Author Topic: The day after tomorrow  (Read 17821 times)

samwise

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Re: The day after tomorrow
« Reply #40 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.


Schwab711

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Re: The day after tomorrow
« Reply #41 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.

samwise

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Re: The day after tomorrow
« Reply #42 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.



Spekulatius

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Re: The day after tomorrow
« Reply #43 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).
Life is too short for cheap beer and wine.

samwise

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Re: The day after tomorrow
« Reply #44 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?

Cigarbutt

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Re: The day after tomorrow
« Reply #45 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.

Spekulatius

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Re: The day after tomorrow
« Reply #46 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.
Life is too short for cheap beer and wine.

samwise

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Re: The day after tomorrow
« Reply #47 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.

« Last Edit: March 23, 2020, 08:43:07 PM by samwise »

Spekulatius

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Re: The day after tomorrow
« Reply #48 on: March 24, 2020, 11:52:26 AM »


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).
Life is too short for cheap beer and wine.

Spekulatius

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Re: The day after tomorrow
« Reply #49 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.
Life is too short for cheap beer and wine.