Tuesday, March 31, 2020

It must be an election year

Because everyone that isn't getting a bailout is getting free government money!

Today, just days after the government reallocated $6,000 of your future tax payments to various corporations and back to you in the form of a $1,200 payment, word must have reached Washington that you still have some extra money kicking around in a can somewhere.

In light of some staggering GDP estimates for the second quarter (ranging from -9% to -34%) the White House and Congress started clamoring for a new $2 trillion infrastructure program.  So, yeah, that vacation you were going to take in 2021 and 2022, no the government will be needing that money to give it to contractors building a Second Avenue subway, a new JFK airport or maybe a $500 million port of entry in Cape Vincent for the Wolfe Island ferry.

Hey, of all the things we can spend on
a) bailouts
b) tax cuts
c) infrastructure

I'll chose C all day long.  The problem is that we just wasted $1.7 trillion on a corporate tax cut that went up in smoke, now we are gifting $2 trillion to our corporate overlords and while we are at it, sure let's give the notoriously efficient contracting industry $2 trillion to waste on bridges and tunnels for a world where commuting might be a thing of the past.

The best analogy for this line of thinking is "Hey, I know I just lost my job, but you know what, we need to buy that second house up on the lake because it'll make me feel better and those sweet real estate commissions will boost the economy a bit."
Jim Grant has forgotten more about interest rate analysis than I'll ever know so when he speaks it is worth listening to him.  Unfortunately, because he is not a rah-rah cheerleader for the US markets you almost never see him on CNBC, but he was interviewed in a German publication today and it's worth a read if you have the time - Covid19 Unmasked an Essential Weakness in Finance.  These are a couple of the choice quotes....

"Covid19 unmasked an essential weakness in American finance which is owed to the past 10 years of artificially cheap credit." 

"Very low interest rates and easy access to leverage also sustained the unnatural lives of profitless companies that would otherwise not have been in business."

That's a very articulate way of saying what I've been preaching for the past decade.
Unfortunately, it doesn't seem that the severity of the situation is resonating with everyone in the US.  This graphic from FT.com is incredibly stark (and a little unnerving that google has this data).

This shows footfalls (basically people walking/running) in various parks around the world this past week and weekend relative to historical averages.  Note how in Europe the numbers are almost 0 relative to history.  In the US, while the weekend data showed a sharp decline (some of that could have been weather related) but look at the data during the week!  New York's Prospect Park was significantly busier all week than usual despite the fact that NY is ground zero in the COVID19 fight. 


I don't know how to get this message out - we can stay in and hope to get back to normal in a month or we will be fighting this disease in May, June and beyond.

FT Graphic: @jburnmurdoch

Quote of the day:  
Michael Krieger
Can we stop pretending we live in anything resembling a “free market.” Our economic system is socialism for Wall Street/oligarchs and Hunger Games for everyone else.

Daily dose of humor: 
"The hardest part about going back to the office will be giving up breakfast dessert"

"I call loading the dishwasher "quantum physics" because no one in this house can do that either".

"Friend: I'm just taking things one day at a time.
Me: [Not remembering what day it is or how time works] Totally, I was just saying that tomorrow."

Thanks again for all of the links/shares.  I appreciate it - feel free to drop me a note (blantier2 @ gmail .com) or follow along on twitter @brianlantier

Monday, March 30, 2020

When ignorance reigns, life is lost...

I've always loved that quote from Zach de la Rocha and it has never resonated with me more than it does today.

via @cryptokakuji

Despite my rantings, the lure of free money will once again buy Congress all of the goodwill they want. 

I'm going to try to break this down in way that might make a bit more sense.  Imagine that you are a married couple with joint checking, etc.  Imagine that your spouse took $6,000 out of your joint checking, flew to Las Vegas and spent $4,800 on the some of the activities in available in Las Vegas.  When she returns home (aha plot twist, huh?), she gives you the remaining $1,200 that came from your joint checking would you be happy?  Of course not.  Well, this is the $2 trillion bailout in in a nutshell.

$2.0 trillion works out to $6,000 per man, woman, child in the US.  Including all of the retirees, the 8 month old babies, and everyone in between, the government is borrowing $6,000/person or $24,000 in the case of my household, so that they can send everyone a check for $1,200.  Huh? I'm only okay at math, but borrowing $6,000 to give me $1,200 doesn't seem like a good model.

So where is the other $4,800 going that the government has borrowed on your behalf going?  Oh, I'm glad you asked....


* $44 billion for student loans???
* $100 billion for hospitals
* A huge $4.3 billion for the Center for Disease Control (a bit late, no?)
* $260 billion in extra unemployment benefits
* $425 billion in the slush fund for corporations (seriously?)
* $350 billion for small business loans to tiny companies like Marriott.
* $274 billion to states

Drill down a little further and we find that there are tons of targeted breaks for the little guy in this bill like:

1) Tax breaks for private jets and their users.  I don't know about you but this was a huge one for me and reminded me that Washington really does care about the little people. My private jet has been sitting idle since the Superbowl, but since I no longer have to pay a 7.5% excise tax and my jet company is now exempt from fuel taxes I'm ready to fire it up and escape to St. Barts.  It is funny, though, I think I still have to pay tax on the gas that I put in my car, how about you?

2) Well, okay, maybe you aren't in the real money, private jet class, quite yet.  Maybe you are just your regular couple making a few million dollars with some huge real estate holdings, there should be a way to ease your pain in this time of uncertainty, right?  If you manage to have $500,000 loss or greater on your real estate property business this year, I mean who doesn't, then you can offset an unlimited amount of income from other sources.  So let's say, for example, your last name was Kushner and you married someone named Ivanka, and you managed to have $30-$135 million of income in 2019, if you manage to take a huge loss from real estate in 2020 it is possible that you could avoid paying taxes on your regular income ---- hypothetically.

3) Well, if you don't qualify for a corporate jet tax break or real estate mogul tax break maybe you can benefit from this perk in Nevada....


The state has kindly created a grid pattern on a concrete parking lot for the homeless so that they can socially distance. 

Painted boxes on pavement for the homeless and tax cuts for private jet users. 

As a Childish Gambino sang..."This is America".

We are fighting three pandemics - COVID19, Ignorance and Greed.

Daily dose of humor: 

* Eating pizza rolls in a bowl with a spoon? This is considered proper etiquette in quarantine.

* For those of you keep track at home, today was March 83rd.

* Thought of the day: How are people with secret families handling this pandemic?


Sunday, March 29, 2020

Data nerds unite!

Since, it's the weekend there isn't a great deal of market moving news to discuss. In thin trading, the futures are off another 1% Sunday night after the "open for business date" was pushed to 4/30 which I feel is still way too optimistic.

While this coming week will be a sad week in NY State as cases of COVID19 spike and deaths accelerate, I am hopeful that eventually, New York City will start to turn the corner in 10-12 days though it will be a long 2 weeks and we need to remain vigilant with regards to social distancing.

To that end, I'm going to share a couple of data models that I found helpful to understanding why it is so important that we keep our distance.  These are just models but they are based on the science of virus transmission, so they are pretty valid.

This past week, I had to make a trip to our local retailers for supplies.  I was appalled at the lack of distancing, the lack of understanding of the dangers this poses to those over 60 and a general sense of "meh". 

We can chose to take this seriously as a nation and start to heal in 30 days OR we can continue down this path of half measures, bailouts, and rambling press briefings and our country will still be shutdown on July 4th.

If you find these visual data tools helpful share www.grindstonefinancial.com with your friends.

In this first visualization we look at the impact of 2 stores where 3 people are infected out of a total of 30 people in the store.  On the left side of the diagram, you have the way we currently are operating (random movement).  On the right side of the diagram is an organized line-up.  You'll have to click the video to play it after you follow the link.
[OC] Grocery store crowd visualization - sample size : 30 persons entering the store, 3 of which are initially infected - Left : free random movement, Right : organized queue from r/dataisbeautiful

This second visualization is a little longer but it shows the various ways to approach a virus like this - the assumptions are 2,000 people in the community. 
Scenario 1 - free movement - 200+ deaths over 10%
Scenario 2 - reduced interation - 50 deaths - 2.5%
Scenario 3 - strict lockdown - just 7 deaths - 0.3% (almost 70% not infected)
Scenario 4 - self-isolation is ignored - 170+ deaths because some portion of society keeps reintroducing the virus by violated self-isolation rules.  

Last week, I said I was pleasantly surprised the way people were reacting to the rules on being out in public however, a week later, I've become more concerned that people are going ignore isolation suggestions (particularly as this goes on and on) and that is going to put us in a Scenario 4 situation.

Working on a COVID-19 simulator, here's a few scenarios visualised [OC] from r/dataisbeautiful


Thursday, March 26, 2020

Markets want to eat their ice cream for dinner

Have you ever seen a toddler that just wants to skip dinner and head straight for the dessert table?  Well, this the way the markets have acted this week.  They've decided that we'll have a recession (though one is not yet declared), it will be fast (far from a certainty) and that the recovery will be rapid so you better buy stocks now.  So, let's price the recovery before the economic impact of COVID19 is even understood - the markets have never been so detached from reality in the US.

Markets and the economy:
As I mentioned the jobless claims numbers would be comical if the situation wasn't so dire.  Expectations of 1.5 million would have been 2.5 times the previous high peak of 695,000 in 1982 or 665,000 during the 2009 Financial Crisis.  Instead the number came in at 3.28 million, almost 5 times the previous all-time high, in statistics numbers don't get more absurd.

Let's do a little back of the envelope math - 250 million adult age people in the US and 60% are in the workforce or 150 million people probably had a job at the beginning of March.  Thus, 3.28/150 = roughly 2.2% or 1 out of every 50 people in the US lost their job last week.  That is jaw-dropping, especially, since it might be worse next week. A visual representation via Bloomberg - that includes oil shocks, 79-82 recession, 87 crash, dotcom crash, Great Financial Crisis and this week.

So, of course stocks soared 6% because..........oh god, who knows. I suspect the technicians wanted to see a 20% bounce of the bottom which would retest one of their drawings on their charts and that's exactly what was achieved today.  I worry, that people are so desperate to put the collapse in stocks behind them that they are ignoring the fundamental collapse in the US economy which is only going to get worse in the coming weeks.

Favorite tidbits of the day:

* if you take a loan from the Florida Small Business Emergency COVID fund, it is will be interest free in year 1 (great!) and the interest will be 12% on the unpaid balance thereafter. 12%!!!

Question Mark What GIF by moodman

* Included in the final text of the bailout bill is language that allows the Federal Reserve to conduct secret meetings without having to provide minutes to the American people.  Ugh.

* It's interesting to get feedback from people on the ground in China. Beijing is back open for business but with few exceptions the city seems to be operating at 25-30% of capacity and many businesses are still at a virtual standstill.  The idea that the US is going to flip the "Open" for business sign in 2 weeks is embarrassing and ignorant of the facts on the ground.


Again, thanks to everyone that has come back to the blog.  Almost 1,000 daily readers this week is fantastic considering I was dormant for almost 4 years.

Twitter: @brianlantier for snarky thoughts throughout the day.

Jobless claims at 8:30

I'll jump back on here after 8:30 with the actual breakdown but it's anyone's guess just how bad this number may be.

It really depends on how quickly workers filled out the forms online.  For example, there are almost 15 million Americans that work in leisure and hospitality and that industry has ground to a halt, what percentage of them will file new claims this week.

I've seen estimates of

* 1 million jobs lost (which I think is low considering, Canada lost a million jobs last week with 1/10th our population)

* 2 million

* Even 4 million from Citibank

but without a clear understanding of when people started filing, it's impossible to know.

So, the jobless claims came in just slightly above the consensus estimate of 1.5 million with 3.28 million jobs lost. 

The best headline I saw after the announcement

"Stock futures surge after job losses only hit 3.28 million last week." 

That is not a headline I would have predicted at the start of 2020.


Wednesday, March 25, 2020

Q: What does it take to turn a conservative into a socialist?

A: A $1200 check. *

* this is just a joke :)

French economist Frederic Bastiat lived from 1801 to 1850. Here's a quote of his that might have some relevance....

"To rob the public, first we must deceive it. The trick consists in persuading the public that the theft is for its advantage; and by this means inducing it to accept, in exchange for its property, services which are fictitious, and often worse." 

It sounds like there is a some last minute haggling going on re: The Great Rescue and that's why we didn't get a vote on both the House and Senate bills today. 

I've covered some of the bailout goodies before, here are some of the smaller provisions in the bills so far:

1) Payroll tax deferral for employers.  I can't get a clear answer, but I assume that this is the 6.2% of payroll that employers are responsible for paying.  You, the employee, still get to pay yours, it's just that your employer gets to defer paying their portion until 2021/2022 (half in each year). In theory, this might provide a little extra cash flow. However, it takes a lot of payroll tax at 6% to equal saving one job. 

2) NOL carrybacks extended to 5 years.  Okay, we're getting in the weeds here but let's say you have $30 of income and $10 in tax in year 1, 2, 3, 4 and 5 ($150 in sales and $50 in total tax over 5 years) because you were a profitable business.  Now 2020 arrives and your business is crippled, you actually lose say $200.  Under the current rules, you can only go back 2 years to offset previous income or $60 dollars of revenue and claim a refund of $20.

By extending it back FIVE years, now your $200 loss offsets ALL $150 of previous income and magically the government will send you back all $50 of taxes you've previously paid in.  Sweet gig if you can get it (oh, and you still have $50 of credit to offset FUTURE INCOME).  Thankfully, I live with a CPA who can explain these things to me.

This is a popular plug into every bailout package but it destroys the Federal Budget.

3) Four months of unemployment. Surprisingly, this includes an odd self-certification clause that says if the employee "quits due to #COVID19" they are still eligible for unemployment.  This is a staggering departure from the historical role of unemployment which has served to protect those that were involuntarily separated from their job.
I love this quote because it accurately describes the current state of our "markets" which are certainly in rough seas --- "if you know that you can die, don't get in the boat. Certainly don't put your kids and all of your money in the boat" @KeithMcCullough via Twitter.

If you remember, yesterday stocks caught that updraft and ended up above a critical price point, this lead to further chasing of the rally and people really want to believe pushing stocks up 4% or so by mid-afternoon.  However, a last minute snag in negotiations popped those hopes and stocks finished with relative modest gains.  I won't even bother talking about the overnight moves because they are pointless right now. 

There is some concern that since the bailout has been a foregone conclusion for over a week, when it's finally passed stocks may reverse in a "sell the news" event.  We won't know until the news hits the tape what type of reaction it will warrant.
NY passed a somber milestone with 80 deaths attributed to the virus today.  I worry that by next week this might be approaching 1,000 people per day before the effects of our social isolation start to showing some positive impacts on new infections.  I'd be happy to be wrong on this forecast but so far everything has been fairly predictable with the progression of the virus in the US.

Via @AliceDreger (national journalist)
If you need a wake up call, here it is: My husband was on a large conference call of American Medical School Deans last night.  One asked about legal coverage for pulling people off ventilators to give them to others more likely to survive, ie, not being charged with murder. Here we are....

Humor of the Day:
A visual representation of how $1200 will help average Americans....


Tuesday, March 24, 2020

My phone must have been on "Do Not Disturb" this morning

Did you get your personal phone call from the President and the Vice-President this morning?  Oh, I guess we're on the same "too small to call list" because apparently after the market fell on Monday despite historic intervention from the Federal Reserve, the President and Vice President held a private call with hedge funds and investors this morning. Shortly, there after stocks were up 5% and 8 hours after that they finished their best day since 1933 up (11%).

Hmm, since I have a daughter in AP US History, perhaps I should ask her what was happening the US in 1933 (Hint: it starts with Great and rhymes with Impression)?

Again, I hate technical analysis because it reduces investing to a simplified game of who can draw the straightest line.  HOWEVER, the vast majority of the market is being run with some input by technicians.  Today, was an important milestone because the markets not only soared, they ended above a level that previously would have been resistance (there was a monster trade by someone at 3:55 which threw just enough gas on the fire to hold above these key levels - almost like someone was trying influence the market).

So, now this is where it gets dangerous, things are playing out in days that used to take weeks or months or years.  However, since we've cleared this initial hurdle, stocks have nothing to hold them back.  Since, they fell so far, so fast, the bounce back might be ridiculous.

To continue with my analogy from this morning, if the market is a ball dropped from the Empire State Building which bounced sharply higher off the wing of an airplane now it might get caught in a NYC updraft and act like a paper airplane soaring higher. 

The risk is that people won't see this for what it is - a vicious bear market rally - and instead will mistake it for the all clear to jump back in.  Remember, gravity will eventually win out and this is a dedicated traders market.  This is not a healthy market at all, despite what you'll hear on the news. 

My belief is that this bounce is going to be the one that really wipes out a lot of investors.

Stats of the day:
2007-2017 - $10 Trillion in new debt
2017 - $1.5 Trillion tax cut
2019 - $1 Trillion deficit
2020 - $6 Trillion bailout

This is how countries go bankrupt.

The bailout:
Unfortunately, this bailout is going to happen. I'll keep shouting at anyone that will listen, that this is straight up theft, but it won't matter.  A former Goldman employee is going to direct some $500 billion to corporations and we the taxpayers get to pay an Administrator - shocker, that will be some combination of Wall Street banks - a $100 million fee to disperse the money. 

Oh, and we don't get to find out where it goes or what it was used for. 

This is banana republic-level corruption.  Somali warlords are looking at this and saying, "Why didn't we think of that?".

*If anyone has a contact at Tedra Cobb's campaign, send them my way at blantier2@gmail.com. I would love to help her craft a message that will adequately explain why Americans in NY-21 get to send more and more of our tax dollars to support failed corporations while our families struggle in the North Country.

* Companies taking bailouts can still layoff workers. It just asks that they keep employees to the "extent possible". 

Overheard at Giantmegasuper Corp "Well, we could keep Jack and Jane on the third shift, but I really was hoping to boost the bonus pool for the C-level executives so I guess it's just not possible to keep them.  Whoopsie!"

* Companies have no restrictions on stock buybacks, so everything they did to enrich themselves and make their companies vulnerable to this downturn??? Yeah, just keep doing that. #SMH

Industries that have the strongest lobbyists are about to rob the American people while wearing an N95 mask.  This crisis is the cover they are using to steal from your children and grandchildren.  We can't stop it but we can remind them that their jobs are on the line in November (www.house.gov and www.senate.gov).

The idea of "Open for Easter" keeps getting pushed by the White House.  I can't state this any clearer:

The best estimate I've seen is that if we continue what we are doing right now - 1 million Americans are going to die from Covid19.  Opening things back up on Easter probably triples that number, are you okay with 3 million citizens dying so that you could go to Easter Brunch at the Cracker Barrel?

When you start seeing these arguments made that we have to do this for the sake of the economy, maybe take note of the fact that there are virtually no economists or actual healthcare experts suggesting this approach.

Gallows humor of the day:
Airlines: $50 to bring your bag
Airlines: $14 for a sandwich
Airlines: Oh, you want your legs to "fit"? $75 each way.
Airlines: Want to pick a seat? $50.
Also Airlines: Ah, remember all those good times. Hey, can you just mail your income taxes directly to us at United/American/Delta?  Thanks. That's be $5 for clicking "open" on this message.


That was a long 6 months last week

The amount of news flow crossing the wires every hour is roughly a week's worth of information and it's numbing trying to stay caught up to date.

This morning the financial media have given up trying to explain the why and are just reporting the what - "Markets are limit up because......well, why not?" is the basic theme.  I have a couple of theories that I'll offer up:

1) The technicals held above that 2180 level for the S&P 500 yesterday (despite the sharp sell-off) and that will embolden a lot of dip buyers. The best analogy I have, is if you throw a ball off the Empire State Building and it hits a passing plane underneath you, the fall will suddenly be reversed and the ball might bounce significantly.......until gravity kicks it and it will at some point.

2) I can't believe politics is dominating this conversation but any slush fund can't be controlled by the White House/the Treasury, etc.  It's just too much money and it's too important to just gift that money to people who will undoubtedly do inappropriate things with it, so I commend those opposing the slush fund (Congresswoman Stefanik - any comment???).  However, the truth is that they feel the need to get any deal done so maybe they relent and the slush fund is $150-200 billion --- sorry, I just threw up a little in my mouth --- and a stimulus package is passed.  Stocks might just jump 10% that day.

It was very obvious on Sunday that the messaging coming out of some corners of the media and from talking heads was this concept that "America needs to get back to work. Yes, some people are going to die but people die every day and I'm not giving up my place in Aspen and the Hampton's so your grandmother is around at Christmas" (okay, I took a little poetic license, but that was the message).

However, I didn't think we'd hear that tone for another month - I want to be clear I'm not advocating or opposing this message but this is the rationale:

"So, maybe 1-3 million people die but what's that worth? At a million dollars a life it's $1.0 to $3.0 trillion.  We are going to spend 2-3 times that bailing out the economy if we don't go back to work."

Imagine being a healthcare worker on the front lines and hearing that messaging.  I suspect that is why Dr. Fauci was absent yesterday and replaced at the news conference by the brilliant medical mind of Attorney General Barr.

Side bar: is it too late to nominate Dr. Fauci for President?

This is not a conversation that normally takes place in public.  Rather these are the sort of actuarial calculations happen a back room when a company decides to keep their product on the market despite the odds that it will kill 20-30 people per year because the revenue it drives will vastly exceed any potential lawsuits resulting from the deaths.  However, these are not normal times.

Random bits from the past 24 hours

* More and more people are starting to accept that this may be a recession.  However, I think they are discounting it's severity and length.  My initial thoughts are 50% worse than the Great Financial Crisis of 2008 and 3-4 quarters at a minimum. 

* The Fed has had more announcements and actions in a month than they did in the entirety of the Great Financial Crisis.

Bailout 2.0 - if you take anything from this post - copy this and send it around to all of your friends. This should make everyone, Republicans, Democrats, and Independents sick to your stomach:

* $50 billion for the airlines (who spent $45 billion propping up their stock in the past 5 years).

* $150 billion for the Trump/Mnuchin slush fund.

* The hotel industry wants $150 billion.

* The restaurant industry wants $145 billion.

* The manufacturer's lobby wants $1.4 Trillion.

* Shopping malls want $1 Trillion.

* The greatest beggars to ever live - Jeff Bezos and Elon "I once told the truth in 1994" Musk - want $5 billion for their space toys (this alone should make anyone with a spine vote "no").

I can't believe, this is still going, but..........

* Adidas/Reebok want provisions to make sports equipment tax deductible.

* The beer industry wants $5 billion

* The candy industry wants $500 million.

* Importers want fines for dumping waived.

In order to get a few small checks sent to you, Congress is giving away our future.  Call/email your Representatives and tell them your thoughts on this form of corporate socialism (www.house.gov and www.senate.gov to find yours).


Monday, March 23, 2020

Cue the helicopters...

The Fed has effectively announced QE 4EVER - expansion of it's plans and a willingness to buy unlimited Treasuries and mortgage securities.

I won't sugar coat this.  A former Goldman bailout artist (Mnuchin) couldn't get his "slush fund" - he wanted effective control of $425 billion to control at his discretion - in the Congressional bill, so instead he put a call into the "independent" Federal Reserve.

This is the day capitalism died in the US.

As discussed last night, if they get what they want Wall Street is going to buy this market like Beanie Babies in 1998. We bounced EXACTLY off that 2180 number on the S&P and ran to 2300 as the charts predicted. The technicians could easily push it up another meaningful 5-10-15% from here (especially, if Congress folds today).

So why, people are dying around the US at least the pajama traders in Greenwich, The Hamptons and Clayton will be rolling in they piles of cash.

A final thought - the markets have been conditioned to think "Fed action = buy STONKS!" but the problem isn't liquidity. It's demand.  No one is buying anything, conducting any business and no amount of Fed talk can fix that.

Good times.

Oh and we're only 1 week into an 8-12 week event. Awesome.


Sunday, March 22, 2020

Thankfully the markets are not "no limit" poker tables

Quick Sunday night update. Futures opened at 6pm tonight and fell 5% by 6:04pm which triggers the limit circuit breakers and stops trading over night.

Is this Lehman/TARP Failure weekend 2.0?  It's hard to tell what the failure of the Congressional vote means for the markets.  The failed bailout vote in 2008 did lead to sharply lower equity prices but the wild swings were amplified when TARP was eventually passed. 

My principal concern is that lobbyists are driving this bill (again) and they are holding the threat of a market collapse over the heads of legislators.

A lobbyist of Adidas (the German shoe/sports equipment company) indicated he was asking for $3.5 billion tax break as part of the COVID19 bailout bill.  

That is one little example of the nonsense that will be rolled into this bill.  Every wish list item that corporations have wanted for the past 10 years will get rolled into a bill and you'll get the bill on April 15th for the next 40 years.

Yes, stocks are going to head lower if this bill is not passed, but I would argue that they may very well go lower anyway when people watch the US economy grind to a complete halt in the next 2 weeks.

To that point, we are getting some early estimates on GDP for Q2 2020.  I would caution you to take this estimate from Goldman Sachs with a grain of salt because in January Goldman said the US economy was "Recession-Proof", but they are now predicting a 24% decline in US GDP. Not 0.24%, not 2.4%....... 24%!

They are also predicting a historic bounce back in the third quarter and fourth quarters, but that implies that the impact is very short-lived (a prediction that is still up in the air).

Magically, when the markets opened and fell 5% they landed EXACTLY on the line that is drawn as support - 2175-2180 for the S&P 500. It's very possible that stocks bounce off that line (particularly if Congress passes a plan to give your tax dollars to various S&P 500 companies). However, every chance for a rally in this market has been crushed and the potential for a week of ugly headlines in the battle of COVID19 is very real.

These are not predictions but the next stops on the way down are 2100 for the S&P 500 and then 1800.  If it breaks 1800, well, let's just say the stock market is going to be the last thing we have to worry about if that happens. 

On the other side of the coin, the market and every dip buyer, sees the potential for a face ripping 20-30% rally in days with pauses at 2300,  2600 and 2800.  So, net/net that's a potential 1000 point or 30-50% swing up/down in the markets in coming weeks.  These are not markets for normal investors.

* The good news: I've been pleasantly surprised by the reaction of people in our area and around New York. I predicted more people would start gathering in violation of social distancing rules, but so far that's not been the case.  Ultimately, this is going to save the lives of fellow New Yorkers.

* The Bad: Despite the cute youtube videos of Italians singing off their balconies, another 800 Italians lost their battle with COVID19 on Saturday.  Right now New York City is losing roughly 1 person per hour, that might soar to 20/hour or 500+ per day in a week.  The strain this will put on our healthcare system is overwhelming.

* and the Ugly: There were two public policy drivers behind the exponential growth in deaths from the 1918 flu -
1) misinformation from the government and
2) widely varying approaches to containment across the US.

I won't address #1 but I think everyone can at least admit that our government has not had its finest hour over the past 2 months.

The response across the US has not been consistent and as a result we are like to see the virus emerge in various hot spots on a rolling basis for months.  This is not currently built into anyone's expectations.

If we get a Congressional package tomorrow I'll try take a look at the details.

Friday, March 20, 2020

And just like that, it's over...

We tend to the wounded. Count our dead."

- from Yorktown, Hamilton the Musical

Thanks again for all of the shares - I suppose I should breakdown and get a Fakebook account to enhance my reach but you are all doing a great job of helping me reach as many people as possible.

Quote of the day - 

"If your entire economy collapses because you need to manage a pandemic for a few weeks, maybe the problem wasn't the virus".

Obviously, I'm being a little dramatic for effect but screens were green all over yesterday and we are rallying again this morning so....

Markets - Right now everyone is still operating with the mindset that this will be just like every other correction.  You pick the bottom and will be rewarded handsomely. 

We were poised on Thursday to bounce of a technical point on the charts and we did nicely (though they sold the market pretty hard at the end of the day). Again, if this gets going to the upside, it has the potential to be an epic 20-30% rally in just days, so I understand the appeal of wanting to pick the bottom but this a world for ultra-high speed algorithmic traders and the few humans with no life outside of staring at their screens for 23 hours a day.  The average investor should stay miles from this sort of market.

One final note - this crisis will not pass while the credit markets continue to implode.  I try to keep these discussions high level so I won't get too far into the weeds, but the investment grade and high yield debt markets continue to implode which will draw all of the liquidity from the Fed leaving nothing to support stocks. 

On the bailouts - let's see so far I've heard that all of these industries need their bailout...

* restaurants
* hotels
* casinos
* airlines
* Boeing
* the candy industry (I'm not kidding - see this - the Candy lobbyists want their money too!)
* cruise lines
* oil companies,
* etc, etc. 

As one lobbyist put it yesterday "We are at the spaghetti on the wall point of the crisis.  Let's see what sticks."  Reminder, these politicians are spending YOUR money (well, actually, they are taking out 30 year mortgages in your name because our Fed government has no money to spend right now). 

Remind them of that with a call or email or tweet to your Congressional leaders - locally that is @RepStefanik @SenSchumer or @SenGillibrand.  Send them my way if you'd like and I'll have a frank conversation with them.

I'll reiterate my opinion - the best thing in the long-run for consumers and employees is to let these over-leveraged, mismanaged companies file for bankruptcy reorganization.  While in reorganization, the companies will continue to operate and their financial condition will eventually improve leading to better wages and lower prices for consumes.  The only people benefiting from a bailout are the management teams and their investors who enabled them.

COVID19 update:

I do not have any unique insight beyond what everyone else is reporting.  California going into a state of "shelter in place" means that those measures are coming sooner than later to NY in my opinion.  As one doctor in NYC put it "We have no idea what's coming but I'm worried that by next week NYC becomes our Wuhan or Lombardy." That should scare us all.

One reason why is shown below:

While this isn't a scientific study, only showing a 7% decline in foot traffic is troubling (though to be fair this was through 3/13 and I think by 3/20 the numbers will look much different).  Especially for a virus with a 14 day incubation period. 

* Virus Fatigue - this article highlights one of my greatest concerns that I expressed earlier this week.  After another week or two of isolation people may start breaking containment and then we will see a resurgence of cases.  This creates this never-ending loop of outbreak/containment and society will start to fracture.

* China - This is major concern of mine that I keep hearing from people in the know - China is fuming right now.  Remember that amazing trade deal? Yeah, neither do they.  This virus will eventually fade into the background but the Chinese remember people who wronged them 1000 years ago and they will remember the way the rest of the world responded to this crisis.  One of the brightest minds I know is warning that we are running the risk of prompting the first cyber World War.  I think the odds are incredibly low, but in his opinion antagonizing the Chinese every day on national TV moves us one step closer to a US vs China/Russia/Iran/N.Korea cyber war.  If you think self-isolation is bad, imagine it without electricity, internet access or cell service. 

Okay, that's enough doom and gloom to hold you over until the weekend!

Stay safe and stay home!


Wednesday, March 18, 2020

If I had a trillion dollars....

I may have shared this image before but it's worth repeating.

This is $10,000 of $100 bills.


This is $1 million in $100 bills.
$1,000,000 (one million dollars)

This is $100 million.

$100,000,000 (one hundred million dollars)

Okay, here we go $1 billion.

$1,000,000,000 (one billion dollars)

However, when you start hearing people on TV talk about a trillion dollars here or there but they don't have a way to offer free COVID19 tests remember this image.  $1 Trillion....

$1,000,000,000,000 (one trillion dollars)
The point is that these are astronomical sums of money that we are talking about.

The markets continued to swing wildly as we have a daily tug of war between collapsing fundamentals and hourly stimulus proposals. There are some real signs of market stress that I won't go into too deeply but it is possible one of the biggest hedge funds in the world run by one of the world's richest men might be blowing up (couldn't happen to a nicer guy - he's a grade A jerk).

The challenge for the US economy is that we spend borrowed money to buy imported products.  While our reaction to the market declines have been historic, the irony is that thus far our markets have held up when compared to overseas markets which are already down 40-50%.  Ultimately, our reliance on the leveraged consumer probably means the impact will be greater here than overseas.  Something to keep in mind.

The list of crazy ideas floated today included:

1) The Federal Reserve buying up corporate debt (this would be covert bailout for hedge funds).  If you love your country, you should oppose this idea. 

2) Bailing out the airlines and Boeing continues to gain steam - Together Warren Buffett and another hedge fund own about 25% of the airlines.  The idea that we are contemplating bailing out one of the wealthiest people in the world (AGAIN - remember all of his banks we saved in 2008) is appalling.  I would be the world's greatest investor if I got bailed out every 10 years.

3) A 30 day national lock down.  Right now this is just a rumor, but I think this is so stupid some people might push it hard.  The idea is we close everything - the market, every business, literally everything for 30 days and the virus magically goes away.  In China you can pull this off, but in the US where 60% of one particular political party representing probably 80 million citizens think this is being blown out of proportion, you are going to cause mass chaos.  If you live in NY/DC/LA this might seem logical but they have no idea the blow back they will get if they try this in Tuscaloosa.

Who knows what tomorrow will bring? The markets initially soared on then news of $800 bil of stimulus from the ECB (up 4%) but two hours later they are sliding, now down 2% and falling.  We are getting very close to some important points of technical resistance that could provide great bounce points but frankly no one knows because if funds start blowing up all of the normal rules go out the door.


Thanks again - almost 500 people came to check out my ramblings today.  Feel free to share or shoot me any questions at blantier2@gmail.com.  You can also follow me on twitter @brianlantier for biting sarcasm and dark humor.

Never Waste A Good Crisis

Politicians have never met a crisis that they couldn't parlay into more money and power for their friends. The 2020 recession will not be any different.

Since we had about 18 months of news in 24 hours, I'm going to break it down into two posts - the first covering the pandemic news and the response, while the second will address what's left of our markets.

1) This article is worth reading at Vox.com - Scientists warn we may have to live with social distancing for a year or more.  Since, mid-February this has been my position on the virus.  We have to chose to shutdown society and attempt to avoid everyone for 12-18 months or we have to accept a very high number of deaths in some of the most vulnerable populations. 

"The idea that you can close schools or restaurants for two weeks and you get back to normal - that's not what's going to happen." The concept that the virus will re-emerge without strict movement restrictions is a huge risk in a country like the US where some states are being very aggressive, while others are doing virtually nothing. 

2) This is my proposal - if anyone has a contact at the CDC or the White House feel free to pass it along. 

Test EVERYONE.  Yes, everyone.  It's expensive and it'll be a PITA but hear me out.  We use every available public building to collect samples and rapid test (none of this 5-8 days for results BS). When you test positive, you truly self-isolate.  Everyone else returns to their jobs/school/traveling and life resumes a somewhat normal existence.  The economy would bounce back, schools could open, and we'd have a chance at avoiding a recession without adding another 10% to our crushing Federal debt totals.

On a very small scale look at the success an Italian town had with this approach - "Test all 3,300 in town, isolate the 3 percent who tested positive. Infection rate 10 days later down to .3 percent."

 Obviously, testing 330 million people is different than testing 3,300 but the alternative is failing business, skyrocketing unemployment, bailouts galore, and another 8 weeks stuck inside with your family😂😂😂.

3) I just wanted to share this story of someone's experience with COVID19 testing in NY. 

"I just got swabbed for COVID-19 in NY, and the experience leaves me feeling so much more paranoid about America’s ability to get a grip on this crisis. They still won’t test you unless you’ve been in contact with a confirmed case, which is a nonsensical standard in the context of community spread. But they don’t even ask you for a name, probably because of medical privacy laws. But as a result it’s a meaningless question. Goes almost without saying there is zero effort to do contact tracing. Medical staff didn’t even encourage me to alert people I or my partner had been in contact with (that said, our family has been self-quarantined going on 9 days, even before symptoms started). I walked to the urgent care facility to minimize contact with anyone. I was bracing myself for a long line, so when I arrived and discovered the place to be essentially empty I was a little surprised. Is that because there was a separate entrance for suspected COVID-19 cases? Nope, they walked me through the front door and into an exam room. No instructions to wash my hands (maybe bc I was wearing gloves and a mask). No paper covering the chair I sat in. The total lack of precautions was not just a risk to the people who would come after me in that room, but to myself and my family because presumably the room would have some lingering virus from someone else. This last part was not unexpected, but it remains crazy that results will take 5-8 days while Korea is providing them in a matter of hours. I somehow forgot the most troubling detail. If I hadn’t had insurance, I would’ve had to pay $125 to the urgent care facility and $1,000 to the diagnostic company out of pocket, on the spot, for testing. This is so insanely regressive. We need free, accessible testing now." - via @claydumas on twitter.

This is in NY which has been at the cutting edge for diagnosing cases for the past 2 weeks and as you can tell we are doing a terrible job.  Imagine what the systems are like in other parts of the country.

Again, thanks for tuning in.  Share the link if you find it valuable and follow me on twitter @brianlantier for snarky commentary all day long.

Tuesday, March 17, 2020

Just so I'm clear, CORPORATE Socialism is good?

The Fed kept rates lower for longer which chased capital from investment pools into Wall Street to fuel speculative excess. Public companies sold bonds to fund stock repurchases, but when they struggle to pay their bonds the Government bails them out.  Capitalism in 2020.

Just four weeks after All-Time Highs in the stock market, we are back to being a bailout nation again.


Sticking with the theme - the markets continue to act like a fish out of water.  After the markets collapsed on Monday despite historic efforts by Congress, their lobbyist pals and the Fed failed to impress, the brain trust in Washington decided they needed to go big or go home.

Do I hear $850 billion? Maybe a trillion?  Maybe $1.2 trillion?  Boy, it's a good thing we are running budget surpluses so we can afford all of this extra spending.

What's that? You say we are already running budget deficits of $1 trillion/year?  Combined with a steep decline in GDP we might be looking at a $2.0 to $2.5 trillion deficit this year. 

I'm old enough to remember when Ross Perot won 19% of the popular vote by complaining that our deficits and the associated debt (then around $4.5 trillion accumulated over the course of 215 years!) was going to cripple us.  Now, the politicians in Washington are set to mortgage our future one more time to save the markets.  If there are two things the Republicans and Democrats can agree on it's bombing foreign countries and bailing out their corporate pals.

The message was received loud and clear and markets jumped 5-6% again today (though they've given up 60% of those gains as I write this overnight).

Who knows what insanity will be trotted out next:

* Ban short-selling? Reminder that after they did that in 2008 the financial index fell another 70%.

* Shorten the trading day?

* A chicken and a check in every mailbox by May 1st?

I still expect very volatile markets as the latest headlines will whip the markets up or down in a heartbeat. 

However, in the long-run this is my thinking - currently people expect the S&P 500 companies to earn $133 in 2020.  I think eventually estimates will come down drastically to $100-$105.  Now what do you think people will pay for earnings in a falling market?

20 times = 2000 to 2100 (this would be historically expensive)
15 times = 1500 to 1560 (this is the historical average)
10 times = 1000 to 1050 (this would be considered cheap)

Reminder, the S&P 500 closed at 2530 today. Oof.

The pandemic - We continue to make too many mistakes to adequately slow the growth in the US.  People are still congregating (see Florida beach photos), testing is taking far too long and we are running out of beds and supplies in major metropolitan health centers.  I suspect things will get much worse over the next 10 days.

There are rumors of US citizens being recalled from embassies around the globe and hints of further restrictions at the border.

Perhaps most disconcerting is news that places like Singapore, Hong Kong and Taiwan which were thought to be over the peak infection rates are seeing a second wave of infections.  This fits with my thinking that we need to learn to live with this disease because it's not going anywhere.


PS - you can always follow my up to the minute thoughts and snarky comments on Twitter at @brianlantier

Monday, March 16, 2020

When you throw in the kitchen sink and the market still falls 12%

Well, Houston we may have a problem.

** Thanks again to everyone that came back and shared the blog. If you find it interesting, pass it along to your friends and/or enemies :)

A couple of quick observations:

I believe the reaction by US leadership will eventually slow the spread of the virus in some parts of the US (I do worry about reports I'm hearing from some states that don't seem to be reacting at all). 

Unfortunately, this means our lives our going to be severely disrupted for 4-6 weeks in ways that we've not experienced in our lifetimes.  However, I also want to reiterate that I feel that this complete shutdown of our society is unnecessary. 

We could ask people at risk - principally those 70 and older or those with severe immune deficiencies to self-isolate and the virus would spread throughout the US quickly.  Most of us would get sick (perhaps 200 million+) and a few would have serious complications but our world would not end. 

However, our current approach seems to be geared to mitigating liability and the only way to do that is to  shut everything down. I believe we should be learning to live with this virus, not trying to hide from it for 6 months. 
Today was a perfect example of the Fed losing credibility.  They've thrown everything they have at the markets, but the markets keeps saying this isn't an interest rate issue.  This is a debt/solvency issue and the Fed doesn't appear to have the tools to deal with this problem.  Think about how fragile our system was that it requires near 0% interest rates, $700 billion of quantitative easing, $500 Billion in nightly repos, 4 weeks after all time highs and the market is still crumbling. 

I still think this will be a very challenging week for the markets because the headline risk is so significant.  Hospitalizations and deaths are going to soar in the next 7-10 days in the US but that will be countered by a steady flow of "STIMULUS" news.  A $1,000 in everyone's mailbox?  A payroll tax holiday? Deferred mortgage or utility payments? If there is a crazy idea out there, it will probably get floated in the next 48 hours.

The market is sitting on a precipice with ledges roughly 10% lower, then 15% lower and eventually another 30% lower.  It's worth noting that despite the thrashing stocks have taken in the last four weeks, they need to fall roughly another 50% just to get back to historical norms.  

Okay, so it's time to sell everything and retreat to a bunker?  

Well, here's the funny thing, I suspect that at some point we'll get numb to the bad news and everyone with a lobbyist is lining up to getting a bailout so the set up exists for an explosive rally.  The potential is there for a 20-30% rally in a very short time frame.  None of this is advice, just observations given that so much of our market is driven by technicals we need to be aware of the charts. Some will see this (if it happens) as a sign that the worst is behind us and they will probably take a victory lap.  That would be the wrong reaction but be prepared for it.
If we want long-term financial stability in our markets and for our industries, we should strive for better capitalized companies with less debt.  The debt bubble of the past 12 years is the real villain in this story.  The virus was merely the pin which popped that bubble. It's okay to be upset with the hits we've taken over the past month, but direct that toward the real bad guys here - the people that told you that our economy could go on gorging on debt forever. 

Speaking of bad guys....the airlines, Boeing and the casinos all started begging for bailouts today. 

The five largest US airlines - Alaska, Delta, United, American and Southwest spent a combined 96% of their free cash flow from 2010 to 2019 on.....

debt reduction?
capital investments?
employee retention?

Nope - they spent it buying back their own stock.  Consider this simplified example - if a company has 20 shares outstanding and their stock is trading at $100 they are worth $2000.  If they take $200 from their cash flow and buy their own stock, now they have 18 shares outstanding but they are still worth $2000 so each individual stock is probably going to be worth ($2,000 divided by 18)...$111.  It's like MAGIC!

So why would a management team want to push up a stock price if it doesn't change the overall value (remember the company in our example is still worth $2,000 in total)? Well, that gets back to our old friend - stock based compensation.  Options, warrants and bonus pools are often driven by share price, thus management of the airlines actively pursued policies to enrich themselves while leaving their companies with excess leverage and ill-prepared to handle a downturn. 

The airlines will not go away if we allow nature to take its course.   The existing airlines will probably go bankrupt, the equity holders would be wiped out and the debt holders would get a haircut, but they would reorganize like they have done many times before and re-emerge.  If you bailout the airlines, you are endorsing the reckless behavior of the past decade.

Boeing has spent a little over $100 billion in the past 5 years on its own stock. It sure would be nice to have that money now instead of coming to Washington with their hat in hand.

Finally, the casinos are going to make some sort of ridiculous pitch that they are critical to the survival of the neon industry or something but they probably will have a sympathetic ear in the White House since he knows a thing or two about casino bankruptcies.

Again, the economy going to grind to a halt in the next few weeks.  The real test will be how we chose to stimulate our way out of this mess.


Sunday, March 15, 2020

Living History

First, a little thank you to those of you who took the time to reach out.  I really appreciate the fact that you're still checking this little blog after all of these years. If you find this helpful, go ahead and share the link with others on Facebook or Twitter - www.grindstonefinancial.com  - I'll be sure to update throughout the week. 

As I watched President Trump's speech on Friday with my daughter and she was following the Dow's meteoric rise (I'll get to that in a minute), I tried to relay to her that this is not normal.  I likened the markets right now to a fish out of water.  When a fish is swimming peacefully under water, it might go up or down in the water column easily and calmly.  However, a fish on the deck of a boat is much more prone to violent thrashing.  This is what has become of our markets.  A decade of unnatural intervention and support from governments and Central Banks has led to a market that is suffering historic swings - down 10%, up 10% on no real news.  This is not the way a healthy fish lives, this is the way a fish acts when it may be dying.

1) The outbreak - obviously, we have finally gone from "it's just the flu" to taking this seriously in the US.  Unfortunately, I think it may be too late to slow the spread of the virus and I'm very worried about what the next two weeks will bring.  I hope that I'm wrong, but it's my belief that by the end of this week many ICUs in the Northeast will be overrun.  I also worry that Americans on balance are not taking the threat seriously enough.  Look at the scenes of crowds in NYC parks, in bars and restaurants over the weekend etc.  I believe that there is a chance, that by late next week people will start breaking the self-imposed isolation and exposure rates will climb further.  This will lead state or Federal officials to impose curfews to limit interaction which will cause further panic.

I would be happy to be wrong on this issue, but every time we've had the chance to make the right call we've managed to screw it up.

There is a secondary concern of mine and that is the plan for society after the initial outbreak.  You can see the scenes from China of life returning to some version of normalcy but there is some research that indicates this virus may not act like the seasonal flu.  This virus may be with us throughout the summer and potentially come back again in the fall or the winter of 2021.  I am hopeful that we will have some sort of vaccine in 12-18 months but as we've seen this weekend people will fight over toilet paper when you talk about isolating them for 2 weeks, imagine what happens if this were to be 3 months or more.  We may need to learn to live with this virus and that is not a concept that I've heard discussed.

2) The markets - Three weeks ago, the Chairman of the Federal Reserve said he saw no risks to the economy right now and no reason to lower interest rates.  Three weeks ago Goldman Sachs said there is no risk of recession in the US for the foreseeable future.  Well, the markets have spoken and fell from all-time highs to a bear market in less than three weeks. 

I've been telling anyone that will listen that we've been in a shadow recession for about 18 months.  Excess government spending has been the only thing keeping the US out of a recession and it doesn't appear as though that will be enough to prevent a recession in 2020.  Our economy has been fragile and debt-ridden for the past decade fulled by speculative excess and those cracks in the foundation are now coming to light as a result of the COVID19 outbreak.

The Fed just announced an unprecedented set of efforts to stimulate the economy - Another $700 bil in QE on top of close to $2 trillion for the repo market, 150bps in interest rate cuts in 3 weeks and yet the market opened LIMIT DOWN. 

This is scary. 

This has many of my colleagues saying it feels like the Sunday before Black Monday in 1987 or the Sunday before Lehman collapsed.

However, our current administration is obsessed with the stock market and the daily report card that it provides.  One way to prevent a stock market crash is to prevent stocks from trading and I think all of these ideas are being discussed tonight -

1) A trading halt that just doesn't open stocks tomorrow or maybe for a week (like post 9/11).
2) Short-selling bans
3) Removal of limits for 401k purchases

However, here's the problem: What happens if the Fed loses control and credibility at the same time?  That's not something we've seen in our lifetimes, but we might be witnessing it now. 

This is the most important week in recent memory for the Federal Reserve because this is not a liquidity crunch, this is solvency crisis and they don't have tools to adequately address a solvency crisis.

There is also the matter of what the charts say.  If you remember, I've said for years that a significant amount of Wall Street is on autopilot because of the way technicians run large funds.  Well, that can cut both ways because a market run on charts is in trouble when the charts breakdown like they did this week. 

Tonight's failure by the Fed will cause some immediate carnage overnight but the real question will be how the bond market reacts in the morning.  The current game plan anticipated by most was a further rally for a few days before we breakdown again.  The ballpark estimate that I keep seeing is a rally to 26,000 on the Dow and then a collapse back down to 17-18,000.  However, this all goes out the window based on what happens tomorrow around 8am.

By the time many of you read this it may be old news. 

3) Miscellaneous - one other idea floating about is the concept of helicopter money for everyone to prompt spending.  It seems popular to say let's give $1,000 to every person in the US (excluding the top 5-10% of earners) and the cost would be $300 billion or so.  Yes, it would pump some money into the economy but it seems like an idea that is not very well thought out.

I believe that if we address the medical crisis, the stock market will eventually take care of itself.  Throwing money at this seems feels like we're trying to put out a fire, not with buckets of water, but buckets of cash and we'll just end up burning our cash.

You can follow me on twitter @brianlantier or check here for updates.

Thanks again!


Thursday, March 12, 2020

It's been a few years....

If anyone is checking in looking for some thoughts on COVID19, the markets, the economic fallout, our political leadership - shoot me a note and I'll write up some thoughts tonight and maybe relaunch the blog.

In a nutshell, these are incredibly uncertain times in markets dominated by headlines.  The scariest headline is that the peak impact on the US this spring is still 3-4 weeks away (and it may be worse in 2020-2021).


Shoot me a message at blantier2@gmail.com if you'd be interested in hearing my thoughts.