Coronavirus-afflicted global economy is almost certainly in recession
wsj.com
wsj.com
In 2009, the economy collapsed because of bad loans. In 2020, the economy is shutting down because we shut it down.
That’s said, our shutdown could certainly snowball into serious issues with the economy where the pre-existing economic activity doesn’t come back.
I'm curious how this will influence economic research on the matter, possibly providing greater insight into 'force majeure' scenarios instead of merely propping companies and executives who helped cause the crisis in an effort to offset even worse consequences.
Now it's also due to bad loans but not for housing like in 2009 but corporate debt(stock buybacks anyone?) but it's just easier for the economists and politicians to point fingers at a new enemy without a face than to accept that the economy boon was a bubble.
The Coronavirus shutdown was bad timing but it's not the main culprit, it just accelerated the inevitable bubble burst.
Wait a few months then let's see how bike sales go.
We’re at serious risk for community starvation not seen since the Great Depression.
0: https://www.motherjones.com/food/2020/04/these-photos-show-t...
We still don’t have scalable testing in the US, which is absolutely vital to reopening the economy safely. Without that, we risk losing all of the progress we’ve made flattening the curve.
Then all of these businesses have to open back up and hope they’re able to generate income quickly enough to stay afloat, which isn’t a guarantee.
There are also a growing number of experts saying that we’ll be in flux for the rest of 2020 unless we establish that survivors can’t be reinfected, which hasn’t been confirmed yet. Even if some areas are able to open up early, the economy will continue to suffer to its global nature. We’re just in no way able to say it’s going to be normal in 2 months.
I personally believe that the worst could be done in many places.
New York was too slow to institute controls and stopped just short of catastrophe. But, it's likely (based on extrapolation from serological data elsewhere), that 15% of people in NYC are immune and 20% will be soon. A disease with an Rt of, say, 1.8 is still scary and still requires controls and distancing, but it's a whole different ballgames from one with an Rt of 2.5. (-0.5 Rt for reduced susceptibility, -0.2 Rt for seasonal effects, say).
> There are also a growing number of experts saying that we’ll be in flux for the rest of 2020 unless we establish that survivors can’t be reinfected, which hasn’t been confirmed yet.
The case reports we have and clinical experience suggest reinfection is very rare. The bigger question is lasting immunity. Will most people be totally protected for 3 years like with a typical cold coronavirus? Or can we expect more like the 5+ years seen with SARS-CoV-1? And even if people become susceptible again, will the disease be less severe?
I also believe that in the long run, 2019-nCoV will become "just another" endemic common cold virus, and will kill small numbers of people every year just like the other endemic respiratory coronaviruses (229E, OC43 etc) do. I bet those would be pretty fearsome introduced into an immunologically naive population. Which really sucks-- say, 10% more severe respiratory illness forever is not good. But I think it's the path we're on unless we get a truly terrific vaccine, and I don't think we can bet on that.
In any case, I think the interesting things are: A) the share of infected people who will never have symptoms, and B) the share of infected people that have minor symptoms and will not be diagnosed. There's reason to believe that both A and B are significant. If they reach 90%-- which there's reason to believe they likely do-- it means that with a 1.5% cumulative case count you have more like 15% of the population having been exposed.
Serological data from a random sample of the German town of Gangelt shows that even a robust testing regime missed about 90% of the cases. The known per-capita case count at the time of the study was similar to New York City's, but 14% of the sample carried antibodies to COVID-19.
The German testing regime is and has been considerably better than what's been in NYC. I'm inclined to think that an even bigger multiple of the known case count may have been exposed in NYC than in Gangelt.
Separately, Iceland keeps their test data in two bins; one for people with a known exposure history and any (even minor) symptoms, and one for members of the general population without a known exposure history or symptoms. Analysis of this data suggests about 50% of people never develop symptoms and don't have any known exposure history, in an area with a much more robust testing regime.
The results are disputed to say the least. A random sampling study in Austria found that the true number of infected is likely to be only three times higher.
> Analysis of this data suggests about 50% of people never develop symptoms
At the time of the test asymptotic. They did not say never develop symptoms.
Seems Iceland is testing a lot more than NYC and that their focused testing (which is still broader than NYC's overall testing) misses ~90% of cases.
Note that the Austrian study I've read shows that current infection as detected by RT-PCR is about 3x higher than present case count, which isn't quite the same thing I'm talking about with the antibody tests in Germany. If you're referring to something else, please share. In particular, no one knows the sensitivity for RT-PCR of asymptomatic people and it might be rather low--- it's not exactly wonderful in people who are quite sick and presumably shedding more virus.
I'm hoping in the next week or so we have antibody data from a couple of US jurisdictions, including the SF Bay Area. It can really inform policy.
The reason Austria wasn't doing antibody tests yet is because the quality of these is not anywhere close enough to be reliable.
Just today, new data from Santa Clara County:
https://www.medrxiv.org/content/10.1101/2020.04.14.20062463v...
Stanford estimates 2.49% to 4.16% seropositivity, versus approximately 1000 reported cases as of that date-- so about 75x the actual reported cases. Of course, the way that Stanford recruited their sample means that people who were previously exposed might be more likely to report, so I think this overstates things a little, but...
29214 reported cases / 17280000 population = 0.17%. But apparently about 3% of blood donors in the Netherlands have antibodies. https://nltimes.nl/2020/04/16/3-dutch-blood-donors-covid-19-...
If blood donors are representative of the population as a whole, that means about 94% of cases have been missed. Again-- with better testing than the US.
On aggregate, food banks may be stressed, just like on aggregate the measure we use to determine economic fortune may be down only 3%. In reality, this means there are lots of individuals literally starving and making $0.
Those people are going to struggle to hold out for however long it takes.
A month or two may be true in aggregate. For many, simultaneously, their jobs will never return.
I see one Dodge Charger in the bottom picture, which is a little sportier, and I’m sure I missed a few others, but otherwise I completely disagree with your observation. I’m not sure what you expect poor people to drive if not GM/Ford/Toyota, etc.
There might also be a gap between what people realistically prepared for and what happened. I'm not entirely sure, for example, if a family with both parents employed in (what used to be considered) stable jobs should have foreseen the possibility of losing both jobs at the exact same time?
In the end, this is a numbers game: you can blame the individual up to a point. But when some double-digit percentage fails to abide by your standards of personal responsibility, you have to accept the sometimes flawed nature of humanity and try to work with it instead of insisting on futile efforts to change individual people.
Most people have an average of 3-4 years worth of car. Ownership runs 7-8 years, or a mean of 3.5 - 4 years remaining ownership.
People run out of food long before they run out of car.
I dont think people are desperate to spend money.
Your dad likely had a upturn in customers due to mass demand for personal fitness devices.
Due to social distancing, gym closures, anything fitness related for home/personal use is selling out.
When covid-19 lockdowns loosened, I expect downturns in these areas.
The market will be flooded with people trying to do returns and reselling the equipment.
This will likely change if people start losing sources of income.
Do you happen to have recent reports showing either problem?
There are many seasonal coronaviruses that cause colds. We’ve never been able to create a vaccine. There was a NYTimes article in last few days, I’ll post it when I find it.
EDIT: https://blogs.scientificamerican.com/observations/can-we-rea...
Finding lots of sources that there has never been a successful coronavirus vaccine and that reinfection is common. So, thinking there will be a vaccine anytime soon is happy thinking. If it happens, it won’t happen fast enough to stave off a deep recession. I know I won’t be going out like I was.
Here is some further reading: https://blogs.sciencemag.org/pipeline/archives/2020/04/15/co...
Edit: That being said, efforts to develop a SARS vaccine were quite horrifying on whole, so there's certainly no natural law that says a vaccine must exist to be invented/discovered.
Nobody has tried very hard because the common cold is unpleasant but bearable. This vaccine is now a global priority, there may even be a few variants discovered.
Reinfection is neither common nor proven. Given the number of cases globally and the long incubation period plus unreliable tests such stories are not unexpected.
I agree a recession and layoffs are coming to every sector, but war is a greater fear. This could cause more unrest and wars than 2008 did if it lasts longer than a few months.
I'd love a world with less cold viruses running rampant. When I started working from home full-time (years and years ago) I immediately noticed that the number of colds per year I had went from something like 10-12 to 1 or less. And the colds I get now are usually correlated with a visit to my grandkids...
https://www.ncbi.nlm.nih.gov/pmc/articles/PMC7136867/
It is way premature to declare right now that none of them will work out.
People will spend $500-$1000 on a bike while also forgoing $2500-$5000 of travel, entertainment and restaurants (over a year)
1. A good way to keep fit and maintain social distance
2. An alternative to public transport which people who are still working (and can't drive for whatever reason) want to avoid if at all possible
Both are particularly high priority at the moment
My city isn't at all bike friendly, but at the current traffic levels I'd feel safe enough to take a ride - the bikes themselves are just so absurdly marked up that I can't justify the expense, so I'm running instead.
What are the rules in Russia?
You need to have a permit to use your car or walk more than a few blocks from home (for essential workers, like security, health workers, grocery store workers, transportation, etc). If you are stopped driving without a permit, the car is seized, and you lose it forever. You also end up with a criminal record.
This severity has kept the numbers much lower than originally predicted, flattening the curve, but at the same time, it's draining the economy.
So, as you can see, different countries have different strategies. In some places the lockdown is severe, in others, not so much.
How do you fake a dog? Do you dress a cat up in a dog costume, hire someone to dress up in a dog costume, or something else?
I've found it super interesting how some people are willing to bend the rules, and how far they're willing to go, and other's aren't. I don't know if the ones most railing about the 'panic and fear' being spread online are the ones that are also underestimating the risks themselves and so feel justified in bending the (unreasonable-to-them) rules.
I'm pro-mask, but masks are but a small part of what it will take for the economy to rebound. Far more important are tests (short-term), treatments (mid-term), and vaccines (longer-term). For now, tests are the most important goal. We should have reliable diagnostic testing available in every doctors office, and reliable serological tests in every home.
People and Companies have no savings, they live paycheck to paycheck, loan to loan. This crisis is way worse because the loans are way worse and involve everybody.
“We” didn’t shut the economy down. Governments used (threats of) violence to shut it down.
I think this is comparable with economies with a lockdown. The economy was going to be shut one way or another.
That might be true. But there is an ethical difference between choosing to sleep at 9pm and an 8.30pm government enforced Ambien.
There are a lot of credit defaults coming if quarantine doesn't end very soon. The crunch could make 08 look mild.
For example rents are still due. So money is flowing out of business and individuals stock and for those affected by layoffs or paycuts there isn't any flowing back in to replace it. This is the really problematic part that creates trouble for people. That creates it's own knock-on effects.
You still accumulate it of course, and at some point after the emergency ends, everyone is supposed to pay up the back months of rents and mortgages they owe, or face reopened eviction/foreclosure processes. That's where it gets dicey, to see who is left holding which bags. Non-zero chance of at least some cascade: if a bunch of your tenants never pay 3 months of back rent (b/c they have no jobs), and you were already a very leveraged landlord without much of a cash cushion, you're not going to be making your 3 months of back mortgage payments either, etc. Less leveraged landlords will just eat some losses. If the economy recovers quickly, maybe some of this will be papered over by repayment plans (you can pay your 3 months of back rent/mortgage over the next 12 months or something, and nobody has to admit any official losses). How big all of these categories are will make a pretty big difference to whether it cascades into foreclosure waves, banks with junk loan problems, etc.
I jest, but the logic is based entirely off the way we do daylight savings time: change the clock. In the fall, a TV program might start at the first 1am or the second 1am on the day DST ends. Same exact thing. Pacific Standard Time, Pacific Daylight Time, Pacific CoVID Time. @todo Figure out how to switch back.
There were signs of problems in 2019 (yield curve inversion, failed IPOs, US QE restart), and this will take years to work out. The US stock market is currently priced as if this will be over in 1 month and everyone/everything will bounce back. Unfortunately if it goes on a few weeks more (which looks likely) the economic impacts are going to last years and no sector of the economy will be untouched.
"The economy" refers to a system that's primarily designed to concentrate and protect private wealth, and a 3% loss of private wealth isn't all that bad at all. The people who are really hurting have no wealth to lose.
I hope an outcome of this crisis is that we start to think about "the economy" in more humane terms.
If this response was about crashing financial markets the blasé tone would be OK (ignoring that many retirees rely on pensions or bank accounts tied to financial markets). But this is about the entire economy.
Make no mistake, whatever the goal is, the side-effects are unfortunate.
Last time I checked both of these still exist and wield massive power globally. Just because something is “illegal” doesn’t mean that it isn’t part of the system. The system was “designed”, it’s behavior is emergent. States institute laws which have side effects and those side effects are part of the system.
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[0]: https://www.businessinsider.com/10-companies-control-the-foo...
There is actually fairly weak data to support the popular theory of a decreasing labor share of income (and thus an increasing capital share) causing more inequality and to the extent such an effect could exist its size is only a few percent of GDP over the past few decades.
As most people only offer labour and only a small group offer the more and more productivity gains of automation, it is true that the rewards end up being concentrated in that small group of productivity providing people. "The top" as you put it. That disparity is meant to incentivize you to develop your own technologies that increase productivity further instead of "wasting" your time selling productive-constrained labour, but in the real world it is unquestionably difficult to recognize where productivity can be gained.
The understanding of that was the basis for the idea behind pushing everyone into post-secondary schools, with a promise that higher learning would teach you how find solutions for increasing productivity, and thus increasing your reward for increasing overall productivity (a.k.a. providing you with a higher income). However, the real world is again messy and it hasn't really worked out. Despite a substantial increase in post-secondary attainment in recent times, the vast majority of graduates are making no more than they would have without having attended a post-secondary school (wages have been stagnant for decades upon decades) as they by and large end up only selling their productivity-limited labour.
Sure they can. Who is designing and building and installing all that automation?
I know that you recognize this since it's a key point of the rest of your post. But I don't think you've fully realized the implications. The problem is not just that post-secondary schools haven't lived up to their promise of teaching people how to increase overall productivity. The problem is that, fundamentally, increasing overall productivity is entrepreneurship, and entrepreneurship is not something that can be taught in schools. It's a fundamental change in viewpoint: you have to stop thinking of yourself as an employee, a wage earner, and start thinking of yourself as a business owner. But schools teach people to be wage earners, and as you quite correctly point out, there is no real growth to be had at this point in being a wage earner.
The work of designing, building, and installing remains constrained to the limits of human productivity. The only way to make those jobs more productive is to use tools, and, like always, those who control the tools are those who reap the additional spoils.
but that has been true since the first chimp figured out how to shove a stick into an anthill and get more tasty bugs than just picking off the ants on the surface. We use tools, better tools are how productivity advances.
Yes, yes, we have better tools than ever before, to the point where they don't look like tools. We can build a machine to do a thing and then leave, and only come back and tinker with it when it breaks.
Some time in the previous century basically everything switched over to assembly-line type production, where nobody built the whole widget themselves. the current switchover is to, uh, I guess you would call them robots. Tools that do the thing with one time input to guide them (and, of course, lots of ongoing maintenance)
But make no mistake, these "robots" we have are still just tools; tools that give massive leverage to the labor that programs those robots and that maintains those robots.
Even if a person can't provide productivity "on their own", productivity per person increases, and it's bad for that to be tied to an increase of wealth inequality.
And trying to have everyone invent solutions sounds like a weak justification for a broken system to me, along the lines of the temporarily embarrassed millionaire.
This idea that only management making the investment and shareholders benefit from productivity gains is wrong. People like myself and many others on HN that are engineers are major beneficiaries of the productivity gains because we’re the ones actually building the solutions responsible for those gains.
There is no issue with people using the tools. The issue is with workplaces where multiple people need to work together. People with jobs where they use the tools but don't need to be around others or very many others are generally still working.
Also, not all productivity improvements are from tools that still need to be used by workers. A lot is from automation.
Anyways, my point is that tons of people who are not at the top of the businesses experiencing increased productivity are reaping the rewards of productivity improvements. It's a falsehood to think that only those making the investments are reaping the benefits. It only looks that way if you myopically don't look beyond the firm whose productivity improved.
Your point literally misses the point. From the perspective of improving the lot of ordinary workers, "beyond the firm whose productivity improved" doesn't matter. What matters is peoples' paychecks.
Before the mid 70's, when overall productivity went up, wages went up. That is no longer the case. It wouldn't be a problem if things like housing (both home prices and rents), education, medical insurance, and healthcare services (which is still important even for those with health insurance due to out of pocket maximums and deductibles). Notice how all of these are basic essentials of life, some of which are essential enough to form the base of Maslow's hierarchy of needs? I also want to stress that people today have to fund their own retirement, because there are no more company pensions.
Things that have gone up at or below the rate of inflation since the mid 70s are, by and large, not essentials: cars, computers, airline tickets, phone service, TVs, and clothes. [0] Granted, clothes, and sometimes cars are essential, but the savings there don't come close to making up the shortfall in the other things.
> Also, not all productivity improvements are from tools that still need to be used by workers. A lot is from automation.
If anything, I would guess that automation has harmed workers by eliminating good jobs, rather than benefiting people overall. Yeah, we have free stock trades now, but who cares?
I'm open to being convinced otherwise on the automation point, but I have a hard time seeing how people like my mom and dad, neither of whom went to college, could make it into the middle class today if you waved a magic wand and made them 25 again.
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[0]: https://www.bizjournals.com/bizjournals/how-to/growth-strate...
As the tooling and automation got better, the skills contributed by the worker have been responsible for less and less of the productivity gains to the point where the worker is contributing almost none of the productivity gains.
From the perspective of improving the lot of ordinary workers, "beyond the firm whose productivity improved" does matter. You can still make it to the middle class life today, but you do so by taking those jobs that help improve productivity like being a software engineer. I'm middle class myself. I got there by contributing to productivity gains.
Make no mistake, even prior to the 1970s, there were plenty of jobs that would not have gotten someone into the middle class life. Those jobs that didn't get you a middle life back then have a lot in common with those that won't get you a middle class life today in terms of the amount of skills and effort required.
That's a transference of wealth from the wealthy to the wealthy -- possibly to themselves.
Low skill immigration. Without them McDonalds workers would earn $25 an hour in San Francisco like they do in Zurich since otherwise nobody would want to work there.
This isn't really true.
A 3% contraction in the world's economy is the sum of all countries GDPs. That's a measure of how much "stuff" (goods and services) is produced.
It's more closely correlated with unemployment than with the stock market (ie, with private wealth).
People are literally spending all their money on food and rent, not stuffing it in their mattress. The only ones doing that are the ones on top, hoarding wealth and exploiting their underlings.
> ability to make products people want
Wealthy investors have decided this isn't important, all that's important is cutting costs so they can hoard more wealth, which usually means exporting production out of the country so they can exploit laborers in other countries where they don't have protection through the law. This is why we currently don't have enough masks and rely on foreign countries to produce them for us.
The "world economy" only seems to measure things that make rich people richer, and how effective these things are at doing so.
If it was possible to produce apartments for you for half the price, or deliver food, or an fda approved ventilator, and still have a profit investors would be jumping over themselves to do so.
Businesses are hoarding cash because they predict a drop in revenue and want to save as much as they can so they can continue operations and realign for the new economy.
They most certainly are. Vast amounts of private real estate in the most prime locations are sitting empty. See the Royal Family's property in Mayfair London for example.
[1]: https://www.nytimes.com/2017/07/21/upshot/when-the-empty-apa...
[2]: https://www.nytimes.com/2020/03/29/business/coronavirus-us-v...
The large number of empty apartments being rented 3-4 nights a month on AirBnb in most large cities seems to indicate otherwise.
The CPAP machine "jailbreak" posted here yesterday seems to indicate otherwise.
The large quantity of food going to the trash every day seems to indicate otherwise.
I agree that there is a "fixed" amount of stuff out there, but it's far from allocated efficiently. I think it's time we recognized that.
> but it's far from allocated efficiently. I think it's time we recognized that.
Who hasn’t recognized there can be inefficiency in the current system? The argument is that a central planning committee is going to do much worse.
These are all kind of bad examples, but I'll go with this one. Food takes time to grow or produce, so you have to accurately predict months out how much food you can sell. So, who is to blame for imperfect predictions of future demand? We could donate all this food instead of just binning it, so then who's to blame for not building the mass infrastructure required to coordinate such distribution, and then running it all for free? And then if such an individual did do this, why didn't they spend their considerable resources instead on a project that could have benefited humanity way more?
We don't want the government doing anything in our lives, so we don't expect any sort of mass infrastructure to be built to support for food distribution. We expect the wealthy and corporations to be philanthropists.
But being a philanthropist costs money. So instead we have a bunch of farms and food producers instead tossing out food because it's cheaper to throw it away than it is to donate it.
So how can you claim it's a bad example when people would rather throw food away for profit?
In fact, with a little tweaking, most food businesses can profit from throwing away less food: garbage disposal isn't free, and food donations are a tax writeoff.
Someone I knew in Philadelphia used to trash pick food from the Trader Joe's dumpster. But they caught him on camera and then put up signs, and eventually put a lock on the dumpster. They literally spent money to buy signs and a lock, and pay people to put up the signs and lock the dumpster every night.
High rent for shitty apartments has been part of SF and NYC life for 30 years before Airbnb. This is more of a NIMBY problem. It’s politically easier to blame Airbnb then to build high rises with affordable rent and change the “culture” of the neighborhood /barf
They literally are actually. Buying expensive houses and leaving them empty is an incredibly common way of hoarding wealth. https://londonist.com/london/housing/how-many-vacant-empty-h...
Well actually, at least two of your examples are clearly wrong. In NYC, one of the most competitive housing markets in the world, one in four luxury apartments is vacant[1] while the homeless freeze to death outside each winter. Any shortage of food is hard to argue when we're turning corn into fuel instead of food[2]. The only reason people aren't sitting on piles of ventilators yet is that the high demand is new enough that a way of making money by letting people die of suffocation hasn't yet emerged.
[1] https://www.nytimes.com/2019/09/13/realestate/new-developmen...
[2] https://www.forbes.com/sites/stevensalzberg/2016/04/25/why-a...
Getting laid off isn't wealth hoarding, but does that mean there isn't wealth hoarding?
Since large parts of the world's population barely had enough for food as it were, and that even in the first world, a lot of the production goes to create wealth for the few rich, and most people don't save much or anything to begin with, it's going to be felt.
And do we really believe it stops there? Will people actually want to travel and dine out as much as they used to once the lockdowns are over? Or will they be careful for months or maybe years to come? What happens when the virus really spreads in Africa, India, South East Asia and South America? Will they barely care because they are so young it's not dangerous to them? And what about the second and third wave in the first world? What if the vaccine or cure is not that easy to make and distribute so we don't have any before mid or late 2021?
GDP is a flow variable.
What you observe is that fact that a great majority of people live on fixed income which doesn't get hit (because these people are useless anyway, like most government employees), and many live off pensions, plus government boosts it's spending. So those who actually make their living, lose a lot more. But same is true about good times, when economy books it's not policemen or school teachers who get biggest raises. Those with capital are even further up the risk curve: when stock market drops, they directly lose money. And dividends on the stock can easily drop to almost zero.
Six milliseconds from now, when the automated trading systems think they can sell and make a profit.
Seriously, over 50% of trading volume is done by automated trading systems these days.
edit: looks like I underestimated. This article from June 2019 suggests it may be as much as 80%: https://www.cnbc.com/2019/06/28/80percent-of-the-stock-marke...
I agree the market shouldn’t be where it is, but instead of yelling about computer programs on an internet discussion forum, I bought puts on IWM.
It's not like a 3% drop in the economy should cause stocks to tumble in the first place. Drop but not tumble.
That’s why in really uncertain times the stock can drastically move without any of the current financials changing drastically. Everyone knows companies are shut down now and are bleeding cash, that was why the market quickly crashed immediately after the shutdown. Now that we’re into the shutdown and it looks like maybe a re-open by summer, how do the businesses look then? Especially when they’ve had bailout money to help pay expenses during the shutdown.
I have a large short position on IWM right now and have since last week. If the next leg down doesn’t start from Q2 earnings, Q3 earnings will.
That's a quaint view, but the logistics is completely mathematical. The prices of securities is absolutely and completely based on the bid and offers. It is a completely mathematical outcome of transactions. Of course, prices feed into the psychology of investors, as well as their estimates of future performance. But a huge amount of cash in the market is there to make short-term profits, not long term profits. Automated systems trade huge amounts of money based off technical analysis and price prediction on multiple timescales. There are computer systems with stupid amounts of computational power who only think about how to make two cents by being ahead of the market by 1 millisecond, 1 second, one day, one week. And they make billions.
> That’s why in really uncertain times the stock can drastically move without any of the current financials changing drastically.
I think we're into a rathole here, but this statement basically contradicts your earlier point. If prices are based off the future 6-12 months from now, then crashes wouldn't happen, or be so severe. This is obviously false. Bubbles pop violently.
I don’t know about you, but I like penny wide spreads on liquid stocks. The minimum used to be 12.5 cents (1/8th tick).
Would you please explain why HFT and algorithmic trading are bad? Are you an ex floor trader or something?
By analogy, the expectation of location for a random walk which has a floor at 0 is strictly positive and increases monotonically.
Many of the securities that are at their December 2019 valuations are in a much worse state today than they were then. Stores are closed, manufacturing faces significant delays. Employees are let go or furloughed.
This means the "item" that you're paying for today with the same USD that you may have spent in December is of considerably lower "quality" compared to then.
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That said, it's an interesting situation as drastic financial crisis typically come with some short term deflation, which we're likely seeing the beginnings of now. Many stores are running discount sales to boost purchasing, effectively lowering consumer goods prices (as a whole). This is a prime example, if it continues, of currency deflation.
However, once all is said and done, depending on how the market moves from here, we may very well see the asset inflation turn into currency inflation and bloom for a bit before more drastic financial policies are needed to curve it.
But to your point, yes, the combination of currency inflation (as seen through the securities market due to liquidity injection, and perhaps not yet seen elsewhere) and changes in PE ratios is roughly what I'm referring to. As earnings drop, if prices remain as high as they are due to this inflation, the ratios should see a spike, not unlike the one seen in the chart linked for 2009.
People can point to algorithms, QE, things being priced in, speculation that everything will return to normal as quickly as it stopped. Or maybe it'll go the other way and something will trigger a collapse that brings down a house of cards.
Nobody knows with any reasonable amount of certainty. The best we're going to get is when all this blows over and we can do some kind of post-mortem.
Do not pretend the past 2 months did not happen. You wonder why it "did not tank" but it DID TANK. It tanked when risks were unknown and everyone with a calculator could understand that exponential spread could kill large numbers.
Now 2 months later the exponential spread has been controlled. Now 2 months later those who think the economy is going to disappear have already sold. Anyone holding stocks now is doing so because they think Coca-Cola is going to be worth a lot of money over the next 30 years. Short of new and surprising bad news the market has no reason to price in further uncertainty.
2009 saw lows not seen in over a decade.
Do you feel the economic outlook and prospects for growth are the same now as they were in June 2019 when the S&P 500 was at a similar level?
Honestly I think the jury’s out on whether double-digit percentages of the S&P exist in their current form 2 years from now, even with the US government interventions.
Perhaps the market is pricing in inflation instead of real growth? Perhaps it's because there's literally no other way of investing your money right now?
It's really become hard to say. The downturn in the previous weeks seems to be way too weak given the current circumstances.
When the Fed prints money, you buy SPY and real estate.
Market priced simply included that as a fact. Verbal interventions work!
There is unlimited amount of money and a buyer (FED) determined to buy everything (ETF, junk bonds, baseball card) regardless of price and underlying financials.
So for people who have capital there are guarateed returns in stocks. For the little guy it is other story.
If you consider the price of an asset as the expected value of its probability distribution over possible values, then you cut off the negative tail of the PDF by creating a price floor, the expected value shifts significantly to positive.
Analyst estimates for what earnings will look like this year are all over the place, predicting anything from a 5% to a 40% drop in S&P earnings per share. If you side with a 5% drop, then the forward PE only rises to about 22. If you think a 40% drop is a good prediction though, that's looking like a forward PE of 35.
including the terminology "The Great Lockdown"
Most of the time, archive.is can defeat the paywall and save a copy of what you see for ever.
As a matter of fact, I think people should directly post archive.is links on HN instead of the original.
Frankly, if "the economy" falls 0.1% in a Great-Depression (as alluded to by the current Democratic presidential candidate) scale catastrophe (for reference, the Great Depression was more believably 25% of GDP) maybe we've massaged the statistics too far. So frankly, why not just gauge "the economy" not by GDP but by estimating actual human profits of working, the money they have left over after rent is paid, food is on the table, and health taken care of. Further, take into account diminishing marginal utility of surplus income. How much do people have left over and how does that change over time?
How do you know that? If you could predict that for certain, you could turn 10000$ into 1000000$ with ease.
If the whole market expects depressed gdp grow and you get depressed gdp growth, you have no edge.
More seriously, you emphasize a most important point. The delta of information is precisely where it's at.
I wonder if this is exactly the same thing as what we call "bias" in trading / investing. (as a function of some objective knowledge + subjective experience)
I mean, we all have the same information but if my bias happens to be correct, I will be able to outperform others (however much depends on how much risk I'm willing to take, how much hedging I conversely do). That's the delta I create with taking a stance, when I press that button, which conditions I choose to enter/increase/reduce/exit a given asset.
Curious how you see it.
World Bank data has GDP decreasing by 1.9% during the great recession[1], so I don't know where that 0.1% number comes from.
[1] https://data.worldbank.org/indicator/NY.GDP.MKTP.KD.ZG?end=2...
Which will rebound in a bad way. People who are unemployed will not give two hoots about how much the environment gets trashed as long as they get fed.
This temporary environmental progress is nothing to celebrate about.
Also, looking at their calculations they have "advanced economies" (basically US, Europe, UK, Japan etc) forecast to contract 6.1%, India expand 1.2% and China 1.0%, ASEAN expans 1.9% and everything else shrink. That can't possibly make a 3% contraction (if 2/3rds of the world's economy shrinks 6%, then 1/3rd can't make it up by expanding 1.5%!).
[1] https://www.imf.org/en/Publications/WEO/Issues/2020/04/14/we...
[2] https://data.worldbank.org/indicator/NY.GDP.MKTP.KD.ZG?end=2...
Losing only 3% is pretty good, actually.
Real economic downturns happen because deep structural issues have developed in the economy that cannot be dealth with other than by broad scale cyclical restructuring. But in this case there is not an underlying structural issue - everything was "fine" and then an externality prevented normal productivity. So in one theory of things, once the lockdowns are over people will mostly go back to doing what they were doing before and apart for some one-off bad debts, etc life will just resume. In another theory, economic downturns are like self-fulfilling prophecies and once started will take many years to work out.
It will be interesting to see which one of these happens.
This is still the same crisis that started in 2007.
Think about cascading failures in software systems. One relatively smaller sub-system fails which others were dependent on. These other dependent subsystems now fail because their dependency is now unavailable. It snowballs until the entire system is unavailable.
There were signs that everything wasn’t fine before the crisis. The periods of inverted yield curve and freeze up in the overnight repo market last fall come to mind.
The tide has gone out and we’ll quickly find out who wasn’t wearing their bathing suit.
Why did the Fed stop unwinding QE if things were fine?
Why did the Fed intervene in repo lending if things were fine?
There is - inequality. It's just that the market is still resistant to pricing it in, and until now people had enough coming in that they were merely unhappy rather than angry and desperate. Laugh now, but book mark this thread and take another look at the end of the year.
https://www.nytimes.com/2020/03/26/opinion/covid-economy-une...
I think that number is very low when talking about regular people, their purchasing power and what I predict to be a large drop in discretionary spending.
We have 4 months of real-world experience with the threat but we're supposed to project what 1 year of it looks like. We're not even done with the very first phase.
Color me skeptical.
Such hubris is vain at best and dangerous at worst in times like these.
If I lose 3% in my worst year, I'd be jumping from joy.
This old argument gets so tiresome. And then what? After they import 10 million people and then they stagnate again, do they have to import 20 million people?
If the economic system depends on immigration, then there is something terrible wrong with the economic system and it needs to change.
> The USA may be headed in that direction but we are no where near the shitstorm of demographics and xenophobia that Japan is dealing with.
Nonsense. We are all xenophobic. It's human nature. Maybe we are better at hiding it now than japan, but that's probably not a good thing when you think about it. In times of crisis, japan is going to be better off as a homogenous and united population has proven to be far more stable than those with racial/ethnic/religion divisions/tensions.
I am deeply suspicious of this prediction.
(Note: I am not affiliated in any way with that extension. I'm just a happy user.)
- Corporate earnings have been pretty much flat since 2014 (this one in particularly surprised me). So the last 5 years has been a disconnect between earnings and valuation and that always comes crashing back to earth at some point, Covid-19 was just the spark.
- The demand for US dollars will likely devastate some developing nations (who borrow in US dollars) with all that entails;
- The US is in a fiscally weak position;
- Because of the strong dollar and huge deficit the US essentially has to print money to buy its own bonds. A real (rather than nominal) devaluation in US government debt is not out of the question;
On the Covid-19 front:
- Making a vaccine takes time. Proving it works and is safe takes time. Even after you've done all that you have to manufacture it somehow. This is a nontrivial problem. For the flu vaccine the US government actually pays billions to grow eggs for this purpose [2]. This is unsatisfactory in many ways and there has been a long search for an alternative but so far to no avail. Influenza viruses reproduce in chicken eggs. Coronaviruses do not.
- It will take time--possibly years--for spending to return to previous levels. We have examples of this already with the SARS and MERS outbreaks in Hong Kong and South Korea where spending took 6 and 12 months respectively to return to previous levels [3].
- Some industries will take years to recover. Cruise lines are an obvious one but airlines, hotels and tourism are in the same boat (at least it's not the Diamond Princess). I wouldn't be surprised if a lot of frequent flyer miles just evaporate or getting hugely devalued;
- Some businesses just won't come back. Those businesses spend money. They paid employees who spend money. All that money went to other people and businesses who then spend money.
- Social distancing may be here for the long term [4].
- My own belief is that the protracted response to this is there will be some permanent changes in behaviour. This will create new opportunities but also devastate some sectors.
For some reason, share buybacks are the latest bogeyman and I really don't understand why. They're just another form of dividend (ie returning money to shareholders). Borrowing money at low interest for share buybacks is just a tax deferment strategy (one that I don't think should exist but it does).
There's still significant market and economic downside potential and at best I think we'll have stagnant growth for several years.
The problem here is that many people now have no memory of what an actual recession looks like. Even the GFC was quite localized (but of course devastating to many).
[1]: https://www.lynalden.com/global-dollar-short-squeeze/
[2]: https://edition.cnn.com/2020/03/27/health/chicken-egg-flu-va...
[3]: https://www.abc.net.au/news/2020-04-14/retailers-warned-not-...
[4]: https://edition.cnn.com/2020/04/14/health/social-distancing-...
3% is nothing if shared equally
If you can reliably identify good vs mediocre stocks, why aren't you a billionaire instead of messing around with pennies in your 401k?
In 2009 I moved all my money from growth funds to an emerging market fund. It was hit harder and earlier than the other funds available but also produced huge growth earlier and faster than the market average.
This time I waited for the first market spike to sell anything when my losses were only about 15% then moved about 20% of my money to airlines, cruises, and a low density pipe metal company that just spun off. My new purchases have gained about 50% over the last two weeks. They are still losses overall and will hold on them until market recovery.
You would have to predict the actual future to do that, and picking good stocks isn’t the same as predicting the future.
"37 percent held by retirement accounts" [2]
Politicians and the wealthy use that poor schmuck's 401k to bail out the wealthy.
[1] https://www.nytimes.com/2018/02/08/business/economy/stocks-e... [2] https://www.taxpolicycenter.org/taxvox/only-about-one-quarte...
If a cop and nurse family is the representative of working class, yes, use the people in the service sector (restaurants, gig workers, contractors, etc) to bail out the govt fat cats.
The working class (proletariat), especially the proletarian intelligentsia, overlaps with the top 10%. “Working class” is an economic relationship, surviving principally through selling labor, rather than through a balanced mixture of capital and labor (“middle class" or petit bourgeoisie) or principally through returns on capital (capitalist class, or *haut bourgeoisie).
But a cop and a nurse on average would make about $130k (round figures, $55k for the cop and 75k for the nurse), 90th percentile household income is about $185k, so while it's possible for a cop/nurse couple to reach it, it's not remotely typical for even that couple.