The day after tomorrow

[samwise]

How are people investing now? I’ll lay out my thoughts. Happy to heard thoughts, or anything I missed.

 

I think no business models get impaired, expect a low probability chance in healthcare. So the day after tomorrow looks like the day before yesterday. So one can quantify the upside based on previous earnings.

 

What’s not clear is which equity survives a 3 month shutdown. This is the big risk priced in the market now. Huge unknowns as I don’t know what the effects of shutdown are.

 

The trade off is upside versus survival. On one side Japanese companies which hoard cash to survive anything, but are terrible at generating returns for shareholders. On the other side leveraged companies with thin margins and fixed costs which might not survive a blip in sales.

 

A full lockdown is worse than a depression.

Retailers have no sales, cannot pay payroll or rent or debt. Without rent landlords cannot service the mortgage. Banks can’t get any payments, so how do they make payroll?

Individuals don’t get paid, can’t pay rent, mortgage or credit cards.

 

This looks unsustainable and can’t last too long. It’s also government enforced, so hard to say that the bankers took too much risk and deserved the losses. Makes me think society will cut this short and take the loss in lives stoically.

[Jurgis]

A full lockdown is worse than a depression.

 

I think a lot of people have incorrect concept of "full lockdown".

 

I had questions about how the heck things work in a full lockdown in California. So I searched.

The list of "essential" businesses that are open is quite longer than you'd think.

In case you wonder if you can get strawberries: agriculture is not shut down.

In case you wonder if you can get anything from China: port of Long Beach is not shut down and railroads are likely not shut down either.

In case you wonder if you can get a loan, cash a check, or do a refi: banks are not shut down (though some might have limited staff in branch and/or shorter hours).

In case you wonder if you can get your appliances repaired or purchased: appliance repairs is essential business and not shut down; purchases might be more mixed bag. I just bought an appliance (but we are not in full lockdown as California is).

 

I'm not saying that "lockdown" is "just like a flu"  ;D. It is bad. But it's not 100% stoppage of economy either.

 

BTW, I find it really funny that with "lockdown" in effect, I can easily buy non-essential products like window blinds from China, but I cannot buy such essential product as US made toilet paper.  ::)

[Spekulatius]

A full lockdown is worse than a depression.

 

I think a lot of people have incorrect concept of "full lockdown".

 

I had questions about how the heck things work in a full lockdown in California. So I searched.

The list of "essential" businesses that are open is quite longer than you'd think.

In case you wonder if you can get strawberries: agriculture is not shut down.

In case you wonder if you can get anything from China: port of Long Beach is not shut down and railroads are likely not shut down either.

In case you wonder if you can get a loan, cash a check, or do a refi: banks are not shut down (though some might have limited staff in branch and/or shorter hours).

In case you wonder if you can get your appliances repaired or purchased: appliance repairs is essential business and not shut down; purchases might be more mixed bag. I just bought an appliance (but we are not in full lockdown as California is).

 

I'm not saying that "lockdown" is "just like a flu"  ;D. It is bad. But it's not 100% stoppage of economy either.

 

BTW, I find it really funny that with "lockdown" in effect, I can easily buy non-essential products like window blinds from China, but I cannot buy such essential product as US made toilet paper.  ::)

 

A lot of business are considered essential, including the one I work for, since it supplies defense as well as some medical equipment companies. A lot of companies continue to operate, utilities operate, public services operate and lots of folks work from home. Even in a lockdown, most people are working every day and get a paycheck.

[samwise]

A full lockdown is worse than a depression.

 

I think a lot of people have incorrect concept of "full lockdown".

 

I had questions about how the heck things work in a full lockdown in California. So I searched.

The list of "essential" businesses that are open is quite longer than you'd think.

In case you wonder if you can get strawberries: agriculture is not shut down.

In case you wonder if you can get anything from China: port of Long Beach is not shut down and railroads are likely not shut down either.

In case you wonder if you can get a loan, cash a check, or do a refi: banks are not shut down (though some might have limited staff in branch and/or shorter hours).

In case you wonder if you can get your appliances repaired or purchased: appliance repairs is essential business and not shut down; purchases might be more mixed bag. I just bought an appliance (but we are not in full lockdown as California is).

 

I'm not saying that "lockdown" is "just like a flu"  ;D. It is bad. But it's not 100% stoppage of economy either.

 

BTW, I find it really funny that with "lockdown" in effect, I can easily buy non-essential products like window blinds from China, but I cannot buy such essential product as US made toilet paper.  ::)

 

A lotmof business are considered essential, including the one I work for, since it supplies defense as well as some medical equipment companies. A lot of companies continue to operate, utilities operate, public services operate and lots of folks work from home. Even in a lockdown, most people are working every day and get a paycheck.

 

That’s heartening to hear. But at 20% unemployment most people are still working, and it’s twice as bad as 2008/9. Markets are worried about which companies can survive, and there is no idea how deep the recession will be. Perhaps since this is a self imposed pain, there is a limit on how much pain can be taken.

 

For reference the depression had 25% and GFC had 10% unemployment. One can hope whatever unemployment we get is temporary. But how deep will it be?  That will predict loan losses in banks consumer books and credit cards. If it’s not too bad then I don’t understand the pessimism in all lending stocks: banks, credit cards, KMX.

 

How about retail sales? Eyeballing the data series shows about 11% fall between December 2008 and 2009. Lots of unknown macro variables here in a novel situation.

 

Jurgis, thanks for explaining the lockdown. I had no idea how similar or not it was to Wuhan and Italy. How much of a hit to employment or sales would you estimate this causes?

[Jurgis]

That’s heartening to hear. But at 20% unemployment most people are still working, and it’s twice as bad as 2008/9. Markets are worried about which companies can survive, and there is no idea how deep the recession will be. Perhaps since this is a self imposed pain, there is a limit on how much pain can be taken.

 

For reference the depression had 25% and GFC had 10% unemployment. One can hope whatever unemployment we get is temporary. But how deep will it be?  That will predict loan losses in banks consumer books and credit cards. If it’s not too bad then I don’t understand the pessimism in all lending stocks: banks, credit cards, KMX.

 

How about retail sales? Eyeballing the data series shows about 11% fall between December 2008 and 2009. Lots of unknown macro variables here in a novel situation.

 

Jurgis, thanks for explaining the lockdown. I had no idea how similar or not it was to Wuhan and Italy. How much of a hit to employment or sales would you estimate this causes?

 

I'm not a professional economist.  8)

 

Back of the napkin:

Retail https://www.bls.gov/iag/tgs/iag44-45.htm

15M labor force, let's say 7M unemployed.

Leisure and hospitality https://www.bls.gov/iag/tgs/iag70.htm

17M labor force, let's say 10M unemployed

That's about 17M unemployed.

Total US labor force is about 160M. So a bit above 10% unemployment.

I don't know if these assumptions are too draconian.

In other sectors it's likely people won't get fired even if company curtails operations. In retail a lot of people are hourly, so they are not really "fired" if they don't work.

 

Retail sales are likely to suffer higher drop than 11%. 20%+?

 

I might be totally off though.  ::) Don't rely on these estimates to make any decisions.  8)

[samwise]

Thanks Jurgis. I won’t rely on those numbers. they are quite bad, but hopefully temporary.

 

Here is another approach. This isn’t an economic phenomenon which has to run its course, it’s completely man made. So maybe we just need to measure the willingness to take this pain.

 

How much pain can the average American take? At what unemployment number over two months do Americans say enough, let’s end this.

[Spekulatius]

Thanks Jurgis. I won’t rely on those numbers. they are quite bad, but hopefully temporary.

 

Here is another approach. This isn’t an economic phenomenon which has to run its course, it’s completely man made. So maybe we just need to measure the willingness to take this pain.

 

How much pain can the average American take? At what unemployment number over two months do Americans say enough, let’s end this.

 

Economic problems are man made too. What all’s these estimates don’t take into account is cascading effects or reflexivity. If I had to  make a guess, the 20% lay-off number is closer to the truth than 10%. Who is going to buy a house, car, fund a startup or invest in new business opportunity in this pandemonium? Sure some will remain, but those somewhat decretionary things will be severely cut. The indirect cascading effects will at least as high than the direct effects. That’s why it important to soften the blow to the economy.

[Cigarbutt]

Thanks Jurgis. I won’t rely on those numbers. they are quite bad, but hopefully temporary.

 

Here is another approach. This isn’t an economic phenomenon which has to run its course, it’s completely man made. So maybe we just need to measure the willingness to take this pain.

 

How much pain can the average American take? At what unemployment number over two months do Americans say enough, let’s end this.

 

Economic problems are man made too. What all’s these estimates don’t take into account is cascading effects or reflexivity. If I had to  make a guess, the 20% lay-off number is closer to the truth than 10%. Who is going to buy a house, car, fund a startup or invest in new business opportunity in this pandemonium? Sure some will remain, but those somewhat decretionary things will be severely cut. The indirect cascading effects will at least as high than the direct effects. That’s why it important to soften the blow to the economy.

Maybe this is irrelevant but I get this feeling that a lot of what the government has done in the last 20 years or so has been to soften the blow.

https://www.cbo.gov/system/files/2020-03/56165-CBO-debt-primer.pdf

I realize CBO documents are not exactly like a Netflix series but looking at page 6, graph S-1 requires about 5 seconds.

A word about the CBO:

-They are typically wrong in their forecasts (sometimes wildly so) and they typically underestimate shortfalls.

-Their outlook does not usually factor in recessions

-Their recent outlook report (March 2020) does not take into account recent health-related issues

[SharperDingaan]

Most people are simply in denial. The unemployment numbers from this are so large, that folks just cannot imagine it.

There HAS to be a pill, or a vaccine that I can take - to escape this nightmare!

 

There are 45 auto-plants in the US. They, and their domestic supply chains, are now shut down. Every auto-plant supports roughly 7 other jobs in the economy. Of the 45 auto-plants, roughly half are owned by the Big-3, and employ about 150K employees. Hence, with this announcement - roughly 2.1 MILLION jobs, just hit the street (2x150Kx7=2.1M). Similar cascades around aircraft makers/airlines, oil/gas, travel, hospitality, and hotels - AND ALL IN THE SAME MONTH.

 

Manufacturers are converting to mask and ventilator production, because they desperately need the work.

https://www.cbc.ca/news/canada/windsor/ford-gm-covid19-close-factories-1.5501927

https://en.wikipedia.org/wiki/List_of_automotive_assembly_plants_in_the_United_States

 

That denial, is feeding US intolerance of social distancing for any length of time.

Public shaming, and police/military enforcement in a pressure cooker, is not going to go down well. Millions of angry people, with easy access to social media and internet, is not a happy combination - and they are going to blame somebody.

 

SD

 

 

 

[Jurgis]

Most people are simply in denial. The unemployment numbers from this are so large, that folks just cannot imagine it.

There HAS to be a pill, or a vaccine that I can take - to escape this nightmare!

 

There are 45 auto-plants in the US. They, and their domestic supply chains, are now shut down. Every auto-plant supports roughly 7 other jobs in the economy. Of the 45 auto-plants, roughly half are owned by the Big-3, and employ about 150K employees. Hence, with this announcement - roughly 2.1 MILLION jobs, just hit the street (2x150Kx7=2.1M). Similar cascades around aircraft makers/airlines, oil/gas, travel, hospitality, and hotels - AND ALL IN THE SAME MONTH.

 

Manufacturers are converting to mask and ventilator production, because they desperately need the work.

https://www.cbc.ca/news/canada/windsor/ford-gm-covid19-close-factories-1.5501927

https://en.wikipedia.org/wiki/List_of_automotive_assembly_plants_in_the_United_States

 

That denial, is feeding US intolerance of social distancing for any length of time.

Public shaming, and police/military enforcement in a pressure cooker, is not going to go down well. Millions of angry people, with easy access to social media and internet, is not a happy combination - and they are going to blame somebody.

 

SD

 

SD,

 

I could not find info for all factories, but it seems that employees are being compensated during closure:

https://www.dallasnews.com/business/autos/2020/03/19/arlington-general-motors-plant-will-close-for-deep-cleaning-until-march-30-halting-production/

So, although it's a big economic impact to companies, it is not yet a big impact on jobs.

Clearly companies won't be able to keep paying employees if the factories are closed for extended period though.

It is also not clear if other companies in the supply chain pay their workers during closures too.

[SharperDingaan]

Most people are simply in denial. The unemployment numbers from this are so large, that folks just cannot imagine it.

There HAS to be a pill, or a vaccine that I can take - to escape this nightmare!

 

There are 45 auto-plants in the US. They, and their domestic supply chains, are now shut down. Every auto-plant supports roughly 7 other jobs in the economy. Of the 45 auto-plants, roughly half are owned by the Big-3, and employ about 150K employees. Hence, with this announcement - roughly 2.1 MILLION jobs, just hit the street (2x150Kx7=2.1M). Similar cascades around aircraft makers/airlines, oil/gas, travel, hospitality, and hotels - AND ALL IN THE SAME MONTH.

 

Manufacturers are converting to mask and ventilator production, because they desperately need the work.

https://www.cbc.ca/news/canada/windsor/ford-gm-covid19-close-factories-1.5501927

https://en.wikipedia.org/wiki/List_of_automotive_assembly_plants_in_the_United_States

 

That denial, is feeding US intolerance of social distancing for any length of time.

Public shaming, and police/military enforcement in a pressure cooker, is not going to go down well. Millions of angry people, with easy access to social media and internet, is not a happy combination - and they are going to blame somebody.

 

SD

 

SD,

 

I could not find info for all factories, but it seems that employees are being compensated during closure:

https://www.dallasnews.com/business/autos/2020/03/19/arlington-general-motors-plant-will-close-for-deep-cleaning-until-march-30-halting-production/

So, although it's a big economic impact to companies, it is not yet a big impact on jobs.

Clearly companies won't be able to keep paying employees if the factories are closed for extended period though.

It is also not clear if other companies in the supply chain pay their workers during closures too.

 

Employees in the auto-plants and supply chains, are being compensated for WEEKS, not months. Vacation pay at 100%, 2-3 weeks at 50% of pay or less, then unemployment insurance. For most, maybe 4-8 weeks until unemployment insurance. If it takes longer ......

 

Wait staff typically earn 1/2 their pay from the employer, and 1/2 from tips. Most canadian unemployment insurance will replace 50% of employment income, but for wait staff that is a 75% cut in pay, effective immediately. The hundreds of thousands of servers no longer serving you - and leaving the major cities to return home to mom/dad, because they can no longer afford to live there.

 

SD

 

 

[Viking]

Most people are simply in denial. The unemployment numbers from this are so large, that folks just cannot imagine it.

There HAS to be a pill, or a vaccine that I can take - to escape this nightmare!

 

There are 45 auto-plants in the US. They, and their domestic supply chains, are now shut down. Every auto-plant supports roughly 7 other jobs in the economy. Of the 45 auto-plants, roughly half are owned by the Big-3, and employ about 150K employees. Hence, with this announcement - roughly 2.1 MILLION jobs, just hit the street (2x150Kx7=2.1M). Similar cascades around aircraft makers/airlines, oil/gas, travel, hospitality, and hotels - AND ALL IN THE SAME MONTH.

 

Manufacturers are converting to mask and ventilator production, because they desperately need the work.

https://www.cbc.ca/news/canada/windsor/ford-gm-covid19-close-factories-1.5501927

https://en.wikipedia.org/wiki/List_of_automotive_assembly_plants_in_the_United_States

 

That denial, is feeding US intolerance of social distancing for any length of time.

Public shaming, and police/military enforcement in a pressure cooker, is not going to go down well. Millions of angry people, with easy access to social media and internet, is not a happy combination - and they are going to blame somebody.

 

SD

 

Agreed. How do you model something you have never experienced before? That is happening on a scale that has never happened before? Where you are completely unprepared? With no global coordination? Where you have incomplete or no information? Where 1/3 of the population thinks concerns over the virus are being overblown?

 

Let’s hope someone comes up with a treatment quickly. This virus thing is about to get real in the rest of Europe and North America in about another week.

[no_free_lunch]

 

The hundreds of thousands of servers no longer serving you - and leaving the major cities to return home to mom/dad, because they can no longer afford to live there.

 

SD

 

 

 

This is a good post.  It is not a theoretical, I have already seen it happen this past week.  Much of the population has no buffer at all, and the government's plans are completely inadequate for this situation.  Not a good time to be a landlord unless you can pass the pain on to the bank.

[samwise]

FT posted some real time data points.

 

opentable shows restaurants bookings down 100% in uk, USA, Canada, Germany, Mexico, Ireland, but only down 50% in Australia.

 

Springboard (never heard of them before) shows retail footfalls have fallen 70% in USA and Italy on Mach 18, and 20% in uk, Sweden.

 

Cinema bookings shrank 2/3 in the March 15 weekend Y/Y. In most of  50 countries they track. Italy and China didn’t report any data. Presumably because there was no data to report.

 

Us cinemas weekly take was less than half the take from a year ago.

 

Flightradar24 shows global flights down 20% in the week till March 21.

 

Tom Tom shows global rush hour traffic is down. London isn’t down as much. Wuhan rush hour traffic hasn’t recovered yet.

 

North Italy electricity consumption is down 15% March vs February, same day of the week. Maybe seasonal effects too.

 

Ft didn’t say anything about unemployment. Google trends search on unemployment is back to 2009 levels, but previous research shows limited prediction power in this data. https://ideas.repec.org/p/rif/wpaper/35.html

 

Btw Italy’s lockdown is quite severe. They just banned outside excercise (running,cycling). Staying inside is the healthier option. https://www.usnews.com/news/world/articles/2020-03-20/jogging-park-walks-banned-as-alarmed-italian-regions-impose-more-coronavirus-restrictions

 

 

 

 

[bergman104]

The anti-inflammatory drugs like chloroquine have only shown to be beneficial in a petri dish, not in large groups of people. No physician I know would actually prescribe chloroquine to their patient unless it was a hail mary.

 

Montefiore Medical Center in New York has already started seeing the surge of Covid-19 patients that public health experts have been warning about. The hospital is participating in the remdesivir trial and is giving Covid-19 patients chloroquine. “All of our patients get put on chloroquine, as well as on antiretrovirals. We’re using Kaletra. Different places are using different antiretrovirals,” says Liise-anne Pirofski, chief of infectious diseases at Albert Einstein College of Medicine and Montefiore. “Everybody gets that, unless they have some contraindication.”

 

I stand corrected. Apparently it is being prescribed everywhere now. I hope it makes a significant difference.

 

https://www.wired.com/story/an-old-malaria-drug-may-fight-covid-19-and-silicon-valleys-into-it/

[samwise]

This isn’t an economic phenomenon which has to run its course, it’s completely man made. So maybe we just need to measure the willingness to take this pain.

 

How much pain can the average American take? At what unemployment number over two months do Americans say enough, let’s end this.

 

Economic problems are man made too.

 

Agreed all human activity is man made. I should have been more exact. The last two recessions involved malinvestment which the economy had to work off. People and companies that did the malinvestment had to suffer losses.

 

I don’t see any such cause now. If society decided to “stay calm and carry on” as they did in wartime Britain in 1918, the economic losses would be much smaller, sharper, and more focused on travel and entertainment. The human losses would be large.

 

So the current pain is a choice. That’s what I called man made, but of course there should be a better word.

 

Since it’s a choice, there is a limit to how much people will tolerate.

[Guest Schwab711]

There was a massive curtailment of economic activity everywhere the Spanish Flu went in 1918-1919. The only reason many businesses stayed open (generally with reduced split shifts to reduce the spread) was there was a simultaneous world war. We are doing almost all of the same things society did then.

[samwise]

Schwab, I am not an expert on the events of 1918, but I based my opinion on these pieces.

 

1. The British decided to focus on keeping factories open to help with the war. With so many war deaths, they did not think a few more flu deaths mattered. https://www.telegraph.co.uk/health-fitness/body/coronavirus-spanish-flu-dark-history-keep-calm-carry-advice/

 

2. The St. Louis fed report does mention quarantines, and short term effects similar to today in some cities in the USA. In Little Rock, sales were estimated down 40%-70%. Grocery sales were down 33%. Memphis street railway had 124 employees sick out of 400 and had to curtail service. Tennessee mines were at 50% production and almost shut down because of the epidemic in mining camps. However the report says all the effects were short term and society recovered. https://www.stlouisfed.org/~/media/files/pdfs/community-development/research-reports/pandemic_flu_report.pdf

 

We can expect society to recover in either scenario, but that doesn’t mean every business survives.

 

I already see citizens debating the economic costs, their sustainability and desirability. This debate has already started, replacing the earlier debate about “it’s just the flu”.

 

 

 

[Spekulatius]

Schwab, I am not an expert on the events of 1918, but I based my opinion on these pieces.

 

1. The British decided to focus on keeping factories open to help with the war. With so many war deaths, they did not think a few more flu deaths mattered. https://www.telegraph.co.uk/health-fitness/body/coronavirus-spanish-flu-dark-history-keep-calm-carry-advice/

 

2. The St. Louis fed report does mention quarantines, and short term effects similar to today in some cities in the USA. In Little Rock, sales were estimated down 40%-70%. Grocery sales were down 33%. Memphis street railway had 124 employees sick out of 400 and had to curtail service. Tennessee mines were at 50% production and almost shut down because of the epidemic in mining camps. However the report says all the effects were short term and society recovered. https://www.stlouisfed.org/~/media/files/pdfs/community-development/research-reports/pandemic_flu_report.pdf

 

We can expect society to recover in either scenario, but that doesn’t mean every business survives.

 

I already see citizens debating the economic costs, their sustainability and desirability. This debate has already started, replacing the earlier debate about “it’s just the flu”.

 

I think the big difference to 1918 was that

A) WW1 was raging which was already an existential threat for combatants in Europe. As Bad as the Spanish flue was, it wasn’t an existential threat.

B) Equity Valuations were much lower. The economy in the US was booming at this time due to all the Production needs for war.

 

If we had a PE of let’s say 8x now, I would be a whole less worried about the stock market correction (even if it’s a pre crisis PE).

[samwise]

Spek,

 

There are three effects here, and we seem to be talking about different ones.

 

1. Health effects of the virus on the population

2. Economic effects of the virus directly by sickness, death or precautions; indirectly by government quarantine etc.

3. Market reactions

 

I was talking about 2. If I can find which business will survive, I can try to buy those cheap. Of course they might get much cheaper for a few months or even years, because I don’t have much hope about timing the market(3). As a whole I agree that the market is still not crazy cheap. Lots of companies are still at high PE.

 

1918 is not the best comparison as you pointed out, but it’s the only somewhat similar case. If we accept that we can’t figure out a worst case scenario for (2), then shouldn’t we be buying just companies which could survive anything, like Japanese cash hoarders. That was my original question, how does one invest in a market like this?

 

[Cigarbutt]

^The above exchanges are useful.

Samwise's perspective is also interesting.

 

As a relative neophyte, it seems that pandemics such as the CV situation should, in itself, be correlated with a V-shaped recovery, even if the inverted point of the "V" hurts.

Trying to make some sense out of this and using thinking along multiple angles, it's interesting to note that the effect the virus has on people is multi-factorial (anything can happen) but the critical variables associated with the severity of the disease are not related to the virus, they are related to the host. In compromised hosts, the virus, in a cascading effect, can cause damage and require supportive and resuscitation efforts and can even trigger the use of unproven (and potentially dangerous) therapies. I'm trying to see the implications for advanced economies and wonder if countries like China can survive, in its current form, in a new economic environment.

 

I've come across this recent study (from Italy). It describes the host profile risk factors.

https://www.epicentro.iss.it/coronavirus/bollettino/Report-COVID-2019_17_marzo-v2.pdf

 

I come to the conclusion, at this point, that the sentiment reaction to the virus is excessive but the appreciation of the hosts's weakness still hasn't been priced in. So what to do? In my case, uncharacteristically, the plan is to take a more measured approach to reinvestment.

[Spekulatius]

Spek,

 

There are three effects here, and we seem to be talking about different ones.

 

1. Health effects of the virus on the population

2. Economic effects of the virus directly by sickness, death or precautions; indirectly by government quarantine etc.

3. Market reactions

 

I was talking about 2. If I can find which business will survive, I can try to buy those cheap. Of course they might get much cheaper for a few months or even years, because I don’t have much hope about timing the market(3). As a whole I agree that the market is still not crazy cheap. Lots of companies are still at high PE.

 

1918 is not the best comparison as you pointed out, but it’s the only somewhat similar case. If we accept that we can’t figure out a worst case scenario for (2), then shouldn’t we be buying just companies which could survive anything, like Japanese cash hoarders. That was my original question, how does one invest in a market like this?

 

Yes, this thread should be about the longer term economic effects of the epidemic. We have already enough discussions about the near term outlook in term of epidemiology in the Coronavirus thread.

 

Cigarbutt coined the term New deal 2.0 and I really like it. First of all it is consistent with the tremendous interventions from the government around the world that we are seeing and second it describes a fundamental paradigm shift that I believe we will have as a consequence of all this.

 

When this epidemic first got started, I regarded it as similar to the 9/11 recession because I thought it will be mostly related to travel and airline. This is clearly not the case any more, the consequences are not confined and most likely will affect every sector. So, the GFC Is a better comparisons at this point. I have no idea how, but I think we will see more government involvement and regulation and less free market. I could be wrong of course, but I see that as the likely course we are taking.

[samwise]

Fed president Bullard talked about 30% unemployment today. And a 50% drop in GDP, next Q. We are not talking GFC here. This hasn’t happened in WEB’s career.

 

But I also think people are pulling numbers from hats. No one knows.no has seen this before or modelled it. The fed and government have no playbook.

 

He also proposed a 3 month holiday with the government paying you to stay home. If they force you to stay home, they should pay. Makes sense to me. “The US shouldn’t lose companies or industries because of lack of support.” https://www.bloomberg.com/news/articles/2020-03-22/fed-s-bullard-says-u-s-jobless-rate-may-soar-to-30-in-2q

 

 

The fed is buying corporate debt and commercial paper. Should help all funding issues for larger companies and even municipalities.

 

Edit: you can call this new deal 2 or socialization of losses. But there isn’t an “invisible hand of the market” which will save us here. This needs coordinated social action. It is social. If you offered a lot of people free choice between a 0.01% chance of dying, and a 90% chance of bankruptcy, are you sure their choice would be the best for society as a whole? Might as well pay them to stay home, suspend the economy, make sure everyone survives economically. Maybe print a lot of money and have a one time inflation spike. Or some other solutions which I am sure smart people can think of.

 

If there is one hopeful thing in this whole affair it is this: the disease was identified in late December. It has not even been 90 days! And so many studies have been done on it from genetics, clinical treatments, vaccines, etc. The world as a whole (8 billion people) haven’t learnt about anything this fast ever. Economists are late to the party, but maybe they can figure out some new things fast as well. Let’s hope so.

 

 

[Spekulatius]

 

I kind of wonder a bit of people are going to consider if they want to live in urban vs suburban environments in the future. Above is how my “ backyard” looks this morning. Looks pretty good to me, considering we have basically pandemonium going on outside. And I still live close enough to civilization to have a decently paid job (so far).

[Spekulatius]

Fed president Bullard talked about 30% unemployment today. And a 50% drop in GDP, next Q. We are not talking GFC here. This hasn’t happened in WEB’s career.

 

But I also think people are pulling numbers from hats. No one knows.no has seen this before or modelled it. The fed and government have no playbook.

 

He also proposed a 3 month holiday with the government paying you to stay home. If they force you to stay home, they should pay. Makes sense to me. “The US shouldn’t lose companies or industries because of lack of support.” https://www.bloomberg.com/news/articles/2020-03-22/fed-s-bullard-says-u-s-jobless-rate-may-soar-to-30-in-2q

 

 

The fed is buying corporate debt and commercial paper. Should help all funding issues for larger companies and even municipalities.

 

Edit: you can call this new deal 2 or socialization of losses. But there isn’t an “invisible hand of the market” which will save us here. This needs coordinated social action. It is social. If you offered a lot of people free choice between a 0.01% chance of dying, and a 90% chance of bankruptcy, are you sure their choice would be the best for society as a whole? Might as well pay them to stay home, suspend the economy, make sure everyone survives economically. Maybe print a lot of money and have a one time inflation spike. Or some other solutions which I am sure smart people can think of.

 

If there is one hopeful thing in this whole affair it is this: the disease was identified in late December. It has not even been 90 days! And so many studies have been done on it from genetics, clinical treatments, vaccines, etc. The world as a whole (8 billion people) haven’t learnt about anything this fast ever. Economists are late to the party, but maybe they can figure out some new things fast as well. Let’s hope so.

 

What you are describing is essentially the danish plan - a 3 month paid timeout for the economy.