Author Topic: The day after tomorrow  (Read 18251 times)

vinod1

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Re: The day after tomorrow
« Reply #50 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 don’t 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 it’s the only somewhat similar case. If we accept that we can’t figure out a worst case scenario for (2), then shouldn’t 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
The fundamental algorithm of life: repeat what works. –Charlie Munger


John Hjorth

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Re: The day after tomorrow
« Reply #51 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 “ 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).

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.
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Cigarbutt

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Re: The day after tomorrow
« Reply #52 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 don’t 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 it’s the only somewhat similar case. If we accept that we can’t figure out a worst case scenario for (2), then shouldn’t 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.

John Hjorth

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Re: The day after tomorrow
« Reply #53 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 employeés, 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.
”In the race of excellence … there is no finish line.”
-HH Sheikh Mohammed Bin Rashid Al Maktoum, Vice President and Prime Minister of the United Arab Emirates and Ruler of Dubai

vinod1

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Re: The day after tomorrow
« Reply #54 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 don’t 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 it’s the only somewhat similar case. If we accept that we can’t figure out a worst case scenario for (2), then shouldn’t 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!
The fundamental algorithm of life: repeat what works. –Charlie Munger

Spekulatius

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Re: The day after tomorrow
« Reply #55 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 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.

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Castanza

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Re: The day after tomorrow
« Reply #56 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
« Last Edit: March 26, 2020, 06:33:12 PM by Castanza »

james22

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Re: The day after tomorrow
« Reply #57 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
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LC

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Re: The day after tomorrow
« Reply #58 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.
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james22

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Re: The day after tomorrow
« Reply #59 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.
BRK, BAM l SV, EM l Energy l Fannie Mae, Freddie Mac l Stable Value, Cash Value of Pension