The Power of Magical Thinking

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.

12 Replies to “The Power of Magical Thinking”

  1. I have seen your previous comments and posts talk about potentially investing in utilities, food, and energy. With oil so cheap, do you think this is an opportunity to buy or would you be very cautious? Thanks.

    1. Hi DK

      Buying oil would just be a bet like flipping a quarter. The oil vix got to 440 which is like 12 standard deviation from normal. Oil closed at 13 today could easily go to 5 or 2 or? There is no storage. If you buy USO you are effectively buying oil futures. A futures contract says you will take delivery or deliver a standard commodity on a certain date and of a certain quality. The contract is for 1000 barrels or 42,000 gallons. Oil is not a nice commodity. It is toxic and well regulated and as such has a cost built in around storage usually paid in $/month. So if you take delivery of 1000 barrels it may cost you $1000/mo to store it (just an example I have no idea of the real cost). So if you buy 1000 barrels at 15/barrel and store it for a year you have 27000 in the oil and need >27000 to make a profit. If the price drops to $2 you’re out 25000. There is also leverage involved but I’m not interested in teaching a course on commodities trading. In this kind of market many shirts can be lost, and pants too and if you’re not absolutely sure of the risk you are buying you would be better to just burn your money and enjoy the fire. In the futures market itself since it’s a levered transaction the brokerage, if the trade goes against you, can and will force the sale or you have to put up more money to keep the trade alive. This is called a margin call. There are many trades that “would” have been profitable that got called away because of volatility and the inability to meet the margin call. Trading oil is big boy stuff and nothing like buying and holding the S&P. An ETF like USO could actually go out of business if the trades go wrong. Buy USO one day, a week later pffft no money. This actually happened to an inverse VIX ETF fund. On a 1 day basis BTC has a vol of 3.5 compared to oil at 325. Gold vol, stock vol, and bond vol, have also risen in the past couple days, but commodity vol is off the charts. The government is not pumping trillions into commodities so the price is related to actual liquidity (il-liquidity) and shows the real deflation and disruption evident in the world economy. You can’t shut the world down and credibly have QQQ reach + highs for the year. There is something called gravity and it will have its way

  2. I believe I read that Cramer made his fortune and then invested his entire wealth into govt bonds. He does run a charitable stock fund, but I would rather follow someone that eats his own cooking. When your own wealth is 0% equities, I’ll listen to someone else.

    1. I read a study of Creamer’s picks, 30% worked out. That means your best bet is to do the opposite of what Creamer tells you to do. When he say buy buy buy SELL SELL SELL!!

    1. I think they are 2 ER docs that got their salaries cut because the hospital is loosing money, and are willing to throw people under the bus from a Covid perspective to see a few more heart attacks and get they paycheck back up to snuff. Kern Co is Bakersfield CA which is central valley farm land by and large. They’ve had 683 cases and 4 deaths as of 14:00 EST so I’m sure they are pretty bored. Riverside also a valley community further south has had 3K cases and 99 deaths. Bakersfield and Riverside are similar in population about 350K. LA has had 16.5k cases and 732 deaths. NYC has had 270K cases and 19.5K deaths. Why would I set public policy based on the monetary needs of a couple Kern county ER docs probably in hock to their eyeballs? I’ve seen several reports of ER doc salaries being cut.

      What the Kern Co data shows is the effectiveness of quarantine in saving lives. What the NYC data shows is the virulence of the virus even in the face of social distancing. It accelerates like a brush fire. You start with 1/2 square foot of fire. At 1/2 sq ft you have a chance of containment by beating the fire with a coat. IN THE NEXT 2 SECONDS it’s 3 square feet. IN THE NEXT 2 SECONDS it’s 9 square feet and all hope of putting it out with anything less than a fire truck has long gone. The R0 of the above example is 6. The virus may be half that, so that moves the time sequence from 2 seconds to 4 seconds. Not very comforting. I read today NYC has only 13.9% penetrance with 20K dead. Herd immunity would be 80% penetrance. From this data you would expect 115K to be dead at 80% penetrance under the present quarantine regimen. If you lifted the quarantine the death toll may double based on no medical facilities available. This is simple 4th grade math. With these 2 assholes at the switch, I’m glad my 90 yo mom doesn’t live in Kern Co CA. If there aren’t enough patients to see in Kern Co, I bet LA is hiring and happy to cover the cost of the mortgages and student loans. I get 10 notices a day in my inbox begging me to come back to work. Unfortunately I’m relatively immuno-compromised and wouldn’t last a week back in an ICU treating Covid. One thing that should be mentioned is east coast and west coast virus may be different strains, so the virulence may be slightly different. This has yet to be proven but I’ve seen it proposed.

      1. Thanks for the insight on this. A few questions. Is it pretty certain that we need 80% penetrance for herd immunity? Curious which papers you read because you are so well versed on the subject and there’s a lot of misinformation out there. There’s a lot of open up America protest rallies going on; I’m assuming you are not supportive of those. But when is it likely we will open up again? When we an effective vaccine or 80% penetrance? Thanks.

        1. Hey DK I took a course in epidemiology back about 1982 in med school. I found the math interesting so I did a little extra research but I don’t remember the books I read. 80% is an estimate. A novel virus has a number associated with it called R0 which is it’s time 0 infectivity, the highest. As the infection progresses the R0 decreases as more people attain immunity. It takes about 75 to 80% of the herd to be immune before the R0 drops below 1 to say 0.9. At that point while there is still some virus around but it can’t get exponential traction. The details of the math are virus specific so some very low infective viruses may have a lower herd immunity. If you look at pandemics they tend to play out over 2 years, so that’s a likely time frame before this becomes a memory. As time goes on the infection should become milder. I read there might be 300 strains presently in the world due to mutation so it may be mutating to less virulence right now. There is a TON of fake news, some of it well meaning and some malignant. In my opinion the media is not your friend blow dried bubbleheads with outsized egos and virtually no science are not your friends. It’s not my call when to open but I think Tony Fauci is an honest broker. It’s a odds game, like playing poker certain hands have a high probability of paying off some have zero probability. The way you win is by adjusting the betting to get more winning hands than losers. Knowledge is also an evolving thing. 6 feet social distancing is likely way too close. The way it stands now we should all be wearing masks everybody and sick should quarantine and maybe susceptible should quarantine. There are certain vitamins recommended like C D Zn N-acetyl cysteine, also plenty of sleep. Personally I think hydroxychloraquine and Zn EARLY in a infection likely has some benefit. There is a sound biological mechanism behind that therapy. The chloraquine studies so far are crap. Uncontrolled and typically treating people who are almost dead. The VA study was ridiculous. Hydrozychloraquine can have severe side effects which are exacerbated by azithromycin so I wouldn’t take that combo on a bet, but I do have some hydroxychloroquine and Zn available for my family. I’m worried about food. I read 62K chickens were euthanized because the bottom fell out of the egg market. That means those eggs are not coming back quickly. If crops don’t get planted food will not be grown. I’ve already seen some crops in FL wasted. I don’t think we are going back to the way we were. I think these jokers using government money to buy back stock should be jailed PERIOD use the money for increased productivity of don’t use it. I think the market is highly unstable and the worst is yet to come. But what do I know?

  3. If this virus mutates creating new strains each “season”, any vaccine will act just like our flu vaccine, correct ? So every year when we get a flu vaccine, we are being treated for last year’s flu strain. Doesn’t sound promising.

    1. This is correct except flu though serious tends to be less infective, is much less deadly and has a lower R0 much closer to 1. It also doesn’t have the permanent morbidity effects like scarred lungs. Knowledge of the biology is a work in process

  4. So it sounds like a covid19 vaccine will have to be developed each year and will be one year behind the mutation for a virus which is more infectious and deadly than the flu. And the QQQ is positive for the year ?

    1. Eventually it becomes endemic and not novel and like I said tend to become less virulent. The QQQ is positive because of the money pump not because of solvency

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