It'll be interesting to know how will WeWork fare, because this is exactly their nightmare scenario. They are leveraged to the hilt. Their clients can now bail out of contracts on very short notice, which I'm sure they are doing already en mass. WeWork however is on the hook for the long term and they have to pay rental on any property they do not own. Meanwhile, the price of property they do own will be going down, depending on how long the crisis lasts. This can very quickly run into issues on servicing anything they bought on debt and spiral into a liquidity crisis.
I've been saying for years that a company whose main "asset" is actually a bunch of liabilities (commercial leases) is a disaster waiting to happen in a recession. My concern is what happens when WeWork fails, not if. Best case, we see a temporary/short term downturn in commercial real estate in places like NYC and SF where they probably have a lot of presence. But, I don't see how a real estate downturn accompanied by a recession is going to be short term. It reminds me a lot of some of the companies in the dot com bust that were being kept afloat by either online ads or selling to other startups in that I expect the blast radius to be far, far larger than one single company.
Any bail out should involve the government diluting shareholder equity. We need airlines sure. But we also need to punish their shortsightedness and get reimbursed for the trouble. They operate razor thin margins, but somehow used all their cash on buybacks while increasing how levered they were. That doesn't deserve saving.
I'd go so far as to say that the government should take a 51% stake in return for their bailout money. I'm not saying nationalize the businesses or hold that controlling position indefinitely, but just for the time being to reorganize and guarantee the bailout money is used appropriately and executives fired for juicing their options with buybacks.
With lots of companies struggling or going under, the demand for commercial real estate should be lower. Supply roughly constant, demand significantly down.
Companies might also realize that now that they've figured out how to work remote, they should keep doing that and save ten grand or so a month. I believe the smallest offices in the WeWork we're housed in are $6k/mo. Those are generally used by teams of 3-6 people.
Employees are not universally going to just eat the costs of working from home (or from shared spaces) on behalf of their employers, though. If this becomes a more regular situation, employer subsidies for remote essentials will be expected features of jobs even more than they are now, i.e., not just perks.
The monthly bills for 100 remote workers is easily 10K -- their internet connections alone would probably hit that. A single person renting a desk at a co-working space is going to spend a few hundred a year.
Right, but the monthly bill for 100 non-remote workers at WeWork is 5-10 times that just for the space. As I said, their smallest offices (~6 person -- maybe 10 if you really crowd) are $6k/mo.
I would think/expect that long term demand for the services provided would continue to exist/grow, so probably just short term commercial real estate impact?
Probably, but the key issue is how levered WeWork is. It's the same really as taking out a mortgage you can barely pay. It only takes a short term shock to push you into default, and once foreclosed, it doesn't matter that you'll eventually recover because the losses will be locked in and you no longer participate in the recovery.
Mortgages too. Same thing as 2008, although it will take longer to achieve the same result. People are losing their jobs, no longer able to pay mortgages, housing prices fall.
When demand drops for housing, that's often because people have moved in with relatives, moved in with partners, etc. After whatever triggered that, many might decide they like paying less rent/mortgage costs, so demand will never fully recover.
Demand is not the same everywhere. I expect the in demand areas of the US to continue to stay in demand. Prices in the areas without demand will go down further.
I generally have believed that as well, but wonder if there will be some flight away from cities after all the dust has settled, at least in the shortish term.
If you assume the US is a few weeks behind Europe, there's more and more bad news to come. It's always hard to know how much is priced in, or even how to price in something so alien to financial people.
Also keep in mind there's a number of mechanisms that pushed the market up that will now push it the other way:
Credit cycle makes collateral worth more, giving more capacity to extend credit.
Momentum funds buy when things have gone up.
Risk parity funds add when risk is low. And risk as measured by realised volatility gets lower as we creep up.
Retail sees the market is going up, much like momentum funds.
Selling options makes sense when there's barely ever a move in the market.
The only lesson from Europe so far is that no matter how much money you throw at the problem, the market is going to respond with another steep sell-off –— because that's what the US is already doing; without success.
> no matter how much money you throw at the problem, the market is going to respond with another steep sell-off
There are two problems. A public-health problem, which is killing people. And a quarantine effects problem, which is putting people out of work.
Throwing money at the latter works. It keeps unemployed bartenders paying rent. That keeps them in their homes and their landlords from defaulting.
As the first problem evolves, however, it makes the second worse. That means we don't know how much support is enough. Until we know how bad the first problem is, the second's effects will remain poorly constrained. That turns every public action, with respect to either the first problem or second, into a cause for panic for the markets. (It doesn't help that the quality of communication around these actions has been poor.)
At the same time, everyone who can get liquidity is taking it. That's stressing the notoriously-chaotic credit market. This is a problem entirely manageable through throw-money-at-it central banking solutions.
At some point we'll have to adopt a combination of what Boris first said and only a partial lockdown, and I say that as a guy who has voluntarily self-isolated for almost a week now. There's no way for the whole Western economy to function on made-up money for more than a month, let's say a month and a half. Yes, that will most probably mean triaging people in hospitals, which will probably force elderly people to remain isolated in their homes a little more than the rest of the population, but to be honest I do not see any other solution at this moment.
The workforce is largely made up of heathy people under 60, so it’s at minimal risk. My suspicion is gatherings like movie theaters will shut down until a vaccine is available, restaurants are going to swap to carry out, and the sick or elderly are going to be expected to self isolate. That’s still a huge economic hit, but far from the end times.
Looking at Wuhan, a total shutdown can dramatically reduce the number of new cases. We can’t really afford that for long, but it buys time to prepare and may be required if things start to fall apart.
>> We can’t really afford that for long, but it buys time to prepare and may be required if things start to fall apart.
AFAIK Wuhan and South Korea are both at the tail end of their their infection trajectory and they are still not back to normal working situations/environments. I'm still not sure if this will be a short, blunted infection with all the quarantines taking place, or something we have yet to see the top side of.
Either way, this is going to crater a ton of small/medium sized businesses. All of the gains the market made in the last few years has been completely erased by this virus.
> Two and a half month of draconian quarantine may work
That will probably be insufficient in duration:
”We [...] show that policy strategies which aim to mitigate the epidemic might halve deaths and reduce peak healthcare demand by two-thirds, but that this will not be enough to prevent health systems being overwhelmed. More intensive, and socially disruptive interventions will therefore be required to suppress transmission to low levels. It is likely such measures – most notably, large scale social distancing – will need to be in place for many months, perhaps until a vaccine becomes available.”
Wuhan is on track for zero new cases by the end of this month after starting the quarantine on January 23. So, in no way is the collapse of their heath system part of a total quarantine. But, I am saying what happens after that? Do you shut everything down on the next case, when infections it 100 or 10,000 etc.
Basically the quarantine option has a known outcome in the short term, and doing nothing as millions die is another option. But, they have such high costs and are so far apart a middle ground seems desirable.
I suspect European governments had all settled on that plan, and only the British said it out loud. The only reason they switched to a total lockdown is because the spectacle of mass death at the ICU is too much for the public to bear. The time to take drastic measures was a month ago, when the spread from Italy could have been contained.
> The time to take drastic measures was a month ago, when the spread from Italy could have been contained.
IMO, I don't think it could have even been contained then. Once this thing left China, the genie was out of the bottle. Now, the rest of the world is just trying to manage the spread best they can by 'flattening the curve.' Which, as you mention, is really going to end up with the plan the Brits said out loud.
I wonder how long it will take everyone else to catch on that the Brits plan is happening regardless?
It was definitely controllable after it left China, as we can see from the fact that countries such as South Korea have managed to control it. European countries were completely unprepared for it, despite the fact that SARS should have been a warning call. (I assume that's why South Korea was ready for it.) It was partially a cultural failure -- I know several Chinese students living in Europe who thought the European reaction was insane -- and partially a government failure. European government should have started reacting months ago stockpiling supplies such as masks and tests. A widespread testing regime should have been in place. Travel back and forth to Italy should have been curtailed much earlier, rather than people traipsing back and forth on holiday, and people who did travel should have been tracked as much as possible.
> The only reason they switched to a total lockdown is because the spectacle of mass death at the ICU is too much for the public to bear.
It's mathematics. Assume a country of 100M people, of which roughly 2/3rds have to be infected to achieve herd immunity. That's 66M people. Of these, expect 2M people to die if the mortality rate stays at 3% (at the moment it's 3.4% according to WHO).
Now, as no medical system in the world has enough beds, expect that the mortality rate goes through the roof once the ICU beds are full - Italy at the moment is at 10%. This would mean 10 million deaths in the assumed country.
Or, scaled to the US: 32 million deaths.
"Herd immunity" is mass slaughter on a scale not seen since Mao's "Great Leap" with 18-45M deaths.
That doesn't matter. Italy has about 3.31 beds per 1000 citizens and these are already way over capacity, so much that doctors have been forced to "triage" patients between whom to save.
The Netherlands only have 4.18 beds which isn't much more so with more people being infected thanks to inadequate protection they will be overloaded, sending the mortality through the roof.
The US have it worse, they only have 2.89 beds and many people who are sick will still go to work to survive PLUS many won't dare go to the hospital unless they are facing death due to fear of extreme bills so coronavirus has the potential to be a massacre. Plus, unlike Europe where most citizens believe the experts, large parts of the US population takes pride in ignoring science (40% per https://www.msnbc.com/rachel-maddow-show/glaring-partisan-di...).
Governments can’t simply make this go away. So, a rational market should be crashing either way, the only question is how bad it’s going to get. IMO trying to prop up the market is pointless, it’s keeping the economy functional that’s going to make a difference.
The only upside I see is people are saving money by self isolation which is going to ease the recovery significantly.
We're actually running a ventilator plan, rather than a stimulus plan. We're going to spend $2 trillion, most likely, trying to keep businesses and people alive over a few months, until the realization hits like a truck that this can't go on for very long (60-90 days max), at which point mental capitulation will happen. The next step then is everybody is going back to work, regardless of the virus, regardles of the risk. We'll quarantine the old and most vulnerable, while we pursue a vaccine and ramp up medical supplies and try to handle the ICU load.
Mass shutdown and quarantine will be viewed as a horrible mistake of available choices, but only in convenient hindsight. It will turn out we unnecessarily destroyed trillions and trillions of dollars in wealth and capital, because our understanding of the situation was very poor (how wide spread the virus actually is).
> because our understanding of the situation was very poor (how wide spread the virus actually is).
It's estimated that there is at least a scale of 10x unknown infected vs known infected. South Korea, Taiwan and Singapore have only been able to stay nearly CV-free because they have extremely strict testing regimens - while the US has almost no testing capacity at all (and many have to ignore a positive test as they need to work to survive/keep health insurance), and Europe doesn't fare that much better to be honest.
No nation has done mass randomized testing to see how much of their population has had the virus. If China did it, they haven't released the results of that test.
South Korea will not be able to remain quasi Covid free, unless they plan to never open their borders up ever again. The rest of the world is going to be flooded with the virus and the disease. The bulk of the populations in the EU and the US will likely get the virus, and as you note, fortunately, the death rate hopefully maybe plausibly is 1/10th or 1/20th what we think it is due to the volume of unknown cases roaming about.
The only way SK remains mostly free of Covid, is if the virus goes away and doesn't come back next year (and or we get a vaccine they can use next year). SK can hold in place, while the US and EU and other regions (China already) likely go back to work; then as it fades elsewhere with increasing herd immunity, SK can come out of their protective shell. Otherwise they'll have to remain in perma lockdown, perma quarantine, perma heightened mode.
Oil is the crazy part to me, I read an article that said oil could technically even go -negative- because the cost to store it would become more expensive than to give it away. With Saudi Arabia pumping, and the economy in a standstill, there is a massive glut. Bonds are selling off, and I don't if it's because people are re-balancing with stocks down so much or if the market is reacting to the likely future of massive bond issuance from the US government.
My brother is a lorry driver and has traveled through Southern Germany and Norther France these last two days. He told me that there are almost no cars on the roads apart from other lorries and some police/Gendarmerie cars, and the few photos he sent me seemed to corroborate his sayings. I suspect in Italy there are even fewer cars now circulating, and Spain is probably the same.
So you've definitely got a huge demand-side crisis, and coupled with whatever Saudi Arabia and Russia are trying to do (fighting between themselves or fighting between themselves in order to bring down the US shale companies, I'm never quite sure) that means that the only way is down.
Another bit of corroborating evidence for reduced traffic is air quality. The current day over day difference in places like LA (or earlier across China) is dramatic.
> They are cooperating to destroy US efforts at self-sufficiency.
This is completely shocking to me.
I remember complaining about gas when it went above $2 and my grandfather sat me down and related several stories about the 1970's oil crash, Jimmy Carter saying we needed to be energy independent, and other fascinating stories about OPEC.
To honestly see a day where OPEC and the Russians see the US oil production as a threat is pretty incredible when you think about it.
> They are cooperating to destroy US efforts at self-sufficiency.
That's simply impossible. Best they can do, is bankrupt the current owners of fracking oil wells. But the equipment and sites / wells remain, and will be taken over by new owners, which will remain pumping oil as soon as price reaches sufficient levels (or until the US needs it for "national security").
In the global warming discussions there are always lots of people testifying that it's impossible to cut private car use or their world will end, hopefully this will shake those ossified attitudes.
I would think this current crisis would make people even more leery of public transport and cutting car use is not impossible but that it will take a governmental forced lock down and martial law. Maybe we should think about ways of reducing the downsides of individualized transport instead of promoting 19th century solutions (large crowded subways). Electrification, reduction in size, tunnels, etc.
Yes. Biking and walking are also great transit modes depending on the distance, speed, and cargo needs of the trip. Although crowded sidewalks is something to avoid at this moment.
I'm not arguing, but we've cut private car use, and it seems like the world is ending, economically speaking. Hoping this creates habits that are good for climate beyond the immediate disaster. WFH, school changes, etc. Good can come of this in the long run.
Indeed, it is possible for commodities to go negative, for instance in the electricity market. Saudi decided to have this price war at an interesting time, in the middle of a crash in the rest of the financial market, hence the huge moves were setting now.
Saudi and Russia both, really. The first escalated and the latter walked away, which is what caused the crash last week.
But really, it doesn't matter. What was happening at Saudi pumps last week was a speculative event, the size of the petroleum market for the next few months has absolutely nothing to do with OPEC decisions, it's about quarantine restrictions on travel all over the world.
Saudi might continue pumping, but as others are pointing out when the tankers and storage facilities fill up, they'll stop. Because there's nothing else to do.
Electricity can go negative because some modes of production are slow and difficult to turn off, so they keep producing and we need somewhere to dump the energy.
It doesn't help that unlike oil electricity is produced in a just in time fashion, we produce it the same second we want to use it, not days or months before hand. I.e. there is nearly no buffer capacity in the supply chain.
Does the same apply to oil? Can we not just turn the pumps off and leave it in the ground with what basically amounts to flipping a switch?
In America, wind power is given a subsidy of up to 1.9 cents per kWh generated. Because wind has almost zero variable costs, negative electricity prices can still make money for wind producers. Even though wind energy is fast to turn off.
yes you can stop taking it out of the ground. except Russia and Saudi could not agree with one another to do that, so now we have a reduction in demand coupled with no reduction in supply. soon storing that oil will start to be a cost centre. then we will see less demand at the wholesale level combined with price cuts to move existing stock. all of which will ultimately hurt oil producing countries.
They will stop pumping when the price to extract gets too low. To stop pumping does not reduce the amount of oil you will get out of a reservoir to any significant degree and you can start up again with little cost.
The big issue is that if lots of oil companies go bankrupt (many US fracking ones are highly leveraged and must sell oil at a certain price in order to survive) and people get other types of jobs, you can't ramp up the creation of new wells very easily. Oil from fracking takes a lot more effort and wells than the old style wells.
Can one? I don't know enough about oil wells to know if that's a simple thing to do. It could very well do permanent damage to the well, in excess of selling negatively for a few months.
Only Russia can't completely turn off its pumps, and only during winter. They'll freeze. Besides that case everyone else can do it or simply slow them down as they've done in the past.
Not destroy exactly, but cause enough damage that it will require extensive repairs. Please note that this what the Russians claimed some years ago as the reason they could not shut down production during a previous disagreement with OPEC so we should take it with a grain of salt.
Saudi Arabia is constantly turning on and off different oil wells to manipulate the price of oil. This current crash is in large part due to them turning on all of their pumps.
I'm just confused at today's drop in long-term government bonds (and thus increase in interest rates) -- normally they go in the opposite direction of the stock market, which is what it's done this year. Vanguard's long-term govt bond ETF (VGLT) is up 13% so far this year:
Here's a potential explanation quoted by Matt Levine in his March 13 newsletter:
“The risk in the current environment is that sustained illiquidity of the UST market … could cause leveraged UST investors to reduce their Treasury positions on a large scale. This would essentially result in a Treasury ‘supply shock’ as these funds reduce their positions & force dealers to sell those positions in a very illiquid market. Significant position reduction from one large leveraged UST investor would likely lead to a cascading effect whereby U.S. Treasury yields rise sharply and force liquidations from other similar investors. This would worsen conditions for dealers to intermediate risk in the U.S. Treasury market, exacerbate the rise in U.S. Treasury yields, and further cheapen Treasuries.”
But haven't the Fed's constant injections (like the recent $0.5/1.5 trillion one) indicated it's going to keep the Treasury market liquid by buying them all up at par?
The yield of a bond is inversely related to the price you pay for the bond. The prices are going up, thus the yield is going down.
To be clear: the price you pay to buy a bond is going up while the price you pay to buy a share of stock is going down. It is exactly how you expected, you were just looking at the wrong number.
No, I meant that government bonds today are going down (yield up) while stocks go down. I mentioned the good performance of government bonds YTD as indicative of their normal behavior, i.e. going up (yields down) when stocks go down. I realize now I was phrasing it poorly. Since edited.
This is confusing to me too. The best explanation I've heard is that the market is expecting a future increase in bond supply (gov bond issuance to fund coronavirus mitigation measures), which would drive prices down and yields up. This future price pressure is being priced into bonds today.
Bitcoin crashed as well and gold isn't overperforming either. So rather than having a huge transfer of assets from stocks to bonds/gold/bitcoin like we've seen during past periods of market volatility, I think we are seeing falling prices across all the forementioned asset groups.
The one open question for me is Real Estate (I work for a small commercial real estate developer). REITs are down 20%. My contacts in the Broker community have told me individual property sales transactions have dried up due to an inability to do property showings combined with no interest from buyers or sellers to make big moves until things shake out. RE moves slow so we haven't yet seen how this dynamic will impact sales prices.
>This is confusing to me too. The best explanation I've heard is that the market is expecting a future increase in bond supply (gov bond issuance to fund coronavirus mitigation measures), which would drive prices down and yields up. This future price pressure is being priced into bonds today.
Interesting! If so, maybe we could see an end to the financial markets' seemingly insatiable demand for Treasurys?
I don't know about the demand side but supply is definitely going up around the world. For the massive stimulus packages in the US and Europe lots of new bonds will be issued by governments. Additionally lots of companies around the world are drawing on their credit lines which means banks need to reduce their treasury holdings for USD. The only question that seems to matter is how high will central banks allow yields to rise?
Hard to say right now, but it's likely that bonds won't go up again until people believe the rate of new bond issuances will go down.
On another note, the federal funds rate is at zero but bank stocks are cratering anyway, possibly because Trump announced there will be no foreclosures/evictions through April. So landlords and homeowners have no incentive to pay their mortgages for a couple months, which will definitely hurt banks.
Lots of people are complaining but to me it shows the market is working - oil goes down because of decreasing demand and I don’t see why it should be otherwise.
Maybe I'm missing something, are there some weird contracts out there that require accepting fresh oil pumped out of the ground? Otherwise it seems like before oil went negative people would just stop accepting more shipments from oil wells and oil wells would be forced to shut down (for lack of places to pump the oil to).
changes in output to the oil rigs / refineries themselves can easily be ramped/up and down, the problem is the industry relies on a complex network of "smaller" offshore construction companies[1] which are not so flexible in the sense that they can just stop without repercussions. They supply a range of services such as inspection, pipe-laying, testing and connecting actual well-heads[2] using ROV's and deep-sea saturation divers. Staffing these jobs is highly volatile since most people working for them are also freelancers flown in from all over the world. When they bid for these projects (with Shell, Conoco, and others) it takes weeks/months to mobilize their personal, ships and technology for the job.
Usually when there is a reason to reduce capacity on a rig (mostly due to weather) it's normal to just stand-by (sometimes for weeks) until they can continue with the job. When I worked offshore it was never possible to say when I get back home, e.g. the job was estimated to last 10 days but could end in 4 months. And once we were done we were almost always flown to a new destination (so they would try to keep us out there as long as possible). While places like the North Sea regulations would be strict (28 days offshore would be max before you have to go back to shore), in the Golf of Mexico, or in Asia we would never have such rules. I know people who spent months locked in the compression chambers (sat system) or until the project was over. And none of us dared to say we want to go home (it would be career ending).
What do you mean by "require freshly pumped oil"? The contract is for a commodity at a certain price at some time in the future. There might some quality requirements but other than that nobody cares whether it comes from storage or is freshly pumped. It is beneficial for the buyer that the seller has ample storage because it means less risk that the seller defaults on the contract.
I mean I could imagine some contract where party A agreed to continue to accept/transport/"deal with" all the oil party B produces, and is required to continue even if they are losing money on the deal.
I'm not sure why anyone would have signed such a contract, which is why I called it weird, but it does seem plausible.
If you buy a futures contract, you are required to accept delivery of some fixed amount. You don't have to take "all the oil party B produces", just what you agreed to ahead of time. This protects you from upward price trends, and the producer from downward price trends.
Sure, but if the cost of short term futures contracts is negative or zero the oil companies would just buy them back instead of continuing to produce. When we say the cost of oil, we really mean the cost of short term oil futures.
I read in the Economist that this price war was initiated by Russia as an attempt to kill off the American oil industry who is in deep debt and in increasingly under pressure..
Saudi Arabia likes to play games with the market, but they probably won't keep pumping oil if prices go negative. So you might see isolated examples of oil trading free or negative, as gets breathlessly reported when it happens to wind or solar, but it won't happen systematically.
You can see the bot changed its name and profile pic to match the OP so it isn’t clear to casual Twitter users that the scam is from a different account.
These users are almost always hacked, there have been instances of public, verified people that were abused.
The problem is that Twitter's moderation teams are hopelessly overwhelmed, massively understaffed and, for the lack of better words, utterly incompetent/unable to understand cultural context - probably somewhere in India, Vietnam or wherever else you have a large number of cheap heads.
That's an interesting observation, I wonder how one could design a system to moderate a social app at scale? I've been thinking about this recently, but not sure what possible solutions could be. I was thinking there needs to be a way to incentivize the users to self-moderate in a way that is fair and works for most cases.
Now its probably in control of machines. And they don't know if its corona (which might pass as it did in china), they are probably thinking something like 2008 has happened.
The virus did not "pass" in China. China managed to get the spread to slow down to a crawl, by implementing a severe total shutdown of everything and keeping that up for some weeks. They are still in the process of removing those brakes again, and as far as I know, they are still at a pretty early point in that process, meaning lots of brake power is still applied.
There is absolutely nothing preventing the virus from resuming to spread as soon as economic and social activity continues to return towards normal level. In fact, most experts expect exactly that to happen, albeit maybe at a bit of a slower speed than before (due to some people being immune and people generally being a bit more cautious in their daily lives now).
Oh, and due to the incubation time, you'll not see any negative effect in testing results from removing the brakes for about 10-12 days. It's the same thing as when they were applied. So what's described above will happen, even though for 10 days you might wonder "What's the deal? The infection numbers still look good!".
This is far from over, in China and anywhere else.
Chinas new cases per day rate is effectively zero at this point. They beat it, plain and simple. And only 3,000 people died from coronavirus. Compared with literally any other cause of death, it's a tiny blip, even negligible. Around 11 million people died in china last year.
How does such a contagious virus simply stop spreading? after infecting a just tiny percentage of the population. Their economy is coming back up and life is pretty much back to normal over there, while the rest of the world is just headed into it.
If we weren't talking about the kind of authoritarian government that probably would have been able to stop this outbreak in it's infancy if it didn't have local officials prioritizing suppress news about it reaching higher levels of government... maybe I'd be more charitable to these claims.
I can tell you personally, factories I was in contact with about totally non-pandemic related industries, with capacity that I highly doubt can be repurposed for supplies, are still talking about extensive delays for any sort of order.
> How does such a contagious virus simply stop spreading?
It's quite simple: noone is permitted to go outside without a mask, and they ramped up testing and manufacturing masks, like any reasonable country would.
Meanwhile in the west ,,masks are not important for people, just for doctors''.
I'm still looking for a rational explanation in your comment why the virus should just have "vanished" in China and NOT resume spreading when life gets back to normal.
Local clusters can be suppressed when your testing and contact tracing capacity greatly exceeds the number of new cases. China's new domestic cases are in the single digits now. Even unsupressed, it will take weeks for the disease to become out of control again.
These so called "experts", particularly those in positions of power in the UK will cause untold damage if they rely on their assumption of this phantom second outbreak.
Sorry, but there's no government on earth, including China's, that's able to do reliable contact tracing of people potentially going to massive gatherings. Heck, they don't even need to do that - have you ever been in the Shanghai Metro? You'll have "contact" with thousands of anonymous people if you just commute to work and back again. Trace that!
The only thing I agree to is "it will take weeks for the disease to become out of control again". Yes, it will, and that is part of the problem - it'll be at least half a month until it's even possible for you to notice that you're getting the same problem all over again.
It didn't "pass" in China or Korea (FWIW: the Korean numbers seem much better attested -- lots of smart people continue to worry that China has been censoring news of further outbreaks). It's just controlled.
The quarantine measures required to control it continue to be required to control it. So while the virus itself might not be spreading, its economic effects persist until we reach herd immunity or distribute a vaccine. Both are year+ long time scales.
The market is, frankly, being much more rational than people expect. This isn't going to get better soon.
If they're censoring it, they're censoring it from their own people as well. My childhood best friend lives in Shanghai and is reporting that things are pretty much back to normal there. Businesses are open again, people are in the streets like normal, etc. This was his report from this morning after we inquired for more information last night.
He says they are not completely relaxed in public, but getting there. They still observe social distancing. But from his understanding, infection rates are way down all around China.
These are the kinds of reports we need to hear about, not the "some of the (almost always unnamed) experts say that <insert baseless alarmist prediction>" type.
So yeah we need reports from the ground, if anybody reading this is in China please chime in and give us a quick rundown of the situation over there. Thanks
>>People back home have asked me for updates from 'ahead of the curve' in China so here is today's: China has added USA to the list of mandatory quarantines. My friend just arrived yesterday to Shanghai from the Bay Area and was taken from the airport to a testing facility and was then put under a 14-day quarantine at his apartment in Shanghai (even though he tested negative). Meanwhile, those of us out of quarantine are free to move around the city with our green cards. And many are indeed choosing to do so while still observing social distancing. Infection rates are way down all across China.
He goes on to say the following in two of his responses below...
In regards to how long
>>China was worst around early February. So I'd guess at least a month to get over the hump.
In regards to a 2nd outbreak coming
>>Have not heard that at all. I wouldn't say it's 'relaxed' more like 'beginning to relax a bit'
My parents are in China (Shandong province) and they are free to travel across cities. Restrictions (aka lockdowns) are lifted and cities are getting busy again. Generally, back to normal, aside from school closures.
Most recent news from this morning: Schools are opening across the country in stages from April. This is strong signal. I don't think "coverup" and "school opening" can do together because viruses won't listen to either CCP or Trump.
As a Chinese with so many friends in China, I would say that articles from WSJ/NYT about China may not reflect the reality. They are telling the truth, but there are many truths and reporters just want to pick whatever they want. E.g., there are sad stories for sure, but there are also plenty of moving good stories. In this mixed-up world I found it very difficult to find real "objective" reports, aside from your own eyes...
Yes absolutely this the reason why I refrain from basing my opinions solely on the reports coming from western outlets, they've been notoriously known for practicing "lying by omission" essentially stating true facts while completely disregarding other important factors and details that would otherwise go against whatever narrative they are trying to push on their readership.
Thanks for the uplifting report and take care out there mate.
? The circuit breaker are tripped at 7%, 13%, and 20%, it's not a computer randomly deciding to trip them
Everyone knew the last few circuit breakers were going to be hit in the morning because of futures
This morning it was actually surprising that we didn't hit the circuit breaker at open
We actually might have gone the whole day without hitting them too... it went off during Trump's conference when he seemed to go completely off the rails.
A lot of people will recoil to that statement saying it's an oversimplification or attempt to unnecessarily politicize this, but Trump's conferences in the last few weeks have had IMMEDIATE effects on the stock market.
Automated trading can cause one-time events or exacerbate a problem, but the larger market is driven by trader sentiment, and that is overwhelming negative right now.
The algorithm aren’t the reason Trump bumbling an interview shocked trader confidence.
IMO, now is the time to compare your existing portfolio with your target portfolio. I.e. you have a preferred amount of stocks/bonds, and given recent market events that is likely not in alignment. So sell your winners and buy more losers.
You don't buy all at once, though - you can "dollar cost average" into the market by buying index funds in small chunks when there are big dips, and stop buying when it stops falling.
You won't predict the bottom, and you might not get all of your money in in time, but you'll still wind up ahead when the markets recover.
And they will recover, unless we somehow get to a point where the entire monetary system collapses. The only question is whether it will take a few weeks, months, years, or decades.
Pick your starting point depending on how long you can wait. Buying early makes you less likely to miss the dip, but it might take longer to start seeing green numbers. Buying late means that you stand to gain more in the short term, but you might not get all of your money in in time.
Personally, I think we're still straddling the "early" line around now, but your guess is as good as mine. This is what they call a 'roller coaster' :)
It's a fire sale though. So you can also protect your capital as best you can and get in there. Establish a rule to sell the stock if it falls another N%, and jump on the stock sale. HN is generally super risk-averse but there are ways to moderate risk with finer-grained control than "don't try to catch a falling knife."
This shouldn't matter at all, since there are huge penalties associated with taking money out of your retirement funds before you're 59 and a half years old.
If your job is not secure, you should account for that by increasing your emergency funds (typically a savings or money market account).
There's not always penalties. Look up what's called the Section 72(t) distribution. This is a "retire early" option, where you can start taking a monthly distribution at any age, without penalty (income tax still applies), as long as you maintain that distribution for the longer of five years or until age 59.5.
I think what is scaring the market is the perspective of a lockdown (and its economic impact). I don't see anything in the news now and for the foreseeable future that would reverse that.
No, because higher risk means buying more stocks. Nobody has a magic eight-ball, but given how the economic changes that we'll be seeing have barely started, I strongly doubt that:
1. We are close to having hit the bottom.
2. Once we do hit the bottom, there will be a magical, fantastic, quick recovery, that you will miss out on if you don't act quick.
If either one of these is true, then buying stocks right now is jumping the gun. If both of them is false, you should buy everything you can.
If you want to be safe, liquidate, and sit on cash. If you want to be greedy, the best play may also be to liquidate and to sit on cash.
Can someone explain why bond yields are going up? Normally you'd expect people to be investing in safer assets (eg. bonds) during times of crises, especially with the Fed slashing interest rates and embarking on QE.
A natural explanation is that the government is considered less creditworthy.
There's also been news this morning that the government will bail out commercial paper and corporate bonds, and that this has caused investors to move from treasuries to corporates.
I too am interested in this. My uneducated guess is that there are very severe liquidity issues, so everything and anything is getting sold. Isn't that why the Fed is doing the repo operations?
And I guess another possibility is that the US is already running a large deficit, and that is probably going to get much worse shortly. So maybe some are losing faith in the safety of treasuries?
I certainly would like to hear from others on this.
If equities, bonds, and commodities all drop, where is the money going? Certainly not as unsecured deposits at banks. The money has to cycle somewhere and I don’t see any asset classes jumping by enough to account for all the sales of the remaining asset classes.
Doesn't work that way. "Market value" isn't a count of funny-looking pieces of paper, or the total weight of various commodities. It's a popular consensus of the power to command future use of resources. It's a general I.O.U. If the market says I'm worth $100, then everyone is agreeing that sometime in the future I'll probably be able to request a certain amount of resources in exchange for passing on control of the I.O.U. So the market may say I can get ten hamburgers, or get four suits dry-cleaned. Changes in total market value happen when that consensus changes. If everyone realizes I'm only going to be able to get five hamburgers, or two suits, then I've lost 50% of my worth. If the market decides everyone is in the same boat, then the market has lost 50%.
The market hasn't yet priced in an important reality: we have no way to stop the spread at the moment.
Best that can be done are quarantines, but they're crushing the economy. Many outlets are reporting that a vaccine is at least a year out. So all we can do is slow this down and stagger cases. The Harvard epidemiologist who projected 40-70% of the world's adult population ultimately contracting covid was probably right.
At some point, governments will likely realize that they need to send younger segments of the population back to work (a la the UK), respecting the medical system's capacity, or risk triggering a depression. The economy was already systemically vulnerable for a number of reasons and this situation threatens to push it over the edge.
It's possible the market has not yet fully priced in extended quarantines or the likelihood of much of China and most other important economies experiencing a significant disease burden. The paradox is that the quarantines have slowed down the progression but are not an economically sustainable tool to fight this, so the numbers being reported are artificially deflated. On the other side, you have the medical system's limited capacity. One way or the other, we'll have to face the music on this.
> they need to send younger segments of the population back to work
This is the only sensible approach moving forward.
We need to quarantine the very old and very ill and provide them with financial assistance. Quarantining everyone is an overreaction and unsustainable.
When the not-very-old and healthy have built up antibodies and resistance, we'll have heard immunity and the very old or ill can return to normalcy.
This a highly dangerous view. Everyone is at risk of serious illness from this virus. The old are less likely to survive a serious illness but many young people get very ill. When many young people get very ill and overwhelm the health care system, those young people die also.
People believing this approach is sustainable and acting on it are killing people and will not solve the problem.
Mortality rates for young people are not negligible, and we don’t know either the long term health impacts of a severe episode of the virus or even whether catching the virus gives immunity.
Citation needed. Everything I've read says that it's significantly more deadly than the flu for all ages and that more importantly the error bars on any mortality number are absolutely huge.
The UK "just do nothing, we want herd immunity" is not their approach and is actually a bit fake. However protecting the most at risk groups is part of their plan. The plan is to flatten the curve so that hospitals can cope.
> we have no way to stop the spread at the moment.
Sure we do, universal, rapid result testing with isolation and contact tracing of positives. It works fine and is minimally invasive, and preserves the economy. First you get the exponential growth down with a shutdown, then only allow those who are tested to resume activity. If we had done it at the start we wouldn't have ever had exponential growth to begin with.
When you really dig into what you wrote, my feeling is you're not describing a solution that's feasible in large countries, short of (very) authoritarian enforcement.
Keep in mind, for example, that the US is not technically under quarantine at the moment. And there are plenty of examples of people across the country recklessly defying the advisories.
The virus is especially virulent and controlling it in the way you describe requires stamping it out totally with extreme measures. We know that if even one case remains in the general population, it's just a matter of time before we're once again under pandemic threat.
While this is true - with enough testing capacity, you could stamp out a new hot spot through a combination of local testing and local restrictions, and get it done before the healthcare system is overcome. Especially if we implement something like china did where you have to "check in" at businesses with your phone.
At least in less-dense areas of the country if people stay somewhat social distanced
i.e., if one case shows up in my town of 25,000 people - we could test everyone that possibly had any contact with that person and likely require a couple hundred tests. If those measures fail, you implement a more local lock-down much sooner, test more aggressively, and then ease up again locally.
Except that is not happening - and test kits are not around or in supply.
At some point you push past what's possible to manage, and I think we're there at this point.
It is technically reasonable to test everyone once a day, and quarantine the positives - but it cannot literally happen here in the next few weeks. The vice president just said, "Do not get a test if you don't have symptoms - to preserve them for the sickest people."
> It is technically reasonable to test everyone once a day, and quarantine the positives - but it cannot literally happen here in the next few weeks. The vice president just said, "Do not get a test if you don't have symptoms - to preserve them for the sickest people."
I'm not sure we can rely on that. It sounds like tests on asymptomatic carriers aren't reliable.
"The tests looks for the viral RNA by RT-PCR. This is a test based on viral RNA from swabs of nose and throat. Corona-symptoms appear due to viral replication destroying cells which we cough or snees/snot out."
https://twitter.com/_Adora_Belle_/status/1237704056489082880
Hopefully this reality will also push many companies to decentralize their workforce as much as possible (i.e. remote work) where possible. It has extra benefits such as resilience to crises like these but it'll also help them meet the talent where it's at in the future.
I'm not an expert by any means but here is what I've picked up. We essentially have 3 ways out of this:
- It becomes endemic, enough people have had it that it's no longer a huge problem; so long as you ignore the hundreds of thousands who died on the way there.
- We develop and test a vaccine. Great except pressing pause on the entire world for a year or more is a challenge.
- We somehow manage to contain the spread and eliminate it. Some counties seem to have had some success with this technique but we need all countries to do it, at massive economic and social cost.
We don't seem to be holding a particularly attractive hand at the moment.
There is an option 2b. We develop a vaccine and roll it out without as much testing, at least to some people.
It has higher risks of something being wrong with the vaccine, but at the same time our existing process only tests the vaccine for a relatively short period of time relative to human lifespan, and one can say it is already a risky move. In this case the risk of reducing testing and starting to roll out the vaccine sooner may be justified.
True, but to be honest I think a year is probably pushing the boundaries of what is possible. We then need a massive immunisation project to get 60% or more of all of the world's populations to a good level of immunity.
Even rushing the testing phase doesn't give me much hope that that will be in place by this time next year.
I guess there is a 2.c where we find an existing drug which is mass manufactured and, at least, makes the worst cases more easily managed.
> At some point, governments will likely realize that they need to send younger segments of the population back to work
A problem being that, 60%-100% of your teams end up getting it and being incapable of work for 2 weeks, in staggered cases. So cutting the workforce in age, then in 60% segments of 2 week periods; of which 1-8% might die.
A thought is that a few changes are likely to come from this;
2008 was a whole lot worse? The market is already down 35% from its peak barely a month ago and we're clearly at the beginning of the crisis. It took the market more than a year to drop ~50% from its peak in late 2007. The bond markets are also kind of in a weird place right now. IMO 2008 doesn't look a whole lot worse right now, and might end up looking a whole lot better by the time we hit the next peek after the current crisis is over.
Archive.IS is NOT run by the Internet Archive. Very important distinction. Archive.is is a private archive run by an unknown entity and have previously banned entire countries from accessing the service for unclear reasons.
Public broadcasters like BBC and NPR are generally considered reliable and will remain free of paywalls. Same story is made available to the worldwide public without paywall or installation of browser plugin here:
This is far worse than 2008. The market is crashing 1-2 times more rapidly (points/day) than it did during the great depression.
There have been rumors floating around that the economy was basically running on fumes. The yield curve was heavily inverted and the 7 year cyclical recession cycle was skipped.
Life is about to get really hard in the US and will likely continue to be so after the virus - and even that will probably drag on for 2-6 months. Get ready for Soviet Union style living. Bank runs are probably coming soon. This is unprecedented - both the virus and the rate at which the market is crashing.
Edit: even CNN is warning about triggering bank runs!
How do I run on a bank when the banks are closed? Why would I run on a bank when my deposit is insured by the federal government?
Even in China at the height of the crisis, the grocery stores were still stocked. Credit & ATM cards still worked. Life went on.
Is the economy fucked? Yes. Will this cause very real, crippling harm to many people? Absolutely. But there's a very real difference between a crisis and a collapse. We're not there, and we won't get there.
30% market crash in less than two weeks and an impending Nationwide shutdown with predicted 20% unemployment is probably a collapse - or at least the closest we've been to one since the great depression. Especially combined with other indicators.
The S&P lost 50% in 2008, and we survived. Mnuchin did not predict 20% unemployment.
"A Treasury official said Mnuchin was not providing a forecast but trying to illustrate the potential risks of inaction." (literally the 3rd sentence).
This just sounds like a panicked person spreading panic in turn...please give some attention to the emotional burden caused by telling people they are about to (in your opinion) get caught up in "Soviet Union" style living.
The CNN article is an opinion piece which is effectively advising caution and even sources reliable information that FDIC protection is still in place. The tone is completely different...please be more responsible.
No. If you're on TD Ameritrade, for example, you're insured up to $152 million through the FDIC, SIPC, and private insurers. Other companies are required to carry similar insurance.
How will you access your money if the internet goes down? How will you buy food if your credit card isn't accepted, either because their connection or power is out or worse?
A society built on top of perpetual growth is about to grind to a halt for 2-6 months, after already showing signs of poor economic health. This doesn't even get into the potential political mess that awaits us.
> A society built on top of perpetual growth is about to grind to a halt for 2-6 months
Grinding to a halt may be an exaggeration;
There's little reason for
- food production to grind to a halt (California, Midwest, Florida) as these are not high density jobs with a high risk of contagion.
- Technology oriented jobs; These have been increasingly work remote or from small offices; In many ways technology production should be stimulated in solving many problems presented by our now quarantined economies.
- Existing Construction jobs; Maybe they're slowed down to decrease worker density. these have a potential for low density, especially Crane operators, concrete trucks, etc. If you touch your face or take off your helmet you're going to have a bad time in these roles already.
- Power Company. Whether it's hydroelectric, coal, or nuclear; few of these use worker density to run or be maintained. Major projects will likely be stalled for those 6 months. These are also places where touching your face is already avoided.
Your thinking is myopic. The virus is a geopolitical trigger. Among the fallout is the US economy.
The world is rapidly changing. It will not return to normal once the virus is eliminated. The signs are everywhere. Governments in flux.
We just had two $1.5T federal stimuli effectively fall on their faces. Treasury Secretary is predicting 20% unemployment. That's great depression level and I suspect they were being conservative to avoid even worse panic. This is going to continue for many months if not years after the virus troubles are over.
That still doesn't mean the power is going out or the water is going to stop running. Another depression is in no way a good thing, but it's not the apocalypse. Zombies are not going to take over the water treatment plants. No one is going to nuke the power stations.
Yes, life will get hard. Yes, this really sucks if you were planning on retiring soon. But life will go on. Calm the fuck down.
