Green Shoot?

I practiced all kinds of anesthesia from total intravenous, to narcotic based, high potency volatile anesthetics +- N2O to weird stuff like pentothal/lidocaine/N2O/02. Even done some cases using heliox. The thing about general anesthesia except of the narcotics based anesthetics is they are second order control loops. You have to dump in a big dose into an empty tank and eventually the tank fills up enough that you gain control over a second order equation. Dosing is not linear but exponential. The devices we use like vaporizers make it feel like its linear but if you do an actual closed loop anesthetic where the mv uptake of O2 is static and the CO2 is absorbed the dosing if the anesthetic is over an increasingly longer time sequences say 1 2 4 8 16 32 minute intervals. If the anesthetic was dosed in cc what you would find as you got about half an hour into the case , your 16 minute does would be a relative overdose at the beginning of the period followed by a relative under dose beginning half way through the period. I would split my doses into 1/4 doses and give them along the interval to smooth out the relative peaks and troughs. I generally ran these kinds of anesthetics under spontaneous ventilation since the nature of the ventilation was a exquisite measure of anesthetic depth in a closed system better than HR or BP. If you had your hand on the bag and your ear piece on the chest you could feel and hear changes in anesthetic depth. Closed circuit anesthesia was total dog lab and I learned a ton about normal physiology and pathophysiology from it.

I’ve been following the virus on the Johns Hopkins site and the growth curves. The virus initially is like dumping anesthetic into an empty tank as the tank fills you start to apply measures meant to quell not the spread but the rate of spread in an attempt to reduce spread. That’s what shutting everything down is all about. It’s a means to normalize rate of spread. Spread is inevitable but rate of spread is controllable, and it works just like a closed circuit anesthetic.

Yesterday the US new case plot looked like this

See that little bar at the end is a bit lower than the previous bar. The other bars have been virtually relentlessly up BUT the log of the growth curve looks like this

See how the graph by the arrow seems like it’s starting to curve down slightly? Exponential growth would look like a straight line.

This is Italy. Note how the growth curve is almost horizontal, This means Italy is almost linear in it’s growth. This means R0 in Italy under its present quarantine regimen is approaching 1. Here is Italy’s new cases graph

If yesterday represents our first down day in 18 days we may be where Italy is today which is approaching an R0 of 1. I don’t want to overstate the data, we are in a hell of a mess. But the first sign of resolution is the change in sign from + to -.

Notice Italy is still under severe quarantine but the back of the virus seems to be approaching broke. If they just quit the quarantine exponential growth would resume, but by judicious relaxation of quarantine and spot case tracking and re-quarantine of local outbreaks things could well be looking up in Italy and we might be 18 days behind, at least that’s how I read the data. If you let off the controls too fast you will simply go exponential again.

This to me is good news since it seems a sign we have a modicum of control now, but it doesn’t jibe at all with media expectations. It exactly jibes with what I hear underlying Fauci ‘s expectation. To me this is very good news and I consider it a green shoot. We face a long and terrible recovery but the first step to recovery is the door step. You have to cross the door step to get out of hell.

So what does that mean to markets? What I see is a very slow and choppy restart to living. You may open up the Wendy’s or the Denny’s and COVID may reappear and contacts must be traced and quarantined until declared all clear. Those with immunity will be immune and will be able to resume economic activity and the nation in fits and starts will begin to recover economically. What that kind of time frame means to levered companies may be another story. What that means to company outputs, may mean companies are working at 50% or some other number. I would expect recovery growth to take a long time to become exponential and then normalize to some new normal steady state. How long does that take? Who knows but it certainly seems to me it will be many months to years.

I have no idea what all the screwing around with money velocity and money supply will produce except I don’t think it’s going to be anything good. I decided to buy some GLD at the present price as a hedge because I feel entirely naked being in cash. At least GLD will pay 0% interest because the 3 month treasury has been going negative. I’m not sure what it means to own government bonds that you have to pay to own, instead of having them pay you. I hear arguments like “well you pay a nickle to get your money back” Screw it I’ll just keep my money. and pay myself the nickle. I’m also thinking about getting back into BRK.B. Apparently it’s at book value around $167. I’m also looking at KOL which is taking a permanent option on energy and steel, and has a 17% yield. Buying this is a bit like buying a penny stock so unless you understand penny stocks be careful.

The whole world us up today so I’ll probably buy some SPY on a day trade and set a stop loss as it moves up. I much prefer buy and hold and don’t like this trading stuff but since trades are free and I can go short and long if I can make a few hundred a day, I pay for my hamburgers at very low risk, till things become clearer.

Today I didn’t even have to use my AK
I gotta say, it was a good day”

Has the FED Given the Economy Unstable Angina?

I saw this video by George Gammon

He describes something called the No Bueno Zone which is a narrowing of the effective interest rate above which the market machine ceases to work. As we go farther into debt, it’s like the arteries are getting narrowed. What worked before now causes ST depression and angina. At some point ST depression will become ST elevation and infarct will commence. I think this is an important video. The FED just made their balance sheet the balance sheet of the world. Do they really think they can bail out the entire Earth?

The 21st Century Depression

I live on the first floor so I don’t have anywhere to jump. My potential energy can’t be converted to enough kinetic energy to do any damage. I’ve been looking at downturns to try and see which one this rhymes with and best fit IMHO is 1929. The great depression lasted from 1929 to about 1940 when WW2 intervened. The depression consisted of 2 verses the 1929 verse and the 1937 verse. A good measure of depression is unemployment. This is the picture of unemployment in the 1929 depression.

Unemployment peaked to about 22% and later to about 17% in 1937 following a drop to a mere 14% in between.

Everything will flow from the unemployment graph. Unemployment directly measures productivity and productivity is the engine of GDP so you can bet GDP is going to match unemployment. It took 13 years to get back to 5% unemployment. You may say “what about robots!” What about them. What company is going to capex a bunch of robots in a depression? What bank will bankroll such capex?.

This is the reason it’s different this time. Nobody’s ever seen this before. This chart goes back to 2004 which includes the tail end of the .com bust. This spike is the beginning of the fingerprint of this depression. People have yet to come to terms with reality and are changing chairs on the deck as if the iceberg was just an inconvenient bump, all with full expectation of resuming the trip with minor consequence.

The virus is expected to peak in mid may 6 weeks from now. What does “peak” mean?

Peak is defined when the second derivative of the growth curve goes from + to -. It’s also called the inflection point. It’s where the black line touches the orange curve. Let’s say by “peak” in May, say May 15, there are 3M sick and the peak rate of infection is 100K/day. On May 16 there will be 95,000 additional sick and on the 17th 93,000 and on the 18th 91,000. It will take till July or Aug to get the new case rate down to where it was in January.

I read a frightening stat. 70% to 83% of vented patients die. That’s like picking up a 6 shooter with 5 bullets loaded for your game of Russian roulette. So even if you have a vent it isn’t going to save you. You’re going to die and probably 30% of the health care workers taking care of you are going to get creamed. As I write this there are 207K confirmed cases and well over 1M slated by Easter. People are going to try and assign blame. They will quack about testing or this or that but in reality none of that matters. Strong self quarantine of you and your family for 4 or 5 months is all that matters. Spring break with the invincible’s happened and now they are sick. In march we woke up to tangerine trees and marmalade skies. We no longer reside in Kansas.

I read a blog post by “Our Next Life“. This is a woman, a retired Democrat political adviser with bright red hair and a bone in her nose opining on the way forward. I guess she wrote a book called “work optional” If unemployment is 25% it isn’t “work optional”, it’s Sorry No Work Available. I guess this guru had to cancel a couple of fabulous ski vaca’s

While you’re watching CNBC and them trying to get you to BUY STOCKS and my pillows!! You might consider the unemployment graph. Many if not most businesses will be gone in 6 months due to cash flow and leverage. I have read of people considering renters strikes where they tell landlords to go pound sand. “I don’t have a job and No I don’t have the rent and NO I’m not moving out!” Do you really think COVID cops have any time to deal with that shit? How long can you survive paying that mortgage with no income from the investment? What about if they get sick in your apartment and die? Nothing like passive income to stiffen up the ol bone. A Real Estate crisis usually lags unemployment by 2 to 4 years so that bomb is yet to explode.

Maturity in Facing the Music

I was looking at some population statistics with my fractal idea in mind.

This is China confirmed cases on a log scale

I think China’s data is a load but prior to the arrow I think the data represents some kind of growth curve that represents the virus embedding itself into a population. Everything to the right of the arrow is completely made up. It represents the day the Chinese declared the virus to be over.

Here is Italy

I think this curve represents the natural log fractal of the virus embedding itself into the Italian population. Notice China took off basically on New Years day and Italy took off on Valentines day. Note how the curve is starting to fall over to an asymptote.

This is Iran

Iran started very close to when China started. I think the Iran data is crap as well but none the less it’s harder to hide your crap on a log curve. Notice the curve is falling over toward an asymptote

This is Spain

Spain took off about Valentines day but has a flatter growth meaning it’s growing faster. The more linear the curve, the more parabolic the growth. The more asymptotic the closer the growth goes from parabolic to linear. So what these curves are showing are the changing face of virus penetrance measured within boundaries of countries

Here is South Korea

South Korea had experience with SARS 17 years ago and understood the dynamics. Also there is no social taboo to wearing a mask in S Korea, so the country donned masks. Look at S Korea vs Spain Korea blew up about a week before Spain but has asymptoted its parabolic growth, while Spain continues along a parabolic course.


Here is the US. Look at how the line is a nearly strait line. This means US growth is still nearly perfectly parabolic. This will not begin to be over until our curve looks like South Korea’s curve.

Every day we are parabolic is a day the economy is crashing. It doesn’t matter if business is open or closed the economy is crashing at an exponential rate PERIOD.

There are arguments to just let ‘er rip and get to herd immunity. THIS IS A STUPID IDEA. It presumes all workers are equal. All workers aren’t equal. There is something called the Pareto principal and here is a case where application of Pareto actually makes sense.

A corporations productivity is functionally related to 20% of the employees. 20% account for 80% of the productivity. It doesn’t mean the 20% work harder, it means 20% occupy the spots of critical decision making in the matrix that creates a company’s productivity. Thus a jr engineer might design a perfectly good bridge but a senior project manager understands how to design and specify a bridge that comes in under budget and makes the company money, 2 very different levels of productivity. These positions are not interchangeable and if the senior dies, productivity dies and is not easily replaced. What if half the physicians die? What if half the surgeons die? The long term consequence of let ‘er rip is not trivial and it WILL decimate your portfolio. You won’t be buying the dip you will be the dip. Let’s say we quarantine and try and save those senior engineers or cardiac surgeons. We will live to fight another day.

As it is now our response as far as I can see is let ‘er rip under the window dressing of “concern”. My county has failed to close our beaches, this is let ‘er rip. The first case has been recorded in my town. I live in the country 5 miles outside a small village of about 10K people. If you look at Italy, this will be the growth curve for my town, and over the next couple to three months 300 to 500 of the people in my town will be dead, because we are letting ‘er rip. That’s what the fractal math predicts. No telling how many will get to live a life of permanent respiratory disability. The notion of fractal penetrance is the virus penetrates based on it’s relationship with a human hosts. If it’s 10 human hosts the fractal will occur. If it’s 10K human hosts the fractal will occur. 10M human hosts the fractal will dominate human penetrance. If that’s the truth then it’s a useful bit of knowledge to understand your/our future.

If you think this is going to be a V shaped recovery frankly you’re an idiot. Pandemics last 2 years and the consequence is going to last many more and all the funny money in the world won’t save us. It will only force the price of loaves of bread to $100 in the face of 30% unemployment. I lived through 1973 and it’s stagflation and 1981 and hyper inflation but I think this is 1929 – 1937. Amazon will likely survive but it may be worth $100 a share not $2000 a share. This is what a VIX of over 80 means. The VIX is lower today but the risk is still gargantuan. It’s like a meteor is heading strait toward you and you think moving 10 feet to the left will save you. Exponential math will flat out kick your ass, and multidimensional exponential math, fergitaboutit. Near as I can see there is no past sequence that in any way rhymes with what is unfolding. We won’t know more till the dust settles so if your trying to place bets on a long term basis right now it’s probably more than 50/50 you are throwing your money away. Have you considered the possibility AMZN goes out of business? What if the odds of that are 50/50.

Speaking of music:

Buy and Hold

It’s often claimed market timing never works I read an article today about 1482 CEO’s left their jobs last year during the GREATEST MOST HUMMING ECONOMY OF ALL TIME. They just got up walked to the door jumped and puled the ripcord. 219 more left in Jan 2020 and 9.2B of corporate shares were sold by executives by march 2020. In fact Bob Iger the DIS CEO pretty much just said one Friday “Adios Muchacho!!” You might think about this next time BillyBob over on Boggleheads posts: “we all know market timing never works” Seems to have worked out pretty well for these jokers.

CEO’s SPLIT

Will Liquidity Work?

Since the 70’s we have been treated to central planners planning our centrals. In the 60’s we had a recession that grew into the inflation of the 70’s which grew into the inflation of the 80’s. The inflation of the 70’s was attempted to be controlled by a command economy, for example you could buy gas on alternate days. Didn’t work. What we got was stagflation. In the 80’s interest rates went to 18% It broke the back of inflation. It nearly broke the country. 18% is what slopped up the excess liquidity. It was effectively the top of the mountain and we have been sliding back down that mountain since 82. We are now at 0, and once again we are flooded with liquidity.

Everybody and his brother is going to be begging for a bailout. Everybody has been practicing bad business practice except maybe Buffet and now when the piper wants paid they want YOU to pay to make them whole. You are inclined to let them because you own part of the bad business practices and their bailout is your bailout, but its stupid to bailout if the bailout doesn’t work. The central banks have no mojo. Bernake and Jellen have destroyed the world and Powell is following suite. It’s all politically driven at this point. Sending people checks won’t help.

We have been under a state of monster inflation for a long time. That inflation has expressed itself in the stock market. When a market moves over 100% off trend in a positive direction either the universe changed or the positive movement is inflation. 3394 was the peak and the inflation is now in deflation. What will happen next IMHO is we will over deflate and re-inflate again except it won’t be in stocks it will be in commodities. We will see the inflation there. We will see it in the price of bread and gas not in a return to 3394.

I read this account from a respiratory therapist treating COVID in NOLO. This is an experienced guy on the front line. RT understands lung disease cold. If I was the brain RT were the skilled hands who made my will happen in the patients life and they have my respect.

Covid-19 RT experience This article should give you some idea of what we are facing in the 20% who have a bad course. According to Cuomo, who has well over 10,000 diagnosed cases, 50% of his infected that are critical are under 50. So if you’ve been playing the odds that this is an old peoples disease and granny lived a good life, you might want to re-access your odds.

Regarding inflation v liquidity. Liquidity is what pumps inflation. So when Mnuchin writes you a check, the price of a loaf sooner or later is going to 10 bux a loaf. Stick that in the risk hopper as well. In 1980 I bought a house and my mortgage was around 12%. That really happened. Do you think you could own property at 12%? Do you think your kid could? Do you think your kid could buy your house at 12%? What does it take to break the back of inflation? What does it take to climb back up the mountain?

FIRE Land

First let me say this blog is not monetized or advertized and it is barely read. I write it to keep track of my thoughts during my retirement and to allow you to track my thoughts as well. The feedback from the few who comment informs me as much as I hope what I write informs them. Being not monetized, and the fact I never check analytics gives me a writing environment not encumbered by agenda. I don’t write click bait but some of what I write is provocative. I write about stuff I’m studying and thinking about and my choice of topic is based on what I think is interesting about financing a retirement. I try to avoid politics except the political sometimes enters into retirement reality BIG TIME. This is one of those times.

It’s all very interesting. Big ERN is still taking my feedback on his bog for which I am grateful. I consider ERN a blogging buddy and smart as hell and I give his advice considerable merit. I think I have something to say and I hope what I say and because my opinion is considerably different than the prevailing “buy the dip” understanding of reality, it gives his readers some counter point when trying to decide what is going on. Others like CD takes my posts as well. CD is a hell of a writer and always refreshing and is the ultimate UN-Boilerplate in a blogoland full of boilerplate and tripe.

I have posted to Financial Samurai in the past. He no longer takes my posts, which is fair enough but telling about his agenda. His blog seems to be about promoting a dogma as opposed to engaging in discussion and acquiring knowledge. He feels himself a financial mastermind peddling his masterful knowledge to the mere masses. In the mean time he’s about to unFIRE and go back to work because he figured out his 50 year retirement narrative doesn’t work, and he’s smart enough to get it and then change it, and honest enough to share that with his readers. That takes cojones, and will be his secret to success. He’s front running the train.

I was over there this week and he wrote this:

4) Financial Samurai traffic is down ~20% YoY. Instead of Financial Samurai benefitting from fear and uncertainty in the stock market and economy, it looks like more people would rather stay as far away from anything finance-related as possible. It feels better not to look at your finances when they’re getting clobbered, so people don’t.

People also tend to stop trying to educate themselves as it’s simply too painful a time period. With a decline in traffic comes a commensurate decline in revenue. If finance-related companies start shutting down, revenue will decline even further.

Again I have to hand it to Sam as he rationalizes the death of his golden goose. It’s not that his financial advice that is bullshit, its his readers who are no longer interested that are bullshit. It’s not his overexposure to leverage that is his problem, and so he has yet to come to terms with reality. He started his blog in 2011 and the market has gone strait up in those 9 years. He’s made money in real estate and finance and glories in his non frugality, which is fine by me, but a $300K financed lifestyle in a market that’s going up isn’t that big of a trick. The trick is living a $300K/yr financed lifestyle when the market is blowing up. It’s the Buffet perspective. You know who is swimming naked when the tide goes out. I think old Sammy’s narrative has gone and bit him in the naked ass, but my hat is off because he is man enough to admit it. It’s in the volatility we all learn the truth. The path to success is only understood by the experience of and response to failure. We are in the middle of one MOTHER of a failure and he’s kvetching about his analytics being down 20%. He hasn’t seen anything yet. The unemployment rate is going to 20% and the GDP is projected to be down 24% this quarter. They are optimistic the year ends flat. I’m not that optimistic. Neither am I surprised that people are not tuning in for the latest “how to make a million dollars in your spare time with crowd funding scheme” when job loss makes being able to feed the family a problem.

I’ve surveyed a few other FIRE blogs. DiversFI is still pumping out podcasts about living the life. It’s audio of “the oh so smart” engaged in their own delusion. I got better things to do with an hour much less an hour a week. Our Next Life is writing Our Next Book which will sell zero copies. Who the F*** cares about some middle aged chick with red hair’s take on “living with liberal purpose in the land of plenty” when it’s unclear if your are going to spend the rest of your liberal life living as a respiratory cripple or even live at all, much less whether you will have the funds to do that? It’s shear arrogance. I wonder what’s happened to her analytics.

Dropped by WCI and found the latest boilerplate “classic article” on “6 things to do in a bear market”. What a hoot! A 24% projected drop in GDP and 20% projected unemployment and a world wide pandemic and he thinks we are in a boilerplate bear market! Are you really going to model your life after this idiot? Physician Philosopher is “buying and holding” with the best of them. Jimmy has about 2 years of investing experience. Hopefully if he doesn’t die his portfolio will come back. At least he is pretty smart about having insurance except what if there are no insurance companies? Going to be a LOT of claims I do believe. Jimmy’s a big fan of Pareto, 20% account for 80% and presumes himself part of the 20%. What if he really is part of the 80%? Statistically it’s more likely to be an 80%er than a 20%er. PoF’s latest is on “how much time it takes to manage your own rental property” Guess it won’t matter much of there are no tenants. If you’re levered much you might consider dropping the keys in the mailbox and just walking away. That takes seconds. Get Rich Slowly is heading underground

Believe it or not, the current coronavirus crisis is affecting Get Rich Slowly too. Things are slow around here. Traffic is down. Revenue is down. Production is down. Plus, I have a big deadline at the end of the month. My project for Audible and The Great Courses is due on March 31st.

So, just like the rest of the world, we’re going to press “pause” for a couple of weeks. I will return next Wednesday with my annual birthday article, but you’ll have to scroll down to see it. I’m going to pin this post to the top of the front page

Revenue is down so time to do more profitable things than write blogs about Armageddon that might hurt the brand. Actually a pretty smart move. I think JD is a smart guy. I stopped by MMM what a treat! In true MMM format he’s trying to sell you shit! Pure shit. Stick that in your mustachian and smoke it! (Mustachian does sound like some kind of hookah) Damn the torpedoes full steam ahead screaming 4 x 25 all the way!

The NIH is projecting 70K cases by next week and it’s already Saturday and these bozo’s are telling you how to best fund the 529. Now you see FIRE as it really is. A quaint technique that works during a period of gross if not obscene abundance. When the abundance dies the FIRE goes out. Completely disconnected from reality. Completely worthless in the pinch. Completely without credible risk management. Their advice “when the train is barreling down on you, stand your ground!” Personally I’d get off the tracks. I’m not sure getting run over by a train is good risk management.

The county will survive but I think a very different landscape will present on the other side after the storm passes. I’ve been through a lot of hurricanes. There is permanent and unrepairable damage that occurs. I think permanent damage to the machine will happen to the extent the plumbing will need rebuilding world wide. It’s time to stay humble and try to separate reality from fantasy. The media is not your friend. The media including FIRE bloggers wants to sell you My Pillows and their agenda.

The Chloroquine “Cure”

Chloroquine is an age old pharmaceutical treatment for malaria and amoeba It has a brother called hydroxychloroquine. I’ve been scouring the liturature and found some reports out of China and Korea they used these drugs to fight COVID-19 with some success. The drugs are used in combination with oral zinc. Yesterday was published an article by a EU researcher that used one of the chloroquines with zithromax successfully to treat the virus. The drugs are given on different schedules and in different doses in the various things I have read, but the treatments are short term 5 to 10 days. They are NOT prophylactic treatments and the timing and all of that is not worked out.

Chloroquine and zithroman have QT prolongation and combined my have profound QT prolongation nobody knows so giving these drugs in the face of a bad EKG could be quite dangerous. The virus is thought to attack the lungs but apparently the heart is also vulnerable as cardiac myopathy is seen. So an infected host’s underlying physiology may be sufficiently different from an uninfected person as to be dangerous to these drugs. We are in a stage of human experimentation be very clear and the risks are not well researched.

The chloroquines are generic and cheap and the supply will soon be overwhelmed. It’s almost unavailable right now, but if you can get a few pills it might be worth having. DON’T BUY A MILLION. My dosing schedule is 12 pills of hydroxychloroquine 400mg po bid x 1 day loading dose and 200mg po bid x 4 days and then stop. The drug effect then seems to last for several more days enough to cover 10 days of infectivity. I’m not sure how to tell you how to pull the trigger i,e. whether to wait till a confirmed diagnosis or what. Practicing medicine like this is dangerous since the risks and potential co-morbidity are not well defined and may NOT be trivial. Bleomycin kills cancer, it also permanently kills lungs. I want to emphasize that point. The biology and prognosis of the virus is not well known. It is very unclear. This treatment is very unclear.

I believe Trump today is going to announce this treatment and relax FDA testing. Relaxed testing means increased risk. The market is going to hear CURE!!! This s not a cure. Herd immunity is the cure and that’s going to take 2 years PERIOD. Be very clear on this. This treatment will modify the rate of penetrance into the human host it won’t stop the virus so be clear on that. The market is still out of control in terms of volatility.

That’s where I’m at today, you can now use that as one of your data points as you consider the chaos. I own the medicine. I own hydroxychloroquine zinc and zithromax. I’m also taking D3 and C but not massive doses of any. In my opinion immunity is made from protein so I’m long protein and fat in my diet, especially if I get infected.

That’s what I got today I’m not giving advice. The reality of this is unknown and unproven but I’m trying to outrun the reaper. Because I own a few pills doesn’t mean I’ll eat those pills and it certainly doesn’t mean I’ll trade my portfolio on that lack of information.

I hesitate to even publish this post but I’ve spent a couple weeks researching the science and thinking about the consequences, and given what I know and how the media and the politicians are going to spin I need to pace a data point on the time line.

I want to reemphasize this is not completely tested. We for example don’t know what would happen if someone got reinfected because the treatment killed the bug before immunity was established. Viruses are very tricky

Good luck out there

Turning

There is a 1997 book by William Strauss and Neil Howe called the Fourth Turning in which they describe a multi-generational theory. A WIKI describes a synopsis It is from Strauss and Howe where we get the terms Boomer and Millennial. The notion is there is a 20 year cycle that is generational and each generation follows an archetype sociological code in relationship to their cohort generations. Eventually the cycle completes after 4 generations (80 or so years) and there is a kind of societal destruction and rebirth and that which is reborn is not simply a return around the block cycle but an actual destruction of the last cycle, so instead of a circle across time we see a spiral of generations through time.

Ray Dalio has a similar economic theory. He looks at the business cycle and then looks at a business super cycle. The business cycles is about 8 years but the super cycle is 80 – 90 years. The end of the super cycle marks a destruction. Two entirely different pictures (social science vs economic) reach the same exact conclusion in the same exact time frame. The last super cycle ended in 1929. 1929 happened in 2 stages first a 66% crash, followed sometime later by another 66% crash. 1 x (1-.66) x (1-,66) = 0.1089. So a dollar invested after 2 66% crashes was worth slightly less than 11 cents.

From the Washington Examiner quoting the Prez:

The rising death toll and total number of confirmed cases, which now exceeds 4,600 nationally, has led to a number of states issuing restrictions on public gatherings and venues, including gyms, bars, and restaurants. Additionally, President Trump provided new guidelines on Monday, which included avoiding gatherings of more than 10 people for at least the next two weeks.

“It seems to me that if we do a really good job, we will not only hold the death down to a level that is much lower than the other way … and we have done a good job … but people are talking about July, August something like that,” the president said, indicating that the crisis could last through the summer.” They got guns man. They can force that shit to happen.

That’s 5 months. How many businesses can survive a 5 month closure? Let’s take Donna’s as an example. Donna’s is a sit down with take out with stores in every city. It’s the store I used to go to after a night of bar hopping in every college town I lived in. HEY let’s get steak and eggs and coffee at DONNA’S! If the sit down closes only the take out remains, about 20% of the business. Donna’s is levered such that 80% cash flow is needed to service the debt. Restaurant stocks are off 50%, but you have to ask yourself can Donna survive?. If Donna doesn’t survive that’s thousand of permanent jobs lost.

Let’s take schools. If schools are closed for 5 months why pay teachers? Just end the school year tomorrow and let the teachers enjoy a nice long summer break and save the district some money because there is a ton of disruption that will need some money. Teachers are levered as well. Mortgages come due every month.

What about pensions? Pensions are underfunded by 50% in many places. Many OLD laid off workers if they are old enough will simply retire and claim their pensionssssss. which are ahhhhh 50% underfundeddddddd.

Here is a video I ran across this morning that puts it about as succinctly as it can be put.

If you value your savings consider what this guy is saying. It’s the reason I sold out. I sold my long bonds today. I had an excellent gain in EDV and it’s buy low sell high, and I could sell them in IRA’s and generate no taxes so adios, I’ll book the profit. I have no idea if I’m doing the right thing, but one thing is for sure, I’m NOT going to 0.1089 on the dollar. I got out at 95 cents on the dollar.

The market is up today. That I don’t really get. What part of the closure of the hospitality and school industry and the job loss that happens following don’t they get? Even the whore houses are closed! Is it just thick denial? Is it a failure to understand? Is it the narrative the market always goes up? Buying the dip increases your risk. Is this time to risk on or risk off? Is it time to sell the rally? If I had anything left to sell damn strait I’d sell the rally. If I had any damn sense I’d sell my house while it still has value. There is a part two to this but it’s political and I’m not sure I want any politics on my blog. Best of luck out there!

So What The Hell is Going on Here

Let’s say this sphere represents your portfolio. The red part is the core of cash you have deposited through your work, aka your human capital. The corona represents cash you have converted into diversified assets. Each one has a direction and a height above the red sphere. If you draw a larger sphere around the corona just touching the tops that volume represents total portfolio value, The difference in volume between red and the larger sphere is the gain you get by investing. Most of us run long only portfolios so we throw away half the potential gain


I’ve traded spreads in the past and they are tricky mothers fraught with danger so it’s reasonable to throw away half the sphere to throw away half the risk. There is nothing buy and hold about trading spreads and it’s a probability game. You have to be right more often than wrong, and you WILL be wrong.

Diversity comes from spreading your eggs (invested money) across the face of the sphere. By investing in many pretty unrelated non correlated directions you can maximize the volume and if any single corona falters not much happens to the volume. Each corona has it’s own 3 space direction and each has its own size. In the picture they are all uniform but in reality we construct our portfolios to be distorted as opposed to be spherical because the distortion seems to provide some out-sized advantage when it comes to profit. In reality we do have dozens of choices and we make them We have US stocks with US large cap US mid cap US small cap each with growth or value tilt. We have foreign with the same litany of categories. We have EM. We have commodities, softs, metals, oil etc. We have bonds upon bonds to choose from both foreign domestic corporate and government of all different duration. We have Real Estate. We have private equity. We have credit debt and interest assets and we have derivatives available for all of these.

We like simple so we lump all this stuff into like bundles Total Stock Market foreign and domestic, Total Bond Market, Commodities baskets, Real Estate baskets etc. If you have a whim there is an ETF that can satisfy your need. There is one last asset CASH. Cash is the risk free asset cash is the red ball. When you buy baskets you loose access to price. Your baskets are not the same as what the contents are individually. As the market oscillates the corona can move on the surface. They “tend” to have pretty constant diversity. Diversity is the angles and distance between 2 corona. The baskets of corona also move around the surface and baskets also have diversity but a different diversity from the underlying. Baskets also have risk. A different risk than the underlying.

In low volatility times (the last 11 years) everything is well behaved. All of the underlying and baskets all float around on the surface is some fairly predictable relationship. Bonds are low volatility, and tend to behave in fashion unrelated to how stocks behave. Commodities don’t pay a dividend and are extremely inflation sensitive so they float around in a very different place.

Capitalism dictates people will try and maximize their personal as well as corporate profits. It’s a fair enough system where you take some risk and hope on some reward. You may try to guild your lily and maximize profit by taking out sized risk while others want to make a little but not risk too much. A lot buy stuff and don’t have the first friggin’ clue what they are doing. They just follow some simple 4th grade math. When volatility is low this works out because simple math is good enough. The monkey business of trying to guild every dollar often leads to buying way too much risk because as a profit seeker you ignore the risk and just hold out your hand to get paid! That kind of strategy works if you’re a day trader because you put on risk and take off risk every day and if you bet right you get paid. I spent the 90’s day trading once trading costs got down to $5.

Buy and hold types access the same kind of risk taking, except they only put on risk, they never take it off. They also never pay attention to risk. They just plow into an unknown sea head first and pray God there is no rock just below the surface.

Sometimes the universe changes and volatility kicks up along some asset class and the risk becomes more dramatic. So if the VIX which measures the risk on the S&P is 15 for a decade you become complacent and just keep chucking dollars into the S&P because if seems to always pay you with 11% return on the average sometimes more but on a year over year basis it delivers the good. Then on week he Vix goes to 75 a 5 standard deviation move, and the S&P is at all time highs 100% above the long term mean. Suddenly there is 1% upside and 99% downside and you move down 130 points the biggest point swing ever. Moving down begets moving down and the VOX stays 5 standard deviations over the past decade and yet again you move down 260 points. then 2 days later the vix stays high and you move down 336 points. that movement down is not linear it’s a power function. You’re movement up was pretty linear about 11%/yr but down we will be at zero long before a year plays out. So that’s point one. Trading has moved from a linear function to a power function.

The next thing is what’s happening across asset classes. Firstly diversity is collapsing. In a power function environment all correlation in an asset class tends to 1 aka unity and it all heads toward zero. Also all risk therefore tends to unity so if you were expecting those foreign stock to save you they will kill you worse because they have lower return and higher risk even though they did provide some diversity when the relationships were linear.

The non correlated assets also have volatility. Bonds have the MOVE index, Gold has the GVZ index, Commodities tend to use oil (OSX) as the volatility proxy. All of these other volatility indexes are also blowing up by standard deviation amounts meaning they are also going to a power function. In normal diversity if one dimension blows out its vol the others maintain low volatility and anchor the portfolio to a relatively mild shock. If the vol of all the diversity dimensions are going to the moon (stocks bonds commodities gold currency are blowing up the internal volatility of that system is frightening. The clip is this. Ignore the politics and focus on the nature:

Imagine you are skiing 5 feet in front of the avalanche. What could possibly go wrong? To me risk off seems prudent, In fact I sold my entire stock portfolio Friday and today. My apparent loss year over year is 5%, which means I lost all of last years gains from March on, all of this years gains and a little more. I kept the bonds and the gold, but I’m keeping my eye on those too. I have no problem going risk free (aka cash) if the situation warrants it. I didn’t come to this to loose half my money based on a narrative.

I may be wrong and the S&P will explode 2000 points by Friday. Doesn’t matter I booked my gains because I did book quite a lot of capital gain, effectively I bought low and sold high which is the point. The reason I don’t see this happening is the Virus. Several states just closed down restaurants, a low margin business. That means unemployment went up, and it may be permanent. To smash the peak you have to extend the base. If the peak is expected in 12 weeks, a 50% smash results in 24 weeks because the volume has to be equal. Immunity happens only through illness at this stage of the game. That means the same number of people have to become immune regardless of the smash. How many restaurants will survive a 6 month forced closure? What about lettuce growers? They supply the salad makers in the above restaurants If the restaurants are closed I’m not growing any lettuce and if I’m not selling lettuce I’m not paying the mortgage or my farm hands, and so on and so on.

Look at the clip again and think long and hard about buying that dip. I could well be wrong, but I bet my fortune on that analysis. There is always something to do, including nothing. The trick is to do what is wise. At some point some are going to win and some are not. Check your narrative it may just eat your lunch.