Here is a shot of the S&P on Feb 19 when the market peaked at 3393 intraday.
Here is a shot of the local market low on 3/23 of 2191 intraday
Here is a shot of Friday’s chart with an intra day high of 3049
Indexes are designed to go up. Indexes because of their design do not represent some intrinsic value associated with some intrinsic risk. Instead they represent a market elevator of unknown value and unknown risk. Passive investing is simply a on off switch. You pay some money and turn risk on or you cash out and turn risk off. The buy and hold passive crowd neither knows the risk they hold, nor do they ever turn the risk off. It’s risk on all the time. The risk however does vary over time. At market peak on Feb 19 here was the VIX 10.20
On March 18 it topped out at 86.76 with the resulting market low 5 days later. That’s 8.5 times the Feb 19 level
On Friday it topped out at 27.51, 2.69 times the Feb 19 level.
Since risk is what you own. Is something 269% above the Feb 19 level a high level of risk?
I was listening to a podcast breaking down the makeup of the S&P in comparison to the MSCI. They broke down the S&P with and without FAANG plus MS in the comparison using the Friday 3044 level. The expected level of the S&P 500 minus the FAANG + MS was about 2400 meaning without the FAANG+MS the S&P is up only 209 points above the March low. Over 600 S&P points are due to 6 stocks, the FAANG+MS. Only 200 points are due to the remaining 494 stocks, and the volatility is still +269%.
40.77M jobs lost. Let’s say when all is said and done 15M go back to work leaving 25M unemployed. Do you think if you left a 100K/yr job you are going back to a 100K/yr job? What if some joker will do that job for 50K? What happens to market risk if the job you go back to pays 50K less, meaning you will be severely limited in your purchasing power. No brand new F-150’s for you. Maybe no college for Junior.
The FOMO machine s basing everything on 6 companies and every Robinhoodie out there is plowing his stimulus check in the 6 FAANGS. You can make money on the way up and you can make money on the way down. It’s buy low sell high or sell high buy low (short sale). Either one will make you a ton of money. If you buy higher and then hold, in a market with 269% excessive risk what could possibly go wrong?. You can’t short an IRA or a Roth. The algorithms live to make profit and they make it selling high buying low just as easily as they do buying low selling high. The whole time the talking heads are selling you on a V shaped recovery because they know you have sucker stamped on your forehead. Your very mantra has sucker stamped all over it “buy higher never sell”. What buy higher never sell means is you constantly accumulate more and more risk. Sometime you might ask the question how much risk is enough risk to own?
The usual Mantra is BUY and HOLD even if your ass falls off! Then they go into some story about not being able to time the market. Just because YOU can’t time the market doesn’t mean the market isn’t time-able. The story goes “Oh the market fell and then Billy Bob sold, and now the market “recovered” and now he’s at a loss!” This isn’t how you time a market. How you time a market is, the market is high and I’ve made a lot of money, so maybe I should book some profit before the profit is lost.
There is some asymmetry to a market cycle. Early in the cycle there is mostly upside, late in a cycle there is ever increasing potential big time downside. At the end of a 12 year hyper-expansion there is MAJOR downside and not much upside. One thing to understand is as an investor you are really wall street’s sucker. Wall street wants to do one thing, sell you shit no matter what. The world is totally under water and the boobs on CNBC are quacking about green shoots. THAT crowd is paid to sell you shit. The Wall Street Journal is paid to sell you shit. Vanguard is paid to sell you shit and YOU are expected to buy shit no matter the asymmetry of the investment cycle, and no matter whether it’s healthy for your portfolio.
No matter that the rate of change of GDP has been slowing since Q4 of 2018 because that was the quarter acceleration peaked and turned to slow deceleration. It means yes there will be a higher high but a slowing higher high that’s bound and determined to become a major draw down.
We do simple calculations on our money, compounding calculations like this:
Here is a typical retirement portfolio. It starts at 50K, adds 50K/yr compounds at 6% and yields 3M bucks after 25 years. And we think that’s the ticket! 56% of our money comes from compounding. But wait that 6% needs to be in excess of inflation. If inflation averages 3% over the 25 years
Our 3M is really only worth 2M and we made only 33% on our money.
When you have a draw down how you get back to zero follows a formula Y=X + X*A.
Y = back to zero amount
X = starting amount after loss
A = % growth needed to get back to the start
L= % loss
So lets say you loose 10% on $100 how much do you have to compound to get back to $100?
100 = 90 + 90*.111, .111 = L/X = 10/90
So you have to compound an excess of 11.1% total ABOVE INFLATION over some period of time to get back to zero.
Let’s say you loose 30%.
100 = 70 + 70 *.428 to get back even ABOVE INFLATION. To calculate the % increase needed simply divide the starting point (in this case 70) into the % loss in this case 30. In other words L/X = 30/70 = .428. So you have to grow your money almost 43% above inflation to break even. Here is the sad truth
If you have $70 and need to grow it to $100 to break even and you have 3% inflation which yields only 3% of growth, it takes 12 years to get back to zero. Bet you never saw that on buy and hold CNBC. Bet you never saw that on some bogglehead web site. This is what you get with the old “you can’t time the market” mantra. It takes 12 years to get back to zero, with zero drawdown on the principal (say for retirement income). Lets say you correctly exit at a market top, say at $99 and the market falls 30% how long does it take to get back to $100 presuming you can time the market bottom. So the market falls from 100 to 70 and then you stick your 99 back in the market. How long does it take to get back to 100?
In one year you’re already $2 ahead. In the buy and hold case you’re $28 behind in one year
There is a saying
“The enemy of long term compounding is short term draw down.”
This analysis is a variation on a system control called a bang bang control analysis, where you model and optimize abruptly bounded conditions, like what if you loose 30% vs what if you loose 1%, how do you optimize those possibilities, solving for length of time to get back to zero. It assumes a steady 3% over inflation return. But even with those constraints it’s illustrative when Wall Street is trying top sell you FOMO, quick quick buy high it might go higher! Never mind 34M unemployed, never mind several years of projected negative GDP. Remember when you can’t identify the sucker, you are the sucker.
Over the weekend I was looking at an app on TomTom called the world according to traffic. Here is the view I found most interesting. It’s a sampling of traffic across the world. You can also view the Full Ranking which allows you to deep dive into many many cities across a given region.
By looking at this data you get some idea of what’s happening apart from the media narrative. Here is an example:
The real time data is the bold line to the minute. The dashy line is the previous week, and the dotty line is the average for 2019. All you hear about i how CHINA is open. How they squashed the bug so well. If Wuhan is open why does the traffic indicate it’s closed? It was pretty open till last Thursday and now it seems to be closed again.
Guangzhou:
One of my kids comes from Guangzhou. I’ve been there a couple of times. It’s a big bustling city of 13M people. It is the most important financial hub in southern China, but also loaded with industry and manufacturing. Seems like Guangzhou was open till last Thursday and closed on Friday similar to Wuhan. There is a holiday going on in China so maybe that’s the deal.
Hong Kong:
Hong Kong doesn’t have a holiday. It did have a holiday on May 1 so we see a 4 day weekend. On the Covid-19 map China doesn’t report individual data else wise I could look at Hong Kong infection rates vs traffic. So I will look at a city that has both infection data and traffic data NYC
You can see NYC is locked down tight. What about infections using the Johns Hopkins map?
You can see locked down NYC has dramatic improvement in new cases implying NYC has good success in driving down the R0.
This is where I live. It’s pretty closed down but not as closed down as NYC. The Johns Hopkins case map shows only the infection rate for FL so I can track that and it does show individual data for my specific county so I can track that
This is what FL as a state looks like and this is waht Orlando looks like as a data point.
Today FL is supposed to at least partially open up. GA opened up over the weekend. These maps give a way to gauge increased traffic vs increasing or decreasing infection rates and the likelihood of re-quarantine as a function of economic behavior apart from the media spin machine.
Regarding FOMO if the world is shut down as demonstrated by traffic, and the virus is still growing at an exponential clip world wide, I’ll let you complete that thought on your own.
So I’m looking at the COVID map after seeing the FEDS just ordered 100K more body bags. Today we stand at 62K dead. Yesterdays infection rate added 27K. At 27K/d at the end of May we will have added nearly 837K more to the case total therefore giving a expected total of 1.891M and if the death rate is stable @ 5.8% we can expect 109K dead by June 1st and 1/3 of those body bags to be consumed with 2/3 in reserve. This is under a social distancing society closed regimen. If the regimen goes away why would anyone think things get better?
Deflation is not the same as recession. In recession the fed cuts rates and a stimulus impulse surges through the economy. In recession things get cheap but it looks like tomorrow things will be more expensive i.e. things will reinflate. So the motive is to buy low before things go high. Deflation is an entirely different psychology. The deflationary psychology says “yes things are cheap, but tomorrow they will be cheaper so I will wait”.
CNBC wants you to believe this is recession. They get paid to hawk stocks. Virtually ALL of FIREland is buying that narrative as well. I’ve seen several blogs doing post mortem’s on how passive investing has worked so well and now it’s on to new heights! 30 MILLION people are out of work and an economy that was supposed to be up +3.5% is down -4.8% for a net of 8.3% decline for the quarter and that data only includes 2 weeks of virus. The world is in depression. Commodities are in depression. OIL actually traded negative. Ford’s bonds turned to junk and the Ford CEO on the quarter call admitted there was no hope, yet the Nasdaq is down only 0.93% on the YTD.
In Quantum physics reality s governed by wave functions which give probabilities that describe where a particle, say an electron MAY exist. Those probabilities are described by the wave function raised to the second power. It works like the risk distribution in a model of prices. A stock may have a price of $15, but the likelihood of that price being the real price (the real price is the price at which a transaction occurs aka the price where the transaction becomes liquid) actually lays across a distribution, say between $7 and $22 (just an example). So if you bought yesterday at $15 what you bought is quite unlikely worth $15. It’s worth what the market says it’s worth most likely between 7 and 22. So what determines? If we are in a V shaped recession the price is $22, If we are in a deflation the price is $7.
109K projected dead on May 31 with no change in social distancing policy, worse if the policy is more lax. The whole world in deflation and Ford has no hope. Today Gold crashed so I bought more gold. I just read Shell Oil cut dividends for the first time since WW2. I did not buy Apple, because my bet is we are headed to 7 not 22 and people aren’t in the market for a new iPhone. They’ll wait and get it at a cheaper price.
In the end the zombie companies will fail there will be deflation and then recovery in the US but the future won’t look like the past. We no longer are an extension of 2019. The bond market will predict the future. I’m not sure the stock market is even a market any more. It’s more like a wind sock clown hooked up to a big money pump flopping around. Ford says there is no hope. Shell cut dividends. Some people are dealing with reality, some are watching CNBC.
I sit here today and watch a world that is being pressured to reopen. The reason we are in this mess is we refused to understand reality. China refused to admit and treat the release of the Wuhan Virus. It is my belief the Wuhan virus was likely released from the level 4 Wuhan virus factory, through shoddy sterilization practices. Having worked in an OR for 35 years the conditions necessary to sterilize the tools in the autoclaves are severe and those machines break down regularly sometimes daily. The quality control is demanding and if not adhered to would cancel any insurance protection the facility would have, i.e 100% compliance. In other words working with contamination requires pristine commitment. My guess is an autoclave broke down and the test tubes went into the garbage unprocessed. The first recorded tic of some new virus in Wuhan was in late Oct. The senior corona virus researcher at the Wuhan level 4 lab seems to have left for “the country”, likely as ashes spread around some bean fields. The Wuhan facility is about 200 yards from the wet market where all of this transpired. China apparently Magically Thought hiding the reality under the carpet was a solution when in fact aggressive contact tracing was what would have worked at that stage. ANY SECOND YEAR MED STUDENT KNOWS THIS. It is not esoteric knowledge.
The WHO failed to call this a pandemic till March 11 even though it met all of the WHO’s criteria for a month. I guess they Magically Thought by NOT calling a spade a spade it somehow wouldn’t be what it is. Now I read the Magical Thinking that there are way way more infected than we realize. Instead of doing the experiment we make assumptions. I read that though the social distancing has slowed the spread, the Magical Thinking that a slower rate of spread is somehow consistent with no rate of spread as in herd immunity.
I read an article about SF in the Flu pandemic of 1918. The spread was slowed by social distancing and wearing masks. The Magical Thinking was the coast was clear. The mask order was lifted and victory was declared. 6 weeks later the death was back. After the first ban had ended the ability to restore the ban was extremely diminished, and so as any 2nd year med student can tell you. Magical Thinking is simply lying to yourself using a narrative to stop the cognitive dissonance of choosing to believe a lie.
Today the price of OIL went negative for the first time ever. It’s a concept so ridiculous it can’t be believed. What that says is the producer will pay you to take a barrel of oil, yet the QQQ is at levels that are positive for the year. Unemployment is at 22M and fully 1/3 of the companies are likely to be out of business by the end of the year. I talked to someone yesterday who told me they lost their business, nothing Magical about that. Yet we Magically believe in a V shaped recovery. World wide supply chains are not disrupted but destroyed because if you can’t make sell and ship product, well you simply can’t, and the debt will work its Magic. Everything runs on margins. Landlords will discover the Magic of renters who have no jobs, and their debt will have its way. How does an oil industry who’s product is under water stay in business? So what’s it going to be, your money or your life? What chapter in Vicki Robbins book covers this eventuality?
The solution is for the world to move away from the past, and move to a leaner more rational existence, called the future, and a narrative that corresponds with reality. FIRE actually got this more or less correct by right sizing existence. They got it wrong by over leveraging their tiny little nest egg. The beginning of recovery is to understand what you have is not what you had. What you had was extremely low volatility and high return and a narrative based on that. In a world of 22M unemployed what you have is extremely high vol and low to negative return maybe for the rest of your life. Oil at <0 is called the mother of all deflation. Well disciplined children listen to their mother. If you allow the narrative to rule you, you will be ruled and screwed at the same time. Jim Creamer doesn’t get paid by you, he gets paid by them, to sell shit to you.
I live in FL and have been through 2 dozen hurricanes. Some have been close calls some direct hits. I live on the Atlantic coast and some have skirted landfall with the eye 30 miles from my doorstep traveling a 3 mph. I have been involved with tornadoes spawned buy wind sheer. I’ve had hundreds of tons of once majestic trees that have left my property in the back of a dump truck. I’ve had infrastructure destruction. I’ve had power outages that lasted 7 weeks in 85 degree FL sun. Ya So???
The rise in virus may have peaked, but the aftermath is FAR from over. I remember in Francis the storm hovered over my house for 24 hours. Having a hurricane overhead does not induce an easy rest. Of course the power was out and I had to keep buttoned up or risk loosing the roof so I sat in the dark alone listening for a freight train indicating a tornado. Emotionally you get the shit walloped out of you.
Then the storm passes and you are left with the aftermath. One storm every 3rd power pole down my street had snapped and twirled the wires around forming wires expected to be separated by 6 feet into a tightly twisted cable. To power that would simply short the system. I think I was out of power 2 weeks on that occasion. Another time they were just about to turn the power back on and my neighbor Paul Bunyon and his trusty chain saw decided to cut down a tree and it tore down the main line that fed about 10 families which of course put us at the bottom of the triage. That one kept me out of power for 42 days. I often would get in the car and head over to my carriers’s cell phone tower and park underneath to make calls. The man with the strongest signal possess the bandwidth and a car parked under the antenna is a pretty good bet to acquire a cell.
What’s the point? The very first thing is to assess the damage. Did the roof blow off, are the windows intact, are power lines down. The next is to access stores, yep plenty of Peanut butter, plenty of water stored in all the bathtubs. When the power is out the pumps don’t run and there is no flushing unless you have a bucket and a source of stored water, like a bath tub. You flush then throw a bucket of water in the toilet tank for next time. You flush about once a day.
Fire up the generator and cool down the refers to try and keep the frozens frozen. You have to switch between the refer and the microwave because you can’t run both and a hot dog tastes damn good. You spend the day timing how and when to refill the genny because there is no gas available. There will be in a week, but right now it’s ration city. You sweat a lot. Next try to get some communication going maybe a TV with local coverage and maybe internet. The genny keeps the phones charged and the modem hot. At night you sleep under an open window and the dew settles on you and makes you clammy so instead of hot and sweaty you’re cold and sweaty
People think this is going to be a V. There is no chance of that. We are not even out of the storm yet. We have not even the first clue of the damage, and the damage is going to be far more extensive than we understand. The peak infection may have been realized but infection will continue and the next phase will be trampling down flare ups. I live in a forest and have been through forest fires also and have experienced flareups. It’s going to be brutal. In a month we passed from a predictable life into a cloud of unknowing. Don’t just presume everything will be OK. If you can’t predict when you will be out of gas, your meat will rot. If you don’t know where to get gas and when it will be there, your meat will rot. If you don’t have water for the toilet… We are entering a survival phase. This virus disaster will follow a disaster based reality not a historically based reality. Things do recover but not quickly and not without hiccups probably multiple months of hiccups.
I spend a lot of time trying to understand reality. To understand reality you need to pick the signal out of the noise and focus because in that differential (not in the absolute) is where the information lays. Everybody has an opinion. I read some who think it’s 1929, I read others who don’t think anything has changed. I look at the landscape and it sure looks different to me.
The US has had the honor of being the biggest debtor in the world. It is through our largess to always buy more shit that the rest of the world stays afloat. Japan sells shit, we buy shit. China sells shit, we buy shit. Europe sells shit, we buy shit. What happens if we can no longer afford to buy shit? Shit backs up is what happens. Shit backs up and a new order ensues because shit has to go somewhere or the whole thing comes to a halt.
How will it reorder? I’m guessing it will be along debt/gdp lines. If the debt is big and the gdp is small the quotient is big. If the debt is small and the gdp is big the quotient is small. If the debt is small and the gdp is small the quotient is medium.
The US has the biggest debt, and a debt to gdp of well over 100% and with the creation of new debt it’s heading higher. The new debt is to prop up the dead wood of US business. Companies that are virtually worthless are kept alive by ever increasing debt, companies that should dissolve and go away. They are like tumors sucking blood supply and nutrients and energy. You don’t feed cancer you excise cancer. If you feed cancer the cancer will consume you.
Something about debt to GDP is some debt has a multiplier effect on the economy. Some debt can improve gdp at a greater rate than the increase in debt in a positive feed back loop. So if you have a dollar and you borrow 90 cents when it runs through the money machine 1.25 is created and you have 2.25 – .9 or 1.3 instead of 1 at the end of the day. Studies have shown however this relationship is not to infinity but is limited by debt. In the limit oncen debt to gdp goes beyond 0.9, when you borrow 90 cents you get back 80 cents so at the end of the day your dollar invested lost a dime. This is called deflation. You can “hide” deflation by financial engineering and using balance sheet tricks so for example stock prices appear to rise, so Uber may appear to soar in price but when you count the debt the company is worthless, and so you don’t own an asset you own a narrative, and a debt.
What if the S&P 500 is actually the S&P 250? What if there are actually 250 Ubers lurking in the index? What do you own? When you plow your kilobuck a month into the index and the index goes up does it go up because of commerce or does it go up based on your kilobuck buying the index which contains 250 Ubers? Price would normally be what clues you in but if the price is jiggered by financial engineering like share buyback you loose the signal. Do you even care what it is your kilobuck is buying or do you do it because it’s easy and the bottom line seems to go up every year? Seems to go up because at some point the tide goes out and all the naked Ubers flash their asses, but the government comes in and covers their nakedness with an illusion of solvency using government money blasted into private coffers, but wait a minute, we only get 80 cents back for every 90 cents spent and after all is said and done you still own something that effectively is worthless.
The promise of Uber is the greater fool bargain. You buy a piece of crap narrative low with the idea you can sell the narrative to a greater fool at a higher price. FIRE is like this. You buy indexes then promote the hell out of buying indexes, and when indexes are bought they are bought at a higher price because the greater fool bought higher, but then you plow in another kilobuck into the index and you are the greater fool. Since the government can’t tolerate the index going down and the 250 Ubers being exposed they pump a ton of dough into the index and attempt to inflate it but each pump is less and less effective.
It’s like the old days of running a code. You give epi, then you give more epi, then more epi, but the acidosis and hypoxemia is relentless. Cells that were aerobic are now anaerobic and pumping out way more hydrogen ions than the buffers can tolerate, for way less ATP created, the pH falls and you die. You furiously bag and pump but no O2 reaches the mitochondria. That’s what kills you. The partial pressure of 02 at the mitochondria become nonexistent or the mitochondria itself can no longer respond to 02, ATP ceases to be made and you’re dead.
Are we dead? Russia had a debt to gdp of .17. They have no debt and several hundred tons of gold. In fact they are the second biggest gold producer in the world. They mine money and put it in the bank, and they have nukes. China has more than 1000 tons of gold in the bank and they have nukes. China and Russia are creating a members only crypto currency which would allow dollar free trading between counter parties. China needs oil Russia makes oil Russia sends oil and gets crypto (backed by gold) back and since no dollars are involved the demand for dollars effectively falls, weakening the dollar. Weak dollars means the good we buy are more expensive at the consumer level.
I could go on, but the point is, what’s the signal? Is this a V recovery or a dead cat bounce? What happens to your bank account when you inject 10 trillion and get only 8 trillion back, inject another 10 trillion and get 7 trillion back? Sounds a lot like the code scenario. You probably don’t want to own dollars when they are headed to becoming worthless, but what do you buy to store their value in? Uber? Berkshire? Extended duration treasuries? Rubles? Gold? Copper? BTC? Presently I’m thinking yes gold yes EDV yes BTC and yes to BRK when the lows are retested.
What if my analysis is wrong and it’s a V shaped shallow recession? But unemployment is going to 25M and JP Morgan is predicting a 40% gdp drop in the face of a triple increase in debt yielding a huge increase in debt to gdp and a further huge deterioration in intrinsic value, so is a shallow V anywhere on the table or is that just narrative? If you didn’t buy the dip not to worry. When we retest the lows a couple times you will have ample opportunity to buy low or if the lows are breached even lower still. I know what we need is more debt! Just send me a check!
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.
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?
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.
