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Maggette


Total Posts: 1233
Joined: Jun 2007
 
Posted: 2020-03-14 11:35
" I guess a few decades of abundant food, entitlement to shelter, and nobody trying to kill you will do that to an animal. "

Kind of an "mike drop" line chiral!!!! Worship

The level on science denial in the general public, policy makers and administrations worry me a lot. And at the danger of sounding like Taleb....I like to make my errors on the less harmfull side of the distribution!!

Ich kam hierher und sah dich und deine Leute lächeln, und sagte mir: Maggette, scheiss auf den small talk, lass lieber deine Fäuste sprechen...

NeroTulip


Total Posts: 1075
Joined: May 2004
 
Posted: 2020-03-14 12:08
There are two parts to this: the health risk and the financial risk.

The health risk is serious: this virus spreads easily, while people are asymptomatic. The lag between infection and death is why you do not see the bodies pile up in the US - yet. That's coming in the next couple of weeks. Also, since 10-20% of cases need ICU, once the epidemic overwhelms the health system capacity, that becomes your fatality rate. No ICU, no recovery. We are seeing this in Italy, where wartime-style triage is going on. Over 60: you die, Heart problems: you die, Overweight: you die, Diabetic: you die.

The US is likely to be a complete mess, because of the culture of going to work while sick and cost of healthcare forcing people to delay diagnostic.

Even if you don't believe it won't be that bad, you can take a few measures that significantly reduce your risk (and the risk to your weaker friends/relatives), and get your stress level close to zero:
- work from home
- take the kids out of school
- avoid all crowded places, restaurants, meetings, travel, etc
- make sure you don't need to visit a hospital or pharmacy in the next 3-12 months (get extra supplies of medicines)
- slowly build up a couple (1-3?) months of non perishable food supplies, without emptying the supermarket shelves like a maniac (you don't need a 6 month supply of toilet paper, c'mon)

If you are not doing at least some of this, you are in for quite a shock. We've seen the movie twice now: Wuhan and Italy. Wherever you are, this is coming to you next. A good source on NRBC (Nuclear/Radiologic/Biologic/Chemical) preparedness is Piero San Giorgio (books and videos in French, some translated)

On the financial side, as C3 said, we came into this with Huuuuge structural imbalances. It just needed a little spark to blow up. This is the spark. Your really thought a world where SoftBank invests billions into WeWork was normal? It is hard to know where this is going, but from a risk management point of view, I am bracing for a 50-80% drop in SPY. Probably with the added bonus that bonds will sell off too, as levered risk parity guys discover the meaning of cross-gamma. It is not my central scenario, and I hope we don't get there, but it is possible.

This is the first domino to drop. I am curious if anyone has ideas of how the stress will spread in markets. Good luck to y'all.


"Earth: some bacteria and basic life forms, no sign of intelligent life" (Message from a type III civilization probe sent to the solar system circa 2016)

nikol


Total Posts: 1138
Joined: Jun 2005
 
Posted: 2020-03-14 12:24
Agree with all said above.

Panic canbe anywhere: war, fire, epidemic, financial.

I heard calls for a "war to reset everything" since 2010 (casual discussions). With so much developed nuclear weapons snd rocket science it could be really total reset. Hence instead global economy is facing "global war on covid19" declared by WHO.
I am afraid that there was long expectation for something like this to happen.

Still, social media has developed its manipulation skill to such point that the panic can be ignited to "Ze Moon" and ashamed to zero at will.

Btw, China managed to get out in two months by proper containment of epidemia

PS. Trump is right. Closure of border with EU protects US toilet paper market (our shelves are empty. Rice, flour, chips, all cheap but long-preserved stuff vanished).

PSS. @Kitno
> Posted: 2020-02-15 19:04
> The first problem is accuracy of the numbers from China.

They appeared to be most transparent so far. US is completely closed, and I am getting suspicious that Chinese are correct - coronavirus comes from US.

Kitno


Total Posts: 492
Joined: Mar 2005
 
Posted: 2020-03-14 17:32
@Nikol, you are correct and I was wrong. As of about a week ago I started believing the Chinese Covid numbers.

As for live numbers out of all countries (and to which I am guilty and C3 touches on) we are so used to readily available, normalized numbers and suspicious of data absence it affects our view of the reality. Global healthcare is not structured or capable of 'properly' addressing pandemics.

No country will follow China's path AND success up to now - each country is short about 250 options to the lowest common denominator country elsewhere not adhering to the same standards so even if a lockdown 'works' they'll later import cases.

So the next phase - say when we are in the single digit millions - would appear to be UK-style management of the distribution (which the WHO forced them to revert for now) OR allow the population to take experimental vaccines. Certainly from an economic perspective these two choices (if a vaccine works) are materially better for economic outcomes.

To echo C3 too many people are in la-la land still devoid of real-world hardships for too long and intentionally ignorant of scientific reality. I agree with NT on the likely financial market outcome.

As for the ensuing monetary policy from all this - at least the Fed can provide everyone with toilet paper.

All the soul of man is resolution, which in valiant men falters never, until their last breath.

nikol


Total Posts: 1138
Joined: Jun 2005
 
Posted: 2020-03-14 19:39
No, I said Chinese are right.

Kitno


Total Posts: 492
Joined: Mar 2005
 
Posted: 2020-03-14 20:20
@Nikol: I agreed with what you said. I said I was wrongWink


All the soul of man is resolution, which in valiant men falters never, until their last breath.

nikol


Total Posts: 1138
Joined: Jun 2005
 
Posted: 2020-03-14 22:50
Retail arbitrage.

https://www.nytimes.com/2020/03/14/technology/coronavirus-purell-wipes-amazon-sellers.html

contango_and_cash


Total Posts: 119
Joined: Sep 2015
 
Posted: 2020-03-15 13:11
Bookmark this post for a future "told-you-so".

gaj


Total Posts: 103
Joined: Apr 2018
 
Posted: 2020-03-15 15:55
What would you advise a layman / retail investor do?

I'm a quant hft guy and I'll be the first to admit to know nothing about long term trading. I'm quite long in my PA, though not fully invested yet. Feels like I'm missing out on a once in a decade opportunity.

nodoodahs


Total Posts: 234
Joined: Sep 2007
 
Posted: 2020-03-15 21:35
If I still had any stocks in any form, I'd sell them all ASAP and book the -25% from the top and the loss of the last three years' gains, because that's preferable to losing 40% from the top and the last decade's gains. Or even more.

Then if I didn't know how to look at a chart, I'd wait and sit on my cash for a full fifteen months. Then I'd break all my available account money (including any bond funds etc.) into fourths and buy stocks with each fourth each three months to be 100% long by 27 months from tomorrow. Then I'd ignore it for three years and switch to 60/40 stocks and bonds. Then I'd set a news alert for "yield curve inversion" and on the next 10/2 cross I'd sell half the stocks for long treasuries. Rinse, repeat.

My trading money was all in TLT (an ETF that holds long Treasuries) when this hit, I've been looking for this to happen for a while as we had numerous macro reasons for this TO happen since late 2018 and frankly I was starting to get impatient. I'm gonna be using new 5-month lows in the stock market to sell 10% tranches of it (which might be 10% each day if it makes new lows every day) and when I think we've bottomed according to technicals, I'll use new 5-month highs in the market to buy in 10% at a time until fully invested and then go back to using some of the simple trend-following ideas I've mentioned before, augmented by keeping an eye on Fed policy (THEY caused this) and the yield curve.

I haven’t seen a beatin’ like that since somebody stuck a banana in my pants and turned a monkey loose.

EspressoLover


Total Posts: 435
Joined: Jan 2015
 
Posted: 2020-03-15 22:46
To preface, I think the virus is really potentially horrific in terms of human costs. Very likely the worst global public health crisis since the 1918 flu.

But it's hard for me to imagine the S&P being below 2500 in two years. A V-shaped recovery, while not guaranteed, seems like by far the most likely outcome. I'm curious what others see as the specific drags on the economy after the quarantine and first wave is over? AFAIK the 1918 flu did not produce any long-lasting economic or financial malaise. Generally I believe that the current selloff is driven by short-term liquidity demands (e.g. a lot of business owners need to make payroll on zero revenue), rather than true revisions to valuations.

2008 doesn't seem analogous. In that case, there was genuinely unsustainable economic activity: over-construction of residential housing and hyper-exponential consumer spending powered by rising home prices. The financial crisis was the proximate cause of the recession, but ultimately growth couldn't bounce back because those construction jobs and sub-prime home equity loans never came back. I don't really see any equivalently massive distortion in today's economy. (Though I could be wrong...)

Corporate debt's probably the weakest pillar in the system. If I had more time to dig into stock selection, my metric would be which names can best survive having zero operating cash flow and zero access to re-financing over the next four quarters. But my sense is that most of the excesses are confined to the energy sector or private market. Large cap US equities, I think are actually pretty stable. And banks are *much* better capitalized than they were in 2008.

The entities that would take serious losses aren't as interconnected as the culprits in 2008, and therefore less likely to spread contagion (of the financial sort). If Softbank or Blackstone blow up, I don't think that's going to ripple through Main Street in the same way that Citigroup did. (Life insurers could be an overlooked systematic risk, because they'd get hit both from obvious mortality spikes as well generally high exposure to low-quality credit and CLOs.)

To add a caveat, I'm not a macro guy. I don't even play one on TV. So take this opinion with a grain of salt. But for now, I'm shrugging off my naturally bearish disposition to buy while there's blood in the street.

Good questions outrank easy answers. -Paul Samuelson

Kitno


Total Posts: 492
Joined: Mar 2005
 
Posted: 2020-03-15 23:04
Strictly in financial terms there will be a significant one-off medium term benefit to the current public and private pension deficit.

I'm not an ALM man but private pension funds currently funding annuities (via govies & corp AAA/AA) will have a windfall by this time next year.

All the soul of man is resolution, which in valiant men falters never, until their last breath.

nodoodahs


Total Posts: 234
Joined: Sep 2007
 
Posted: 2020-03-15 23:22
I'm of the opinion that this virus is essentially a strong flu and will be mostly forgotten in a year other than taking the blame in the press for this bear market recession.

(1) If you look only at the areas where there has been extensive testing (South Korea, the Diamond Princess) and infer age groups, this virus kills fewer than 1% of the people who test positively for it.

(2) The CDC's claimed very low death rate for influenza is spurious. I have done the digging and there is no "there" there in terms of any real prevalence studies, they took an estimate of hospitalizations (which came from 70-odd counties in 13 states) and applied a multiplier to it from a study of vaccine effectiveness which, itself, has no solid prevalence study behind it.

(3) The H1N1 Swine Flu of 2009 is still running rampant in the USA this year. Approximately half of the influenza tests done by private hospitals this season show Type A 2009pnd as the responsible virus. With 20,000 estimated deaths this year, that means H1N1 has probably killed 10K Americans. Have you seen that news? Neither will you see any news about COVID deaths in a few years.

The US DoS and the press cooked up the hype about this thing, which is a standard, run-of-the-mill zoonotic virus like MERS or SARS or the common cold or Influenza A by the way, as a method to further demonize China in the midst of a fading interest in the DoS-sponsored Hong Kong riots. They enlisted their usual suspects along the way and gaslit a bunch of people with fake "man collapses in street" and "doctor collapses in hospital" videos (where are those from Italy?) and the usual propaganda tropes of "mass graves" and "cremations" (which by the way is how the Chinese dispose of bodies, more than half their funerals are cremations).

The problem is, you can't suddenly turn all that hype OFF once the disease is here. Now we are being forced to overreact. And some people are panicked.

---

The economy was on its way down already and the recession and bear market was already coming. As I mentioned, look at the yield curve inversions over the last year. How many times since the invention of the Fed have the tens traded cheaper than nineties WITHOUT a market collapse and/or a recession in the next year or two? And the Fed did this, the same way it always has. How many times since their invention has there been a yield curve inversion WITHOUT the Fed having first spent most of the several preceding years raising rates and tightening money?

It's a cycle. Caused by the Fed.

As someone above said, a once in a decade opportunity. 2020, 2008, 2002, 1981, 1973, etc. etc.

I haven’t seen a beatin’ like that since somebody stuck a banana in my pants and turned a monkey loose.

nikol


Total Posts: 1138
Joined: Jun 2005
 
Posted: 2020-03-15 23:44
If anybody considers to add covid19 risks

Datasets compiled and updated daily
https://data.humdata.org/dataset/novel-coronavirus-2019-ncov-cases
https://www.kaggle.com/imdevskp/corona-virus-report

Social distance measured at quiet periods
https://journals.sagepub.com/doi/abs/10.1177/0022022117698039

Kaggle shares notebooks with analysis

TSWP


Total Posts: 448
Joined: May 2012
 
Posted: 2020-03-16 13:51
there is only one relevant information that one has to wait for:

is there a vaccine or not?

if there is one, the crisis is over.

if there is no vaccine, and if the mortality rate is high enough to propel politicians to continue the lock-downs indefinitely (or to implement several lock-down cycles followed by temporary lock-down releases), then the world economy is in serious trouble


Kitno


Total Posts: 492
Joined: Mar 2005
 
Posted: 2020-03-16 14:19
There are Covid-19 vaccines that presently work on animals and are going into human testing. Even then they are 1y away from limited population use - if corners were cut.

The 'best' most aggressive case is governments allowing experimental usage by at risk groups.

All the soul of man is resolution, which in valiant men falters never, until their last breath.

Maggette


Total Posts: 1233
Joined: Jun 2007
 
Posted: 2020-03-16 14:23
That's my interpretation of the public information too. All experts I heard said less than a year is hard.

A vaccine isn't the hard problem...a effective AND safe vaccine si hard.

Ich kam hierher und sah dich und deine Leute lächeln, und sagte mir: Maggette, scheiss auf den small talk, lass lieber deine Fäuste sprechen...

chiral3
Founding Member

Total Posts: 5163
Joined: Mar 2004
 
Posted: 2020-03-16 15:00
Agreed, that’s been the issue. The myopic focus on testing doesn’t address treatment. No issue with critical care equipment and a vaccine and this all goes away and we deal with the overhang.

I was on the Goldman macro call yesterday (at 3:30EST, funnily where Jan called 100bps Wednesday) and I still largely agree with forecasts that Q3+ major recovery. It’s a digital on medical advances.

Nonius is Satoshi Nakamoto. 物の哀れ

Kitno


Total Posts: 492
Joined: Mar 2005
 
Posted: 2020-03-16 16:31
I'm less certain of a V-shaped Q3 rebound - I see a bifurcation.

1. There is not a containment option but it's a question of management of a pandemic so it goes on for 12-18m per Spanish Influenza - although economic activity can pickup long before then with the healthy/recovered. In fact, I suspect for the 'gig economy'/zero hours workers there's a pivot point where they seek to contract the virus so they can get out and work.

2. Less levered firms in certain industries e.g. online retail, logistics continue to do well/bounce back but the levered are increasingly likely to go bankrupt. To a nevrous corporate bank risk manager those EDBITDA/Debt ratios will be skyrocketing come early Q3 whatever the government says to do.

3. Western politics is going to change. Fiscal bailouts for certain industries will be insufficient and we could see strategic industries e.g. BA nationalized by the UK, Lufthansa by Germany. Similarly train companies etc. A political anathema now - but then the UK and others nationalized banks in the last crisis. This to be funded by govies - because we're increasing the nation's equity don't you see? And eventually higher taxes because further Japanese monetary policy and reverse socialism for the rich (asset owners) isn't sustainable.

All the soul of man is resolution, which in valiant men falters never, until their last breath.

nodoodahs


Total Posts: 234
Joined: Sep 2007
 
Posted: 2020-03-16 17:21
@TWWP @Kitno @chiral3 You're all assuming this market crisis is caused by the epidemic. It's not. It's a financial crisis 2.0 caused by the Fed. The virus was the match but the economy was rubbish already, and so were the banks. The bank index peaked a month before the market. The Fed exceeded runoff of its MBS in May of last year and had to lower rates starting in July of last year, well before anybody heard of this virus. You might also check the homebuilder index which peaked in February but has been in decline relative to the S&P since October.

As @NeroTulip mentioned above, there were massive problems showing.

This is gonna last a long time and affect everything, because it's a systemic failure aka "secular bear market."

This why (almost) every talking head on CNBC is saying "it's NOT a financial crisis." Yeah, because all that Fed repo money is going to mom & pop stores, local bar & grills, and the gyms that are gonna have to be closed.

@ all, specifically about the disease aspect.

The health care system is already in crisis from a virus in the USA. It's called THE FLU. This year the flu is accounting for 7.1% of ALL deaths in the USA, just lower than the 7.3% "epidemic" levels. It has hospitalized an estimated 370,000 Americans and killed 22,000 this season. About 48% of the tests show H1N1 Pnd09 (that's right, the "swine flu" from the 2009-10 pandemic) as the responsible virus, meaning that "swine flu" has killed 10,000 Americans this year. Have you seen that in the news? LOL no. But it's an open secret on the CDC's own weekly flu surveillance page. Remember that pandemic? How it was a constant part of the news cycle? Remember how it got forgotten? The same will happen with THIS virus. Other than, of course, their blaming this recession (which will be dated to March btw) on the virus.

Be realistic and compare this disease's worldwide death count to that from influenza pretty much every year ... the flu killed 80,000 Americans in the 17-18 season ... and remember that this disease spreads the exact same way, it's a coronavirus (MERS, SARS, the common cold) spread by droplet transmission ... and has a death rate (in places where widespread testing is done) roughly comparable to the flu, e.g. well under 1%.

The panic we have here is directly related to the gaslighting that "we" (the US DoS and press) were doing about the disease in China for the last two months. You can't turn that off.

I haven’t seen a beatin’ like that since somebody stuck a banana in my pants and turned a monkey loose.

chiral3
Founding Member

Total Posts: 5163
Joined: Mar 2004
 
Posted: 2020-03-16 17:23
Certainly agree with that sentiment. Sheila Bier made the same comments - they treated it like a financial crisis before their was one and didn’t address the more basic human needs to keep things going.

Nonius is Satoshi Nakamoto. 物の哀れ

Kitno


Total Posts: 492
Joined: Mar 2005
 
Posted: 2020-03-16 17:40
@nodoodahs I agree with what you write and I have exactly the same view RE: financial situation. Nothing was fixed last time around, absurd monetary policy copying a failed example and we have more shadow banking than ever etc. I'm not sure how you see differently in what I wrote - I must spend more time drafting!

I do disagree about the human outcome of the pandemic however. This is worse than the various flus (e.g. male infertility via ACE2 in testicles, recurring illness in the recovered) but this isn't a virologists' discussion.

All the soul of man is resolution, which in valiant men falters never, until their last breath.

nodoodahs


Total Posts: 234
Joined: Sep 2007
 
Posted: 2020-03-16 17:50
@Kitno If I misunderstood, my apologies, but what I saw seemed to me like mostly a discussion of the economic impact of the virus-related closures themselves. I see those as merely the straw that breaks the camel's back, and the decline, its magnitude, and any eventual "recovery" being completely unrelated to the outcome of the epidemic itself.

I do wonder if that Goldman macro call referenced above took any of the existing problems into account. Did they not say just a quarter ago that the US economy was "recession proof" or was that someone else?

I'm aware that my perspective on the impact of the virus in human terms is well outside the mainstream; having examined a lot of the research myself, I'm OK with my perspective.

I haven’t seen a beatin’ like that since somebody stuck a banana in my pants and turned a monkey loose.

nikol


Total Posts: 1138
Joined: Jun 2005
 
Posted: 2020-03-16 18:51
So far, it is the cure we get:

"IMF Ready to Mobilize $1 Trillion Loan Capacity to Counter Virus"

https://www.bloomberg.com/news/articles/2020-03-16/imf-ready-to-mobilize-1-trillion-loan-capacity-to-counter-virus

Question (aside): what will happen with CBDC plans by PBoC? What impact?
IF IT HAPPENS, many CB's will follow. Recently, FED said something like "we are concerned, but we dont like it and totally unprepared". My interpretation is that they will use SEC + sanctions as a weapon.

I should admit, I am very deep into all that BTC/blockchain economy, hence my brain is skewed. Forgive me.

EspressoLover


Total Posts: 435
Joined: Jan 2015
 
Posted: 2020-03-16 19:35
> Yeah, because all that Fed repo money is going to mom & pop stores, local bar & grills, and the gyms that are gonna have to be closed.

I disagree. First, I think we're all suffering from a visibility bias. Industries like restaurants and stores are very visible, but don't make up that significant a chunk of economic activity. "Food away from home" only makes up 5% of US consumer expenditures (and nearly half is already not in-restaurant sales). The entire fitness industry only makes up 0.2% of GDP. The "Fees and admissions" sub-category of entertainment only makes up 1.3% of household expenditures. Only 3% of household expenditures are spent on travel.

At the end of the day, big impersonal business is a much more important part of the economy than small retail businesses. Construction, healthcare, and information technology accounts for much more economic activity than restaurants, cafes or gyms.

Second, there's definitely a clear transmission mechanism between monetary stimulus and small business. It's called mortgage rates. Most restaurants and brick & mortar retail businesses are essentially real estate companies. If the cost of mortgage capital falls by 25%, that's an enormous stimulus to the average restauranteur or shop-keeper. Particularly when liquidity constrained during a period of diminished revenue. Less cash flow to the mortgage or lease, means more cash available to make payroll.

Good questions outrank easy answers. -Paul Samuelson
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