Comment by lordnacho | Hacker News Reader

Comment by lordnacho | Hacker News Reader

Former fund manager here. A few thoughts:

- Trading halts are there to let people catch their breath, supposedly. More likely it's in order to be able to announce news, because without news what's gonna change?

- The news everyone wants now is fiscal stimulus. From what I can see, there's a lot of consumers whose personal finances will blow up if the economy shuts for a couple of months. So perhaps what needs to be announced needs to be aimed at those types of people. Certainly people will protest if fiscal stimulus means just handing money to people and companies who aren't in dire straights. How about a rent break or something drastic like that?

- The effect of systematic strategies should not be underestimated. By that I'm lumping passive index trading in with various forms of systematic rules based trading (my specialty actually). Things that hop on the momentum bandwagon will make the move more extreme. They will also tend to whipsaw on reversals. There's also risk parity funds, which now need to reposition based on risk being higher.

- Also you have to figure on short options players getting blown up on this kind of thing. (Vol trading was my other specialty). Basically what I mean is in recent years it's been quite enticing to simply sell options to pick up premium, which normally is a bit too expensive in relation to the expected volatility (ie it seems smart a lot of the time). Of course nothing is free, and when there's a blowout the short gamma guys are also pushing the market the wrong way.

- There's at least one major investment bank that thinks this will end soon, markets to recover in H2, and no systemic risk. (Got that from a friend chain so grain of salt.) Not sure what to think, since this is more a question of how politicians will respond than ordinary day-to-day reading tea leaves.

Interesting times.

> - The news everyone wants now is fiscal stimulus

Market-clueless newbie here. How would fiscal stimulus help a market that is seizing up due to reducing supply side (factories close) and reducing demand side (pubs to be closed, airlines crashing because of border closures, & more) and a disease that is likely to stress many countries medical provisions to breaking point, and then beyond.

Didn't the US dump 1.5 trillion dollars in a few days ago, and the market bounced but briefly? I mean it was obvious to me that it wouldn't work, why do you (as an expert - and I don't mean that sarcastically) think more stimulus, or indeed any, would help at this point?

The 1.5T wasn’t fiscal stimulus, just cheap loans.

I think (hope) he means: help the people directly affected, like bartenders, who are going to not be working real soon.

Especially painful for anyone relying on tips. They're very often under the table to avoid taxes, which has the downside of not being recognized re: unemployment / paid leave benefits.

Bottom-up stimulus money helps us "socially distance" faster and to a greater degree, and bounce back quicker... we don't want to exit this disaster with bankrupt small businesses and unemployed/broke/homeless individuals.

Fiscal not monetary. Fiscal stimulus is writing checks to people and companies affected.

The mid-to-long term issue will be demand contraction.

Small businesses under stress, service workers not paid or let go completely, workers in general laid off, etc. All this will lead to the average person being under financial duress with rent/mortgage still due, potential medical bills, and so on and so on.

If you can get money into people's pockets (Congress has to do this) instead of cheap loans to banks (Fed does this), then you have a fighting chance of actually smoothing out the major demand contraction that is coming.

Yep. This is what we get without social safety nets: a large fraction of the country is constantly perched on the cliff of poverty. Just one big thing has to go wrong and it's all over. Right now, that one big thing is going wrong for virtually everybody all at the same time.

We have social safety nets here in Sweden and we're in a free fall too.

Yes but I assume you don't have a bunch of individuals who are about to have their lives ruined, potentially becoming homeless. The country as a whole bears the weight of the crisis, no?

In a few days time we ran out of space in the hospitals so unless you're dying you don't really get treatment. Businesses will die and peoples life will be ruined.

Not to the point of being homeless though, maybe living in the slum being dependent on government payout. (Which is not a fun existence)

Sweden is talking about herd immunity just as the UK because we don't have the capacity to handle it.

>How would fiscal stimulus help a market that is seizing up due to reducing supply side (factories close) and reducing demand side (pubs to be closed, airlines crashing because of border closures, & more) and a disease that is likely to stress many countries medical provisions to breaking point, and then beyond.

If we literally hand money to people, they can pay their bills on time while we work through this thing.

I'm not sure what else will work at this point.

It's not feasible to simply have "rent holidays" or some such, as the OP suggests, as that rent expense is someone else's income.

Paging Andrew Yang...

Most of that rent goes towards a mortgage, which can also be suspended. The landlord still looses income, but not in a worse way then other bussiness which had to close.

> Certainly people will protest if fiscal stimulus means just handing money to people and companies who aren't in dire straights.

How is it not the opposite? Bailing out only the people who have lived beyond their means or made poor decisions is a big moral hazard. Moreover, it doesn't do everything you want -- if you give money to people who are in debt, they use it to make their loan payments and pay rent. Which is better than defaults and evictions, but you also want some of the money to go to people who will actually spend it and stimulate new demand.

You also have to worry about some kind of emergency "dire straights" metric being off by a significant amount in one direction or another and as a result you either end up paying most of the money to whoever is most willing to play accounting tricks or lie on forms, or it doesn't go where it's supposed to and you still get the defaults and evictions, or both.

As a result it seems like the best option is to distribute money evenly, to everybody.

One might call this a universal basic virus income.

I find this situation very different from the bail outs of 2008. In 2008, the economy was too focused on housing and lending, and so real substantive changes needed to occur to refocus. People need to change jobs, etc. I was annoyed by the bailout then, though in the long term I came to see parts of it as wise.

In this situation, many many business which are fundamentally viable (great restaurants, cruise lines) are going to be threatened by a temporary dislocation (everyone social distancing). It's not clear to me that we need a fundamental reallocation of resources in the long term (we don't have too many restaurants, or vacation destinations).

In addition, I don't think its economically sensible to ask every business (say restaurant) to plan for a 2 year pandemic. It would just be inefficient. I think its right to handle that risk at the gov't level. It's all of our problem.

So, in this case, I am hoping for effective gov't action to preserve much of the economy. I don't think I benefit if in 2 years, all my favorite restaurants are gone, and all the big vacation operators are bankrupt.

> In this situation, many many business which are fundamentally viable (great restaurants, cruise lines) are going to be threatened by a temporary dislocation (everyone social distancing).

The issue is that it isn't just restaurants and cruise lines. How many of the shops in the local mall are in trouble if people stay home and order from Amazon? What happens to gas stations and convenience stores and truck stops if people are temporarily driving less? What happens to charter bus companies? Local community organizations? Conference organizers?

Pretending that we can predict what all the effects are going to be on everyone and centrally plan optimal resource allocation is dangerous hubris.

> In addition, I don't think its economically sensible to ask every business (say restaurant) to plan for a 2 year pandemic. It would just be inefficient. I think its right to handle that risk at the gov't level. It's all of our problem.

That's kind of the point. When times are tough, that's the time for the government to borrow money and use it to help people out. But they're notoriously bad at deciding whether a cruise ship captain deserves it more than a small business owner with a sandwich cart.

To be clear, I am not arguing for central planning.

If I were in charge, I would try to combine (1) a temporary but much broader federally run unemployment system, with (2) measures to prevent short-sighted reallocation of capital resources based on contracts (say leases) that did not adequately anticipate this kind of disruption. My strong emphasis would be on (1).

Part of my perspective is that I remember being very, very annoyed by the bailout of the automakers in 2008. Now, though, I think "where were all those workers going to go?" Would I have really been better off if we had hundreds of thousands more unemployed ex-autoworkers, and no GM? Ultimately, I think Obama made the right call on that.

I am just arguing that in this case, gov't support for struggling individuals and businesses seems quite justified to me, and I think actions meant to support a return to something like the status quo in 2 years are probably wise.

This is what I mean.

Suppose you've got a small shop owner. Right now their sales are temporarily down by 60% -- but they're still open, or it would be down by 100%, so they're not unemployed. Unemployment doesn't help them. They also own the building, so reallocating a lease isn't their problem. Their problem is that after making their mortgage payment and utility bills, they can only pay themselves a third of their normal salary, and in two months of spending down savings they won't have money to buy food.

Which is also a problem for all the places they usually buy everything else from, because all the non-necessities get cut out of their budget.

Unless they get an injection of cash.

Just offer 100% unemployment for a year for anyone laid off for corona. All the consumer debts get paid

Unemployment is not pegged to what you made, it maxes out at 790 a week. And tips do not count toward it.

Wow, where are you at that it is 790 a week? Here in Texas it is about $500 a week.

Shit you are right! I think the site I was looking at was looking at MA/MI for highest.

https://www.savingtoinvest.com/maximum-weekly-unemployment-b...

>- Trading halts are there to let people catch their breath, supposedly. More likely it's in order to be able to announce news, because without news what's gonna change?

Wouldn't the change be, "people have caught their breath?"

If the free fall is sustained by emotional panic, then halting the emotional panic can help stop the free fall.

> How about a rent break or something drastic like that?

How is a stimulus going to work if people don't have a place to spend the money?

By tiding people over who would otherwise lose it all if the national economy shut down for a protracted amount of time, which seems to be happening as we speak.

> Trading halts are there to let people catch their breath, supposedly

You mean let high frequency trading bots catch their breath?

The people running the high frequency trading bots.

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