And yet the stock market is already recovering. I guess "worst crisis since Great Depression" has been priced in?
It seems we’re wildly overextended, but I booked a loss on some short-term puts today so maybe my judgement isn’t the best. I’m still holding longer dated puts because I think we go down, the pre-pandemic economy is gone, we don’t know what’s left.
Edit: There were large outflows from equity mutual funds and ETFs last week. The most ever.
There just won’t be a quick bounce back.
But I guess if you live in the Hamptons and have a nice comfy job interacting with the rich all day, you probably are unaware of all this..
These moves by the Fed have essentially been necessitated by most everyone having to put their savings in the Wall St casino ("the Line always goes up"), a circular causality that will be harder and harder to repudiate - ie a "spiral". It's just a slow-starting spiral due to being the world reserve currency.
looks like the death toll will be well below all the current models so far, so that's probably why the market is reacting this way?
Unemployment is artificially high for now. Companies are incentivized through PPP to lay people off, especially with UI bonuses.
The entire point of PPP is to incentivize companies _not_ to layoff their staff.
This is all contingent on you re-hiring them, of course. Otherwise it's bad for the employees and you might get penalized under PPP. But restaurants around the nation are axing their entire staff and promising to bring them back June 30th, while maxing out PPP loans. Plenty of other businesses, too.
>> The entire point of PPP is to incentivize companies _not_ to layoff their staff.
Yes, I am aware. Would you also believe that the government had competing incentives with another program in unemployment insurance that caused this situation inadvertently?
We almost did this at my company; our accountant ran the numbers and we would have benefited to the tune of nearly six figures in doing so (spending the excess on "qualifying purchases" with the remaining 25% like rent), but I felt bad exposing my employees to the phone trees and websites of the unemployment office. They're overloaded AND incompetent.
https://finance.yahoo.com/news/investors-wondering-where-war...
https://finance.yahoo.com/news/why-warren-buffett-ignoring-c...
He did however sell some airline stock.
https://www.fool.com/investing/2020/04/06/warren-buffett-sel...
1) The US's response to this was competent.
2) The measures put in place are working.
3) The projections are improving substantially.
4) The time horizon is shrinking.
5) We are starting to understand how to treat this.
(+ "in the us").
Two weeks ago we were looking at places like Italy, and extrapolating that the US could see deaths in the millions. A week ago that projection went down to 100-200k, and yesterday it went down to 60k. Obviously that is still a massive catastrophe, but it's nowhere near the catastrophe we were fearing two weeks ago.
Additionally, the writing is on the wall that manufacturing is going to be moving away from China as much as possible in the near future. Much of that, for American companies at least, is going to come back to the US, probably at the hands of massive tariffs.
That's all good news for the US economy.
>US realizes the coronavirus is hitting them the hardest.
Where did you hear this? It is absolutely not true.
Let's check back in a few months and see how this comment has aged...
We closed travel early, we started closing businesses early, and we hold daily press conferences with multiple medical and financial experts that are directly informing the entire population of what measures they should be taking.
edit: it seems like the general response to "what should we have done" is "the federal government should have shut down travel/businesses nationwide".
Is that even legal for the federal government to do? I know that when Trump floated the idea of travel restrictions for NY, Cuomo called it an act of war (https://www.cnn.com/2020/03/28/politics/cuomo-ny-quarantine-...).
We were also quite late on shutting down businesses, although some places later than others. Fairly high-ranking officials (the Oklahoma governor, the NYC mayor, etc.) were openly encouraging people to go out to big events as late as mid-March, weeks after there was evidence of community spread.
Hell, there are still eight states that haven't, per the map at https://www.nytimes.com/interactive/2020/us/coronavirus-stay....
By leaving it up to the states, it's been bungled and the covid outbreak is lasting longer and killing more people. This leads to stay at home needing extensions and a further drain on the economy.
Hell, have the President do a public address from the Oval calling on the states to issue a coordinated stay-at-home order. Lay out the reasoning, the benefits.
Would've helped in Florida, apparently.
https://www.miamiherald.com/news/politics-government/state-p...
> “I’m in contact with [the White House task force] and I’ve said, ‘Are you recommending this?’ ” DeSantis said. “The task force has not recommended that to me. If they do, obviously that would be something that carries a lot of weight with me. If any of those task force folks tell me that we should do X, Y or Z, of course we’re going to consider it. But nobody has said that to me thus far.”
A surprisingly small number of Americans have any understanding of the structure of our government, a glaring failure of our education systems. It is no wonder that foreigners have so many misconceptions about the nature of US government given how few Americans understand it.
My guess is that it is because most major traditional media outlets are national entities. It's easier for those national media entities to talk about a government that appears relevant to their entire audience (the federal government), instead of 50+ articles each scoped at the state level.
This damages peoples' ability to do correct sensemaking because they overweighting entertainment sources as if they were data sources.
Why wasn't anything like this attempted in the US?
Externally, the US presents a common negotiating front. Internally, it is 50+ separate countries. Americans interact almost exclusively with their State governments when in the country, not the Federal government. This explains, for example, why there is no "national" ID in the US. Americans are citizens of their States, first and foremost, and each State has their own independent ID systems. What makes the US somewhat unique is that Americans have an absolute right to change their citizenship among the member States at any time. There was a time not that long ago when many Americans more closely identified with their State citizenship than their Federal citizenship.
A much better comparison is the Federal Republic of Germany, which has a strongly federal constitution, much like the United States. The Federal government in Germany has very little formal ability to impose quarantine measures on the states, but it effectively managed to do so. The Federal government called a meeting with all of the state governments, which are individually run by different, competing political parties, and managed to have all the states agree to take a similar set of measures.
The Federal government in the United States could have done the same, but chose not to. The political reason for that inaction is clear. The President's #1 priority is the economy and, specifically, the stock market. He doesn't like the idea of quarantine measures, because of their impact on the economy. He spent two months downplaying the virus, and has now shifted to blaming the WHO for his own government's failure to contain the outbreak.
> There was a time not that long ago when many Americans more closely identified with their State citizenship than their Federal citizenship.
That time was over 150 years ago.
By convention, the States typically allow the Federal government to operate freely within their jurisdiction, but it is not an obligation as it is strictly at the pleasure of the State. When there are strong disagreements between the Federal and State governments, this is a major point of leverage. Many Federal programs have been successfully killed by States prohibiting Federal operation in their States.
The German Federal government is highly constrained in what it can do in many areas of life, because those areas are under the control of the states. This is why there are 16 different high-school diplomas (Abitur) in Germany, for example.
Formally, there is a strong division of powers and responsibilities between the federal and state level in both countries. But in both countries, the Federal government wields a great deal of informal power. The Federal government has access to much greater financial resources, which it can wield to coerce states. My personal view is that this Federal power is even greater in the US than in Germany, due to the enormous political power of the President and the greater financial power of the US government (Germany has to deal with the ECB, while as Trump has shown, the President can directly bully the Federal Reserve).
If Trump had made strong statements about the need to impose quarantine measures early on, that would have had a big effect. There are many instruments at his disposal that he could have used to coerce recalcitrant state governments with. Instead, he downplayed the virus until mid-March, and has continually argued against the shutdown (see his Twitter thread). In Germany, Merkel met with the state governments, they agreed on a set of common measures, and she gave a televised address explaining those measures. She's been pretty consistent in her messaging, unlike Trump. Maybe that's because she's a physicist, and he's a real-estate mogul, or maybe it says something about what plays well in each country.
That aside, you did not actually provide evidence contrary to my assertion.
This is not a legal issue, it’s a political one.
You're too quick to interpret something illegal just so you can jump on the complaining-about-education band wagon.
1. Tested widely early on, like South Korea did.
2. Shut down public life weeks earlier, once it became clear there was community spread.
The Federal press conferences feature a few informative experts, but they also feature one very prominent source of disinformation: the guy in charge. He downplayed the virus for months, and gives rambling, poorly considered, sometimes damaging statements (e.g., causing a run on a drug needed by Lupus patients, because he likes the idea that this drug is a miracle cure that will allow America to go back to work). His latest performance was a dishonest attack on the WHO, meant to redirect blame for mismanagement of the crisis onto that organization.
Comparing the Federal press conferences to those in other countries is really eye-opening. If you want to see what good, factual, relatively unpolitical press conferences look like, take a look at the daily updates in Singapore or Germany.
But if you look at the curve, and per-capita death numbers, the US seems to be doing a good job managing the crisis relative to its size.
Has anyone in the US died because they didn’t have a ventilator? Not that I’m aware of. Washington State is already on the downslope.
The history books will be very kind to Trump for his response, much to the chagrin of an inexplicably biased literati class rooting against him.
NY has started splitting ventilators.
(And I hoped you’d appreciate the ambiguity in the opening sentence :-) Ultimately we’re all in this together and we all want what’s best for the country and world.)
50m people, 208 deaths, 27 new infections yesterday. https://en.wikipedia.org/wiki/2020_coronavirus_pandemic_in_S...
330m people, 14,696 deaths (cdc), 32,039 new infections yesterday: https://en.wikipedia.org/wiki/2020_coronavirus_pandemic_in_t...
They are a poorer country with a higher population density, yet somehow we failed.
EDIT: My post will probably age-like-milk when we're still in lockdown in November with 300k dead and we all have long hair and are wiping our butts with the lawn like sick dogs.
While the official infection rate might have more or less stabilized it’s not going down and it’s vastly low. So, what’s making them think 100-200k is a high enough to call it a safe benchmark?
By official numbers NYC infection rate is already 1%, for that to be low and infection rates steady it’s going do easily hit double digits very quickly.
Otherwise, it just seems like a political exercise to boost the numbers and cause panic. If you’re symptomatic, is the best course of action really to leave your house for a test? It seems like it would be better to call the hospital and let them know your condition (so they can estimate upcoming hospitalizations). Then, stay at home and only go to the hospital when your symptoms worsen. Get tested when you go to the hospital.
Going from a peak of 1,062 cases per day to 27 yesterday is huge.
Without some major game-changer in the next two months, its hard to see a reason why the same thing won't just happen again. Hopefully over the summer it's not as contagious due to hot weather.
VW, is burning 2bill a month in cash, just by sitting idle.... Furloughing can save maybe %20 of the costs.
A lot of the fixed recurring costs (costs and obligations that keep going even if you are not producing anything) make at least 30% of the producing value....
So, just for VW, if it sits idle for 6 months it will cost 12 Billion dollars.....
That's just one example, but there plenty of companies with the same spot. They can absorb few months of this situation, but after that all bets are off.
“Regarding the Great Depression...we did it. We’re very sorry...we won’t do it again.” - Ben Bernanke, 2002
Normally government intervention in an economic crisis is opposed by one of the two political parties, for whatever reason - often a desire to avoid rewarding “bad behavior” that led to the crisis in the first place. In this case, the only bad behavior was on the part of the government and their total failure to plan for this scenario, and so the entire political spectrum is willing to spend money in order to fix it.
So I think there is optimism not just that the health consequences may not be as severe as was originally forecast, but that there is a path and political consensus for the government to manage the economic fallout as well.
It was obvious for at least a month that the pandemic would have a massive impact on the economy due to China shutting down and the near certainty that it would spread all over the rest of the world and cause massive economic damage and loss of life.
Yet the market kept on trucking until it finally crashed. If it had really priced in all that information, it would have crashed way sooner.
I'm not making any particular prediction for this time. I'm just saying, don't get overconfident just because it's going up lately.
[1] https://www.macrotrends.net/2484/dow-jones-crash-1929-bear-m...
The fact of the matter is that Covid-19 is causing a substantial real loss of productive capacity, and barring some unforeseen breakthrough in treatment options, this is likely to continue for at least a year, possibly two or more. So I'd be very careful not to take too much comfort in the DJIA chart at the moment.
The finance industry is full of well-wishers and optimistic people right now. My complete outsider and uneducated hypothesis is that the fund managers are still trying to figure out what to do in this unprecedented crisis and are watching each other like lemmings. While millions go without jobs and we head towards an inevitable spike in bad debt.
My wife watches CSPAN in the background and they dance around the phrase "depression" by calling it the D-word in their commentary.
It's still a massive problem, but the Fed intervening quickly and the fact that many of these jobs are coming back (plus the healthy unemployment payments/bonuses) mean comparing straight up unemployment claims is disingenuous, and the stock market reflects that.
Still the SPY500 is down 500 points, which isn't "recovering" yet.
At the end of the day, either the market is right or wrong.
Of course, our information is always imperfect, especially about the future but even about the present, so it is constantly being corrected. So maybe being right or wrong is the wrong way to put it.
I don't think we have much danger of the main failing of the great depression - a collapse of the money supply because governments wouldn't step in. They seem pretty willing now but the virus itself remains a problem.
The fed is lending money to companies that would otherwise be going bankrupt, and is buying junk bonds from anyone they can.
The prior owners of the junk bonds then turn around, and spend that money on buying stocks. It's madness.