate hike, sucker punching demand, and causing a recession. This is basically every recession pre 2000. In those cases as soon as the Fed took its foot of the break the economy came back because the demand was there. Furthermore, this time around there will be substantially less feedback loops normally happen in a recession. Because the banks won't foreclose on you, you'll be able to delay payments, fiscal help, etc.

As for time frame I think we're looking at about 3 months. China is a good example. As soon as the locked down you see them getting this thing under control in about a month. Right now pretty much everyone is pulling a China, not with the military and police but because people have scared themselves senseless. In America because they're pussies and have twitter. In Europe because of Italy and whoever wasn't scared before looked at Italy and is good and scared now. So basically you're looking at 1 month to get it under control then 2 months to clear out the cases.

The other side of this is that they have to solve it in 3 months otherwise we're screwed. I don't think that we can keep at this level more than 3 months before things start to fall apart. I think the longer it goes the more talk you're gonna hear about how we need to get back to normal and the old folks need to take one for the team this time around. So 3 months, assuming the economy wasn't in the crapper going in, with decent monetary and fiscal stimulus behind it. I think the economy recover well.

I don't think there are tax hikes on anyone for a while. While would you tighten fiscally when you need to stimulate. Plus it's an election year.

Regarding industries permanently affected. I don't know that they'll be one. People are pretty good at forgetting bad things and are quite hedonistic. So I think that they go back to their pleasures. There may be a while until someone books a cruise though.

Politically I think changes have already occurred. The Republican party has been completely transformed from what it was. I'm referring to the base as well as the politicians. We knew for a while now that they don't care about deficits. But what we've seen with this crisis is that they're perfectly ok with outright spending as well. So going forward i think that there will be more of a fiscal response to shocks than in the past. This is a good thing, but we'll see.  Republicans have been pretty good at changing their economic policies depending on who's in office.

I don't think there will be changes to the health care system. Americans are really good at keeping it permanently screwed up.
Title: Re: The day after tomorrow
Post by: Castanza on March 21, 2020, 06:23:07 AM
SARS was primarily treated with antibiotics. A vaccine didnít arrive until the end of the outbreak.

For those in the medical community wouldnít antibiotics generally have a quicker response? Vaccines typical take a week or so to build immunity and still might not be effective.
Title: Re: The day after tomorrow
Post by: SharperDingaan on March 21, 2020, 06:35:24 AM
No one has any idea what the economy will look like once this is done. Relax social distancing and the restaurants, bars, etc. can start back up (benefiting the owners and staff who really need it). But it is going to be a while before anyone starts taking trips, or buying anything major again. Best guess is 4-6 months to 60% of prior activity, and in 2-3 progressive stages.

Most industries are going to substantially change. Supply chains that are more local, and robust. Industry consolidation into oligarchs. QE bailouts via debt to equity swap, FDR type mega-projects, injecting thousands of predictable well-paying jobs, to get the economy going again.

Reregulation. For the most part, airline travel was a far better experience when there were just 1-2 national airlines per nation. Similar thing with cruise ships, hotels, supply chains, etc. Price is important, but no longer king.

Same old. People still need to do things, and most cannot afford much. The sports, concerts, etc. will still go on. Just fewer and smaller until the population becomes comfortable with mass crowds again.

Accelerated social change. Strident calls, but directionless in the early stages; too early to tell where it goes yet.
Unlikely Trump gets a second term, as we Ďthe peopleí will demand someone to blame.

Trump. Different views, but most would agree that Trump and his enablers, have been toxic to the process.
Change the channel, and the recovery can accelerate. 

Obviously, lots to chew on

SD
Title: Re: The day after tomorrow
Post by: Cigarbutt on March 21, 2020, 07:28:23 AM
SARS was primarily treated with antibiotics. A vaccine didnít arrive until the end of the outbreak.

For those in the medical community wouldnít antibiotics generally have a quicker response? Vaccines typical take a week or so to build immunity and still might not be effective.
Disclosure: this post is based on incomplete knowledge supplemented by a 5 minute search, so...
There are several efforts and trials now based on the SARS experience and human ingenuity should not be underestimated but, AFAIK, the coronavirus that caused SARS has no real effective treatment. When people come in the hospital with symptoms and respiratory distress, they are typically put on a large-spectrum antibiotics (because that treatment works for bacterial and other pneumonias) but these medications have no effect on the CV itself, if that's the cause. There are potentially anti-viral agents but the evidence appears weak, in terms of a widespread and convincing benefit and side effects are significant. With respiratory failure, steroids are used (evidence very weak) and, typically, only general and supportive measures (including respiratory support) can be used until the natural immunity kicks in.
When "infection control" is mentioned at this point, it is meant at the community level, in terms of the spread.
Hoping for progress here...
Title: Re: The day after tomorrow
Post by: roark33 on March 21, 2020, 10:36:32 AM
I would love to hear from people who have first hand knowledge of what is going on in China, South Korea and Taiwan right now. Like how fast the economy is ramping back up (if it is).

Companies with operations in China, like Starbucks, will have an advantage as they will have already established Ďbest practicesí in China that they can now fast adapt to operations in other parts of the world.

The main problem with looking at China and SK is missing the comparison that we have let the horse out of the barn, so to speak. The virus has already spread throughout the US and therefore it will only spot once we develop herd immunity, which is around 15-20% of the population.  Until then, the only real goal for the US is to slow the spread to help defer the impact on the medical capacity.  So, if you look at China and say, well, Starbucks is back up and running, that's not going to happen in the US.
Title: Re: The day after tomorrow
Post by: TwoCitiesCapital on March 21, 2020, 12:12:44 PM
I would love to hear from people who have first hand knowledge of what is going on in China, South Korea and Taiwan right now. Like how fast the economy is ramping back up (if it is).

Companies with operations in China, like Starbucks, will have an advantage as they will have already established Ďbest practicesí in China that they can now fast adapt to operations in other parts of the world.

The main problem with looking at China and SK is missing the comparison that we have let the horse out of the barn, so to speak. The virus has already spread throughout the US and therefore it will only spot once we develop herd immunity, which is around 15-20% of the population.  Until then, the only real goal for the US is to slow the spread to help defer the impact on the medical capacity.  So, if you look at China and say, well, Starbucks is back up and running, that's not going to happen in the US.

Agreed on this. Also, like any data out of China, you need to take it with a very LARGE grain of salt. No idea how much bigger it is than they're saying, but guarantee its bigger than what they've said.
Title: Re: The day after tomorrow
Post by: rb on March 21, 2020, 12:47:19 PM
I would love to hear from people who have first hand knowledge of what is going on in China, South Korea and Taiwan right now. Like how fast the economy is ramping back up (if it is).

Companies with operations in China, like Starbucks, will have an advantage as they will have already established Ďbest practicesí in China that they can now fast adapt to operations in other parts of the world.

The main problem with looking at China and SK is missing the comparison that we have let the horse out of the barn, so to speak. The virus has already spread throughout the US and therefore it will only spot once we develop herd immunity, which is around 15-20% of the population.  Until then, the only real goal for the US is to slow the spread to help defer the impact on the medical capacity.  So, if you look at China and say, well, Starbucks is back up and running, that's not going to happen in the US.

Agreed on this. Also, like any data out of China, you need to take it with a very LARGE grain of salt. No idea how much bigger it is than they're saying, but guarantee its bigger than what they've said.
I think the data coming out of china is ok. Let me explain.

The numbers don't matter that much. There's too much noise is the data anyway. Korea tested too much, US and Italy not enough. It doesn't really matter what the numbers are. Whether 3,000 or 10,000 died in china is not that important. What's important is that at some point it started, at some point it went exponential, and at some point it ended. Those are the important data points. I don't think China is lieing about that. So the data is ok.
Title: Re: The day after tomorrow
Post by: samwise on March 21, 2020, 01:38:49 PM
How are people investing now? Iíll lay out my thoughts. Happy to heard thoughts, or anything I missed.

I think no business models get impaired, expect a low probability chance in healthcare. So the day after tomorrow looks like the day before yesterday. So one can quantify the upside based on previous earnings.

Whatís not clear is which equity survives a 3 month shutdown. This is the big risk priced in the market now. Huge unknowns as I donít know what the effects of shutdown are.

The trade off is upside versus survival. On one side Japanese companies which hoard cash to survive anything, but are terrible at generating returns for shareholders. On the other side leveraged companies with thin margins and fixed costs which might not survive a blip in sales.

A full lockdown is worse than a depression.
Retailers have no sales, cannot pay payroll or rent or debt. Without rent landlords cannot service the mortgage. Banks canít get any payments, so how do they make payroll?
Individuals donít get paid, canít pay rent, mortgage or credit cards.

This looks unsustainable and canít last too long. Itís also government enforced, so hard to say that the bankers took too much risk and deserved the losses. Makes me think society will cut this short and take the loss in lives stoically.
Title: Re: The day after tomorrow
Post by: Jurgis on March 21, 2020, 03:50:55 PM
A full lockdown is worse than a depression.

I think a lot of people have incorrect concept of "full lockdown".

I had questions about how the heck things work in a full lockdown in California. So I searched.
The list of "essential" businesses that are open is quite longer than you'd think.
In case you wonder if you can get strawberries: agriculture is not shut down.
In case you wonder if you can get anything from China: port of Long Beach is not shut down and railroads are likely not shut down either.
In case you wonder if you can get a loan, cash a check, or do a refi: banks are not shut down (though some might have limited staff in branch and/or shorter hours).
In case you wonder if you can get your appliances repaired or purchased: appliance repairs is essential business and not shut down; purchases might be more mixed bag. I just bought an appliance (but we are not in full lockdown as California is).

I'm not saying that "lockdown" is "just like a flu"  ;D. It is bad. But it's not 100% stoppage of economy either.

BTW, I find it really funny that with "lockdown" in effect, I can easily buy non-essential products like window blinds from China, but I cannot buy such essential product as US made toilet paper.  ::)
Title: Re: The day after tomorrow
Post by: Spekulatius on March 21, 2020, 05:08:14 PM
A full lockdown is worse than a depression.

I think a lot of people have incorrect concept of "full lockdown".

I had questions about how the heck things work in a full lockdown in California. So I searched.
The list of "essential" businesses that are open is quite longer than you'd think.
In case you wonder if you can get strawberries: agriculture is not shut down.
In case you wonder if you can get anything from China: port of Long Beach is not shut down and railroads are likely not shut down either.
In case you wonder if you can get a loan, cash a check, or do a refi: banks are not shut down (though some might have limited staff in branch and/or shorter hours).
In case you wonder if you can get your appliances repaired or purchased: appliance repairs is essential business and not shut down; purchases might be more mixed bag. I just bought an appliance (but we are not in full lockdown as California is).

I'm not saying that "lockdown" is "just like a flu"  ;D. It is bad. But it's not 100% stoppage of economy either.

BTW, I find it really funny that with "lockdown" in effect, I can easily buy non-essential products like window blinds from China, but I cannot buy such essential product as US made toilet paper.  ::)

A lot of business are considered essential, including the one I work for, since it supplies defense as well as some medical equipment companies. A lot of companies continue to operate, utilities operate, public services operate and lots of folks work from home. Even in a lockdown, most people are working every day and get a paycheck.
Title: Re: The day after tomorrow
Post by: samwise on March 21, 2020, 08:03:17 PM
A full lockdown is worse than a depression.

I think a lot of people have incorrect concept of "full lockdown".

I had questions about how the heck things work in a full lockdown in California. So I searched.
The list of "essential" businesses that are open is quite longer than you'd think.
In case you wonder if you can get strawberries: agriculture is not shut down.
In case you wonder if you can get anything from China: port of Long Beach is not shut down and railroads are likely not shut down either.
In case you wonder if you can get a loan, cash a check, or do a refi: banks are not shut down (though some might have limited staff in branch and/or shorter hours).
In case you wonder if you can get your appliances repaired or purchased: appliance repairs is essential business and not shut down; purchases might be more mixed bag. I just bought an appliance (but we are not in full lockdown as California is).

I'm not saying that "lockdown" is "just like a flu"  ;D. It is bad. But it's not 100% stoppage of economy either.

BTW, I find it really funny that with "lockdown" in effect, I can easily buy non-essential products like window blinds from China, but I cannot buy such essential product as US made toilet paper.  ::)

A lotmof business are considered essential, including the one I work for, since it supplies defense as well as some medical equipment companies. A lot of companies continue to operate, utilities operate, public services operate and lots of folks work from home. Even in a lockdown, most people are working every day and get a paycheck.

Thatís heartening to hear. But at 20% unemployment most people are still working, and itís twice as bad as 2008/9. Markets are worried about which companies can survive, and there is no idea how deep the recession will be. Perhaps since this is a self imposed pain, there is a limit on how much pain can be taken.

For reference the depression had 25% and GFC had 10% unemployment. One can hope whatever unemployment we get is temporary. But how deep will it be?  That will predict loan losses in banks consumer books and credit cards. If itís not too bad then I donít understand the pessimism in all lending stocks: banks, credit cards, KMX.

How about retail sales? Eyeballing the data series shows about 11% fall between December 2008 and 2009. Lots of unknown macro variables here in a novel situation.

Jurgis, thanks for explaining the lockdown. I had no idea how similar or not it was to Wuhan and Italy. How much of a hit to employment or sales would you estimate this causes?
Title: Re: The day after tomorrow
Post by: Jurgis on March 21, 2020, 09:46:25 PM
Thatís heartening to hear. But at 20% unemployment most people are still working, and itís twice as bad as 2008/9. Markets are worried about which companies can survive, and there is no idea how deep the recession will be. Perhaps since this is a self imposed pain, there is a limit on how much pain can be taken.

For reference the depression had 25% and GFC had 10% unemployment. One can hope whatever unemployment we get is temporary. But how deep will it be?  That will predict loan losses in banks consumer books and credit cards. If itís not too bad then I donít understand the pessimism in all lending stocks: banks, credit cards, KMX.

How about retail sales? Eyeballing the data series shows about 11% fall between December 2008 and 2009. Lots of unknown macro variables here in a novel situation.

Jurgis, thanks for explaining the lockdown. I had no idea how similar or not it was to Wuhan and Italy. How much of a hit to employment or sales would you estimate this causes?

I'm not a professional economist.  8)

Back of the napkin:
Retail https://www.bls.gov/iag/tgs/iag44-45.htm
15M labor force, let's say 7M unemployed.
Leisure and hospitality https://www.bls.gov/iag/tgs/iag70.htm
17M labor force, let's say 10M unemployed
That's about 17M unemployed.
Total US labor force is about 160M. So a bit above 10% unemployment.
I don't know if these assumptions are too draconian.
In other sectors it's likely people won't get fired even if company curtails operations. In retail a lot of people are hourly, so they are not really "fired" if they don't work.

Retail sales are likely to suffer higher drop than 11%. 20%+?

I might be totally off though.  ::) Don't rely on these estimates to make any decisions.  8)
Title: Re: The day after tomorrow
Post by: samwise on March 21, 2020, 10:03:09 PM
Thanks Jurgis. I wonít rely on those numbers. 🙂 they are quite bad, but hopefully temporary.

Here is another approach. This isnít an economic phenomenon which has to run its course, itís completely man made. So maybe we just need to measure the willingness to take this pain.

How much pain can the average American take? At what unemployment number over two months do Americans say enough, letís end this.
Title: Re: The day after tomorrow
Post by: Spekulatius on March 22, 2020, 03:51:12 AM
Thanks Jurgis. I wonít rely on those numbers. 🙂 they are quite bad, but hopefully temporary.

Here is another approach. This isnít an economic phenomenon which has to run its course, itís completely man made. So maybe we just need to measure the willingness to take this pain.

How much pain can the average American take? At what unemployment number over two months do Americans say enough, letís end this.

Economic problems are man made too. What allís these estimates donít take into account is cascading effects or reflexivity. If I had to  make a guess, the 20% lay-off number is closer to the truth than 10%. Who is going to buy a house, car, fund a startup or invest in new business opportunity in this pandemonium? Sure some will remain, but those somewhat decretionary things will be severely cut. The indirect cascading effects will at least as high than the direct effects. Thatís why it important to soften the blow to the economy.
Title: Re: The day after tomorrow
Post by: Cigarbutt on March 22, 2020, 05:50:35 AM
Thanks Jurgis. I wonít rely on those numbers. 🙂 they are quite bad, but hopefully temporary.

Here is another approach. This isnít an economic phenomenon which has to run its course, itís completely man made. So maybe we just need to measure the willingness to take this pain.

How much pain can the average American take? At what unemployment number over two months do Americans say enough, letís end this.

Economic problems are man made too. What allís these estimates donít take into account is cascading effects or reflexivity. If I had to  make a guess, the 20% lay-off number is closer to the truth than 10%. Who is going to buy a house, car, fund a startup or invest in new business opportunity in this pandemonium? Sure some will remain, but those somewhat decretionary things will be severely cut. The indirect cascading effects will at least as high than the direct effects. Thatís why it important to soften the blow to the economy.
Maybe this is irrelevant but I get this feeling that a lot of what the government has done in the last 20 years or so has been to soften the blow.
https://www.cbo.gov/system/files/2020-03/56165-CBO-debt-primer.pdf
I realize CBO documents are not exactly like a Netflix series but looking at page 6, graph S-1 requires about 5 seconds.
A word about the CBO:
-They are typically wrong in their forecasts (sometimes wildly so) and they typically underestimate shortfalls.
-Their outlook does not usually factor in recessions
-Their recent outlook report (March 2020) does not take into account recent health-related issues
Title: Re: The day after tomorrow
Post by: SharperDingaan on March 22, 2020, 07:42:10 AM
Most people are simply in denial. The unemployment numbers from this are so large, that folks just cannot imagine it.
There HAS to be a pill, or a vaccine that I can take - to escape this nightmare!

There are 45 auto-plants in the US. They, and their domestic supply chains, are now shut down. Every auto-plant supports roughly 7 other jobs in the economy. Of the 45 auto-plants, roughly half are owned by the Big-3, and employ about 150K employees. Hence, with this announcement - roughly 2.1 MILLION jobs, just hit the street (2x150Kx7=2.1M). Similar cascades around aircraft makers/airlines, oil/gas, travel, hospitality, and hotels - AND ALL IN THE SAME MONTH.

Manufacturers are converting to mask and ventilator production, because they desperately need the work.
https://www.cbc.ca/news/canada/windsor/ford-gm-covid19-close-factories-1.5501927
https://en.wikipedia.org/wiki/List_of_automotive_assembly_plants_in_the_United_States

That denial, is feeding US intolerance of social distancing for any length of time.
Public shaming, and police/military enforcement in a pressure cooker, is not going to go down well. Millions of angry people, with easy access to social media and internet, is not a happy combination - and they are going to blame somebody.

SD


 
Title: Re: The day after tomorrow
Post by: Jurgis on March 22, 2020, 09:07:21 AM
Most people are simply in denial. The unemployment numbers from this are so large, that folks just cannot imagine it.
There HAS to be a pill, or a vaccine that I can take - to escape this nightmare!

There are 45 auto-plants in the US. They, and their domestic supply chains, are now shut down. Every auto-plant supports roughly 7 other jobs in the economy. Of the 45 auto-plants, roughly half are owned by the Big-3, and employ about 150K employees. Hence, with this announcement - roughly 2.1 MILLION jobs, just hit the street (2x150Kx7=2.1M). Similar cascades around aircraft makers/airlines, oil/gas, travel, hospitality, and hotels - AND ALL IN THE SAME MONTH.

Manufacturers are converting to mask and ventilator production, because they desperately need the work.
https://www.cbc.ca/news/canada/windsor/ford-gm-covid19-close-factories-1.5501927
https://en.wikipedia.org/wiki/List_of_automotive_assembly_plants_in_the_United_States

That denial, is feeding US intolerance of social distancing for any length of time.
Public shaming, and police/military enforcement in a pressure cooker, is not going to go down well. Millions of angry people, with easy access to social media and internet, is not a happy combination - and they are going to blame somebody.

SD

SD,

I could not find info for all factories, but it seems that employees are being compensated during closure:
https://www.dallasnews.com/business/autos/2020/03/19/arlington-general-motors-plant-will-close-for-deep-cleaning-until-march-30-halting-production/
So, although it's a big economic impact to companies, it is not yet a big impact on jobs.
Clearly companies won't be able to keep paying employees if the factories are closed for extended period though.
It is also not clear if other companies in the supply chain pay their workers during closures too.
Title: Re: The day after tomorrow
Post by: SharperDingaan on March 22, 2020, 10:21:22 AM
Most people are simply in denial. The unemployment numbers from this are so large, that folks just cannot imagine it.
There HAS to be a pill, or a vaccine that I can take - to escape this nightmare!

There are 45 auto-plants in the US. They, and their domestic supply chains, are now shut down. Every auto-plant supports roughly 7 other jobs in the economy. Of the 45 auto-plants, roughly half are owned by the Big-3, and employ about 150K employees. Hence, with this announcement - roughly 2.1 MILLION jobs, just hit the street (2x150Kx7=2.1M). Similar cascades around aircraft makers/airlines, oil/gas, travel, hospitality, and hotels - AND ALL IN THE SAME MONTH.

Manufacturers are converting to mask and ventilator production, because they desperately need the work.
https://www.cbc.ca/news/canada/windsor/ford-gm-covid19-close-factories-1.5501927
https://en.wikipedia.org/wiki/List_of_automotive_assembly_plants_in_the_United_States

That denial, is feeding US intolerance of social distancing for any length of time.
Public shaming, and police/military enforcement in a pressure cooker, is not going to go down well. Millions of angry people, with easy access to social media and internet, is not a happy combination - and they are going to blame somebody.

SD

SD,

I could not find info for all factories, but it seems that employees are being compensated during closure:
https://www.dallasnews.com/business/autos/2020/03/19/arlington-general-motors-plant-will-close-for-deep-cleaning-until-march-30-halting-production/
So, although it's a big economic impact to companies, it is not yet a big impact on jobs.
Clearly companies won't be able to keep paying employees if the factories are closed for extended period though.
It is also not clear if other companies in the supply chain pay their workers during closures too.

Employees in the auto-plants and supply chains, are being compensated for WEEKS, not months. Vacation pay at 100%, 2-3 weeks at 50% of pay or less, then unemployment insurance. For most, maybe 4-8 weeks until unemployment insurance. If it takes longer ......

Wait staff typically earn 1/2 their pay from the employer, and 1/2 from tips. Most canadian unemployment insurance will replace 50% of employment income, but for wait staff that is a 75% cut in pay, effective immediately. The hundreds of thousands of servers no longer serving you - and leaving the major cities to return home to mom/dad, because they can no longer afford to live there.

SD

 
Title: Re: The day after tomorrow
Post by: Viking on March 22, 2020, 10:27:48 AM
Most people are simply in denial. The unemployment numbers from this are so large, that folks just cannot imagine it.
There HAS to be a pill, or a vaccine that I can take - to escape this nightmare!

There are 45 auto-plants in the US. They, and their domestic supply chains, are now shut down. Every auto-plant supports roughly 7 other jobs in the economy. Of the 45 auto-plants, roughly half are owned by the Big-3, and employ about 150K employees. Hence, with this announcement - roughly 2.1 MILLION jobs, just hit the street (2x150Kx7=2.1M). Similar cascades around aircraft makers/airlines, oil/gas, travel, hospitality, and hotels - AND ALL IN THE SAME MONTH.

Manufacturers are converting to mask and ventilator production, because they desperately need the work.
https://www.cbc.ca/news/canada/windsor/ford-gm-covid19-close-factories-1.5501927
https://en.wikipedia.org/wiki/List_of_automotive_assembly_plants_in_the_United_States

That denial, is feeding US intolerance of social distancing for any length of time.
Public shaming, and police/military enforcement in a pressure cooker, is not going to go down well. Millions of angry people, with easy access to social media and internet, is not a happy combination - and they are going to blame somebody.

SD

Agreed. How do you model something you have never experienced before? That is happening on a scale that has never happened before? Where you are completely unprepared? With no global coordination? Where you have incomplete or no information? Where 1/3 of the population thinks concerns over the virus are being overblown?

Letís hope someone comes up with a treatment quickly. This virus thing is about to get real in the rest of Europe and North America in about another week.
Title: Re: The day after tomorrow
Post by: no_free_lunch on March 22, 2020, 10:28:14 AM

The hundreds of thousands of servers no longer serving you - and leaving the major cities to return home to mom/dad, because they can no longer afford to live there.

SD

 

This is a good post.  It is not a theoretical, I have already seen it happen this past week.  Much of the population has no buffer at all, and the government's plans are completely inadequate for this situation.  Not a good time to be a landlord unless you can pass the pain on to the bank.
Title: Re: The day after tomorrow
Post by: samwise on March 22, 2020, 11:25:25 AM
FT posted some real time data points.

opentable shows restaurants bookings down 100% in uk, USA, Canada, Germany, Mexico, Ireland, but only down 50% in Australia.

Springboard (never heard of them before) shows retail footfalls have fallen 70% in USA and Italy on Mach 18, and 20% in uk, Sweden.

Cinema bookings shrank 2/3 in the March 15 weekend Y/Y. In most of  50 countries they track. Italy and China didnít report any data. Presumably because there was no data to report.

Us cinemas weekly take was less than half the take from a year ago.

Flightradar24 shows global flights down 20% in the week till March 21.

Tom Tom shows global rush hour traffic is down. London isnít down as much. Wuhan rush hour traffic hasnít recovered yet.

North Italy electricity consumption is down 15% March vs February, same day of the week. Maybe seasonal effects too.

Ft didnít say anything about unemployment. Google trends search on unemployment is back to 2009 levels, but previous research shows limited prediction power in this data. https://ideas.repec.org/p/rif/wpaper/35.html

Btw Italyís lockdown is quite severe. They just banned outside excercise (running,cycling). Staying inside is the healthier option. https://www.usnews.com/news/world/articles/2020-03-20/jogging-park-walks-banned-as-alarmed-italian-regions-impose-more-coronavirus-restrictions



Title: Re: The day after tomorrow
Post by: bergman104 on March 22, 2020, 11:28:06 AM
The anti-inflammatory drugs like chloroquine have only shown to be beneficial in a petri dish, not in large groups of people. No physician I know would actually prescribe chloroquine to their patient unless it was a hail mary.

Montefiore Medical Center in New York has already started seeing the surge of Covid-19 patients that public health experts have been warning about. The hospital is participating in the remdesivir trial and is giving Covid-19 patients chloroquine. ďAll of our patients get put on chloroquine, as well as on antiretrovirals. Weíre using Kaletra. Different places are using different antiretrovirals,Ē says Liise-anne Pirofski, chief of infectious diseases at Albert Einstein College of Medicine and Montefiore. ďEverybody gets that, unless they have some contraindication.Ē

I stand corrected. Apparently it is being prescribed everywhere now. I hope it makes a significant difference.

https://www.wired.com/story/an-old-malaria-drug-may-fight-covid-19-and-silicon-valleys-into-it/
Title: Re: The day after tomorrow
Post by: samwise on March 22, 2020, 11:59:01 AM
This isnít an economic phenomenon which has to run its course, itís completely man made. So maybe we just need to measure the willingness to take this pain.

How much pain can the average American take? At what unemployment number over two months do Americans say enough, letís end this.

Economic problems are man made too.

Agreed all human activity is man made. I should have been more exact. The last two recessions involved malinvestment which the economy had to work off. People and companies that did the malinvestment had to suffer losses.

I donít see any such cause now. If society decided to ďstay calm and carry onĒ as they did in wartime Britain in 1918, the economic losses would be much smaller, sharper, and more focused on travel and entertainment. The human losses would be large.

So the current pain is a choice. Thatís what I called man made, but of course there should be a better word.

Since itís a choice, there is a limit to how much people will tolerate.
Title: Re: The day after tomorrow
Post by: Schwab711 on March 22, 2020, 12:05:26 PM
There was a massive curtailment of economic activity everywhere the Spanish Flu went in 1918-1919. The only reason many businesses stayed open (generally with reduced split shifts to reduce the spread) was there was a simultaneous world war. We are doing almost all of the same things society did then.
Title: Re: The day after tomorrow
Post by: samwise on March 22, 2020, 05:00:29 PM
Schwab, I am not an expert on the events of 1918, but I based my opinion on these pieces.

1. The British decided to focus on keeping factories open to help with the war. With so many war deaths, they did not think a few more flu deaths mattered. https://www.telegraph.co.uk/health-fitness/body/coronavirus-spanish-flu-dark-history-keep-calm-carry-advice/

2. The St. Louis fed report does mention quarantines, and short term effects similar to today in some cities in the USA. In Little Rock, sales were estimated down 40%-70%. Grocery sales were down 33%. Memphis street railway had 124 employees sick out of 400 and had to curtail service. Tennessee mines were at 50% production and almost shut down because of the epidemic in mining camps. However the report says all the effects were short term and society recovered. https://www.stlouisfed.org/~/media/files/pdfs/community-development/research-reports/pandemic_flu_report.pdf

We can expect society to recover in either scenario, but that doesnít mean every business survives.

I already see citizens debating the economic costs, their sustainability and desirability. This debate has already started, replacing the earlier debate about ďitís just the fluĒ.


Title: Re: The day after tomorrow
Post by: Spekulatius on March 22, 2020, 05:59:11 PM
Schwab, I am not an expert on the events of 1918, but I based my opinion on these pieces.

1. The British decided to focus on keeping factories open to help with the war. With so many war deaths, they did not think a few more flu deaths mattered. https://www.telegraph.co.uk/health-fitness/body/coronavirus-spanish-flu-dark-history-keep-calm-carry-advice/

2. The St. Louis fed report does mention quarantines, and short term effects similar to today in some cities in the USA. In Little Rock, sales were estimated down 40%-70%. Grocery sales were down 33%. Memphis street railway had 124 employees sick out of 400 and had to curtail service. Tennessee mines were at 50% production and almost shut down because of the epidemic in mining camps. However the report says all the effects were short term and society recovered. https://www.stlouisfed.org/~/media/files/pdfs/community-development/research-reports/pandemic_flu_report.pdf

We can expect society to recover in either scenario, but that doesn’t mean every business survives.

I already see citizens debating the economic costs, their sustainability and desirability. This debate has already started, replacing the earlier debate about “it’s just the flu”.

I think the big difference to 1918 was that
A) WW1 was raging which was already an existential threat for combatants in Europe. As Bad as the Spanish flue was, it wasn’t an existential threat.
B) Equity Valuations were much lower. The economy in the US was booming at this time due to all the Production needs for war.

If we had a PE of let’s say 8x now, I would be a whole less worried about the stock market correction (even if it’s a pre crisis PE).
Title: Re: The day after tomorrow
Post by: samwise on March 22, 2020, 07:09:12 PM
Spek,

There are three effects here, and we seem to be talking about different ones.

1. Health effects of the virus on the population
2. Economic effects of the virus directly by sickness, death or precautions; indirectly by government quarantine etc.
3. Market reactions

I was talking about 2. If I can find which business will survive, I can try to buy those cheap. Of course they might get much cheaper for a few months or even years, because I donít have much hope about timing the market(3). As a whole I agree that the market is still not crazy cheap. Lots of companies are still at high PE.

1918 is not the best comparison as you pointed out, but itís the only somewhat similar case. If we accept that we canít figure out a worst case scenario for (2), then shouldnít we be buying just companies which could survive anything, like Japanese cash hoarders. That was my original question, how does one invest in a market like this?
Title: Re: The day after tomorrow
Post by: Cigarbutt on March 23, 2020, 04:56:36 AM
^The above exchanges are useful.
Samwise's perspective is also interesting.

As a relative neophyte, it seems that pandemics such as the CV situation should, in itself, be correlated with a V-shaped recovery, even if the inverted point of the "V" hurts.
Trying to make some sense out of this and using thinking along multiple angles, it's interesting to note that the effect the virus has on people is multi-factorial (anything can happen) but the critical variables associated with the severity of the disease are not related to the virus, they are related to the host. In compromised hosts, the virus, in a cascading effect, can cause damage and require supportive and resuscitation efforts and can even trigger the use of unproven (and potentially dangerous) therapies. I'm trying to see the implications for advanced economies and wonder if countries like China can survive, in its current form, in a new economic environment.

I've come across this recent study (from Italy). It describes the host profile risk factors.
https://www.epicentro.iss.it/coronavirus/bollettino/Report-COVID-2019_17_marzo-v2.pdf

I come to the conclusion, at this point, that the sentiment reaction to the virus is excessive but the appreciation of the hosts's weakness still hasn't been priced in. So what to do? In my case, uncharacteristically, the plan is to take a more measured approach to reinvestment.
Title: Re: The day after tomorrow
Post by: Spekulatius on March 23, 2020, 04:46:01 PM
Spek,

There are three effects here, and we seem to be talking about different ones.

1. Health effects of the virus on the population
2. Economic effects of the virus directly by sickness, death or precautions; indirectly by government quarantine etc.
3. Market reactions

I was talking about 2. If I can find which business will survive, I can try to buy those cheap. Of course they might get much cheaper for a few months or even years, because I donít have much hope about timing the market(3). As a whole I agree that the market is still not crazy cheap. Lots of companies are still at high PE.

1918 is not the best comparison as you pointed out, but itís the only somewhat similar case. If we accept that we canít figure out a worst case scenario for (2), then shouldnít we be buying just companies which could survive anything, like Japanese cash hoarders. That was my original question, how does one invest in a market like this?

Yes, this thread should be about the longer term economic effects of the epidemic. We have already enough discussions about the near term outlook in term of epidemiology in the Coronavirus thread.

Cigarbutt coined the term New deal 2.0 and I really like it. First of all it is consistent with the tremendous interventions from the government around the world that we are seeing and second it describes a fundamental paradigm shift that I believe we will have as a consequence of all this.

When this epidemic first got started, I regarded it as similar to the 9/11 recession because I thought it will be mostly related to travel and airline. This is clearly not the case any more, the consequences are not confined and most likely will affect every sector. So, the GFC Is a better comparisons at this point. I have no idea how, but I think we will see more government involvement and regulation and less free market. I could be wrong of course, but I see that as the likely course we are taking.
Title: Re: The day after tomorrow
Post by: samwise on March 23, 2020, 08:29:49 PM
Fed president Bullard talked about 30% unemployment today. And a 50% drop in GDP, next Q. We are not talking GFC here. This hasnít happened in WEBís career.

But I also think people are pulling numbers from hats. No one knows.no has seen this before or modelled it. The fed and government have no playbook.

He also proposed a 3 month holiday with the government paying you to stay home. If they force you to stay home, they should pay. Makes sense to me. ďThe US shouldnít lose companies or industries because of lack of support.Ē https://www.bloomberg.com/news/articles/2020-03-22/fed-s-bullard-says-u-s-jobless-rate-may-soar-to-30-in-2q


The fed is buying corporate debt and commercial paper. Should help all funding issues for larger companies and even municipalities.

Edit: you can call this new deal 2 or socialization of losses. But there isnít an ďinvisible hand of the marketĒ which will save us here. This needs coordinated social action. It is social. If you offered a lot of people free choice between a 0.01% chance of dying, and a 90% chance of bankruptcy, are you sure their choice would be the best for society as a whole? Might as well pay them to stay home, suspend the economy, make sure everyone survives economically. Maybe print a lot of money and have a one time inflation spike. Or some other solutions which I am sure smart people can think of.

If there is one hopeful thing in this whole affair it is this: the disease was identified in late December. It has not even been 90 days! And so many studies have been done on it from genetics, clinical treatments, vaccines, etc. The world as a whole (8 billion people) havenít learnt about anything this fast ever. Economists are late to the party, but maybe they can figure out some new things fast as well. Letís hope so.

Title: Re: The day after tomorrow
Post by: Spekulatius on March 24, 2020, 11:52:26 AM
(https://i.imgur.com/k494xWh.jpg)

I kind of wonder a bit of people are going to consider if they want to live in urban vs suburban environments in the future. Above is how my “ backyard” looks this morning. Looks pretty good to me, considering we have basically pandemonium going on outside. And I still live close enough to civilization to have a decently paid job (so far).
Title: Re: The day after tomorrow
Post by: Spekulatius on March 24, 2020, 11:53:24 AM
Fed president Bullard talked about 30% unemployment today. And a 50% drop in GDP, next Q. We are not talking GFC here. This hasnít happened in WEBís career.

But I also think people are pulling numbers from hats. No one knows.no has seen this before or modelled it. The fed and government have no playbook.

He also proposed a 3 month holiday with the government paying you to stay home. If they force you to stay home, they should pay. Makes sense to me. ďThe US shouldnít lose companies or industries because of lack of support.Ē https://www.bloomberg.com/news/articles/2020-03-22/fed-s-bullard-says-u-s-jobless-rate-may-soar-to-30-in-2q


The fed is buying corporate debt and commercial paper. Should help all funding issues for larger companies and even municipalities.

Edit: you can call this new deal 2 or socialization of losses. But there isnít an ďinvisible hand of the marketĒ which will save us here. This needs coordinated social action. It is social. If you offered a lot of people free choice between a 0.01% chance of dying, and a 90% chance of bankruptcy, are you sure their choice would be the best for society as a whole? Might as well pay them to stay home, suspend the economy, make sure everyone survives economically. Maybe print a lot of money and have a one time inflation spike. Or some other solutions which I am sure smart people can think of.

If there is one hopeful thing in this whole affair it is this: the disease was identified in late December. It has not even been 90 days! And so many studies have been done on it from genetics, clinical treatments, vaccines, etc. The world as a whole (8 billion people) havenít learnt about anything this fast ever. Economists are late to the party, but maybe they can figure out some new things fast as well. Letís hope so.

What you are describing is essentially the danish plan - a 3 month paid timeout for the economy.
Title: Re: The day after tomorrow
Post by: vinod1 on March 24, 2020, 12:23:02 PM
Spek,

There are three effects here, and we seem to be talking about different ones.

1. Health effects of the virus on the population
2. Economic effects of the virus directly by sickness, death or precautions; indirectly by government quarantine etc.
3. Market reactions

I was talking about 2. If I can find which business will survive, I can try to buy those cheap. Of course they might get much cheaper for a few months or even years, because I donít have much hope about timing the market(3). As a whole I agree that the market is still not crazy cheap. Lots of companies are still at high PE.

1918 is not the best comparison as you pointed out, but itís the only somewhat similar case. If we accept that we canít figure out a worst case scenario for (2), then shouldnít we be buying just companies which could survive anything, like Japanese cash hoarders. That was my original question, how does one invest in a market like this?

Yes, this thread should be about the longer term economic effects of the epidemic. We have already enough discussions about the near term outlook in term of epidemiology in the Coronavirus thread.

Cigarbutt coined the term New deal 2.0 and I really like it. First of all it is consistent with the tremendous interventions from the government around the world that we are seeing and second it describes a fundamental paradigm shift that I believe we will have as a consequence of all this.

When this epidemic first got started, I regarded it as similar to the 9/11 recession because I thought it will be mostly related to travel and airline. This is clearly not the case any more, the consequences are not confined and most likely will affect every sector. So, the GFC Is a better comparisons at this point. I have no idea how, but I think we will see more government involvement and regulation and less free market. I could be wrong of course, but I see that as the likely course we are taking.

Good points!

Although we had regulations and it kind of hindered bank profitability a little, it did not really change the competitive dynamics long term. Banks had severe restrictions and it reduced profitability but it reduced risk too, deserving a slightly higher multiples. So it might be on the whole a wash.

Did the New Deal really change or hinder company profitability in any way? I am not arguing, just asking. What do you see as likely impact on travel, recreation or health care?

Vinod
Title: Re: The day after tomorrow
Post by: John Hjorth on March 24, 2020, 01:43:11 PM
[picture omitted for avoiding dense quoting, John]

I kind of wonder a bit of people are going to consider if they want to live in urban vs suburban environments in the future. Above is how my ď backyardĒ looks this morning. Looks pretty good to me, considering we have basically pandemonium going on outside. And I still live close enough to civilization to have a decently paid job (so far).

That really looks wonderful, Spekulatius,

I hope you grant yourself at least some time every day to enjoy moments like that caught on the photo. Here in Denmark, it's now real spring, and I spend time in the garden every day, when weather permits. It's good for mental health in these times.
Title: Re: The day after tomorrow
Post by: Cigarbutt on March 25, 2020, 05:47:40 AM
Spek,
There are three effects here, and we seem to be talking about different ones.
1. Health effects of the virus on the population
2. Economic effects of the virus directly by sickness, death or precautions; indirectly by government quarantine etc.
3. Market reactions
I was talking about 2. If I can find which business will survive, I can try to buy those cheap. Of course they might get much cheaper for a few months or even years, because I donít have much hope about timing the market(3). As a whole I agree that the market is still not crazy cheap. Lots of companies are still at high PE.
1918 is not the best comparison as you pointed out, but itís the only somewhat similar case. If we accept that we canít figure out a worst case scenario for (2), then shouldnít we be buying just companies which could survive anything, like Japanese cash hoarders. That was my original question, how does one invest in a market like this?
Yes, this thread should be about the longer term economic effects of the epidemic. We have already enough discussions about the near term outlook in term of epidemiology in the Coronavirus thread.

...New deal 2.0 and I really like it. First of all it is consistent with the tremendous interventions from the government around the world that we are seeing and second it describes a fundamental paradigm shift that I believe we will have as a consequence of all this.
When this epidemic first got started, I regarded it as similar to the 9/11 recession because I thought it will be mostly related to travel and airline. This is clearly not the case any more, the consequences are not confined and most likely will affect every sector. So, the GFC Is a better comparisons at this point. I have no idea how, but I think we will see more government involvement and regulation and less free market. I could be wrong of course, but I see that as the likely course we are taking.
Good points!
Although we had regulations and it kind of hindered bank profitability a little, it did not really change the competitive dynamics long term. Banks had severe restrictions and it reduced profitability but it reduced risk too, deserving a slightly higher multiples. So it might be on the whole a wash.
Did the New Deal really change or hinder company profitability in any way? I am not arguing, just asking. What do you see as likely impact on travel, recreation or health care?
Vinod
I'm now enjoying my coffee with a beautiful view. Can I give it a shot?
It's possible that this was an accident waiting to happen and people may overestimate the short term impact as well as underestimate the mid to long term consequences. Many things can be true at once.
https://www.collaborativefund.com/blog/true-at-once/

As for the trigger (virus), scores (APACHE, SOFA) {as coincident indicators} have been used to 'predict' the outcome in ICU CV patients and people tend to forget, especially in the acute phase, that it's the leading indicators that led to the respirator. It's funny though because it's been shown (MIT etc) that, despite major clinical advances and sophistication as well as the introduction of AI adjuncts, it often comes down to gut instincts. The following is by one of the authors of This Time is Different and the thought process is coming from a certain angle but she depicts an interesting perspective of the trigger and suggests that we ain't seen nothing yet in terms of Fed and other whatever-it-takes contamination:
https://www.project-syndicate.org/commentary/covid19-crisis-has-no-economic-precedent-by-carmen-reinhart-2020-03

FWIW, I have a deep interest in history and will give the following opinion about the New Deal's impact on profitability. The New Deal was a series of mostly improvised, inconsistent and failed experiments that distracted the populace for the time it took to correct the excesses of the past. It's a period of time during which businesses were thought to be worth more dead than alive and when Mr. Benjamin Grossbaum Graham made court appearances to argue that stocks were undervalued. And the economy really took off only with WWII. And then we had thirty glorious years.

It just feels like hydroxychloroquine won't do the trick this time.
Just like a few years back, I've started to listen to a song that starts with the unspoken sound for whom the bell tolls and I intend to get through this and end up back in black.
Title: Re: The day after tomorrow
Post by: John Hjorth on March 25, 2020, 07:57:13 PM
...It just feels like hydroxychloroquine won't do the trick this time.
Just like a few years back, I've started to listen to a song that starts with the unspoken sound for whom the bell tolls and I intend to get through this and end up back in black.

I hear you, Cigarbutt,

Two days now with up market prices on stocks, for absolutely no reason. Helicopter money handed out in enormous amounts many places around the world. Here, around DKK 286 B [Denmarks 2019 GDP is around DKK 2,319 B]. I've never in my life seen anything like this. Respirator treatment [oxygen] to several kinds of businesses, most of them straight out dead by now, if not treated. Business owners on public welfare [subsidies to salaries & wages, if you don't layoff employeťs, subsidies to cover fixed costs for certain sectors & industries, if you have lost your turnover [!]] My inner picture of how my country is structured has collapsed like a house of cards. This is not QE X, - it's QEX.
Title: Re: The day after tomorrow
Post by: vinod1 on March 26, 2020, 11:37:38 AM
Spek,
There are three effects here, and we seem to be talking about different ones.
1. Health effects of the virus on the population
2. Economic effects of the virus directly by sickness, death or precautions; indirectly by government quarantine etc.
3. Market reactions
I was talking about 2. If I can find which business will survive, I can try to buy those cheap. Of course they might get much cheaper for a few months or even years, because I donít have much hope about timing the market(3). As a whole I agree that the market is still not crazy cheap. Lots of companies are still at high PE.
1918 is not the best comparison as you pointed out, but itís the only somewhat similar case. If we accept that we canít figure out a worst case scenario for (2), then shouldnít we be buying just companies which could survive anything, like Japanese cash hoarders. That was my original question, how does one invest in a market like this?
Yes, this thread should be about the longer term economic effects of the epidemic. We have already enough discussions about the near term outlook in term of epidemiology in the Coronavirus thread.

...New deal 2.0 and I really like it. First of all it is consistent with the tremendous interventions from the government around the world that we are seeing and second it describes a fundamental paradigm shift that I believe we will have as a consequence of all this.
When this epidemic first got started, I regarded it as similar to the 9/11 recession because I thought it will be mostly related to travel and airline. This is clearly not the case any more, the consequences are not confined and most likely will affect every sector. So, the GFC Is a better comparisons at this point. I have no idea how, but I think we will see more government involvement and regulation and less free market. I could be wrong of course, but I see that as the likely course we are taking.
Good points!
Although we had regulations and it kind of hindered bank profitability a little, it did not really change the competitive dynamics long term. Banks had severe restrictions and it reduced profitability but it reduced risk too, deserving a slightly higher multiples. So it might be on the whole a wash.
Did the New Deal really change or hinder company profitability in any way? I am not arguing, just asking. What do you see as likely impact on travel, recreation or health care?
Vinod
I'm now enjoying my coffee with a beautiful view. Can I give it a shot?
It's possible that this was an accident waiting to happen and people may overestimate the short term impact as well as underestimate the mid to long term consequences. Many things can be true at once.
https://www.collaborativefund.com/blog/true-at-once/

As for the trigger (virus), scores (APACHE, SOFA) {as coincident indicators} have been used to 'predict' the outcome in ICU CV patients and people tend to forget, especially in the acute phase, that it's the leading indicators that led to the respirator. It's funny though because it's been shown (MIT etc) that, despite major clinical advances and sophistication as well as the introduction of AI adjuncts, it often comes down to gut instincts. The following is by one of the authors of This Time is Different and the thought process is coming from a certain angle but she depicts an interesting perspective of the trigger and suggests that we ain't seen nothing yet in terms of Fed and other whatever-it-takes contamination:
https://www.project-syndicate.org/commentary/covid19-crisis-has-no-economic-precedent-by-carmen-reinhart-2020-03

FWIW, I have a deep interest in history and will give the following opinion about the New Deal's impact on profitability. The New Deal was a series of mostly improvised, inconsistent and failed experiments that distracted the populace for the time it took to correct the excesses of the past. It's a period of time during which businesses were thought to be worth more dead than alive and when Mr. Benjamin Grossbaum Graham made court appearances to argue that stocks were undervalued. And the economy really took off only with WWII. And then we had thirty glorious years.

It just feels like hydroxychloroquine won't do the trick this time.
Just like a few years back, I've started to listen to a song that starts with the unspoken sound for whom the bell tolls and I intend to get through this and end up back in black.

Thank you!
Title: Re: The day after tomorrow
Post by: Spekulatius on March 26, 2020, 02:06:37 PM

I'm now enjoying my coffee with a beautiful view. Can I give it a shot?
It's possible that this was an accident waiting to happen and people may overestimate the short term impact as well as underestimate the mid to long term consequences. Many things can be true at once.
https://www.collaborativefund.com/blog/true-at-once/

As for the trigger (virus), scores (APACHE, SOFA) {as coincident indicators} have been used to 'predict' the outcome in ICU CV patients and people tend to forget, especially in the acute phase, that it's the leading indicators that led to the respirator. It's funny though because it's been shown (MIT etc) that, despite major clinical advances and sophistication as well as the introduction of AI adjuncts, it often comes down to gut instincts. The following is by one of the authors of This Time is Different and the thought process is coming from a certain angle but she depicts an interesting perspective of the trigger and suggests that we ain't seen nothing yet in terms of Fed and other whatever-it-takes contamination:
https://www.project-syndicate.org/commentary/covid19-crisis-has-no-economic-precedent-by-carmen-reinhart-2020-03

FWIW, I have a deep interest in history and will give the following opinion about the New Deal's impact on profitability. The New Deal was a series of mostly improvised, inconsistent and failed experiments that distracted the populace for the time it took to correct the excesses of the past. It's a period of time during which businesses were thought to be worth more dead than alive and when Mr. Benjamin Grossbaum Graham made court appearances to argue that stocks were undervalued. And the economy really took off only with WWII. And then we had thirty glorious years.

It just feels like hydroxychloroquine won't do the trick this time.
Just like a few years back, I've started to listen to a song that starts with the unspoken sound for whom the bell tolls and I intend to get through this and end up back in black.

I have a hunch that Value investing in the truest Graham sense may make a comeback. The only place where you can do this now is Japanís, where you find companies trading for cash and often less than that. Perhaps there will be more markets where this is possible.

I know little about the new deal, probably should read up on this. One thing I know is that it lead to more regulation, laid the foundation for social security, but also lead to much higher taxes. It seems to me that over the long run, the higher taxes are a near certainty.

The experimental approach is interesting. Try things out on a limited scale, to see if they work, if they do go ahead, if not abandon. Seems to make sense to me, except whoever runs the administration looks stupid most of the time. But it seems to be better to cut losses than to keep doubling up, which tends to be what most governments have been doing the last few decades.

Title: Re: The day after tomorrow
Post by: Castanza on March 26, 2020, 02:27:16 PM

I'm now enjoying my coffee with a beautiful view. Can I give it a shot?
It's possible that this was an accident waiting to happen and people may overestimate the short term impact as well as underestimate the mid to long term consequences. Many things can be true at once.
https://www.collaborativefund.com/blog/true-at-once/

As for the trigger (virus), scores (APACHE, SOFA) {as coincident indicators} have been used to 'predict' the outcome in ICU CV patients and people tend to forget, especially in the acute phase, that it's the leading indicators that led to the respirator. It's funny though because it's been shown (MIT etc) that, despite major clinical advances and sophistication as well as the introduction of AI adjuncts, it often comes down to gut instincts. The following is by one of the authors of This Time is Different and the thought process is coming from a certain angle but she depicts an interesting perspective of the trigger and suggests that we ain't seen nothing yet in terms of Fed and other whatever-it-takes contamination:
https://www.project-syndicate.org/commentary/covid19-crisis-has-no-economic-precedent-by-carmen-reinhart-2020-03

FWIW, I have a deep interest in history and will give the following opinion about the New Deal's impact on profitability. The New Deal was a series of mostly improvised, inconsistent and failed experiments that distracted the populace for the time it took to correct the excesses of the past. It's a period of time during which businesses were thought to be worth more dead than alive and when Mr. Benjamin Grossbaum Graham made court appearances to argue that stocks were undervalued. And the economy really took off only with WWII. And then we had thirty glorious years.

It just feels like hydroxychloroquine won't do the trick this time.
Just like a few years back, I've started to listen to a song that starts with the unspoken sound for whom the bell tolls and I intend to get through this and end up back in black.

I have a hunch that Value investing in the truest Graham sense may make a comeback. The only place where you can do this now is Japan’s, where you find companies trading for cash and often less than that. Perhaps there will be more markets where this is possible.

I know little about the new deal, probably should read up on this. One thing I know is that it lead to more regulation, laid the foundation for social security, but also lead to much higher taxes. It seems to me that over the long run, the higher taxes are a near certainty.

The experimental approach is interesting. Try things out on a limited scale, to see if they work, if they do go ahead, if not abandon. Seems to make sense to me, except whoever runs the administration looks stupid most of the time. But it seems to be better to cut losses than to keep doubling up, which tends to be what most governments have been doing the last few decades.

Probably the best President we never had.

“Much of the social history of the Western world, over the past three decades, has been a history of replacing what worked with what sounded good.“
Thomas Sowell

“The welfare state is not really about the welfare of the masses. It is about the egos of the elites.”
Thomas Sowell

“The welfare state has always been judged by its good intentions, rather than its bad results.”
Thomas Sowell
Title: Re: The day after tomorrow
Post by: james22 on March 27, 2020, 08:03:58 AM
Longer-run economic consequences of pandemics

How do major pandemics affect economic activity in the medium to longer term? Is it consistent with what economic theory prescribes?

Since these are rare events, historical evidence over many centuries is required. We study rates of return on assets using a dataset stretching back to the 14th century, focusing on 12 major pandemics where more than 100,000 people died. In addition, we include major armed conflicts resulting in a similarly large death toll.

Significant macroeconomic after-effects of the pandemics persist for about 40 years, with real rates of return substantially depressed. In contrast, we find that wars have no such effect, indeed the opposite. This is consistent with the destruction of capital that happens in wars, but not in pandemics.

Using more sparse data, we find real wages somewhat elevated following pandemics. The findings are consistent with pandemics inducing labor scarcity and/or a shift to greater precautionary savings.


http://ssingh.ucdavis.edu/uploads/1/2/3/2/123250431/pandemics_jst_mar2020_.pdf
Title: Re: The day after tomorrow
Post by: LC on March 27, 2020, 08:14:23 AM
I have problems with that study and its conclusion.

Data sources for interest rates in the 1300s aside, they have 12 data points for a pandemic over a 700 year history. We have difficulty modelling losses with 20+ data points over a 100 year period.

Additionally, coronavirus deaths are at 25,000 - it wouldn't even classify as a pandemic per this author's threshold.

Finally, they claim that real interest rates are artificially depressed for 35-40 years post-pandemic? Well, take the HK or Asian flu, occuring in the late 50s/60s. Were rates artificially depressed in the 1980s as a result? I would argue no they were not.

Perhaps there is some effect of pandemics on short term rates; but to make claims about 30+ years in the future is pretty outlandish to me.
Title: Re: The day after tomorrow
Post by: james22 on March 27, 2020, 08:24:08 AM
Yeah, lots to quibble with.

Shouldn't expect labor scarcity since the demographic at risk is largely out of the workforce.

And a shift to greater precautionary savings? Many more examples of the market having a short memory.
Title: Re: The day after tomorrow
Post by: Spekulatius on March 28, 2020, 01:55:19 PM
Yeah, lots to quibble with.

Shouldn't expect labor scarcity since the demographic at risk is largely out of the workforce.

And a shift to greater precautionary savings? Many more examples of the market having a short memory.

Some mostly unrelated thought what might happen:

1) There will be an onslaught of lawsuits. Covid-19 infection at work - lawsuit. Restaurant (preferably a deep pocketed chain) has a Covid-19 infected worker who may infect people - lawsuit. US sues China?

2) Cheesecake Factory told landlords they that donít pay rent in April. Itís not that they canít pay, they just decided not too. Evict us, if you donít like it. unlikely that they will remain the only one. Just not paying your bill might become a national sport? Calvinball time?

3) Bankruptcy courts may get clogged up for a long time from the volume of cases. What happens if you declare bankruptcy and canít get  court date? Ií have no idea.

4) UKís credit rating just got downgraded from AA to AA-. What about hard hit countries like Italy or Spain? This is probably causing another debt crisis in Europe and elsewhere.
Is the US safe?

5) Even with the aid packet, I donít think the airlines will last a long time - they will run out of cash in a couple of month, due to operating leverage. how can they restart national flights with hotspots all over the place. NY and NJ quarantined? other hotspots will flare up? International flights are even worse.

6) Even if you open up restaurants and small service business open up, will customer come back? What is safe, how can we tell? This is our first recession that is led by the service industry, which employs way more people than manufacturing or any other sector

7) President talk a out quarantining NY and NJ, what are the consequence of this. Are other states going to be closing borders too? I donít think this was ever done before - US becoming more like the EU?
Title: Re: The day after tomorrow
Post by: Castanza on March 28, 2020, 02:18:50 PM
Yeah, lots to quibble with.

Shouldn't expect labor scarcity since the demographic at risk is largely out of the workforce.

And a shift to greater precautionary savings? Many more examples of the market having a short memory.

Some mostly unrelated thought what might happen:

1) There will be an onslaught of lawsuits. Covid-19 infection at work - lawsuit. Restaurant (preferably a deep pocketed chain) has a Covid-19 infected worker who may infect people - lawsuit. US sues China?

2) Cheesecake Factory told landlords they that donít pay rent in April. Itís not that they canít pay, they just decided not too. Evict us, if you donít like it. unlikely that they will remain the only one. Just not paying your bill might become a national sport? Calvinball time?

3) Bankruptcy courts may get clogged up for a long time from the volume of cases. What happens if you declare bankruptcy and canít get  court date? Ií have no idea.

4) UKís credit rating just got downgraded from AA to AA-. What about hard hit countries like Italy or Spain? This is probably causing another debt crisis in Europe and elsewhere.
Is the US safe?

5) Even with the aid packet, I donít think the airlines will last a long time - they will run out of cash in a couple of month, due to operating leverage. how can they restart national flights with hotspots all over the place. NY and NJ quarantined? other hotspots will flare up? International flights are even worse.

6) Even if you open up restaurants and small service business open up, will customer come back? What is safe, how can we tell? This is our first recession that is led by the service industry, which employs way more people than manufacturing or any other sector

7) President talk a out quarantining NY and NJ, what are the consequence of this. Are other states going to be closing borders too? I donít think this was ever done before - US becoming more like the EU?

Less than an hour after the stimulus bill was signed UAL said they wonít be able to pay workers past September....Simply amazing. This type of talk is coming from anyone and everyone big and small business. Just last night there was a lady who called in to the Joe Biden townhall and said she and her husband owned 3 bars and a spa in NYC. They needed cash to stay afloat. The kicker is she threw out the sympathy card that she was pregnant and quickly followed up with ďwe donít believe in loans, we believe in grants.Ē Most other callers said the same thing.

Point being, this could be interesting moving forward in terms of which group will be receiving more money and in which form.
Title: Re: The day after tomorrow
Post by: Viking on March 28, 2020, 02:26:25 PM
Yeah, lots to quibble with.

Shouldn't expect labor scarcity since the demographic at risk is largely out of the workforce.

And a shift to greater precautionary savings? Many more examples of the market having a short memory.

Some mostly unrelated thought what might happen:

1) There will be an onslaught of lawsuits. Covid-19 infection at work - lawsuit. Restaurant (preferably a deep pocketed chain) has a Covid-19 infected worker who may infect people - lawsuit. US sues China?

2) Cheesecake Factory told landlords they that donít pay rent in April. Itís not that they canít pay, they just decided not too. Evict us, if you donít like it. unlikely that they will remain the only one. Just not paying your bill might become a national sport? Calvinball time?

3) Bankruptcy courts may get clogged up for a long time from the volume of cases. What happens if you declare bankruptcy and canít get  court date? Ií have no idea.

4) UKís credit rating just got downgraded from AA to AA-. What about hard hit countries like Italy or Spain? This is probably causing another debt crisis in Europe and elsewhere.
Is the US safe?

5) Even with the aid packet, I donít think the airlines will last a long time - they will run out of cash in a couple of month, due to operating leverage. how can they restart national flights with hotspots all over the place. NY and NJ quarantined? other hotspots will flare up? International flights are even worse.

6) Even if you open up restaurants and small service business open up, will customer come back? What is safe, how can we tell? This is our first recession that is led by the service industry, which employs way more people than manufacturing or any other sector

7) President talk a out quarantining NY and NJ, what are the consequence of this. Are other states going to be closing borders too? I donít think this was ever done before - US becoming more like the EU?

Less than an hour after the stimulus bill was signed UAL said they wonít be able to pay workers past September....Simply amazing. This type of talk is coming from anyone and everyone big and small business. Just last night there was a lady who called in to the Joe Biden townhall and said she and her husband owned 3 bars and a spa in NYC. They needed cash to stay afloat. The kicker is she threw out the sympathy card that she was pregnant and quickly followed up with ďwe donít believe in loans, we believe in grants.Ē Most other callers said the same thing.

Point being, this could be interesting moving forward in terms of which group will be receiving more money and in which form.

I start to get a few flickers of optimism and then i read this :-) We really are in uncharted waters. The next couple of months could make for some great reality TV.
Title: Re: The day after tomorrow
Post by: Spekulatius on March 28, 2020, 03:32:08 PM
Yeah, it seems that defaults become a sport or go viral so to speak. I am not sure what rabbit holes this leads us to, but it is certainly not bullish for banks.

The above are just things that I started to notice. Maybe itís something, maybe itís nothing. Most will play out over the long run. Near term, the Potus talk about quarantining NY makes it almost inevitable to do it, unless he walks this back immediately. That would be interesting.
Title: Re: The day after tomorrow
Post by: SharperDingaan on March 28, 2020, 03:58:04 PM
" 6) Even if you open up restaurants and small service business open up, will customer come back? What is safe, how can we tell? This is our first recession that is led by the service industry, which employs way more people than manufacturing or any other sector"

It's not just the customers, it's also finding the additional service staff, and the re-start losses that those businesses will incur.
Everyone re-starting at once means pay up, or go without. Business is great for 2-weeks, and dies back 50% after the party.
Then ... another Covid-19 contraction shows up.

SD
Title: Re: The day after tomorrow
Post by: Castanza on March 28, 2020, 04:05:14 PM
" 6) Even if you open up restaurants and small service business open up, will customer come back? What is safe, how can we tell? This is our first recession that is led by the service industry, which employs way more people than manufacturing or any other sector"

It's not just the customers, it's also finding the additional service staff, and the re-start losses that those businesses will incur.
Everyone re-starting at once means pay up, or go without. Business is great for 2-weeks, and dies back 50% after the party.
Then ... another Covid-19 contraction shows up.

SD

Could be supplier issues on the backend as well. Just because a restaurant is ready to open doesnít mean their special flour supplier will be up and running. Breweries could have issues with hops and other perishable supplies or possibly oversupply of beer and no bottle to put it in. Just a guess, but there will probably be 2nd and 3rd order supply chain issues at least for some amount of time.
Title: Re: The day after tomorrow
Post by: Spekulatius on March 28, 2020, 05:54:22 PM
Pretty good recording from Focused compound about economic expectations and impairments. In short, he beleived a 30% haircut for banks is justified for example. This one can also listened to as a podcast.
https://youtu.be/vytay56stf0 (https://youtu.be/vytay56stf0)
Title: Re: The day after tomorrow
Post by: Kaegi2011 on March 29, 2020, 07:14:39 PM
" 6) Even if you open up restaurants and small service business open up, will customer come back? What is safe, how can we tell? This is our first recession that is led by the service industry, which employs way more people than manufacturing or any other sector"

It's not just the customers, it's also finding the additional service staff, and the re-start losses that those businesses will incur.
Everyone re-starting at once means pay up, or go without. Business is great for 2-weeks, and dies back 50% after the party.
Then ... another Covid-19 contraction shows up.

SD

I think this is exactly right.  Outside of a very assured restart in terms of the virus having no more impact, small business owners will be reluctant to restart / hire and go back to 100% prior to crisis.  I know most of people I know would not risk it if they think the risk is diminished but not gone as a consumer.  Also, while the past 2-3 weeks most restaurants were open for delivery / take out, a lot of them are starting to shut down due to risk to their workers / themselves. 
Title: Re: The day after tomorrow
Post by: Gamecock-YT on March 29, 2020, 07:52:00 PM
" 6) Even if you open up restaurants and small service business open up, will customer come back? What is safe, how can we tell? This is our first recession that is led by the service industry, which employs way more people than manufacturing or any other sector"

It's not just the customers, it's also finding the additional service staff, and the re-start losses that those businesses will incur.
Everyone re-starting at once means pay up, or go without. Business is great for 2-weeks, and dies back 50% after the party.
Then ... another Covid-19 contraction shows up.

SD

I think this is exactly right.  Outside of a very assured restart in terms of the virus having no more impact, small business owners will be reluctant to restart / hire and go back to 100% prior to crisis.  I know most of people I know would not risk it if they think the risk is diminished but not gone as a consumer.  Also, while the past 2-3 weeks most restaurants were open for delivery / take out, a lot of them are starting to shut down due to risk to their workers / themselves.

Not to mention, they'll probably be regulated to 25 or 50% normal capacity to start. China has had issues getting people to come back to restaurants.

https://www.eater.com/2020/3/24/21191278/china-beijing-coronavirus-future-of-restaurants
Title: Re: The day after tomorrow
Post by: james22 on March 30, 2020, 12:44:46 AM
US sues China?

A bipartisan effort is underway outside of Congress to hold China accountable for what could be trillions of dollars worth of damage caused by their mishandling of the global coronavirus pandemic.

The Berman Law Group, a Miami-based law firm advised by the younger brother of former Vice President Joe Biden, filed a class-action lawsuit against the government of China on March 13.

On Monday, Berman partnered with a lobbying and public affairs firm that has deep connections to President Donald Trump in a move to forge a unified response against Chinaís government.

ďWe believe that this is not a Democratic issue or a Republican issue. This is an American issue,Ē Berman senior litigation strategist Jeremy Alters told the Daily Caller News Foundation.


https://dailycaller.com/2020/03/24/china-coronavirus-class-action-lawsuit/
Title: Re: The day after tomorrow
Post by: SharperDingaan on March 30, 2020, 05:59:36 AM
" 6) Even if you open up restaurants and small service business open up, will customer come back? What is safe, how can we tell? This is our first recession that is led by the service industry, which employs way more people than manufacturing or any other sector"

It's not just the customers, it's also finding the additional service staff, and the re-start losses that those businesses will incur.
Everyone re-starting at once means pay up, or go without. Business is great for 2-weeks, and dies back 50% after the party.
Then ... another Covid-19 contraction shows up.

SD

Could be supplier issues on the backend as well. Just because a restaurant is ready to open doesnít mean their special flour supplier will be up and running. Breweries could have issues with hops and other perishable supplies or possibly oversupply of beer and no bottle to put it in. Just a guess, but there will probably be 2nd and 3rd order supply chain issues at least for some amount of time.

For the most part, brewers have been gassing (nitrogen), bagging, or converting their hops into iso-hops to preserve freshness. Bottle inventories were preserved by kegging remaining inventory versus bottling. The main issues on 're-start' will be lead-time and access to enough trucking to move the product - both heavily labour dependent.

A lot of small brewers are now making hand sanitizer (60% alcohol), operating at around 25-40% staff, and rotating staff through the hand packing and boxing lines. Net of subsidies, hourly pay remains at around 100%, but everyone shares fewer hours - including the salaried. Considered a 'good' solution in the current times.

Packaging suppliers/manufacturers are considered an essential service, and the creatives have been at work. At some breweries, every 1,000 th bottle of hand sanitizer comes in a commemorative 'limited edition' container. Every 100,000 th in a different pack again. Future collectors items!

SD

Title: Re: The day after tomorrow
Post by: Spekulatius on March 30, 2020, 04:59:33 PM
Mc Kinsey presentation , comprehensive, economic viewpoint:
https://www.mckinsey.com/~/media/mckinsey/business%20functions/risk/our%20insights/covid%2019%20implications%20for%20business/covid%2019%20march%2025/covid-19-facts-and-insights-march-25-v3.ashx (https://www.mckinsey.com/~/media/mckinsey/business%20functions/risk/our%20insights/covid%2019%20implications%20for%20business/covid%2019%20march%2025/covid-19-facts-and-insights-march-25-v3.ashx)
Title: Re: The day after tomorrow
Post by: kab60 on April 05, 2020, 10:11:12 PM
We've been in lockdown in Denmark since the 13th of March. Results have been much better than expected. Will gradually open up after Easter. It'll take time before things are back to normal, obviously - I think it'll be a long time before large events are allowed. But there's a lot of pent up demand from people who wants to go out. While some of the hardest hit industries might be in for some terrible quarters - and one has to pick those that actually make it through - I could see things come roaring back. For most people this is entirely unprecedented and I think a lot of people realize how important socializing is to their wellbeing. Sure, it might be with masks, it might be smaller groups, but just a return to something that resembles normalcy should allow a lot of business to muddle through.
Title: Re: The day after tomorrow
Post by: chrispy on April 06, 2020, 05:10:52 AM
kab60 - I agree.

Folks are scared today but also going stir crazy and missing family/friends. This is not a permanent fear such as after 9/11 and will subside very quickly followed by social gatherings
Title: Re: The day after tomorrow
Post by: Spekulatius on April 06, 2020, 04:14:15 PM
kab60 - I agree.

Folks are scared today but also going stir crazy and missing family/friends. This is not a permanent fear such as after 9/11 and will subside very quickly followed by social gatherings

I don’t know about you, but I never had concerns after 9/11 to go out with friends. It might be different if you lived in NYC, but elsewhere; knowing how terrorism works, it’s not a compounding thing. You are quite safe after a terrorist attack, because they take a long time to plan out.
Epidemics are different - they are compounding and follow exponential growth laws at least early on. In addition, they affect the whole county, the entire air travel and not just a few locations. I don’t intend to downplay 9/11, and I remember this vividly, but to me, it seemed  like a piece of cake compared to this, unless one was in those doomed airplanes or twin towers of course.


The big question is now have we reached the peak and how long is this shoulder going to last until we can assume it is safe to open bits and pieces here and  there. I guess everything is progress but I don’t see normalcy for any month or to be specific early spring. by that time, we could have a nasty recession and a GDP that could still be down 5-10% from where we were at the 2/1/2020 run rate.
Title: Re: The day after tomorrow
Post by: Viking on April 06, 2020, 04:25:42 PM
kab60 - I agree.

Folks are scared today but also going stir crazy and missing family/friends. This is not a permanent fear such as after 9/11 and will subside very quickly followed by social gatherings

I donít know about you, but I never had concerns after 9/11 to go out with friends. It might be different if you lived in NYC, but elsewhere; knowing how terrorism works, itís not a compounding thing. You are quite safe after a terrorist attack, because they take a long time to plan out.
Epidemics are different - they are compounding and follow exponential growth laws at least early on. In addition, they affect the whole county, the entire air travel and not just a few locations. I donít intend to downplay 9/11, and I remember this vividly, but to me, it seemed  like a piece of cake compared to this, unless one was in those doomed airplanes or twin towers of course.

The big question is now have we reached the peak and how long is this shoulder going to last until we can assume it is safe to open bits and pieces here and  there. I guess everything is progress but I donít see normalcy for any month or to be specific early spring. by that time, we could have a nasty recession and a GDP that could still be down 5-10% from where we were at the 2/1/2020 run rate.

I think China has been very slow to get consumer spending going again. Many people are still afraid of contracting the virus. When the virus started there was much we did not know; most people way underestimated the health and economic impact the virus would have. My guess is we continue to underestimate the ongoing economic impact to global growth the virus is going to have moving forward. Lots we still do not understand.
Title: Re: The day after tomorrow
Post by: meiroy on April 06, 2020, 05:34:49 PM

There's no way demand will come from China.  It has to be USA households, i.e. money --> households.  It could also come from Germany and it does seem they are indeed showering households with money.
Title: Re: The day after tomorrow
Post by: Spekulatius on April 08, 2020, 04:10:08 AM
The EU is going to have some serious issues going forward. Italy economy has been weak and is hard hit by this crisis. the Northern nations donít want to be on the hook for them, understandably, imo:
 https://finance.yahoo.com/news/eu-fails-agree-virus-response-073133148.html (https://finance.yahoo.com/news/eu-fails-agree-virus-response-073133148.html)

Related to this somewhat is the interesting factoid that the median Italian is quite wealthy. I believe this is due to high homeownership and thriving grey economy. Perhaps the Italians should kick in before asking their neighbors to do so? At least thatís one view:
 https://en.wikipedia.org/wiki/List_of_countries_by_wealth_per_adult (https://en.wikipedia.org/wiki/List_of_countries_by_wealth_per_adult)
Title: Re: The day after tomorrow
Post by: wabuffo on April 08, 2020, 04:43:25 AM
The EU is going to have some serious issues going forward. Italy economy has been weak and is hard hit by this crisis. the Northern nations donít want to be on the hook for them, understandably, imo:

Its because European nations have given up their own currencies and are now no more than provinces (or American states) - yet they still behave like they are sovereign nations.

The same issues are percolating in the US as well.  State tax revenues are in free fall while expenses are skyrocketing (unemployment payments, healthcare funding) and the Feds are reluctant to be on the hook for it.  The Cares Act did send $150B for help to the states (and local govts) but that isn't nearly enough to plug the holes.

The next act in this drama will be states issuing IOUs as payment (like Illinois did a few years ago and California did in 2009) - since like Italy, New York, New Jersey, etc do not control their own currency and will literally run out of cash.

wabuffo
Title: Re: The day after tomorrow
Post by: Castanza on April 08, 2020, 05:37:37 AM
The EU is going to have some serious issues going forward. Italy economy has been weak and is hard hit by this crisis. the Northern nations donít want to be on the hook for them, understandably, imo:

Its because European nations have given up their own currencies and are now no more than provinces (or American states) - yet they still behave like they are sovereign nations.

The same issues are percolating in the US as well.  State tax revenues are in free fall while expenses are skyrocketing (unemployment payments, healthcare funding) and the Feds are reluctant to be on the hook for it.  The Cares Act did send $150B for help to the states (and local govts) but that isn't nearly enough to plug the holes.

The next act in this drama will be states issuing IOUs as payment (like Illinois did a few years ago and California did in 2009) - since like Italy, New York, New Jersey, etc do not control their own currency and will literally run out of cash.

wabuffo

Thanks for sharing Wabuffo, would be curious you hear your thoughts as to why or what has caused the US to go down this path? I noticed you mentioned the gold standard earlier. Personally, I see more nationalization on the horizon both in Europe and elsewhere. I'm not saying globalization has failed, but the cracks and inefficiencies are showing to some extent.
Title: Re: The day after tomorrow
Post by: wabuffo on April 08, 2020, 05:44:43 AM
would be curious you hear your thoughts as to why or what has caused the US to go down this path?

I'm not sure I understand your question, Castanza.  Can you please clarify what you mean by "go down this path?"  thanks.

wabuffo
Title: Re: The day after tomorrow
Post by: Castanza on April 08, 2020, 05:51:02 AM
would be curious you hear your thoughts as to why or what has caused the US to go down this path?

I'm not sure I understand your question, Castanza?  Can your clarify what you mean by "go down this path?"  thanks.

wabuffo

Well during this crises I have seen many ideas flung around by a few economists.

- Going back to the gold standard and getting rid of the fed
- Implementing something along the lines of Bancor like Keynes suggested by Michael Pettis recently

I guess I was curious on your thoughts for either of these "solutions". Specifically as it relates to US monetary policy etc. Looking at it now, it's a rather vague and open ended question so feel free to disregard it  :P
Title: Re: The day after tomorrow
Post by: drzola on April 08, 2020, 06:01:41 AM
An Actuary may just have a clue what's going on with the current Life Cycle metrics.
Title: Re: The day after tomorrow
Post by: drzola on April 08, 2020, 06:08:34 AM
Good read on Life cycle Metrics ; Intelligent Paradigms for Healthcare Enterprises: Systems Thinking
edited by Barry G. Silverman, Lakhmi C. Jain, Ashlesha Jain, Ajita Ichalkaranje


Title: Re: The day after tomorrow
Post by: SharperDingaan on April 08, 2020, 07:18:26 AM
would be curious you hear your thoughts as to why or what has caused the US to go down this path?

I'm not sure I understand your question, Castanza?  Can your clarify what you mean by "go down this path?"  thanks.

wabuffo

Well during this crises I have seen many ideas flung around by a few economists.

- Going back to the gold standard and getting rid of the fed
- Implementing something along the lines of Bancor like Keynes suggested by Michael Pettis recently

I guess I was curious on your thoughts for either of these "solutions". Specifically as it relates to US monetary policy etc. Looking at it now, it's a rather vague and open ended question so feel free to disregard it  :P

We already have precedent for the Bancor currency, it's the Special Drawing Right (SDR). To date, usage has been downplayed in favour of the dominant global trade partners currency (USD) as the global reserve currency. Yesterdays world.

Bitcoin, has modernised the concept and essentially made Bancor the CB-CB payment counterpart. Except, now for use by the entire global population, and clearing through the CB's, to displace Apple Pay, Google Pay, etc. The sticking points have been population insistence on cash bills, and privacy (every transaction, everywhere, now traceable). Post Covid-19, we will have passed the 'contactless' payment process (digital money) tipping point, and implementation will accelerate.

SD

Title: Re: The day after tomorrow
Post by: wabuffo on April 08, 2020, 07:23:52 AM
Well during this crises I have seen many ideas flung around by a few economists.

- Going back to the gold standard and getting rid of the fed
- Implementing something along the lines of Bancor like Keynes suggested by Michael Pettis recently

I guess I was curious on your thoughts for either of these "solutions". Specifically as it relates to US monetary policy etc. Looking at it now, it's a rather vague and open ended question so feel free to disregard it


Oh ok - thanks for clarifying.  I didn't want to misinterpret your question and answer a question you weren't actually asking.

Bancor (ie, a global currency) is never happening.   The Euro exposes the fragility of this model where sovereign nations relinquish control of a fiat currency.  You could say a gold standard probably will never happen either for the same reason.   So my short answer is neither your option 1) or 2) is ever going to happen.  Though I would say that gold still retains some price signal informational value that should be paid attention to.

People make fun of MMT but I think that's because the left has embraced it and used it to push for its favorite programs like the Green New Deal and Federal Employment Guarantee programs.  That's too bad - because it is a big turn-off for most people who are more moderate in their views.  But MMT, IMHO, does a better job of explaining what happens in our current monetary system than some of the traditional economic models do ("deficits crowd out private borrowing", "banks lend reserves", "money multiplier," etc, should be relegated to the dustbin of macroeconomic history).

Its a crisis like this that causes us to slowly discover that what we thought were economic constraints might not be constraints (or become constraints at much higher levels than mainstream economics believes).  So I think we will run with much higher deficit-to-GDP ratios than we have in the past.  How we do that (% lower taxes, % higher spending) is going to be where the debate will be between left and right politics.

Its funny to find out that everything we thought we knew about the Fed and the US Treasurys' operations might be wrong. 

To use a baseball analogy, before Babe Ruth, baseball was played in a small-ball way (lots of slap hitting singles, sacrifice bunting, etc).   The HR leader for a season might only hit 9 HRs and lead the league.  Then came the Babe.   The force of his talent and personality changed the game.  In his first full season (1919) he led the league with 29 HRs while playing for the Red Sox.  In distant second place was "Home Run" Baker with just 10 HRs.   Then the Babe was traded to the Yankees and really got going.  1920 - 54 HRs, 1921 - 59 HRs.  Soon every baseball player was changing his swing and bashing homers.  Baseball never looked back.  (You could make a similar analogy to the NBA and the recent focus on shooting 3-pointers and eschewing 2-pointers outside the paint).

My point is that sometimes we are trapped in what we think are constraints (like the old-timey baseball players) until the environment shows us that those constraints are self-imposed and non-physical constraints.

This is neither good or bad - I'm completely agnostic about what larger structural deficits mean.  I just think we've been heading there since the GFC and this crisis will be like Babe Ruth blasting 54 HRs and showing us that deficits maybe don't matter as much as we thought and that the only constraint is at what point inflation kicks in (which can then be calibrated).  I think we will be conducting a real-world experiment in MMT from now on.  There's no going back.  Even so, a bit of gold might be a good hedge in case we overshoot.

wabuffo

Title: Re: The day after tomorrow
Post by: SharperDingaan on April 08, 2020, 08:03:46 AM
would be curious you hear your thoughts as to why or what has caused the US to go down this path?

I'm not sure I understand your question, Castanza?  Can your clarify what you mean by "go down this path?"  thanks.

wabuffo

Well during this crises I have seen many ideas flung around by a few economists.

- Going back to the gold standard and getting rid of the fed
- Implementing something along the lines of Bancor like Keynes suggested by Michael Pettis recently

I guess I was curious on your thoughts for either of these "solutions". Specifically as it relates to US monetary policy etc. Looking at it now, it's a rather vague and open ended question so feel free to disregard it  :P

We already have precedent for the Bancor currency, it's the Special Drawing Right (SDR). To date, usage has been downplayed in favour of the dominant global trade partners currency (USD) as the global reserve currency. Yesterdays world.

Bitcoin, has modernised the concept and essentially made Bancor the CB-CB payment counterpart. Except, now for use by the entire global population, and clearing through the CB's, to displace Apple Pay, Google Pay, etc. The sticking points have been population insistence on cash bills, and privacy (every transaction, everywhere, now traceable). Post Covid-19, we will have passed the 'contactless' payment process (digital money) tipping point, and implementation will accelerate.

SD

Think of Bancor as being a crypto-currency, and every county having its own local currency. If you want to buy something from another country you exchange local currency into Bancor at a fixed FX rate, and pay in Bancor. Country trade deficits settled at the collective CB level by netting, and unlimited issue of Bancor. To Joe Citizen, it looks/feels much the same as today .....  but with modern plumbing that is entirely different. Not a bad thing.

SD
 
Title: Re: The day after tomorrow
Post by: thowed on April 08, 2020, 08:27:29 AM
I just think we've been heading there since the GFC and this crisis will be like Babe Ruth blasting 54 HRs and showing us that deficits maybe don't matter as much as we thought and that the only constraint is at what point inflation kicks in (which can then be calibrated).  I think we will be conducting a real-world experiment in MMT from now on.  There's no going back.  Even so, a bit of gold might be a good hedge in case we overshoot.


I like the analogy!

I agree that we'll be conducting a real-world experiment in MMT from now on.

I believe that when this sort of thing happens, governments ALWAYS overshoot.

I'll admit I don't have the brainpower right now to give examples/reasoning, it's something baked in me from reading articles by people smarter than me.
Title: Re: The day after tomorrow
Post by: wabuffo on April 08, 2020, 08:41:36 AM
Think of Bancor as being a crypto-currency, and every county having its own local currency. If you want to buy something from another country you exchange local currency into Bancor at a fixed FX rate, and pay in Bancor. Country trade deficits settled at the collective CB level by netting, and unlimited issue of Bancor. To Joe Citizen, it looks/feels much the same as today .....  but with modern plumbing that is entirely different. Not a bad thing.

Why would the US willingly relinquish its control of the US dollar's reserve currency status?  The vast majority of international cross-border transactions are settled in USD.  When a Norwegian shipping company buys an oil tanker from a South Korean shipbuilder, the contract is written to settle in USD (not won or krone).  The rest of the world wants dollars - especially at times of crisis since there also has been a rise in foreign debt denominated in USD.

Cryptcurrency has dropped the ball and will never become a replacement.  Its badly constructed and too volatile to hold any collateral value.  The concept was ok (limit the growth of crypto at a fixed rate - but the implementation has been problematic).

Hard to see anything changing in the current global monetary regime.

wabuffo
Title: Re: The day after tomorrow
Post by: Castanza on April 08, 2020, 08:57:28 AM
Thanks for sharing wabuffo and SD.
Title: Re: The day after tomorrow
Post by: SharperDingaan on April 08, 2020, 09:42:39 AM
Think of Bancor as being a crypto-currency, and every county having its own local currency. If you want to buy something from another country you exchange local currency into Bancor at a fixed FX rate, and pay in Bancor. Country trade deficits settled at the collective CB level by netting, and unlimited issue of Bancor. To Joe Citizen, it looks/feels much the same as today .....  but with modern plumbing that is entirely different. Not a bad thing.

Why would the US willingly relinquish its control of the US dollar's reserve currency status?  The vast majority of international cross-border transactions are settled in USD.  When a Norwegian shipping company buys an oil tanker from a South Korean shipbuilder, the contract is written to settle in USD (not won or krone).  The rest of the world wants dollars - especially at times of crisis since there also has been a rise in foreign debt denominated in USD.

Cryptcurrency has dropped the ball and will never become a replacement.  Its badly constructed and too volatile to hold any collateral value.  The concept was ok (limit the growth of crypto at a fixed rate - but the implementation has been problematic).

Hard to see anything changing in the current global monetary regime.

wabuffo

That's the problem. and why SDR's have not become the global reserve currency.
But the reality is that EVERY country eventually loses its reserve currency status, and the US is no exception. This time around there is just another alternative (crypto Bancor) that never existed before. Settle global trade in Bancor, denominate company books in Bancor, and you've made companies both directly comparable (same currency, same IFRS reporting), as well as eliminated the driver for most FX trading (no longer need to buy and sell the reserve currency [USD] to settle trade). Reduces ability to manipulate, and much more cost effective, therefore it will eventually occur.

Maybe not today .... but its just a matter of time and circumstance.

SD



 
Title: Re: The day after tomorrow
Post by: Cigarbutt on April 08, 2020, 06:18:08 PM
Variants of the MMT real-world experiments have been tried before and the progressive debasement of money in the latter periods of the Roman Empire is a striking example. Then copper substituted silver and now PhDs use more sophisticated models.
http://money.visualcapitalist.com/deaths-roman-emperors-vs-silver-coin-content/

With QE, money somehow came back on the Fed balance sheet but distributing money to the populace is clearly linked to velocity risk. MMT money is basically a zero maturity, zero interest, callable Treasury note backed by the full faith of future taxation. MMT has never been tried before however with the international reserve currency integrated into an incredibly well connected world. The USD is now the only game in town:
https://www.nbc.ca/content/dam/bnc/en/rates-and-analysis/economic-analysis/hot-charts-200406.pdf

Whichever way this is sliced, MMT means future consumption brought today squared. The US, as the guardian of faith, has immense goodwill and capacity for future taxation which makes timing difficult. However if we go the MMT route (unfortunately, i think this is now likely), all bets are open and it seems that TIPS may become valuable interim vehicles.

Your reference to baseball really resonated. I've played a lot of baseball (still do) and was able to be a pitcher and occupy the #4 slugger position on the roster list until coaches refused to let that happen. Babe Ruth was indeed a phenomenon. However, you forgot to mention that he got some help: 1-the coefficient of restitution of the baseball was increased in 1920, games were increased from 140 to 154 and the home field on which he played the most had only 295 feet along the right field line. Also, home runs rates have not changed that much, when you adjust for various variables and the number of players the size of Babe Ruth is now commonplace. Also, in the late 1990s, during a period of unusual creativity in stock market valuation parameters, home run records adopted again a this-time-is-different attitude and observers suggested that players had finally escaped the self-imposed constraints of human potential. As with any bubble, usually the end result includes televised congressional hearings. For baseball, the idea was to Restore Faith in America and it was discovered that players (Conseco, McGwire, Sosa and Bonds) had applied an MMT-type of strategy on steroids. Many people suggested that steroids did not have an effect but, with re-imposed constraints, players are no longer breaking records, quite the opposite.

Rumor has it that Babe Ruth once called his shot. As a possible bagholder, i will say the following: If MMT makes it to mainstream, this will be bad and that sucker could go down. :)
Title: Re: The day after tomorrow
Post by: wabuffo on April 08, 2020, 07:02:10 PM
CB, one minor nit -- we are not about to 'try' MMT - as if this is similar to swapping out an operating system from Windows to Linux.  I would argue it is THE SYSTEM we have today.

1) the Fed is largely impotent because it confines itself to managing an inter-bank payment clearing system where it must supply settlement balances at its target interest rate in order for payments to settle.  Tinkering with short-term rates a few bps at a time, I would argue doesn't do much heavy lifting, IMHO.
2) The heavy lifting from a monetary system perspective comes from the new financial assets created by the US Treasury to the tune of ~$1B per year. 

To that I would add, we seem to have stronger economies (with no/low inflation) when we run higher deficits (4-6% of GDP) than when we run at low deficits.  Also the one time in our recent past when we tried "paying down the Federal debt" (ie, the surpluses of 98-01) - it led to disastrous consequences with a grinding deflationary recession of '00-02 and was the spark that led to the GFC as the private sector had to borrow to maintain its consumption levels.  There are exceptions like right after the GFC - but that was because the economy had suffered a near-death experience.

I also don't understand why macroeconomists cheer "stimulus" when it means extra deficit spending but boo/hiss when the same deficit level is achieved via tax cuts.  Seems to me the latter statistically leads to better outcomes in terms of GDP growth.  I like my deficits the Ronald Reagan way (and not the Bernie Sanders way).

But we are now heading off the charts in terms of deficit/GDP levels.  The game is changing (even though the rules and operating system aren't changing).   Are we about to find a better way (smashing HRs rather than slapping singles,  shooting 3s from downtown rather than mid-court 2-pt jumpers) or is it going lead, as you say, to tears and a losing season.  I'm not sure - I think we could safely run hotter - but how hot is too hot?

To use another baseball analogy - MMT is like Bill James coming onto the scene and describing how the on-base percentage is more important in terms of run creation than the batting average.  He pointed out quite rightly that there are only 27 outs per game and you don't want to waste ABs with excessive outs (i.e, taking a walk was better).  The rules of the game didn't change - but initially the few teams (Oakland A's) that tried the new approach found success (before everyone copied the strategy).

How about we just agree that MMT is not "new" - it was always there.  We're just discarding the old-school sportswriters for the Moneyball nerds to describe what really works in terms of winning.

wabuffo

(oh - and the short RF line in Yankee Stadium helped the Babe only slightly.  According to baseball-reference.com, Ruth still hit 25 HRs and 27 HRs on the road in 1920 and 1921 respectively - that's a half season so double those numbers to get 50 and 54 HRs in a "neutral ballpark".  Still amazing and all Babe's doing with no help - other than maybe a beer and hot dog before the game!)
Title: Re: The day after tomorrow
Post by: Cigarbutt on April 08, 2020, 08:08:48 PM
It's always a pleasure to disagree with you. 8)
You are correct in saying that government deficit funding has started and the future may have more in store. It may even include infrastructure spending, public (even private?) pension funding of underfunding etc. In theory, there's no limit (the sky is the limit?) and some say that MMT is for magic money tree..
One of the well known proponents suggests that it doesn't have to be complcated; it would be like a kitchen sink:
https://www.marketplace.org/2019/01/24/economy/modern-monetary-theory-explained/
Personal note: Today i looked at all programs that my lawmakers have recently put forward and i (and my household) don't qualify for any although the fine print seems to indicate that personal finances may be affected by taxes eventually removed by lawmakers to drain the economy, even assuming that purchasing power won't be destroyed. So, maybe i need to figure this out backwards, hopefully before the day after tomorrow.
Title: Re: The day after tomorrow
Post by: Spekulatius on April 09, 2020, 06:13:16 PM
Well, I donít really understand MMT they well but I do know that managing the Fed, the banking and inflation is basically a confidence game. Coming from Germany, I have read about the inflationary periods after WW1 and We2 and more over the stories about the inflation after WW1 (my grandparents were small kids then but they remember People running to stores after they got their paycheck because was worth less the next day etc) They saw money becoming worthless twice. Thatís why they would rather take  a recession than endure inflation. I think it transferred other to the next generation pretty well too.

My thinking is that when we discover the limits of all this, meaning that people lose the confidence in the currency, it will be all over and require a hard and painful reset. Not something I look forward too but I think I will see this day coming as each intervention seem to be multiples larger arger than the last one with not all that much of a long term effect.
Title: Re: The day after tomorrow
Post by: Cigarbutt on April 09, 2020, 07:59:17 PM
^So the question is how hot is too hot?
The idea is to focus on individual names but things, at large, have been moving at an extremely rapid pace.
Yesterday, somebody wondered about what the market demanded and potential moral hazards:
https://qz.com/1833565/some-are-calling-for-a-junk-bond-leveraged-loan-bailout/
Today, the Fed urgently announces new measures, involving buying munis and junk (!) bonds and taking leveraged loans as collateral(!?).
https://www.nysscpa.org/news/publications/the-trusted-professional/article/federal-reserve-goes-even-further-will-buy-risky-debt-too-040920
This sounds like intravenous fentanyl but maybe i'm the one intoxicated just after having reviewed a series of articles by Grant's, giving a Grand Tour of Junk.
i used to wonder when the Fed would run out of ammunition and now worry that they may not.
i really want to shut up about these developments but it just happens that present markets are the most interesting, certainly from personal experience, and possibly, ever. :-\
Title: Re: The day after tomorrow
Post by: Spekulatius on April 09, 2020, 08:19:52 PM
^So the question is how hot is too hot?
The idea is to focus on individual names but things, at large, have been moving at an extremely rapid pace.
Yesterday, somebody wondered about what the market demanded and potential moral hazards:
https://qz.com/1833565/some-are-calling-for-a-junk-bond-leveraged-loan-bailout/
Today, the Fed urgently announces new measures, involving buying munis and junk (!) bonds and taking leveraged loans as collateral(!?).
https://www.nysscpa.org/news/publications/the-trusted-professional/article/federal-reserve-goes-even-further-will-buy-risky-debt-too-040920
This sounds like intravenous fentanyl but maybe i'm the one intoxicated just after having reviewed a series of articles by Grant's, giving a Grand Tour of Junk.
i used to wonder when the Fed would run out of ammunition and now worry that they may not.
i really want to shut up about these developments but it just happens that present markets are the most interesting, certainly from personal experience, and possibly, ever. :-\

My thinking is that this will be pushed until it doesnít work and then we get the Wile E Coyote moment. The bailouts in 2009 didnít really work out too badly for the taxpayer, so itís not surprise that actors now try to do more and go way deep into the mud (junk bonds). The next step is probably buying equity  ETF. That would be the ultimate Fed backstop.
Title: Re: The day after tomorrow
Post by: Viking on April 09, 2020, 11:33:32 PM
Is Japan not a decade or two further along in this process (central bank intervention and zombie economy)? They seem to be able to keep kicking the can down the road; yes, their economy is not great but they do not have civil disorder.

I wonder what happens to Europe. Italy was in a tough position before the virus hit; now what happens? UK needs a divorce. What can we expect from Germany post Merkel? Euro banks are not in great shape. Little consensus on what needs to be done. I think this is the region to watch the next 6 months.

The Middle East will also be interesting. Roubini is saying Iran is highly motivated to ensure Trump is not reelected in Nov as the country cannot endure another 4 years of sanctions without regime change of some sort. so he thinks we may see a war between Iran and the US before Nov. Saudi Arabia has issues as well.

Emerging markets will be hit hard by the virus and the global recession and do not have the $ to soften the blow.

Geopolitically the world is more messed up than it has been in many decades with no traditional leadership from the US. The opposite in fact: isolationism and protectionism. Deglobalization looks to be a possible new trend that may pick up steam.

Income distribution in the US is about to get worse. Low income families will bear the brunt of the current economic recession. All the Fed actions will be good for holders of financial assets (stocks and bonds). Have to wonder when the poor in the US decide enough is enough. Populism on steroids? Will we see the pendulum shift more to labour in the coming years? The path to the Nov Presidential election will be bloody and brutal.

Oh. And we have this virus thing going on with every country on the globe doing their own thing. With the virus at different stages in different counties. No coordination, poor communication and limited cooperation. Lots of backstabbing in the race to secure medical supplies. Looks like law of the jungle right now with lots of mistrust. Not sure how this poisonous environment will be supportive of economic growth moving forward.

But the Fed and politicians are coming to everyoneís rescue, just like we knew they would. The money is flowing once again. So financial assets (stocks and bonds) are rallying again. Let the good times roll! What could possibly go wrong?
Title: Re: The day after tomorrow
Post by: Spekulatius on April 10, 2020, 03:52:57 PM
^ I think it is pretty likely that we get a crisis in Euro land when this is over, with Italy and to a lesser degree Spain as a hotspot.Not sure hat is going to happen, but itís probably not too pleasant.

It is also unclear how the Chinese US relationship develops. Probably not for the better especially if it turn out that China as the origin of this disaster comes out as a relative winner. Countries will internalize more things hey seem important for security. not sure what rabbit holes this leads u down to, but it doesnít sound bullish for global trade.

As for the COVID-19 virus, once we develop a vaccine, the best thing we can do is to give it to anyone on earth, even enemies like North Korea and Iran. The reason is simple - the chances of it mutating into something that makes the vaccine inefficient is much higher if it survives in considerable quantity inhuman hosts. Less throws of a dice - less chances of a dangerous mutation.

Right now the threat or MERS, SARS and COVID-19 seems to come from bats that serve as a reservoir as it doesnít make them sick and then it jumps species twice where the second jump is from some animal household animal to humans. This takes some chain of mutations, but appears to occur every couple of years, which is bad enough as is. If the virus keeps a human reservoir however, I think those mutations will probably happen every year or so with the consequence that we get super flu waves due to only partly effective vaccines that are multiples deadlier than the flu we get every year.  Maybe to much speculation on my part, it would be great to hear Bill Gates opinion on this topic as he clearly thinks about these issues.
Title: Re: The day after tomorrow
Post by: Spekulatius on April 12, 2020, 07:13:14 PM
I am thinking that lower density areas that do well in this epidemic might do well in terms of housing because older folks (who tend to have money), might want to move there. Buy a cabin in the woods in upstate NY or Vermont or maybe around Flagstaff in AZ. Good hospital nearby a strong plus. People might look at COVID-19 maps rather than school districts  (which donít matter since kids are out of the house). I know similar things have occurred after the two wildfire season in CA. Thoughts?
Title: Re: The day after tomorrow
Post by: Jurgis on April 12, 2020, 09:52:40 PM
I am thinking that lower density areas that do well in this epidemic might do well in terms of housing because older folks (who tend to have money), might want to move there. Buy a cabin in the woods in upstate NY or Vermont or maybe around Flagstaff in AZ. Good hospital nearby a strong plus. People might look at COVID-19 maps rather than school districts  (which donít matter since kids are out of the house). I know similar things have occurred after the two wildfire season in CA. Thoughts?

I haven't heard anyone thinking in this direction so far. I think it will depend a lot on how the pandemic progresses and ends.

There are couple overlays that affect what you suggest:
- Exurbs are cheaper and low density states have (generally) been cheaper. So older folks who don't have to live in cities could have migrated to exurbs and low density states already. Some have. But there's a lot of reasons why others haven't. Among these are community, services, and overall low geographical mobility (geographical mobility apparently is quite lower than people think).
- Maine, Vermont and probably upstate NY have been losing people. This might not reverse the trend.
Title: Re: The day after tomorrow
Post by: Spekulatius on April 18, 2020, 05:10:51 AM
I am thinking that lower density areas that do well in this epidemic might do well in terms of housing because older folks (who tend to have money), might want to move there. Buy a cabin in the woods in upstate NY or Vermont or maybe around Flagstaff in AZ. Good hospital nearby a strong plus. People might look at COVID-19 maps rather than school districts  (which donít matter since kids are out of the house). I know similar things have occurred after the two wildfire season in CA. Thoughts?

Redfin is seeing a trend. It may not last, but nevertheless interesting:
 https://www.cnbc.com/2020/04/17/redfin-ceo-rural-home-demand-shows-profound-psychological-change-amid-coronavirus.html (https://www.cnbc.com/2020/04/17/redfin-ceo-rural-home-demand-shows-profound-psychological-change-amid-coronavirus.html)
Title: Re: The day after tomorrow
Post by: SharperDingaan on April 18, 2020, 06:57:55 AM
I am thinking that lower density areas that do well in this epidemic might do well in terms of housing because older folks (who tend to have money), might want to move there. Buy a cabin in the woods in upstate NY or Vermont or maybe around Flagstaff in AZ. Good hospital nearby a strong plus. People might look at COVID-19 maps rather than school districts  (which donít matter since kids are out of the house). I know similar things have occurred after the two wildfire season in CA. Thoughts?

Seniors move to rural areas because living costs are cheaper.
Then die quicker - because the medical facilities are sparse, equipment is inferior relative to city facilities, and there aren't the doc's/support staff available. Eventually they move to a retirement home in a rural town centre, where the cycle repeats. Hence the old adage, WHERE you get sick, matters.

Ultimately, every senior is deciding between 'quality of life' versus 'longevity of life' - and over ever shortening time horizons. Hence, the decision to live in a Flagstaff, Boulder, etc. is really about maximizing 'quality of life'. Enjoy remaining years to the fullest, live longer by being more active, and die a quick death on your own terms. Ideally .... as an actuarial abnormality!

No real change, to what is already occurring.

SD


Title: Re: The day after tomorrow
Post by: Spekulatius on April 19, 2020, 05:48:37 AM
A lot of money in the lower income bracket are going to make more money for doing nothing than they made before working.
 https://www.masslegalhelp.org/covid-19-unemployment (https://www.masslegalhelp.org/covid-19-unemployment)

UI benefits + $600/week extra  and extra $2400/ month. UI benefits are roughly 1/2 the prior salary, up to a certain limit. So, unless you made more than roughly $4800/ month before, you might be better of not working for a couple of month.

Unless, I read these these provisions wrong. Itís quite interesting, my wife works only 1/2 time (more with overtime typically) and may actually be better of not working - as a nurse?

Maybe America doesnít want to go back to work?
Title: Re: The day after tomorrow
Post by: DooDiligence on April 19, 2020, 07:18:00 AM
A lot of money in the lower income bracket are going to make more money for doing nothing than they made before working.
 https://www.masslegalhelp.org/covid-19-unemployment (https://www.masslegalhelp.org/covid-19-unemployment)

UI benefits + $600/week extra  and extra $2400/ month. UI benefits are roughly 1/2 the prior salary, up to a certain limit. So, unless you made more than roughly $4800/ month before, you might be better of not working for a couple of month.

Unless, I read these these provisions wrong. Itís quite interesting, my wife works only 1/2 time (more with overtime typically) and may actually be better of not working - as a nurse?

Maybe America doesnít want to go back to work?

After all the marvelous examples our leaders have provided, we finally tip over into officially being the entitled society.
Title: Re: The day after tomorrow
Post by: DTEJD1997 on April 19, 2020, 08:00:30 AM
A lot of money in the lower income bracket are going to make more money for doing nothing than they made before working.
 https://www.masslegalhelp.org/covid-19-unemployment (https://www.masslegalhelp.org/covid-19-unemployment)

UI benefits + $600/week extra  and extra $2400/ month. UI benefits are roughly 1/2 the prior salary, up to a certain limit. So, unless you made more than roughly $4800/ month before, you might be better of not working for a couple of month.

Unless, I read these these provisions wrong. Itís quite interesting, my wife works only 1/2 time (more with overtime typically) and may actually be better of not working - as a nurse?

Maybe America doesnít want to go back to work?

I have a family member who is a nurses assistant.  She will be collecting Federal & State unemployment.  Her take home will be MORE with unemployment than when she was working.  She will have the added benefit of not being exposed to the virus and not having to commute and helping her family.  Oh yeah, she also won't have to break her back working!

How will this play out for so many small business owners?  Who will want to stock shelves for $12/hour at the grocery store?  Who will want to work the Fry-0-Lator for $10/hour?  Who will want to do basic legal work for $22/hour?  People will be able to stay at home and make more, not commute, not work.

If the government wanted people to get some security AND work, then simply give out a larger check to everybody who paid taxes.  Thus, there is no incentive NOT to stay out of the workforce.

How many other detrimental second and third order effects will there be? 
Title: Re: The day after tomorrow
Post by: SHDL on April 19, 2020, 08:34:36 AM
How the pandemic could influence income inequality:

https://www.wsj.com/articles/how-the-coronavirus-might-reduce-income-inequality-11587304801
Title: Re: The day after tomorrow
Post by: Spekulatius on April 19, 2020, 08:55:14 AM
How the pandemic could influence income inequality:

https://www.wsj.com/articles/how-the-coronavirus-might-reduce-income-inequality-11587304801

Past pandemics were different because they killed a lot of productive people and caused labor shortages that forced higher wages for the peasants at that time. The current epidemic really preferentially kills older people and in any case, morbidity is too low to cause a significant impact on available labor in they sense.

However when you include secondary impacts like the above welfare programs and possible increased in sourcing from overseas supply chains, the next effect could be quite similar. Note that minimum wages have been rising and it seems like many companies seem to have trouble filling position that benefit from the epidemic (Amazon, grocery chains). I can well see this causing wage increases and possibly also overall inflation.


As for the increase unemployment benefits they last until 7/25, but I see no chance in hell they they donít get extended until after the election in November.

Weaning ourself off from this might be quite difficult.
Title: Re: The day after tomorrow
Post by: TwoCitiesCapital on April 19, 2020, 10:12:01 AM
A lot of money in the lower income bracket are going to make more money for doing nothing than they made before working.
 https://www.masslegalhelp.org/covid-19-unemployment (https://www.masslegalhelp.org/covid-19-unemployment)

UI benefits + $600/week extra  and extra $2400/ month. UI benefits are roughly 1/2 the prior salary, up to a certain limit. So, unless you made more than roughly $4800/ month before, you might be better of not working for a couple of month.

Unless, I read these these provisions wrong. Itís quite interesting, my wife works only 1/2 time (more with overtime typically) and may actually be better of not working - as a nurse?

Maybe America doesnít want to go back to work?

This is also a concern of mine, but isn't the solution to get rid of the temporary increases?

Like keep the exceptional increases in UI for while the economy is closed and in a state of emergency, but then eliminate the additional benefits when the state of emergency is over? Then you're back to making 1/2 of what you were and have incentive to get back to work - particularly when it is no longer acceptable to be skipping mortgage/rent payments.

Unoubtedly there will be people who take advantage of this and that incentives are powerful things. But remove the incentives and I think you'll find most people WANT to be productive and work. Just like MOST people are still paying their mortgages at the moment despite having a govt approved forebearance open to them with zero consequences.
Title: Re: The day after tomorrow
Post by: DTEJD1997 on April 19, 2020, 11:03:46 AM
A lot of money in the lower income bracket are going to make more money for doing nothing than they made before working.
 https://www.masslegalhelp.org/covid-19-unemployment (https://www.masslegalhelp.org/covid-19-unemployment)

UI benefits + $600/week extra  and extra $2400/ month. UI benefits are roughly 1/2 the prior salary, up to a certain limit. So, unless you made more than roughly $4800/ month before, you might be better of not working for a couple of month.

Unless, I read these these provisions wrong. Itís quite interesting, my wife works only 1/2 time (more with overtime typically) and may actually be better of not working - as a nurse?

Maybe America doesnít want to go back to work?

This is also a concern of mine, but isn't the solution to get rid of the temporary increases?

Like keep the exceptional increases in UI for while the economy is closed and in a state of emergency, but then eliminate the additional benefits when the state of emergency is over? Then you're back to making 1/2 of what you were and have incentive to get back to work - particularly when it is no longer acceptable to be skipping mortgage/rent payments.

Unoubtedly there will be people who take advantage of this and that incentives are powerful things. But remove the incentives and I think you'll find most people WANT to be productive and work. Just like MOST people are still paying their mortgages at the moment despite having a govt approved forebearance open to them with zero consequences.

That very well may happen...but I can also envision a large number of people complaining QUITE loudly that they are having trouble finding a job (that they want), that unemployment is high, they have problems, so and and so on....AND THAT GOVERNMENT NEEDS TO HELP THEM.

So the "temporary" benefits continue on.  I don't think they will go forever, but what politician wants to say "no"?
Title: Re: The day after tomorrow
Post by: SharperDingaan on April 19, 2020, 11:24:15 AM
Or maybe ... employers just have to pay up, if they want to exploit their labour.
That labour knows its worth, and we've been calling them essential workers for quite some time now ... if 'we' have to pay more more for our burger, bagger, wait staff, so be it.

Bottom line is that many smaLL businesses are not viable if there is a wage increase.
Post Covd-19 they either don't reopen, or collapse. Entirely the business owners choice.
But the market decides whether your product/service is worth the extra cost.
Terrifying prospect to many.

SD



 
Title: Re: The day after tomorrow
Post by: Gregmal on April 19, 2020, 11:32:18 AM
Or maybe ... employers just have to pay up, if they want to exploit their labour.
That labour knows its worth, and we've been calling them essential workers for quite some time now ... if 'we' have to pay more more for our burger, bagger, wait staff, so be it.

Bottom line is that many smaLL businesses are not viable if there is a wage increase.
Post Covd-19 they either don't reopen, or collapse. Entirely the business owners choice.
But the market decides whether your product/service is worth the extra cost.
Terrifying prospect to many.

SD

I'd much rather pay more for items I choose to buy(indirect tax) because the laws of supply and demand dictate it, than have a greasy handed government raise my taxes so they can dole out that cash to the places and people whom they promised things in exchange for votes.
Title: Re: The day after tomorrow
Post by: Spekulatius on April 19, 2020, 12:27:47 PM
Or maybe ... employers just have to pay up, if they want to exploit their labour.
That labour knows its worth, and we've been calling them essential workers for quite some time now ... if 'we' have to pay more more for our burger, bagger, wait staff, so be it.

Bottom line is that many smaLL businesses are not viable if there is a wage increase.
Post Covd-19 they either don't reopen, or collapse. Entirely the business owners choice.
But the market decides whether your product/service is worth the extra cost.
Terrifying prospect to many.

SD

Yes, it could well happen. Note that minimum wages have been rising at a pretty good clip before this thing hit. Then a bunch of companies have created their own minus wage floor (Amazon, the banks and many others) above the federal limit. Typically a recession put a lid on wage increased, especially on the lower end, but with all the welfare programs and and unwillingness to take a chance in many occupations to catch a nasty virus, that may well not happen this time around.

Likely losers will be small business (service) and agriculture. Higher inflation is also a likely outcome, but may not be they bad it is happens via higher living wages.

Some folks I know at high tech companies are very very bullish on automation.
Title: Re: The day after tomorrow
Post by: SharperDingaan on April 20, 2020, 04:36:16 AM
Or maybe ... employers just have to pay up, if they want to exploit their labour.
That labour knows its worth, and we've been calling them essential workers for quite some time now ... if 'we' have to pay more more for our burger, bagger, wait staff, so be it.

Bottom line is that many smaLL businesses are not viable if there is a wage increase.
Post Covd-19 they either don't reopen, or collapse. Entirely the business owners choice.
But the market decides whether your product/service is worth the extra cost.
Terrifying prospect to many.

SD

Yes, it could well happen. Note that minimum wages have been rising at a pretty good clip before this thing hit. Then a bunch of companies have created their own minus wage floor (Amazon, the banks and many others) above the federal limit. Typically a recession put a lid on wage increased, especially on the lower end, but with all the welfare programs and and unwillingness to take a chance in many occupations to catch a nasty virus, that may well not happen this time around.

Likely losers will be small business (service) and agriculture. Higher inflation is also a likely outcome, but may not be they bad it is happens via higher living wages.

Some folks I know at high tech companies are very very bullish on automation.

Just to add to this ...
A great many small business owners are in the service business, primarily providing food & beverage to the rest of us. If the owner can't get labour, they/family have to do the work themselves, which is only sustainable if they cannot get work elsewhere.

We have had the technology to automate for quite some time. Whether we're 'allowed' to, is being overlooked.
You can't build atomic bombs, and claim you aren't responsible for the radiation caused .... and you cant automate, and claim you aren't responsible for the unemployment caused. Throw a lot of people out of work, and you aren't going to be allowed to automate.

We see automation, we think manufacturing/mining/etc. where the jobs displaced were often toxic (physical/mental) &/or people routinely lost their lives/limbs. And those displaced, could get a job in the service industries of their time. Disruptive, but a societal clear net win.

Very different story automating services. Where do the displaced go? and when that displacement is in the 10's of millions? What happens with the millions displaced in an India/China, who need the work in order to eat? History tells us that it doesn't go well. Disruptive, and a global clear net loss.

Takeaways. Limited automation until the law, CSR, and privacy issues are adequately addressed.

SD


Title: Re: The day after tomorrow
Post by: DooDiligence on April 20, 2020, 06:23:34 AM
"Could a more automated workforce have alleviated the economic damage COVID-19 has caused? The International Federation of Robotics (IFR) reported the cost of robots has decreased and continues to decrease enabling wide adoption. South Korea has seven robots per 100 workers and every third robot installed is in China. A 2019 report by Oxford Economics predicted 12.5 million manufacturing jobs will be automated in China by 2030.  In the aftermath of the pandemic, it could be many more."

www.forbes.com/sites/shahinfarshchi/2020/04/10/expect-more-jobs-and-more-automation-in-the-post-covid-19-economy
Title: Re: The day after tomorrow
Post by: Spekulatius on April 25, 2020, 04:20:48 AM
Brazil is going to be interesting to watch. These countries canít borrow for zero interest like the EU and the US can do. Also, the president running the country is a clown.

https://www.cnbc.com/2020/04/25/brazil-becoming-coronavirus-hot-spot-as-testing-falters.html (https://www.cnbc.com/2020/04/25/brazil-becoming-coronavirus-hot-spot-as-testing-falters.html)
Title: Re: The day after tomorrow
Post by: Cigarbutt on April 25, 2020, 05:09:18 AM
Brazil is going to be interesting to watch. These countries canít borrow for zero interest like the EU and the US can do. Also, the president running the country is a clown.
https://www.cnbc.com/2020/04/25/brazil-becoming-coronavirus-hot-spot-as-testing-falters.html (https://www.cnbc.com/2020/04/25/brazil-becoming-coronavirus-hot-spot-as-testing-falters.html)
Mr. Ray Dalio spends some time on this in a recently released piece (how emerging economy countries may have a hard time for a while, in a way similar to the 1980s episode which sort of ended with the Brady bonds):
https://www.linkedin.com/pulse/money-credit-debt-ray-dalio/?published=t
There is some yadayada so here's the key quote:
"At the same time, dollar-denominated debt owed by non-Americans (i.e., those in emerging markets, European countries, and China) is about $20 trillion (which is about 50% higher than what it was in 2008), with a bit less than half of that total being short-term.  These dollar debtors will have to come up with dollars to service these debts and they will have to come up with more dollars to buy goods and services in world markets.  So, the US, by having the US dollar as the worldís reserve currency and having the worldís bank that produces that currency, and by having the power to put these needed dollars in the hands of Americans, can help Americans more effectively than other countriesí governments can help their own citizens. At the same time the US risks losing this privileged position by creating too much money and debt."
If Brazil debt position is of any interest:
https://commodity.com/debt-clock/brazil/
Some would say that countries were all equally surprised by recent developments but, in terms of vulnerability, some are more equal than others.
Title: Re: The day after tomorrow
Post by: SharperDingaan on April 25, 2020, 06:47:25 AM
Brazil is going to be interesting to watch. These countries canít borrow for zero interest like the EU and the US can do. Also, the president running the country is a clown.

https://www.cnbc.com/2020/04/25/brazil-becoming-coronavirus-hot-spot-as-testing-falters.html (https://www.cnbc.com/2020/04/25/brazil-becoming-coronavirus-hot-spot-as-testing-falters.html)

Emerging markets have different 'norms'.
A great many more people will die than would be the case in a 1st world country, and the local currency will devalue to take up the loss; when life normalizes, the country enjoys a tourism boom. Large numbers of deaths to disease is much more routine, and part of every-day life; it is also harder to topple a regime, as opponents typically suffer 'accidents', often terminal.

Example: Most in NA would expect Covid-19 to be 'over' by Jan-2021.
For those willing to travel, flights and accommodation, on sale at  maybe 20-30% off; the currency of a 3rd world country, devalued by 25-50% versus current levels. Net of sales and FX devaluation, a one-week Feb-2021 trip to the Rio De Janeiro Carnival, may well cost less than a one-week trip to the Caribbean. A one-month Feb-2021 safari in South-Africa, may well cost less than a 10-day trip to Europe. Point? That once-in-a-lifetime trip, now becomes affordable - and the smarter folks capitalize on it.

It just WILL NOT BE AMERICANS.
80%+ of Americans, don't travel outside of the US, Canada, or Mexico - and don't hold a passport.
Great for the rest of us!

SD

Title: Re: The day after tomorrow
Post by: samwise on April 28, 2020, 10:04:02 PM
Is the crises over? Is today the day after tomorrow?

Market is flat from a year ago and about 10% down YTD. Could be discounting one lost year in the next 10, or 2 in the next 20.
That sort of makes sense, as long as the company survives. But such a small YTD loss in a 100 year pandemic does seem odd unless we have a V shape recovery. So how do you position yourself if you can't time the market, but want to take advantage if it falls? I don't see any cheap way.

There are still some cheap parts of the market.. but that cheapness is fading fast, except where the company's survival is uncertain.
Title: Re: The day after tomorrow
Post by: Spekulatius on May 01, 2020, 04:23:01 AM
The day after tomorrow may take a while :
https://www.cidrap.umn.edu/sites/default/files/public/downloads/cidrap-covid19-viewpoint-part1.pdf (https://www.cidrap.umn.edu/sites/default/files/public/downloads/cidrap-covid19-viewpoint-part1.pdf)
Title: Re: The day after tomorrow
Post by: Cigarbutt on May 01, 2020, 05:40:49 AM
^Complementary info:
https://www.ncbi.nlm.nih.gov/pmc/articles/PMC3291411/
https://www.nejm.org/doi/pdf/10.1056/NEJMp2005630
The CV does "behave" like the flu which is relatively a good thing, short term, but a relatively (potentially) bad thing, long term.
A lot of human ingenuity has been concentrated on vaccines and RNA-technology-related vaccines are most promising (many positive aspects including rapidity of the initial phases and building on previous relevant cancer research) but this is difficult to discount in an economic level.
The Markets were priced for perfection and are possibly now priced for delusion but who cares about tomorrow?
Title: Re: The day after tomorrow
Post by: Jurgis on May 01, 2020, 06:57:18 AM
The Markets were priced for perfection and are possibly now priced for delusion but who cares about tomorrow?

YOLO, right?
Title: Re: The day after tomorrow
Post by: Spekulatius on May 10, 2020, 07:11:58 AM
Well, itís early days yet, but this gives us and idea what sort of real estate is impaired:
 https://www.reit.com/news/blog/market-commentary/nareit-member-survey-results-covid-19-and-april-rent-collections (https://www.reit.com/news/blog/market-commentary/nareit-member-survey-results-covid-19-and-april-rent-collections)
Title: Re: The day after tomorrow
Post by: Spekulatius on May 17, 2020, 12:55:50 PM
Interesting perspective on cities and I think what this author postulates makes sense:
https://finance.yahoo.com/news/coronavirus-will-not-harm-urbanization-cities-have-a-bright-future-professor-123312505.html (https://finance.yahoo.com/news/coronavirus-will-not-harm-urbanization-cities-have-a-bright-future-professor-123312505.html)
Title: Re: The day after tomorrow
Post by: Spekulatius on May 20, 2020, 05:32:09 PM
McKinsey consumer survey in Europe. It seems a lot of people especially in harder hit countries (Italy, Spain) are gloomy and intend to spent less going forward:
https://www.mckinsey.de/~/media/McKinsey/Locations/Europe%20and%20Middle%20East/Deutschland/News/Presse/2020/2020-04-08%20Consumer%20Sentiment%20Survey/200408_Consumer_Sentiment_Survey.ashx (https://www.mckinsey.de/~/media/McKinsey/Locations/Europe%20and%20Middle%20East/Deutschland/News/Presse/2020/2020-04-08%20Consumer%20Sentiment%20Survey/200408_Consumer_Sentiment_Survey.ashx)

Interesting is the much lower spending intend on discretionary items (jewelers, furniture, Alcohol (!) etc).
Title: Re: The day after tomorrow
Post by: Spekulatius on May 20, 2020, 05:45:28 PM
Her is another study from Accenture. Seems bearish for fashion, alcohol (!) and eve; electronics.
 https://www.accenture.com/_acnmedia/PDF-123/Accenture-COVID19-Pulse-Survey-Research-PoV.pdf#zoom=40 (https://www.accenture.com/_acnmedia/PDF-123/Accenture-COVID19-Pulse-Survey-Research-PoV.pdf#zoom=40)

Somewhat surprising, people intend to shop more locally.
Title: Re: The day after tomorrow
Post by: meiroy on May 20, 2020, 07:42:44 PM
https://freakonomics.com/podcast/covid-19-college/

What Will College Look Like in the Fall (and Beyond)?
Title: Re: The day after tomorrow
Post by: DooDiligence on May 20, 2020, 08:34:28 PM
https://freakonomics.com/podcast/covid-19-college/

What Will College Look Like in the Fall (and Beyond)?

I hope weíll be able to have actual classes this Fall.

I plan on signing up for history and literature (not sure what periods for either) in the 2020 Fall semester & would be fine with Zoom classes, but I also want to take philosophy and psychology & donít think these subjects would be as beneficial without face to face discussions.
Title: Re: The day after tomorrow
Post by: Spekulatius on May 29, 2020, 09:49:26 PM
Interesting tidbit from Uhal CEO Schoen about the car/truck auction business  where they auction of their trucks.

Looks like this business is now totally virtual while before it was literally a marketplace full with people. Itís a tangent for Uhal, but nevertheless interesting. They also expect a miserable time for a lot of  self storage business due to oversupply. Uhalís CC are always interesting because they are very frank:

Looks like COVID-19 totally changed the car auction industry perhaps permanently.

Quote
CraigInman

Okay. That's good color. And then on the truck side with the -- if you can't get new trucks in Ford and GM, and the auctions are -- or the auctions still closed?

EdwardShoen

Yes, they're starting to open virtually, the largest -- I think they're the largest. The Manheim furloughed over 10,000 people and their stated intent is to attempt to not reopen to transfer to a virtual business changed their whole economic structure. Well, during that time sales have just collapsed. Now whether that's because of the virtual formats are a whole bunch of other factors. I could only guess, I have no -- we see what we are able to move on a daily basis. And that just it went to just almost zero for a couple of weeks. Now it's slowly creeping back but it's nowhere near, I would say it's less than 12% or 15% of what we would have expected, Jason, would give --

JasonBerg

Yes. At the most.

EdwardShoen

It's drastic decline. Now we watch everyday and we every -- we see a little glow we kind of encourage each other and all that. But when the money finally comes into Jason it's disappointing. So I don't know what's going to happen with the auction business. I don't know if you have ever been to one but they -- it's big social event as well as sales event and so there is a whole bunch of people who have their business social activity build around this but they are all rubbing shoulders with each other, it's hustle bustle and if people are unwilling to be in that environment compared to an open air market or something. People may not be willing to back in that environment. If that happens it's going to change the whole auction industry. And Manheim is making the right bet. I have no idea what's going to happen.
https://seekingalpha.com/article/4350683-amerco-uhal-ceo-edward-shoen-on-q4-2020-results-earnings-call-transcript?page=10 (https://seekingalpha.com/article/4350683-amerco-uhal-ceo-edward-shoen-on-q4-2020-results-earnings-call-transcript?page=10)
Title: Re: The day after tomorrow
Post by: cwericb on May 30, 2020, 06:46:58 AM
Doo...  "I also want to take philosophy and psychology & donít think these subjects would be as beneficial without face to face discussions."

A good course in Abnormal Psychology is fascinating and I guarantee you will use it frequently throughout your life. It will help you read people and give you a good idea of why people do the things they do and what you can expect of some. Just my 2 cents worth.
Title: Re: The day after tomorrow
Post by: DooDiligence on May 30, 2020, 07:52:53 AM
Doo...  "I also want to take philosophy and psychology & donít think these subjects would be as beneficial without face to face discussions."

A good course in Abnormal Psychology is fascinating and I guarantee you will use it frequently throughout your life. It will help you read people and give you a good idea of why people do the things they do and what you can expect of some. Just my 2 cents worth.

Thanks for the suggestion.

I'm definitely interested in courses that help to improve perceptions about myself & others.

As an aside, I never expected English Comp 1 & 2 to be so transformative.

I'm definitely far from perfect, but my critical thinking skills have (maybe) improved based upon the single concept of "citations" from reputable sources. I have no reputable source to cite for this statement, hence the inclusion of "maybe".
Title: Re: The day after tomorrow
Post by: John Hjorth on May 30, 2020, 12:21:19 PM
Somehow, it's to me a mental lift to read your posts ["Corona-nowadays"] bursting of mental energy, Jeff. Thank you.
Title: Re: The day after tomorrow
Post by: DooDiligence on May 30, 2020, 03:26:05 PM
Somehow, it's to me a mental lift to read your posts ["Corona-nowadays"] bursting of mental energy, Jeff. Thank you.

Nice!  ;)

I delude myself into believing that my (mainly) positive attitude encourages others & am especially glad when it helps people who I consider friends (virtual or otherwise) to "see the sunny side of life".

I still consider myself a slacker. and need to do a lot of work on behavioral issues.

It's time to go a viking!!!
Title: Re: The day after tomorrow
Post by: Spekulatius on May 31, 2020, 01:14:35 PM
Check this one out. $490M cash tax refund due to provisions from the CARES act for UHAL, a $7.6B (roughly) Market cap company. Retroactive refunds for 2017, 2018, 2019 and forward for 2020.

(https://i.imgur.com/LUYrEqy.jpg)

These looters you see on TV are dummies and are doing it wrong.

https://seekingalpha.com/article/4350683-amerco-uhal-ceo-edward-shoen-on-q4-2020-results-earnings-call-transcript
Title: Re: The day after tomorrow
Post by: rb on May 31, 2020, 01:51:40 PM
If you have a good tax team why would you go out in the streets and soil yourself with the populace? This has always been true.
Title: Re: The day after tomorrow
Post by: wabuffo on May 31, 2020, 02:03:49 PM
Retroactive refunds for 2017, 2018, 2019 and forward for 2020.

This will probably only upset you more - but a company can apply tax losses for both 2019 AND 2020 as tax loss carrybacks.  Plus the best part is that when you apply them to previous years, the Company gets a refund at the old 35% federal corporate tax rate.   

Congress did this in 2008 as well.   I remember the estate of subprime lender LEND (Accredited Home Lenders) got a $100m tax refund in 2010 as part of its bankruptcy estate.  I was holding LEND's stranded preferreds (AHHAP).

wabuffo


Title: Re: The day after tomorrow
Post by: Spekulatius on May 31, 2020, 03:19:57 PM
Retroactive refunds for 2017, 2018, 2019 and forward for 2020.

This will probably only upset you more - but a company can apply tax losses for both 2019 AND 2020 as tax loss carrybacks.  Plus the best part is that when you apply them to previous years, the Company gets a refund at the old 35% federal corporate tax rate.   

Congress did this in 2008 as well.   I remember the estate of subprime lender LEND (Accredited Home Lenders) got a $100m tax refund in 2010 as part of its bankruptcy estate.  I was holding LEND's stranded preferreds (AHHAP).

wabuffo

LOL, know i remember the 2008 case. Makes everyone feel better to get looted twice the same way, LOL.

Between the US leaving the WHO, US inner cities looking like a trailer for the movie ďPurgeĒ,  and looking at the COVID-19 scorecard of China vs the US, I suspect Xi Jinping and the fellows running the CCP must be giving themselves high fives all around. Complaints about HK protests? Well....

Quite sad actually.
Title: Re: The day after tomorrow
Post by: Cigarbutt on May 31, 2020, 06:41:14 PM
Retroactive refunds for 2017, 2018, 2019 and forward for 2020.
This will probably only upset you more - but a company can apply tax losses for both 2019 AND 2020 as tax loss carrybacks.  Plus the best part is that when you apply them to previous years, the Company gets a refund at the old 35% federal corporate tax rate.   
Congress did this in 2008 as well.   I remember the estate of subprime lender LEND (Accredited Home Lenders) got a $100m tax refund in 2010 as part of its bankruptcy estate.  I was holding LEND's stranded preferreds (AHHAP).
wabuffo
With the CARES operating losses provisions, losses can be carried back as far as 2013 and loss limitation rules for 2018 and 2019 are suspended. This is interesting since these retroactive amendments will require to adjust the dwindling corporate share of tax revenue for those years (for those who follow that).

wabuffo, if i'm not on your ignore list yet and if you have time, could you read the following? The AHHAP 'investment' is super interesting and i was following similar situations then (but not AHHAP). After a short retrospective review, it looks like they received more tax refunds related to net operating losses on top of the first 54M obtained. It seems like the fulcrum security category included the subsidiary series A preferred shares and the liquidation value ended up at 0.771 par value (78.9M distributed). Do i get this approximately right? If yes, did you invest before the actual tax act was passed or based on the expectation that such an act would be enacted or was it a positive surprise? (it seems that the preferred shares would have received nil absent this tax 'relief'?)
Title: Re: The day after tomorrow
Post by: wabuffo on May 31, 2020, 07:47:29 PM
CB - re AHHAP

Ahhh - glory days!

Compared to other subprime lenders, LEND had an interesting structure and that was what drew me to it after sub-prime blew up in early 2007.  As an aside I also had an investment in ECRO after it sold its origination platform to Bear Stearns.  IIRC, in 2008 - two of my top five positions at times were sub-prime mortgage lenders (ECRO, AHHAP).

AHHAP ORIGIN STORY:
OK - back to LEND/AHHAP.  LEND was originally structured as a C-Corp.  But by the mid-2000s, it was finding itself at a competitive disadvantage vs the new subprime mortgage originators on the scene that were organized as mortgage REITs (NFI, New Century, etc).  So LEND created a Mortgage Loan REIT subsidiary that housed all of its securitization trusts.  Now the rules about ownership of REITs are very specific in order to preserve its tax status.  Part of those rules are a 5/50 rule which means that the top five holders of the equity cannot hold more than 50% of the total equity.  But LEND owned all of the equity of its new Mortgage Loan REIT.  To solve this ownership problem and qualify as a REIT, LEND created a class of publicly-traded preferred shares (AHH-A later AHHAP on the pinks). The preferreds gave the Mortgage Loan REIT broad ownership and helped meet the 5/50 rule to qualify as a REIT pass-thru structure.  But here's the key to the whole investment thesis.  In order to protect the preferred shareholders, LEND had to give a guarantee to the AHHAP preferred dividends.

So to summarize, LEND (holdco) is a C-Corp holding the mortgage origination platform.  The REIT that issued AHHAP preferreds is a subsidiary of LEND.  LEND owns 100% of the common equity of this REIT sub.  The REIT sub holds onto all of the securitization trusts' residuals, which are its only source of income to pay the preferred dividends. So when the mushroom clouds start to go off in subprime in 2007, and the mortgage REIT's preferred dividends can no longer be supported by the residuals, LEND is on the hook to pay the preferred dividends because of its unconditional guarantee. 

Few people understood that - that was the key that forced the preferred dividends to continue to be paid.  It got even more interesting - in 2007 Lone Star buys 100% of LEND, but it can't touch the preferred shares without unwinding the REIT.  So basically LEND goes dark after the buyout, and the preferreds are left to trade as stranded preferreds.  Their share price craters.  This was opportunity #1 because everyone thought that Lone Star would pull the plug on the preferred dividends and I bought AHHAP in mid-2007.  But folks who had read the details in the prospectus for the preferreds, knew that Lone Star couldn't stop the preferreds without pulling the plug on its investment in LEND itself.   The preferred dividends continued throughout 2007, 2008 until the 1st quarter of 2009.  Because I had made a great return on AHHAP and more opportunities were starting to appear in late 2008, I sold out of AHHAP.  This was fortunate because I missed the...

LEND CHAPTER 11:
LEND/Lone Star put the C-Corp into Chapter 11 in April, 2009.  The Mortgage Loan REIT was kept outside of the bankruptcy estate but had claims against the operating company (the origination platform and opco owed the REIT due to some large receivables related to how Lone Star extracted cash out of it) and the holdco (due to its preferred dividend guarantee).  AHHAP fell to around $1 but I stayed away.  I did follow the court docket and that's where I saw some of the discussion about large IRS refunds from past LEND tax years.  By that time the price recovered to around $6 which was where I bought back in, IIRC.  The estate filed a liquidation plan and disclosure document that outlined the recovery waterfall for AHHAP based on its claims against both the holdco and the opco.  IIRC, Lone Star basically abandoned its equity in the Mortgage Loan REIT and had to kick in some cash to the estate for basically trying to screw the preferreds as well as some of the Trust Preferreds.

But I was also watching the LEND securitization monthly reports.  And you know what, they were still providing positive cash flows to the Mortgage Loan REIT every month.  There were sixteen deals and I think the four 2004 vintage securitizations were quite solid.  In the end, between the Ch 11 recoveries and the securitization cash flows, total cash distributed to AHHAP holders was $19.28 per share (there was a final distribution in Sep 2016 after the securitizations were sold off and AHHAP was extinguished).   Not bad vs a $25 liquidation preference and very good vs where I got in at $6 in 2011.  But even better for some investors I know who got in at $1-2 right after it went Chapter 11.

I can dig through my files if you have any specific questions about the Chapter 11 case.

wabuffo
Title: Re: The day after tomorrow
Post by: meiroy on May 31, 2020, 10:33:22 PM
Doo...  "I also want to take philosophy and psychology & donít think these subjects would be as beneficial without face to face discussions."

A good course in Abnormal Psychology is fascinating and I guarantee you will use it frequently throughout your life. It will help you read people and give you a good idea of why people do the things they do and what you can expect of some. Just my 2 cents worth.

Searched on Youtube, and came up with these two playlists:

This one looks serious:
https://www.youtube.com/watch?v=tLVOkPP48wA&list=PLoajPXQqU0rGQ2z-UEZVk8wtTNQHEZqdu

And this one seems a bit more fun:
https://www.youtube.com/watch?v=wuhJ-GkRRQc&list=PLG61LF8I_OXryVWpwXAq7DM9Z9kx24mOJ

What do you reckon?

Title: Re: The day after tomorrow
Post by: Spekulatius on June 01, 2020, 04:00:24 AM
Doo...  "I also want to take philosophy and psychology & donít think these subjects would be as beneficial without face to face discussions."

A good course in Abnormal Psychology is fascinating and I guarantee you will use it frequently throughout your life. It will help you read people and give you a good idea of why people do the things they do and what you can expect of some. Just my 2 cents worth.

Searched on Youtube, and came up with these two playlists:

This one looks serious:
https://www.youtube.com/watch?v=tLVOkPP48wA&list=PLoajPXQqU0rGQ2z-UEZVk8wtTNQHEZqdu

And this one seems a bit more fun:
https://www.youtube.com/watch?v=wuhJ-GkRRQc&list=PLG61LF8I_OXryVWpwXAq7DM9Z9kx24mOJ

What do you reckon?

Kahnemannís Books should be a must. Economics and psychology are joined at the hip as Munger correctly stated.
Title: Re: The day after tomorrow
Post by: Cigarbutt on June 01, 2020, 04:15:36 AM
re AHHAP

Ahhh - glory days!

Compared to other subprime lenders, LEND had an interesting structure and that was what drew me to it after sub-prime blew up in early 2007.  As an aside I also had an investment in ECRO after it sold its origination platform to Bear Stearns.  IIRC, in 2008 - two of my top five positions at times were sub-prime mortgage lenders (ECRO, AHHAP).

I can dig through my files if you have any specific questions about the Chapter 11 case.

wabuffo
Thank you for the appetizer, i will take care of the rest through some research.
Housing subprime lenders ended up doing better than thought after a period that seemed like an eternity from a liquidity standpoint.
In that specific case, fraudulent conveyance-like scenarios had to be taken into account and there were potential legal technicalities. The tax refund aspect appears interesting.
As for any relevance going forward, in the event of unusual economic hardship on the typical subprime borrower, it's possible that some lower FICO score segments do surprising well allowing for unexpected performance for many auto loans securitizations.
Thanks.
Title: Re: The day after tomorrow
Post by: DooDiligence on June 01, 2020, 05:50:03 AM
Doo...  "I also want to take philosophy and psychology & donít think these subjects would be as beneficial without face to face discussions."

A good course in Abnormal Psychology is fascinating and I guarantee you will use it frequently throughout your life. It will help you read people and give you a good idea of why people do the things they do and what you can expect of some. Just my 2 cents worth.

Searched on Youtube, and came up with these two playlists:

This one looks serious:
https://www.youtube.com/watch?v=tLVOkPP48wA&list=PLoajPXQqU0rGQ2z-UEZVk8wtTNQHEZqdu

And this one seems a bit more fun:
https://www.youtube.com/watch?v=wuhJ-GkRRQc&list=PLG61LF8I_OXryVWpwXAq7DM9Z9kx24mOJ

What do you reckon?

I vote for link #2.

My Intro to Biology instructor referenced a handful of videos with the same guy explaining meiosis, mitosis, etc.

I enjoyed them a lot.

YouTube is a gift!
Title: Re: The day after tomorrow
Post by: Spekulatius on June 03, 2020, 05:43:17 AM
RGA - Life reinsurer raising cash. They were estimating 100k death in the US in their last CC which is obviously too low.

Their largest exposure is US (45%) and the UK (17%) which both have high mortalities and are not well contained.
https://finance.yahoo.com/news/reinsurance-group-america-announces-pricing-035400964.html

Doesnít seem that bullish to me, on the other hand  RGA was considered well managed.

Based on a cursory look at the 424b filing , it seem like each 100k in US death cost them $400-500M in claims. They are raising a bit less than $500 in equity right now. Maybe itís a short the way things are going...