'Fear Factor' Is Running High as Currency Markets Resume Trading
bloomberg.com
bloomberg.com
The fact that most people (rightly) assume that fed action is the most significant factor for the market should really give people pause.
Lastly, people should really consider what happens when fed action is no longer enough, and what happens then.
https://www.zerohedge.com/economics/hong-kong-embraces-helic...
https://ftalphaville.ft.com/2020/02/26/1582705518000/Helicop...
I'm not sure that's a safe assumption. These bonds could be held by pension funds etc...
If I am a blue-collar worker nearing retirement, and I find out my pension plan just imploded, it's definitely going to impact my spending negatively.
The median savings for American families whose wage earners are between 56 and 61, is $17,000. [1]
34% of American adults have zero savings (retirement + non-retirement). [1]
Anecdotally, I had a Grandpa with a $60k/yr pension and he was definitely upper class.
[1] https://www.cnbc.com/2017/06/13/heres-how-many-americans-hav...
By “pensions” do you mean defined benefit plans only?
“In 1980, more than 148,000 DB plans covered 30 million active workers (38% of the workforce), but by 2008 just over 48,000 DB plans covered 18.9 million American active workers (13% of the workforce). Over the same period, the number of DC plans increased from 340,850 to 669,156 with an increase in active workers covered from 14 million (14% of the workforce) in 1980 to more than 67 million (46% of the workforce) in 2008.”
Kind of ignoring the root cause of this market sell-off.
And it wasn’t just middle class, but lower too...
https://en.wikipedia.org/wiki/Alaska_Permanent_Fund
I prefer Norway's approach of saving (to the tune of nearly $200k per citizen!) for a rainy day.
https://en.wikipedia.org/wiki/Government_Pension_Fund_of_Nor...
Things are not getting made/made at normal rates, and that's starting to ripple up through supply chains.
Can't buy the car stuck on an assembly line because the widget plant for some key piece is only fulfilling 1/3rd of orders.
https://www.nytimes.com/2020/02/29/upshot/coronavirus-recess...
And for that, you're still right that there's no financial intervention to fix it.
If you spend months inside, avoiding gatherings, worrying about your health and that of loved ones, not going to restaurants, postponing discretionary purchases do you immediately snap back to pre crisis levels once it’s over?
What’s the economic activity in locked down areas of Italy right now?
What is the possibility that US escapes unscathed given clown car response at the federal level?
If you had any sort of disruption in your personal life, you didn't have income coming in or whatever, wouldn't a large loan be really helpful if you didn't have enough savings? It doesn't matter if it's a "real" problem, or just some senseless legal thing.
They showed tremendous incompetence in letting the crisis happen (laughable oversight, too low rates).
This whole meme "the FED will bail us out" has to die before it dies naturally of fatal failure. The real economy is the real economy, not a bunch of econ PhDs wondering why the Phillips curve is not working any more. But we all know it'll take a fatal failure to remove it from people's minds.
Seriously, just think about it - you're trusting a bunch of bureaucrats that know no better than to follow what the bond market thinks (https://www.cmegroup.com/trading/interest-rates/countdown-to...). The blind leading the visually impaired.
And yes, as of Friday (last closing) the bond market tells the FED very clearly to cut the fed funds twice, already on the next meeting (Mar 18, 2020). Since Dec 2018 when Jerome Powell was humiliated by the markets and also somewhat by the President he dares not to do anything else than what the markets tell him to do, so very good chance for 2 cuts.
I certainly agree w/ you that it will take a fatal failure to kill this meme, and I think that failure might be coming up.
Define "too low". The world is awash in capital, no one is going to borrow from you at 5%+. Or are you one of those "we should raise rates so we can lower them later" people?
>you're trusting a bunch of bureaucrats that know no better than to follow what the bond market
The Fed are confined to monetary mechanisms. The rest falls on politicians. But the powers-that-be seem to have decided that they will not allow us to have a deflationary bust again, so they are going to print money and deal with the inflationary consequences down the road.
You defined it in the next sentence. Capital should be the judge of prospectuses - i.e. of ideas to implement in the real world. When there's too much capital there's no judge (i.e. it's not really capitalism any more).
All bubbles are a consequence of too much money and too much credit/faith in something.
I think their point is that while it's arguable that rates are too low, congress needs to change fiscal policy for them to be able to raise rates, so it's unfair for the Fed to get all the blame here. They're using the policy tool they have to execute their mandate and the other (maybe better) policy tools are out of their hands.
https://www.valuepenguin.com/mortgages/historical-mortgage-r...
> Continued hikes in the fed funds rate pushed 30-year fixed mortgage rates to an all-time high of 18.63% in 1981.
He is remembered as a hero. Ray Dalio did an interview with Volker not long before Volker passed away:
So if your decisions are of the type "what should I buy and hold in the long term" then definitely real world business performance is key as that will determine where that price will be in a couple years. But if you're not going to hold the same position for long and are trading on markets, well, groupthink is a very, very influential factor that determines the price you're going to get today or tomorrow.
One would assume that a cut from 1% to 0.5% would mean a 50% change in Interest Payments. While a 8% to a 7.5% cut would mean only a ~6% change.
In practice, it's much more complicated than that.
We're down ~10%. A 60% drop sounds extreme for how much long-term impact this could have.
We're going to have serious supply chain issues for the foreseeable future. A few months with decreased production is going to set things back pretty significantly. And with the possibility of 6-18 months of delays and decreased production, i can see it taking 5-7 years to fully recover from.
I guess what I am getting at, is that I am not really concerned about the Fed. I am way more concerned about the government bungling their response. They cut taxes and pressured the fed to lower interest rates when the economy was doing fine against very vocal warnings that it would be much harder to deal with a future recession. And now that we are faced with a potential recession trigger, I am not very confident they will get this one right.
THe next big thing to watch out for is the virus spread in the USA.
Now, unless something changes, I am not overly hopeful in containment for the USA. The rumours of poor/non standard testing, and the limited access to healthcare is going to make one hell of a mess.
Could a US person explain who pays for the test/on going healthcare if an uninsured person rocks up to the ER with relevant history and flu like symptoms?
Does the government step in to fund care? or is it left to the hospital to foot the bill?
There have been cases of them putting liens on people’s houses while their still hospitalized if the expected cost of treatment is expensive enough.
> Does the government step in to fund care? or is it left to the hospital to foot the bill?
AFAIK, currently it'd be just like if someone uninsured came in with any other illness: the hospital gives the care, the patient gets a bill they can't pay. The hospital essentially extends credit to the patient.
The outcome is the same but the health cohort might be a surprise depending on your mental model.
Many people without money or insurance also go but since they don’t have assets, they just don’t pay and the hospitals can’t collect on them. So the hospitals have to raise costs on people with money to pay for people without money.
The second scenario actually caused a hospital I knew of in Dallas Texas to close down because it had (according to the locals) “too many illegal immigrants taking advantage of free healthcare”. Dallas Texas is somewhat close to the Mexico border.
I personally knew of a vagrant woman with a prior medical issue that bragged about happily racking up the hospital over a million dollars in expenses after staying in a hospital bed for a few months. She didn’t express concern about having to pay for any of it since she doesn’t work. I wasn’t sure how to feel about that.
I once paid $8k while my health insurance paid $43k when I spent just half a day in a hospital bed in Colorado after I fell and broke a bone.
The on-paper cost and the actual cost are wildly disparate.
It's not uncommon to see a $40k bill get "adjusted" to something like $4k when insurance is present.
Only 4% of US bankruptcies are because of medical bills https://www.washingtonpost.com/blogs/post-partisan/wp/2018/0... . A tipoff that [insert large percentage here] of bankruptcies aren't actually because of medical costs is that only 6% of bankruptcies by those without health insurance are because of that cause. The biggest cause of bankruptcies is lack of income, which health insurance doesn't affect.
https://www.google.com/amp/s/www.cnbc.com/amp/2019/02/11/thi...
You’re quite clever in saying that bankruptcies are caused by lack of income. I suppose more income would solve 100% of bankruptcies lol
Your citation says
>A new study from academic researchers found that 66.5 percent of all bankruptcies were tied to medical issues —either because of high costs for care or time out of work.
(My emphasis.) In other words, people going bankrupt because health problems = lack of work = lack of income. That does not contradict my citation which states that 4% of US bankruptcies are because of medical bills; that is, bills for health care treatment exceeding available income.
Your article goes on to quote a study author who carefully elides the difference between the two. Oh, by the way, he is a prominent proponent of Medicare for All! Imagine that.
what on earth did they do to you to cost that much?
to put that in perspective, your co-pay is the cost of a hip replacement in the UK: https://www.statista.com/statistics/687462/cost-of-bone-trea...
The only people who think the U.S. has a good health care system are the rich who can afford anything and the poor who watch the news (propaganda) extolling how good our system is but don't actually take part in it. Even if you have insurance, you have to be very careful about what you use and when.
I'm not super informed on the issue, take this with a grain of salt.
They don't. They keep working because there's no way to afford the time off or the sick child care, even if the taxpayer does foot the bill for the ER visit.
Kids keep going to school and adults keep rocking into work.
That especially goes for food service workers.
Also Coronavirus doesn’t know the difference between someone making minimum wage and $10million/year. This can and will cause an economic downturn, possibly a recession. Hopefully we as a nation get it though our heads that universal healthcare and paid sick leave is something that is needed to prevent further disease outbreaks.
But I think the impact is already being felt -- ports are already reporting a drop in container ships.
https://www.wsj.com/articles/port-of-los-angeles-sees-corona...
And the lack of incoming ships doesn't just reflect a drop in imports, but it's also affecting exports that were waiting on those ships.
If you look at traffic stats for the Chinese cities above, you will see they improved last week...last Monday Shenzen was actually back to normal. Again, maybe the virus gets worse but the evidence is that we have stabilised.
It takes about 2 weeks for a cargo ship to reach the USA from China, but it can take 30 days or longer to get a shipment through the entire cargo chain from start to finish, so even if things are recovering on the China side, we're still in for at least a few more weeks of disruption.
And since cargo is stacking up on both sides, it'll probably take months to get everything back on track.
I just told you what the volume is (you can check for yourself, all of this is public information) for other ports.
It won't take months. That is just not factually accurate, it takes a day or two to load the largest container ships, and they load more than one at once. It isn't "stacking up", that isn't how ports work...if you can't get space, you don't stack your stuff at the port, you just don't send it.
Time to accept it: we're all going to get the coronavirus, and you know what? The vast, vast majority of us are going to be just fine. [1]
So we're clear, the seasonal flu has killed 80,000 people so far this year vs 3,000 from nCov-19.
The transmission rate is a bit higher than H1N1, the fatality rate is a bit higher than H1N1 (0.6% vs 0.45%). Treating this as some sort of ebola pandemic where we're all going to die is a massive overreaction.
From the WHO report almost half of people are asymptomatic.
Death rate for people under 7 is 0%.
Under 40 is 0.2%.
Under 50 is 0.4%.
For older folks or the immunocompromised, it's naturally higher, because they're older and immunocompromised. Data shows the H1N1 flu is 10% fatal to old folks, too.
We've reached peak unsubstantiated fear.
[1] https://www.theatlantic.com/health/archive/2020/02/covid-vac...
If everyone uses some common sense, washes hands, is on top of their symptoms and goes to the hospital, etc. everything will be fine.
If everyone just acts like nothing is wrong you could have cluster outbreaks and seriously affect pockets of people. The fear factor plays in here.
The fact that we haven't tested nearly as many in the USA and are acting as more of a passive observer gives me concern.
Is that true though? Half the country gets a flu shot, yet between 10M and 50M still get the flu each year. And to be honest, I'd be very reluctant to go to a hospital for any reason right now unless I felt I was in danger of dying since everyone that thinks they might have coronavirus is going to be sitting in the waiting room beside me.
Is simple handwashing enough top stop the spread of this coronavirus, or is stronger isolation needed? China seems to have a handle on the infection growth but as far as I know, many areas are still on lockdown.
Don't touch your face.
Don't touch your face.
Please stop touching your face
Wash your hands if you need to blow your nose or cough into your hands.
For God's sake, don't wipe your nose with your hand and then touch other stuff.
Don't lick your fingers to help open plastic shopping bags. Impose the death sentence for employees who do this. (Okay, okay. Just fire them.)
If the world at large would stop doing heinous things like blowing their nose at the table in a crowded restaurant or public meeting, my world would be vastly better.
Very few Americans are going to go to the hospital, let alone the doctor if they catch the coronavirus. Because few Americans can afford the costs of healthcare. Even I would be hesitant to go and I have good health insurance because the cost could still be in the thousands of dollars!
So the only people that'll end up going to the doctor are likely those with more severe symptoms while those with more mild issues will continue to spread it by going to work (because they can't afford taking time off) and so forth. We've dug our own hole and now we get to deal with something we never were prepared for.
Let's say Covid-19 is equal to influenza in every way. That is a disaster. Influenza is one of the worst illnesses we deal with. If we now have another illness continuously spreading in the community equal in impact to influenza, which infects 35 million people annually, resulting in hundreds of thousands and sometimes millions of hospitalizations, and 30,000 - 100,000 deaths each year, that is an absolute calamity.
I don't think anyone thinks we're all going to die from this. But preventing this disease from becoming a permanent addition to the routine illnesses we deal with is a big deal, and people are worried about the necessary social distancing required to contain it.
> (b) that shouldn't really matter to us. Longer term, we'll have a vaccine and it'll be added to the usual seasonal flu vaccine package.
That's a very optimistic take. We have indeed become much better at developing vaccines, but it's not clear that we'll necessarily be able to develop an effective one for coronaviruses. You say that we'll just add it to the seasonal flu vaccine package, but we don't have effective vaccines for influenza. They mitigate risk, but the mutation rate of influenza is such that seasonal vaccines generally only provide a 60% protection, and some seasons much less. And we've been developing these vaccines for decades, with tens of billions spent on flu vaccines and research.
We don't have any vaccine against the common cold, despite massive amounts of research towards that. Most colds are caused by rhinoviruses, but about 15% are caused by species of coronaviruses. And we haven't developed any vaccines against them.
With 55% of people asymptomatic based on the WHO report, I'd say that ship has long since sailed.
> Let's say Covid-19 is equal to influenza in every way. That is a disaster.
It's not ideal to be sure, but it certainly doesn't mean we should be enforcing lockdowns of cities with drones and tanks. The reaction is way overblown. People are hoarding supplies over the flu.
But let's be clear about the costs we're talking about. When we talk about the costs of legislation, we usually discuss the ten year cost. Every decade, influenza kills half a million people in the US. It has direct medical costs of $100 billion, and total productivity losses equal to almost a trillion dollars.
There's some evidence that people can be re-infected with coronavirus. If we have another influenza which people can catch again and again every year, this is an absolutely massive problem. If we can avoid that with short-term social distancing, we should, even if that's a major impact on people's lives.
If it's clear we no longer can, then we should stop. I guess our only disagreement is whether, or not containment still has any chance of working. If we believe it does not, then sure, social distancing is largely pointless, and only buys time.
What I'm saying is that the level of panic right now is well beyond where it should be given the risks.
But it’s a new flu - how much is it worth to stop the spread and not have to deal with it forever
https://scopeblog.stanford.edu/2019/09/16/scientists-close-i...
https://earthobservatory.nasa.gov/images/146362/airborne-nit...
They only reversed course when their hospitals became so overloaded that they had to do something.
People seem fixated on this idea that a 1-2% death rate is going to be mean that 1-2% are going to die, but this ignores hospitals being overloaded.
From: http://www.cidrap.umn.edu/news-perspective/2020/02/study-720...
A total of 81% of cases in the JAMA study were classified as mild, meaning they did not result in pneumonia or resulted in only mild pneumonia. Fourteen percent of cases were severe (marked by difficulty breathing), and 5% were critical (respiratory failure, septic shock, and/or multiple organ dysfunction or failure).
So from this study, 19% of the cases were severe and required hospitalization. There are 320 million people in the us, lets say 30% get it at once. That's 320m * .3 * .19 = 18 million people. Of course, some of that 18 million will be taken care of by hospitals, but that would account for only a tiny fraction, there are only about 91k ICU hospital beds in the US
From: http://www.centerforhealthsecurity.org/cbn/2020/cbnreport-02...
46,500 medical ICU beds in the United States and perhaps an equal number of other ICU beds that could be used in a crisis.
https://www.cnbc.com/2020/02/29/china-pmi-factory-activity-s...
When someone is self-interested in speculation, that also provides a signal to the broader market about what might unfold. That signal helps others plan as well.
I guess you don’t talk to people in the construction industry. People have been let go because they can’t get supply. I’ve had multiple first hand accounts just in the past week in different parts of construction (commercial and realestate) saying how bad it is (Australia).
"At the same time, the lowest rated part of the investment-grade market has grown particularly quickly. Globally, BBB debt makes up over 50% of the market versus only 17% in 2001." - https://www.blackrock.com/institutions/en-us/insights/invest...
This would usually be a good time to talk about fiscal stimulus options.
The market is a fickle beast; there's a chance that a stimulus too early may make future stimulus less effective, since "it didn't work earlier".
Or just say fuck it and cut people checks every month for a while.
Plan to have these ready in case they're needed. Health-related ones can probably be activated soon (esp testing).
Chance of any of this happening: 0%.
“ We also expect some institutional investors to start buying the dip on expectation of fiscal and monetary stimulus, virus spread being more contained in the West versus China due to the timely response from the respective health authorities . . .”
That seems overly optimistic as the U.S. has tested about 500 persons as of 03/01 per the CDC.
In times like this hedging is an extremely useful tool.
If you need the money in 2020, hedging makes sense. If you don't, don't.
Definitely will not lose more than I would’ve if I had done nothing, even if it goes to 0, which is unlikely given the high volatility.
No good news came out this weekend, if anything it’s only gotten worse. A V shaped recovery is unlikely, but if it does go up this is a hedge, not a bet, and my portfolio is net long.
Last week, and Monday afternoon was probably the last opportunity to buy hedge at a decent value.
Also, leadership issues aside is a big aside. Having the most incompetent and corrupt administration in recent US history helming the response to this, including someone who caused a public health crisis in his own state and a self-serving pharmaceutical industry lackey is about the worst you could ask for.
- Go to the hospital, get tested, possibly get quarantined, lose work income, possibly get fired, possibly pay large bill if uninsured
- Don't go to the hospital, hope you recover fine
If it splits half-half, that's a lot of people who are going to be going outside and infecting people.
> "The experts who made this map, and ranked the US in first place, are quick to add caveats to America’s number one status... The US scored well on measures including "biosecurity" and "emergency preparedness," but was near the bottom of the list when it came to "healthcare access... According to the Global Health Security Index ranking, the US comes in 175th out of 195 countries, when it comes to Americans‘ access to healthcare.
Finance Internet Rule #1: unless you're going to post a screenshot of your account and profits, don't brag about a trade. Everyone's an anonymous stock market genius, you know.
IMF SDRs are important because all of the central banks hold a bunch of them.
The Yen is not weighted higher because Japan’s debt is quite high compared to it’s GDP and Japan could try to print it’s way out of it’s debt. The Yen is not weighted lower because they’re fortune enough to be able to print their way out of their debt if need-be compared to many other countries that hold debt in non-domestically denominated currencies.
That’s the best answer I can come up with.
Just based on the data I am seeing, last week was a turning point. If things get worse this week, then we will move lower again, but...right now, it doesn't look like likely.
You had a case where the market felt like it was in freefall. People piled into puts and some panicked longs sold their portfolios and sat on cash.
Then, when it was clear the market had stopped falling and was moving up quickly, cash hoarders suddenly piled back into the market in a panicked attempt of buying the dip. Two weeks or so and the market was in an identical place.
People that sold paid taxes on their gains, a huge hit to any portfolio. Everyone that held was better off.
We may sell off more if things get worse later but right now, we have got through the point of maximum panic (just from what I witnessed, this was a December situation...I live in the UK so our December was motivated by Brexit but back then people were talking about stockpiling, etc. it was one of those times where you don't know whether to laugh or cry).
up.