Thursday, April 30, 2020

We live behind the lines

That they are keeping us inside...

Fever 333 - Burn it
**********************************************************
Tonight I just wanted to take a couple moments to highlight some of the ways that gross incompetence has become institutionalized in our nation.  These are all stories that I came across just TODAY.

1) As I mentioned before, we need an army of contact tracers in the US to safely reopen.  Probably 300,000-400,000 people to actively monitor our interactions and quickly identify the sick and their contact points.  This requires nationwide coordination to be efficient and smart about the data collection. 

However, efficient and smart are not words associated with Washington, so instead we are going to use the least efficient, most expensive option - hire a bunch of private contractors with no experience in public health working with different systems in different states.

Without any expertise leading this charge, the government is just throwing money at various solutions with no collaboration between providers. 

2) The Justice Department sees ample evidence of fraud in the Small Business Administration's Paycheck Protection Program.  Imagine that - throwing a trillion dollars at the banks without any strings seems to have brought fraudsters out of the woodwork #SMH

3) I don't even know how to explain this but apparently the Federal government is looking into ways to "make China pay" for the damage done to the US economy.  The options allegedly include - removing sovereign protection so citizens could sue China directly (no mention of suing our own government for incompetence) or cancelling debt owed to China by the US. 

I've half-joked that China might just make a meme to circulate that says - Nice internet and electric grid you have there.  Shame if anything happened to it. 

4) The Federal Reserve said it was going to expand its "Main Street" lending program (that name is ridiculous) to include companies with up to 15,000 employees and $5 billion in sales.  You know small town, mom & pop businesses with $4.99 billion in sales and 14,999 employees.

5) This Buzzfeed story needs to be on the front page of every paper and website.  This random guy with 70 followers on Twitter sent a tweet to the White House saying he could build ventilators.  A few days later New York wrote a check to this cell phone engineer (with no apparent expertise in building ventilators) for $69 million or almost 3 times the average price of a top of the line ventilators.  New York has since cancelled the contract but they won't say how much money, if any, that we've been able to get back.  

I'll buy the pitchforks if anyone wants to protest this in Albany or DC.
***********************************************************
Fact of the day:

30 million Americans have now filed unemployment claims - roughly 1 in 5 working age adults - and yet, April was the best month for US stocks since 1987. 

As someone wrote today, the first 30 million unemployed seemed to be good for stocks.  The second 30 million may not be as good.
************************************************************
I haven't discussed the pension systems much because it tends to be a little wonky but read this honest assessment on why politicians consistently under fund pensions in favor of areas of government spending.

Image
*********************************************************
Daily dose of humor:

via @homewithpeanut
Me, before kids: It might be cool to be famous.

Me, after kids: It might be cool to be one of those Dateline dads who fakes his own death.

via @sophielou
Today's Zoom meeting: Team No Pants vs. Team Muumuu Dress

via @difficultpatty
Quarantine meals: What am I gonna melt cheese on this time?

Cheers!

Wednesday, April 29, 2020

No the drugs don't work anymore

Grandson - Overdose
******************************************************
COVID19 Update:
Today as the collapse of first quarter GDP was announced, the government also released preliminary data on a rushed study of the Gilead drug Remdesivir.  Headlines read "Remdesivir study shows positive results for treating COVID19" and I think many people have really misinterpreted what "positive results" means.  I'll ignore the fact that scientifically, one study of 1,000 people is not significant enough to draw any meaningful opinions, but since we live in a fact free world now, let's move on.

What are the positive results?  Well, in people who didn't die (8% of people on Remdesivir still died) the recovery time on average was shortened from 15 days to 11 days.  That's nice, but the net/net is you still got COVID19 and were hospitalized for 11 days if you didn't die.  I think the media has misrepresented this "treatment" as a magic bullet which it clearly is not.

In a related story, I've been asking various sources to track total deaths in the US whether they are labeled COVID19 or not because it has been my suspicion that many people are dying of the disease or related complications but they are not being labeled as COVID19 deaths. 

Well, the NYTimes finally pulled this information together and it's pretty stark.  If you have an account (free to sign up) you can read the full study here.

Even if you don't look at the full article consider the charts below.  What I suspected is very evident - the number deaths/week is VERY consistent every year.  Obviously 2020 jumps out as an outlier as a result of COVID19, but what is interesting is the gap between INCREASED deaths and reported COVID19 deaths.  For example, in New Jersey they have recorded 5,200 "excess deaths" beyond what would be expected.  However, they've only reported 2,200 COVID19 deaths.  So, what caused an extra 3,000 NJ residents to die this year? I'm sure it could any number of factors but obviously COVID19 should be suspect #1.

source @nytimes

And a reminder as the country starts getting ready to open for business - yesterday 2,470 Americans died of COVID19, the fifth highest total of the crisis.  Today another 2,390 Americans died, making it the 6 highest total that we've seen.  48 hours and more Americans died than died on 9/11, but the narrative is that "we're moving forward", so you'll have to grin behind your mask and remember to wash your hands.
*********************************************************
Markets and the Economy: 
The markets can get summed up in a couple of photos.
Image

Image

* 22 million+ Americans have lost their jobs, the economy fell 4.8% in the first quarter and the NASDAQ is 3% higher than it was on January 1, 2020. #SMH

* Hertz stock traded up for the first part of the day despite news that they were likely to file for bankruptcy (eventually closed down 20%).

This is the year over year change in passengers screened by the TSA - for the past week the number of passengers has held around 110k/day, down 94% from last year.

Image
via @dthedgeye
***********************************************************
Follow-up:

A couple of days ago, I mentioned that we as American's like to focus on scary deaths vs chronic or preventable deaths.  The shift in the narrative is to get you to just accept that COVID19 is part of our world - like cancer/heart disease and there's nothing you can do about it.  This isn't true, we could do something, but we will elect not to do anything after mid-May.

Anyway, I think I've shared this before because it highlights the discrepancy between what really kills us - Heart Disease (food, smoking, old age) - vs what the media covers Terrorism.

Image
via @cmdr_hadfield

Also, if you recall earlier this week, I mentioned that commercial office space may be the first big casualty of the post-COVID world. 

Today the CEO of Barclays Bank said "putting 7,000 people in a building may be a thing of the past".

Also, the CEO of Discover Card said today in "25 years, I've never so much distress for the US consumer."
*********************************************************
Daily Dose of Humor

via @amandajpanda
The longer this goes on, the more I look like a proud toddler who picked out her own outfit.

via @picklerudd
No, the poptart on my nightstand is my midnight snack. The poptart under my pillow is my emotional support poptart.

via @chhappiness
I bought a Roomba to save an hour on vacuuming, now I’m spending two hours staring at Roomba vacuuming

Cheers!

Q1 GDP falls 4.8%

Economy and Markets
For some time I've been telling you that the US stock market is completely separated from economic reality.  If you look around the globe you see a more normalized view where equities should be priced heading into a global recession or depression.  In the US we reported that GDP (a measure of all the goods and services produced by our country) shrank by 4.8% in the first quarter and stocks are soaring. 

US stocks are a video game and not a representation of economic activity.  The way to look at the stock market is if your kid plays Madden 2020 and wins the Superbowl as the Cincinnati Bengals, it doesn't mean the Bengals won a Superbowl in the real world.  Stocks going up no longer reflects anything other than stocks going up.

The decline of Q1 GDP is really shocking when you consider that a large portion of the US was still open for business as late as the end of March.  By March 15th most of NY State had decided to close, but 80% of the country was open through the 22nd.  The implications for Q2 GDP are unfathomable - will the economy shrink by 20%, 30%, 35%? If the initial indications out of China are any indication, reopening the economy will not lead to a sudden snap back in demand.  Yes, GDP will be up "BIGLY" in Q3 right before the election, but that's only because it will be coming off such a low base. 

Bear with me for a second to demonstrate how this works because some people are going to try to trick you with math later this year....

1) Assume US GDP is 100 for ease of calculations.  When GDP fell 4.8% in the first quarter, that makes GDP 95.2

2) Now let's assume GDP falls another 25% in the second quarter. I have no idea what the number will be but that's the mid-point of some estimates.  Now GDP is 71.4.

3) By the third quarter everyone is back at Panera and Chipotle so the economy perks up and they report a massive GDP jump of 15%!! Someone (not naming names but it rhymes with Frump) will go on TV telling you about the biggest jump in the economy ever! EVAHHHHH!  But, GDP is now just 82.1.

4) In the fourth quarter after the election, maybe GDP settles down a bit but still grows a staggering 8%!!! All of the way to 88.7. Huh, so people will tell you about growth, but the reality is that, in this scenario, the economy is still 11.3% smaller than it was at the end of 2019.

Cheers!

Tuesday, April 28, 2020

I just don't want to live in District 12

Who knew the Hunger Games would be non-fiction?  For the uninitiated, the Hunger Games is dystopian tale of a dark future when North America has been divided up into 12 districts and while they are all still governed by the elites, those elites have very little compassion for their fellow citizens from other Districts.

Fast forward to the great RE-OPENING of 2020. We have a Northeast coalition (NY, NJ, PA, CT, MA), we have the West Coast (OR, CA, WA), Western States (NV, TX, NM, OK), etc, etc. 

Each "district" is forming their own rules on re-opening - in the Northeast manufacturing and construction might re-open on 5/15 if social distancing can be enforced.  In Texas, bars and restaurants are opening on 5/15.  The rugged individualism that certain states value more than our collective health is going to lead to further calamity in the US down the road. 

Consider the case of China, where they have been open for business for about a month in Beijing.

1) Traffic is back to 60% of normal.
2) Public transportation is only about 30% of normal use.
3) Retail has no idea how to operate, some shops are open, some require curbside pick up, and many remain closed. 
4) All gyms and athletic facilities that were opened 2 weeks ago had to be closed this week over fears of the virus re-emerging.
5) Consumption is focused on bare minimums there has not been a return to normal.

So, this is the experience in a state with complete control of its citizens.  People follow the rules in China, for better or for worse.

In my limited adventures into the outside world during our lock down, I've seen a flagrant disregard for the "rules" at every turn in NYS which has been the hardest hit by the virus (at least that's the narrative, I'll write something about that later).

Maybe 65% of people wearing masks in NY (I asked for other reports from around the US - I was told 20% in Texas, 35% in Georgia), social distancing in a retail setting is non-existent, people are gathering in large numbers socially, etc.

As Americans we are captivated by scary things we can see and we like to disregard silent, real threats all around us.  A tornado rips through Texas so every thunderstorm in the Northeast causes fear of a tornado.  A terrorist on a scripted CBS show scares people into sending more tax dollars to Washington, while people eat and drink themselves to death slowly at Sonic and the Cheesecake Factory.  

My point is that you aren't going to see people get sick and drop dead like they did in the movie "Contagion", so there will be little initial fear in the streets after the re-opening.  This virus is still everywhere in the US and as we re-open we need to adhere to strict guidelines or else. 

Ask yourself, how likely is it that someone in Louisiana (where things are still closed through 5/15) will drive to Texas to get their hair or nails done?  How likely is it that when Myrtle Beach opens EVERY other license plate will be from NY? 

However, none of it may matter because the narrative has shifted - from a nation that once wanted to protect all of it's citizens equally - to a nation that wants to  protect the citizens of the Capitol first and let the other districts fight for survival. We will have clusters emerge across the US and 1,000 Americans a day will continue to die from COVID19 but the narrative will become "Karen got her haircut today, so GOD BLESS AMERICA".

The narrative will become much that much like other preventable forms of death - heart disease or lung cancer from smoking - that COVID19 is just part of life -- "Well, we lost some people but wasn't that steak at Texas Roadhouse spectacular?"

if you think the country should reopen meme

***********************************************************
Daily Dose of Humor:

via @portmanteauface
*listening to the theme song from Dexter on repeat as I make my breakfast* I wouldn't say any of this has changed me.

via @ghostkirsten
People i like:

1. Your dog.

via @jannakillhimnik
Todays parenting level -

IDGAF burn the house down

Cheers!

Sunday, April 26, 2020

The future of work in a post COVID19 world

We are all caught up in the immediate impacts on our lives as a result of the COVID19 pandemic.

The basics and the mundane:
Do we have enough food/water?
When can I get a haircut?
Can we protect others by wearing a mask if we do go out?
How do I stay mentally/physicall fit in 2 months of isolation?


And then there are some much more meaningful questions:
Will I have a job after the pandemic?
What does it mean for pensions/retirement?
What does the US Debt to GDP soaring to 18% mean?
Can the economy recover?
Is work from home a permanent part of our future?

I want to take some time to focus on that last question - working from home.

It is clear that working from home is not a perfect solution and many people can't wait to get back to the office full-time.  However, when listening to Governor Cuomo's press conference today, going back to "normal" is not likely to resemble the workplace of February 2020.  Going back to work, if you can at all, is going to require safe social distancing.  For some businesses, this can be accomplished through measures like extending an assembly line or eliminating communal eating areas (see this photo from a Chinese auto assembly plant's cafeteria).

For some Chinese businesses, no going back to pre-coronavirus ways
Source: CNBC.com

However, how does a bar or restaurant enforce these new rules? How can a million people safely commute into New York City every day while staying 6 feet away from EVERYONE? The simple answer is that you can not, so the traditional model of work that we new 2 months ago is unlikely to return. 

As part of the next wave of impacts from the pandemic, I expect a fairly large round of corporate right-sizing/downsizing/layoffs of white collar positions.
One of the things that corporations (and employees) have realized is that there are a lot of hours in the work day that are wasted.  While corporations have to walk a fine line to avoid appearing callous, it's clear that they could be more efficient and many will take this opportunity to achieve that efficiency.

On the flip side there is a strain on employees who can never disconnect from work.  Finding a long-term healthy work-life balance, when all work is done in your home, is a serious challenge.

Not every job is eligible for WFH - emergency hospital staff, physical therapists  - but many positions previously thought to be "office jobs" may never return to an office.  Consider some of the fastest growing jobs categories - Finance/Accounting, software engineering, operations or market research, marketing, data analysis, etc., many of these can largely be done from home. 

However, the pure work from home model is flawed because it lacks the office experience, the feeling of belonging to an organization and the accountability that comes from arriving at an office.

Prediction #1: Demand for Commercial Real Estate tumbles
The failure of WeWork might actually pave the way to a new type of hybrid Work From Home/Office model. I've seen this model work first hand but I think it will spread across various industries and cities around the US.  In the past if you had a company of 200 employees, you budgeted a floor plan for 230 people to allow for growth. That will no longer be the case - maybe you plan for 30% of your staff to be in the office full-time, 20% work from home and 50% floaters who come in on alternating weeks (similar to the WeWork model where you don't have an "office" but a randomly assigned desk). This means your total space needs go from 230 people at 150 sq ft/person or 34,500 sq feet to - 60 permanent staff + 50 floaters + 15% excess = roughly 19,000 sq feet.

So who does this impact? Obviously, Commercial Office Space in the US.  All of those sprawling corporate parks around the country and gleaming office towers in cities? Yeah, some will become ghost towns. Coupled with the accelerated retail apocalypse and a restaurant glut in the US commercial real estate could be in for a very, very rough patch.  The commercial real estate market is tied to the banking industry as most large scale real estate projects are significantly leveraged.  So, the next bank bailout might be triggered by more people working from home.

If you're in the market for a used car, the next 3 - 6 months might be your sweet spot.  Staggering job losses will spark a return of jingle mail (when people just mail the keys back to their lenders) and a spike in work from home employees will drastically reduce the number of cars needed in each household.

If prices come down a bit more I might even taking some trading profits and upgrade my vehicle to one of these (just checking to see if my better half is still reading).

Prediction 2: Lower Employment in the US in the long-run
In the 1990's, companies adopted a model of outsourcing their customer service to a variety of call centers around the US.  By the beginning of the 21st Century the companies providing these services realized that all of their employees were either sitting at home or commuting to old department stores in North Dakota.  Since there was no physical need for the call center to be in the US, once tax breaks had been fully utilized, these companies aggressively began moving this work to lower cost parts of the world. 

Yeah, but that's low-end work, right? Yes, but here is the question I want everyone to think about - if you've done your job over the last month as a work from home employee, imagine a world where corporations get another 5 years to perfect this model.  Now, they might go one of two ways - take full-time jobs to part-time (further reducing wages/healthcare costs because do you really need 40 hours to do your job?) and/or moving these jobs to lower parts of the world.  Need a graphic designer?? Maybe you don't pay $52,000 to a new college graduate in the US, instead you hire someone in Poland for $14,000 and 5 years of experience.

Prediction 3: Reduced demand housing in suburbia
If predictions 1 & 2 play out, think about the way the US is built.  Cities to work in and suburban areas for us to sleep in.  However, how many people really want to live on postage stamp lots, so they can sit in traffic for 38 minutes to go 4 miles to Costco (okay, people in New Jersey do, but they don't even pump their own gas)?

We have dramatically over built housing in suburbs around NY, Boston, DC, Atlanta, Dallas, Chicago, Seattle, etc, etc.  A long-term trend of the WFH movement could be significantly reduced demand for housing near cities.  Bailout number 4 for the banks might be tied to the 2028 housing collapse :)

*********************************************************
Daily Dose of Humor:

via @Mommaunfiltered
It’s 11 o’clock I should eat a can of Pringles.

via @WilliamAder
I continue to mow my lawn just like the band continued to play on the Titanic.

via @lmegordon
Happy hour starts at 4 now and nobody is ever happy.
and
Biggest obstacle to brushing my teeth right now is finding a solid hour when I don't plan on eating.

Cheers!

Thursday, April 23, 2020

You say you want a revolution...

Well, you know
We all want to change the world"

The Beatles - Revolution
**********************************************************
You'll probably remember that earlier this week I noted that the $350 Billion Paycheck Protection Program lasted a mere 3 weeks. Shocking no one, banks funneled the money to their largest customers because they want to ensure the those companies benefited and it was the easiest way to earn their commission.  Well, I was disappointed but didn't have much hope that anything could be done. 

Ruth's Chris Steakhouse already had the $20 million. 

Shake Shak already had the $10 million. 

A number of diligent people started compiling lists of public companies who had received funding through the PPP.  Shockingly, this news started to spread across the internet and it reached some reporters with clout.

Soon another list emerged that showed 32 public companies who had paid their CEOs in excess of $1 million and had taken funding from the PPP.  The backlash was too much for even politicians to defend and late Thursday the program was amended to bar public companies from participating and roughly $650 million from public companies will return to the fund. 

The problem is that is a tiny fraction of the money that went to large companies.  We only know about the large PUBLIC companies who took funding.  There are likely large PRIVATE firms who ate up the rest of the billions of dollars and we'll never be able to track that money. Either way, this is a small win for the little guy and it demonstrated the power of crowd-sourced information.

via @hedgeyeDJ "Capitalism without bankruptcy is like hockey without a penalty box"
********************************************************
Economy & Markets:
Just another week where new jobless claims were more than 6 TIMES THE PRE-COVID19 ALL-TIME record at 4.4 million. 

Image
Some of this is a function of the type of jobs created since the mid-2000s.  I've argued (unsuccessfully) that we should be looking at the "quality" of jobs not just the quantity of jobs.  The Bureau of Labor Statistics views a new full-stack software engineer the same way it views a worker at Dunkin Donuts.  Our society has had a lot more of the later in the past decade and those jobs are the first to be eliminated in a downturn. 

This might be the most shocking chart you'll see. If you take the total of all jobs lost now in the past 6 weeks - 26.5 million jobs (16% of the workforce) - you realized we are back at 1998 levels of employment.  Every job created from 1998-2020 - poof, wiped out in 5 weeks.  As I've said before many of these jobs will come back immediately when service businesses return but it's still a staggering representation of the damage that has been done to our economy. Also, I'm going to try to remember to write something on the way the economy will bounce back when we look at the Chinese experience over the past 6 weeks.



Markets went nowhere again today and they remain stuck at the 2800 level.  The next 3-4 weeks will be pretty telling for what the next move in the market will be up to 2900 and beyond or a break down below 2650.
******************************************************
Covid19 

Compare our President's UV light & Lysol approach to Chancellor Merkel of Germany "Nobody likes to hear this but it is the truth. We are not living through the final phase of this crisis, we are still at its beginning. We will still have to live with this virus for a long time.”

Australia has elected keep its borders closed for another 3 days, check that 3 weeks, wait nope....um, is that right 3 months??? Huh. Sounds like they are not joining us in the grand reopening.

Also, people are starting to talk about what happens in a best case in the fall 2020.  I'm seeing forecasts showing daily infection rates in the fall of about 1/3rd of what the peak infection rates will be this Spring.  However, I don't know if that takes into account any further lock downs.  I would say that a weaker resurgence in the fall is the most likely scenario but I don't think we can rule out an aggressive return of the virus and potential fall shutdowns (though I think the odds are very low - backlash against states that shutdown again would be huge).
************************************************************
Daily Dose of Humor

via @thealexnevil
Give the gift of sarcasm to a child and receive it back tenfold.

via @johnlyontweets
I watched my girlfriend use a disinfectant wipe to disinfect a package of disinfectant wipes and I think she may have created a rift in the space-time continuum.

via @unclebob56
They say a glass of water before meals helps curb your appetite. I've found donuts also work very well.

Cheers!

Wednesday, April 22, 2020

Some folks inherit star-spangled eyes,

They send you down to war.
When you ask them "How much should we give?"
The only answer is "More, more, more...."

CCR - Fortunate Son
*******************************************************
Markets:
What's become the norm for the stock market a 2% bounce today occurred on virtually no news.  I wish I could provide more color around why stocks act the way they do right now, but it should be evident to anyone watching, that stocks are not a reflection of economic activity.  They are not forward looking instruments or whatever BS line you are being fed on TV.  They are video game  and you aren't given the cheat codes.

Also, it's good time to revisit what we mean when we talk about the markets.  The 5 largest companies - Microsoft, Apple, Amazon, Alphabet (Google), and Facebook - carry the same weight as the 350 smallest companies in the S&P 500. 

Image

Also, I've tried to talk about relative value of stocks before.  The value that you get for a stock is it's price divided by earnings.  For the whole market, it's the market price divided by total earnings.  Slowly earnings forecasts are starting to fall, so the denominator is going down while the price has risen over the past month.  The result? At the market peak in February, you were paying 19 times earnings for the stock market - expensive by historical standards.  Today, you are paying 19.6 times, ie, as we've stalled the economy, lost 22 million jobs and sent countless companies heading toward bankruptcy.....Stocks are MORE expensive today than they were at the all-time peak two months ago.

Oil prices stabilized a bit but they remain incredibly volatile. It's worth noting that somewhere between 40-50% of US oil producers will go bankrupt if oil stays under $30 for a prolonged period of time (say through the fall).
*********************************************************
COVID19

Testing:
Where we are - about 1 million tests a week.
Where we need to be - 30 million tests a week.

Tracking/Tracing:
Where we are - less than 2,000 people in the US working on this.
Where we need to be - 100,000 - 300,000 analysts working on this.

Small Business Loans
Where we are - the vast majority of the first wave of $350 billion went to banks largest customers.  Again, this is the problem with public/private partnerships without oversight.  If you trust a corporation to do the right thing, they will do the right thing for themselves. Another new round of financing of $320 billion is set to be passed this week ---- think about that for a moment $670 billion in money blown in 2 months which is like 85% of the TARP Bailout in 2008 and no one has any idea where it's going.

Where we need to be - I'm torn on this because this feels like throwing money on campfire.  An extra month of rent or payroll is not going to make a difference for a lot of small businesses.  If you operated your business on the edge and you can't weather 3-6 months being shutdown, then maybe your business wasn't viable in the long run.  I don't love the fact that many large corporations sucked up the first $350 billion, but without oversight that money is gone. 

Our Cultural Divide
Where we are: We have a divided society and no way unify our culture.  I'll point out that all of the "re-open" America protests are basically the work of one guy in Jacksonville.  He bought all of the websites, populated the state sites and started the conversation on social media.  For all of the talk of protests, states like Maryland reported that they had more media inquiries about the protests than they had actual protesters.  However, perception is reality in our society now and the perception is that red States are full of people who need a hair cut so, they are going to start opening up despite the fact that we hit new all-time highs yesterday in cases and deaths. 

Image

Where we need to be: there's no fixing this, the best bet is to draw a new border from NJ to Michigan/Minnesota and let the Northeast and the West Coast join Canada (we can merge Montana/North Dakota with Alberta/Saskatchewan and give it to New TexFlorida or whatever the new country will be called).

#Sarcasm (sort of). 
**********************************************************
via @perlhack
Canadian smoke detectors are just a voice saying “Sorry, I don’t want to alarm you but…”

via @billforpa14
I mean you have to admit it's hilarious that the people who have spent their entire lives stockpiling beans & ammo and publishing newsletters about preparing to shelter in place during a global crisis are the ones having meltdowns because they can't go to the cheesecake factory.

via @Whatevah_Amy
Working from home would be fantastic if everyone would stop calling and emailing me.

Cheers!

Monday, April 20, 2020

Brother, can you spare a barrel?

Image

This morning the early chatter in the market was talk about a slight weakening of the May Futures contract for oil.  When I first noted it to a friend, it was down 20% in the first few hours of trading.  A huge decline but in today's markets it was shrugged off. 

By noon, that decline was 50%

By 1pm the decline was 95%!

Okay, at that point what can you lose right? If something goes from $20 to $0 you lose 100%.  Ah, but oil futures are a funny animal.

I once worked with one of the most successful oil traders on Wall Street.  He told me that on his first year on the job he missed a position and was required to take delivery of something like 100,000 barrels of oil. 

Back to today - Someone (I suspect we'll find out who in the coming weeks) came into the end of the contract trading window with a position that would normally just get rolled to June.  However, there were suddenly no buyers for the May contracts.  Okay, well, in the worst case scenario like my friend mentioned above, you can take delivery of oil, store it and then sell it later. 

Unless, EVERY AVAILABLE STORAGE SPACE IS FULL.  The shutdown of the economy had dramatically cut demand for oil.  Oil companies only know how to do one thing - pump oil - so I've been watching storage tanks fill around the US and I was a little worried but you assume they'll find storage somewhere.  Unless, they can't when you can't find normal storage you have to pay a huge premium for odd storage (tankers, ships, railcars).

The May contract was basically illiquid only trading a few contracts among computers but that didn't stop the price decline. It fell to $0.00 and kept falling, -$5.00, -$7.00, -$12.50, -$20.00 finally settling at -$37. Down over 300% for the day and implying that if you took delivery, you would be PAID $37/barrel of oil.  Agree to take a million barrels of oil and collect $37 million.  Now you have to figure out where to put 42 million gallons of oil, but I just gave them my home address as 1600 Pennsylvania Avenue Washington DC.

Again, this was a market fluke as the June contract represents a more accurate oil price of $21. However, the June contract might have the same problem if storage facilities remain filled to the brim.

So, while it makes for a historic day of trading and some poor traders probably lost their jobs today but it's not like gas prices are going negative.

Speaking of gas prices - has anyone noticed how sticky they are in NNY?  The price of oil is down 50% over the past 6 months and gas prices have barely budged. I'll go into the reasons why in another post sometime.

Talking about oil raises some good questions about the rest of the commodity complex.  In food products - Corn, Soybeans, and Sugar have already fallen about 30% but they all look like the could fall another 50-60%.  Imagine the repercussions through the economy if farmers are facing payouts at 30% of what they were expecting just 3 months ago.  Bankruptcies will be rampant, but it's an election year so I'm sure there will be more bailouts.
********************************************************
Quote of the Day
via @NorthmanTrader
"We've known the vast majority of Americans have been living paycheck to paycheck.

Now we find many businesses have in essence done the same.

Few reserves, no ability to sustain themselves without bailouts after just a few weeks.

What will all this look like on the other side?"
*********************************************************
Daily Dose of Humor

via @mom_tho
Things my kids will sleep through: fireworks, thunderstorms

Things that wake my kids up: my eyelids closing

via @katewouldhaveit
Recipe for Hard-Boiled Eggs:
1. Gently place eggs in water and bring to a mild boil
2. Let boil until you remember you left something on the stove (12-54 minutes)

via @momjeansplease
My ideal date: we order food, I eat mine and yours. you are impressed and order me more.

Cheers and stop trading oil futures with your $1200 stimulus check!

Sunday, April 19, 2020

Scratch a cynic

and you'll find a disappointed idealist.

George Carlin
******************************************************
That quote resonates with me because I had a conversation with my mother last week about idealism.  I would consider myself an reformed idealist because i realize we can no longer fix our political and economic systems given the divided state of our nation and I guess that makes me cynic.
******************************************************
Economic backdrop:

I know everyone is grasping at straws for comparisons of the current economic collapse.  They don't exist.  Consider this chart from Bloomberg - as GDP (a measure of economic activity) shrinks while spending explodes this year, the deficit to GDP in the US is expected to soar to 18% (and I think it could be higher).

Consider some of the countries with the WORST deficits to GDP (bonus points if you can find a common theme)....

Syria - 8.7%
Egypt - 10.8%
Cuba - 11%
Iraq - 11%
Afghanistan - 14%
Libya - 18%
Venezuela - 38%

Seriously, that is some high quality company to keep for the US.
Image

Obviously, there are a number of differences between the Japanese economy and the US economy (#1 vs #3, service component, etc, etc) but since 2000 I've told anyone who will listen that the US is on a path to becoming an economy similar to Japan's by 2030-2040.

Since so many people are obsessed with stock charts - take a look at Japan.

Image

Basically, flat for 33 years. Yeah!
******************************************************
I won't get into the debate about Re-Opening America because it has become a political hot potato, but it is interesting to see early reports back from countries that opened back up where infection rates are soaring again (Singapore, Japan, Korea) and in Germany the message of "open for business" seems to be misconstrued as "back to normal".  A lot of people in Germany this weekend noted that lack of social distancing means they may have to revert back to lock down mode.  This will be the story of Texas and Florida around Memorial Day.

Something was also have to watch is some data out of South Korea where some 2.1% of cases were people who previously tested positive but were cleared.  These recovered patients then relapsed and are now testing positive again.  That could be worrisome if it becomes widespread.
*******************************************************
Daily Dose of Humor:

via @junejuly12
This morning some guy assumed I would move my cart so he could go against the directional arrows in a narrow grocery store aisle.


He was wrong.

via @snarkymommy78
I just used TWO paper towels to clean up a spill like some kind of pre-quarantine person

via @mommajessiec
By the age of 35 you should have at least one couch solely for laundry.

Cheers!

Thursday, April 16, 2020

Three card monte Thursday!

For the 5th consecutive Thursday the United States reported absolutely catastrophic initial jobless claims. This time 5.3 million fellow Americans lost their jobs - just 7.5 times the previous all-time record from the time B.C. (before COVID19).

So as I mentioned earlier in the week -

Total jobs created in the US in the past 12 years were roughly 22 million. 

Total jobs lost in the last 4 weeks were roughly 22 million.

There is no sugar coating this data.  Ignore the stock market (I'll get to that in a second) unemployment is going to be north of 15% and maybe approach 20%.  No one can appreciate how historically bad things are going to get. 

This visualization may help. The white line is cumulative jobs created and  the green line is initial jobless claims.
Image

However, the stock market show must go on so for the third consecutive Thursday Washington insiders have played a shell game around the release of terrible jobs numbers.  They've managed to snatch the microphone and deliver their own message by shouting louder than the headline jobless numbers.

* Three weeks ago Fed Chairman Powell did a live TV interview just before data was released. 

* Two weeks ago the Fed a new $2.3 trillion Wall Street bailout just as the jobs data was released.

* Today the White House hinted all day about a potential break through in treatment and opening up for business. 

So, Washington is planning to open up but Governors around the US keep extending opening dates.  Remember, this was the problem with our shutdown, we staggered the shutdown and it caused more problems than if we'd gone with a national shutdown as soon as the first outbreak hit Washington State. Staggering the open will eventually cause the same sort of confusion.

However, the entire stock market is soaring tonight not on news from the Stock Pumper in Chief but because of a potential treatment....well, not really but...

So, after the market close statnews reported that EARLY results of a study of drug made by Gilead Sciences in a 2400 person study showed promise in SOME percentage of 125 people.  So, there was a potential benefit for 5% of people in a non-randomized trial in China.  WE'RE SAVED!!!

Interestingly, Gilead has not commented. It doesn't sound like this trial was conducted according to normal research standards and interestingly, Gilead has said they aren't interested in building a business around this drug.  Gilead's stock has soared tonight taking the rest of the market along for the ride. If things opened where they are trading overnight we would only be down 12% from all-time record highs as the globe faces the worst economic crisis of our lifetimes.

Repeat after me: THE STOCK MARKET IS NOT THE ECONOMY.

Unfortunately, people that aren't very bright like to view the daily stock market moves as an indicator of economic success.  Maybe some day that will change but that day is not today.

If the stock market opens at these levels it will be a very interesting day tomorrow because that will represent a 62% retracement of the losses and 2905-2935 is the level where all of the programs will probably start selling. Hard to say but it should be a fun day for the computers to do battle (humans need not apply).
*****************************************************
Daily Dose of Humor:

via @Crockettforreal
"Being a parent is literally just changing the toilet paper roll and cleaning up messes that don’t belong to you repeatedly until you die"

via @FunnyBison
"I’ve added a new weekday. I call it “Bingeday.” You can do whatever you want on Bingeday.

Also, I’ve renamed the other days to Bingeday."
******************************************************
Cheers!

Shelter line stretches around the corner....

Welcome to the new world order.
Families sleeping in their cars in the Southwest
No home, no job, no peace, no rest.

Bruce Springsteen - The Ghost of Tom Joad
Image
Food bank lines from San Antonio.
******************************************************
It always cracks me up that Bruce Springsteen will forever be associated with "Born in the USA" - which is actually a protest song - and still wrote the dark and poignant Ghost of Tom Joad (check out the RATM version as well).
*******************************************************
Markets

There was a slew of data out today which deflated the markets. Honestly, considering how grave this data was for the markets to only be down 2% was a sign of something.  Consider first the initial look at retail sales data.

Motor Vehicles and Parts: -25.6%
Furniture: -26.8%
Food and Beverage Stores: +25.6%
Gasoline: -17.2
Clothing Stores: -50.5%
Sporting Goods Stores: -23.3%
General Merchandise Stores: +6.4%
Department Stores: -19.7%
Food and Drinking Places: -26.5%
Nonstore Retailers: +3.1%

When you look at those numbers keep in mind that is for MARCH when most of the country was still open.  April will be unbelievably bad and as sad as it is to say, many retailers won't make it to Labor Day.

via @hedgeyesnakeye
This is a really specific data chart to the hotel industry but RevPAR is revenue per available room.  So if you have 10 rooms and rent 8 of them at $100 each your Revenue ($800) per available room (10) is $80.  These are mind-boggling drops.

Image

As we move forward one thing that is going to become more and more apparent is that the GINORMOUS, HUUUUGE bailout was principally geared to saving the those companies that would cause the most pain for the banks, not necessarily those companies that will save the most jobs or are the most critical to the economy.  Over time as this becomes apparent, I worry that it will foster a greater divide in our country.  I really want to be wrong with this prediction.
********************************************************
Bailouts:

NEW: SBA expects to run out of money for emergency coronavirus loans for small businesses imminently—*this afternoon,* sources tell me. The $349 billion in the PPP program is meant to help cover payroll.

This program with a $350 BILLION price tag didn't last a month.  Probably because everyone under the sun somehow qualified as small business - Ruth's Chris Steakhouse? You know the giant chain that caters to wealthy? Yep, "small business" and got a loan.  There are countless stories like that which will further sow divide when these stories become more widely known.

In related news, I know we can't be shocked by Congressional incompetence but this takes the cake.  Congress has to oversee how we will spend some $2.2 trillion and so far they've appointed a team of 100 crack auditors, fraud detectives and financial geniuses??? No. They have one guy. ONE GUY who doesn't have an office and was an aid to Sen. Warren.

Hey, @elisestefanik, @senschumer, @sengillibrand - I'm free, HMU.

********************************************************
Quote of the Day:
via @raphaelbostic - Atlanta Fed Reserve “What we are hearing from our contacts is that May is going to loom as a large month, in terms of the transition of concern from this being a liquidity issue -- one where we are really talking about cash flows...and whether companies can exist at all,”
*********************************************************
Daily Dose of Humor:

via @LurkatHomeMom
Where do you see yourself in 5 years?

Me: *envisioning a pile of ash sweeping thru a post apocalyptic wasteland* middle management I guess?

via @momsense_ensues
If this kid is in my classroom again come September, I’m quitting.

via @LhLodder
Today I worked from home, ran 10 miles, home schooled my kids, cleaned the house, made a delicious dinner, and got my kids to bed early. It’s amazing what you can accomplish when you lie.

Cheers!

Tuesday, April 14, 2020

Young people speaking their minds...

Getting so much resistance from behind
It’s time we stop, hey, what’s that sound
Everybody look what’s going down”

Buffalo Springfield - "For What It's Worth"
**********************************************************
Thanks for indulging my love for great musical lyrics with a strong message.  This one is a little older, but go back and give it a listen if you haven't heard it recently :)
**********************************************************
Missoula Connects – Ongoing Updates – Businesses that are Open to ...

Remember, when I mentioned on Sunday night that this was coming? The "Look, it never was that bad. Go have some pancakes at the Cracker Barrel!" message?

I'll avoid the politics of someone having a meltdown yesterday on live TV but this is the challenge that we face as the country attempts to re-open.  Right now we are a tale of 3 countries:

* The West Coast who acted swiftly to close cities and where the rates of hospitalization are manageable.

* The Northeast - grandstanding Governors are basking in near universal praise while their citizens die in staggering numbers - one out of every 12 people who has died from COVID19 lives in NYS but our Governor is polling higher than ever.

* The South - this will be the next ground zero because this disease disproportionately targets older people with diabetes and weight issues.  Combined with the fact that Southern states were 10-14 days behind the rest of the country in responding means that their peak is still weeks away.

Given this vastly disparate response in our nation keep these stats in mind:

* Roughly 50% w no symptoms (perhaps as high as 80%)
* 5 day dormancy makes contact tracing nearly impossible in a free society
* the virus lingers on surfaces including things shipped
* there is a 2 week delay in hospitalizations vs. infections.

The decision to re-open America has to be driven by considering the science, the state of our healthcare system and to a lesser, extent the economy.  All of the Governors who spoke on this matter seem to agree that the health of their citizens needs to drive this debate.  However, Washington has appointed a grim reapers panel of unqualified corporate donors and yes men.  That "panel" will cause more chaos than it will address.

And when the economy does reopen what will it look like? What companies are going to ask workers to return to a corporate office? There is talk that things like voluntary self-gatherings (think NFL games or concerts/festivals) might not return until the FALL of 2021.  People who think the country will go from 0 to 100 overnight based on some order from Washington are either wildly ignorant or engaging in day drinking (or both).
***************************************************
Sad stat of the day:

via @NorthmanTrader
Coronavirus deaths, worldwide.

12th of February: 1,261
12th of March: 4,981
14th of April: 120,000

Roughly 1 in 5 of the global death total is in the United States. 
*****************************************************
Deutsche Bank finally got around to doing the math that I did for you last week.  This quote is staggering but is reflective of something I've been trying to get across to people for the past decade - our economy was fueled by too many companies living in a debt bubble.  Unfortunately our solution for too much debt is........more debt.

"DEUTSCHE: “Since the 2008-2009 recession ended, the US economy created 22 million jobs, and including our forecast for this week’s jobless claims shows that the US economy over the past four weeks lost 25 million jobs ... A decade of job gains undone in just four weeks.
******************************************************
The stock market continued it's daily swings from based on COVID news - down sharply in the morning only to bounce at the end of the day because of hopium provided by the White House.  Today, stocks are up again in the pre-market (but weakening a bit) as people chase the narrow band of tech stocks (Amazon keeps soaring).

The tech heavy NASDAQ is actually up about 4% from the point where it was 6 months ago.  Think about that in light of what's happened in the global economy over the past 2 months.  It's a stark reminder that the stock market is not the economy, the stock market is a high stakes, computerized video game with almost no correlation to the underlying economy.
********************************************************
Daily Dose of Humor:

via @DrakeGatsby
"If you eat raw pizza dough, a block of cheese, and drink some boiling hot marinara sauce, you can make a lil’ pizza in your tummy"

via @bartandsoul
"Expectation: Today, I will be my best self
Reality: Eats for 14 hours straight"

via @junejuly12
"Quarantine Morning in Review

8:30: opens fridge
9:30: opens fridge
10:15: opens fridge
11:00: opens fridge
11:01: leaves fridge open"

Cheers!

Sunday, April 12, 2020

The price of your greed

Is your son or your daughter
('s future tax payments)
What you going to do
When there's blood in the water.

Grandson - "Blood//Water"
*********************************************************
So much to cover tonight but I had to start with an ode to one of the many artists we missed in concert over the past month - check out Grandson on Spotify.

I don't typically do this but if you have 9 minutes take it to read this blog post in full.  It speaks to the concerted effort that is going to take place to make us all forget this period of time and the colossal way we screwed up as a nation.

Here's the link.

"And so the onslaught is coming. Get ready, my friends. What is about to be unleashed on American society will be the greatest campaign ever created to get you to feel normal again. It will come from brands, it will come from government, it will even come from each other, and it will come from the left and from the right. We will do anything, spend anything, believe anything, just so we can take away how horribly uncomfortable all of this feels."

I noticed this effort this weekend listening to sports radio of all places.  The ex-jocks who normally talk about 40 yard dash times were suddenly infectious disease experts and they took call after call from people around the nation decrying our nation's pause to slow spread of COVID19.  This is how the propaganda machine will ramp up.  You can't fight it but you can be aware of it.

*******************************************************
Markets and Bailouts, oh my
If you can remember all of the way back to Thursday, markets were mixed on the initial reports of just another 6 million Americans losing their jobs last week. However, in a totally unrelated move, at the exact moment that the 4th straight record number of job losses was released the Fed announced ANOTHER bailout package of $2.3 trillion for the bond market and stocks took off.  They opened up 1.5% and that's about where they ended the day.  This is an interesting point for the markets, the chart readers tell us there's maybe another 5% upside if they can keep the global liquidity onslaught coming.  However, the weight of gravity on the markets is growing and there was evidence late last week of some large participants setting up for the next move down. 

On the one hand you have an economy in complete free fall and on the other hand you have governments doing everything in their power to save the banks and the markets at your expense. 

Just a final note on Thursday's bailout of the bond market.  What has happened over the last 5 years is that corporations issued debt (bonds) to buy their stock - this reduced the number of shares outstanding and pushed up stock prices - which doesn't really make a company more valuable but it helps reward executives who are paid in stock.  Now the Fed is going to buy the bonds of these companies (possibly in violation of the law) to save these companies that made terrible financial decisions and the reward their executives.

*** Hang on for the math: 
1. Company A has 100 shares outstanding and a price per share of $10 - they are worth $1,000. 
2. They borrow $100 and use that to buy their stock (they buy 10 shares at $10).
3. The company's value should adjust for the debt (but the market never does).
4. Instead people assume a value of $1,000, but now there are only 90 shares - the new price is $11.11/share. If your bonus was based on the stock going above $10.50 you are getting a fat bonus!

Oh, you still have to pay back that pesky $100 you borrowed but NOW the Fed is going to swoop in and save the day.

The goal is to lift asset prices and hope that the wealth effect trickles down to the rest of the economy.  The best investment of 2020 might be buying discount  Occupy Wall Street shirts because I think this is going to have a huge resurgence.

Shut up and enjoy your $1200.

Oh and on the subject of stimulus - note that despite our stimulus dwarfing any other package around the world by about 10-20x remember that the bulk of the money is going to corporations - who Mitt Romney called "people" - not to you.

via @nathanlerner
Stimulus packages around the world:

UK: 80% of workers' salaries
Denmark: 75% of workers' salaries
S Korea: 70% of workers' salaries
Netherlands: 90% of workers' salaries
Canada: $2k per month
Australia: $1k per month

US: One time $1200 check that may take months to arrive

via @NorthmanTrader
"Where in this chart do you see evidence of the greatest economic crisis of our lifetimes? A recession with millions unemployed?
I submit: You don't. Not at all.
Nothing's been priced in."

That little tiny dip at the end of this chart - that's reflective of your 17 million jobs lost. 

Image

A 1931 (there's that year again...) cartoon by John Baer called "Recovery Package" seems appropriate 90 years later.

Image

********************************************************
Forecast of the Day: 

Not my forecast but understand the parallels - I've argued that the US is continuing it's slow motion train crash and morphing into a Japanese style economy (slowing growth, aging population, insane debt levels, insane government intervention).  Well, that's sped up in the past 3 months and as someone pointed out that if it's the case, the Dow has a 30 year forward range of 7,500-15,000 (it closed at 23,500 on Thursday). 

I struggle with how that could be reality because it would bankrupt every major pension in the US but hey, the Fed could just add another $30 Trillion to bail them out to I suppose :/
**********************************************************
If you didn't see the line of cars at the San Antonio food bank this weekend go ahead and click to see the sobering photo.
***********************************************************
Daily Dose of Humor:

via @Mommajessiec
I’m bored, but not figure-out-what-tiktok-is-bored.

via @henpeckedhal
At what point does it stop being a nap and start being Sleep Part II?

via @elademonio
I don't need friends, I need a private island filled with dogs and donuts.

Cheers!

Thursday, April 09, 2020

Day trading 101

Everyone better sign up for day trading classes online ASAP because it doesn't sound like there will be any other jobs left in another few weeks.

Jobless claims came in higher than expected at a staggering 6.6 million again this week and now total almost 17 million in the past 4 weeks.  This means that roughly 85% of job growth of the past decade has been wiped out in a month. 

I can't adequately put these numbers into perspective.  Imagine a this sports analogy - Wayne Gretzky has the record for most points in a single NHL season at 215.  The weekly jobless claims for the past 3 weeks are like some new phenom who totaled 1,000 points, 2,400 points and 2,200 points in three consecutive seasons.  It makes no sense because the numbers are too absurd to be believed.  We are living through historic times.

I was clearly wrong in thinking the numbers would come in light due to system issues.  Unfortunately, that means that there is probably more bad data to come because I heard lots of stories from people in NY, Florida and Texas about challenges filing claims this week.

Stocks are currently mixed but honestly who cares?  17 million fellow Americans are out of work.   :(

Cheers because we no longer have am and pm we just have "coffee time" and "wine time"

Wednesday, April 08, 2020

"The world is my expense,

The cost of my desire..."

Sleep Now in the Fire - RATM

Tomorrow we will get our third straight historically significant initial jobless claims.  The average estimate is for 5 million new claims but I think it may actually be less than that due to flaws in the filing system.  Computerized filing in a number of states failed this week so while the real number of jobless claims may be north of 5 million, the reported number may come in lower at 4 or 4.5 million. 

Regardless, let's talk perspective - if it's 4 million, that will put the total jobs sucked out of the economy in 3 weeks at 13.9 million.  That would be 60% more jobs lost than in the great recession of 2008 in 3 WEEKS.  It would also mean that of the 20 million jobs or so created since 2010, roughly 70% of them were vaporized in 3 WEEKS.

If history has taught us anything in the past 2 weeks it's that the stock market does not care about jobs or the economy.  The stock market is its own virtual reality game playing tic tac toe against itself.  By the end of tomorrow, going into the holiday weekend, we might have lost 14-15 million jobs in our economy and stocks will be up 40-45% from their lows.  The stock market is not the economy and the sooner people in Washington realize that the better we'll all be.
**********************************************************
The curious case of Staples
This perfectly sums up the state of "capitalism" in the US.  Staples is a failing office supply retailer that was bought by a private equity firm in 2017.  Last year as result of some complicated financing the private equity firm who originally contributed just $1.6 billion of the $6.7 billion acquisition - paid itself a $1.3 billion dividend while the business at Staples continued to collapse. 

Fast forward to March of 2020 - the virus shutters most retail in the US and Staples sent a letter to their landlords yesterday basically telling them to pound sand.  They said they aren't paying rent for April and made no guarantees about May.  Look, the commercial landlords of Staples aren't your average Joe and Jane but when you live in a world where financial engineers can steal from a company and then a year later ignore basic lease agreements well, I don't think it's going to end well for anyone.

* It's worth noting that the financial genius running our giant slush fund for corporations - Treasury Secretary Mnuchin - well, his claim to fame is that he decided putting Sears and Kmart together would be a brilliant move.  He was able to extract a lot of money out of those companies (like the owners of Staples) before they both collapsed in a heap. Nice work if you can get it.
**********************************************************
Quotes of the Day - Snarky edition
via @QTRResearch - a little hyperbolic but these are extraordinary times
 "Stocks have recovered 44% from the lows and all it took was the annihilation of our currency, a full on nationalization of all businesses, an embarrassing declaration to the rest of the world that our Central Bank is beholden to stocks & a sly introduction to both martial law & total corporate Marxism!"

via @BradHuston
"Why are we screaming higher today?  Because the lead socialist dropped out the presidential race when we're doing socialism for billionaires hand-over-fist to save the stock markets owned primarily by the 1%."

@NorthmanTrader
"Markets rally as the threat of socialism has been averted.
Now let’s return to our regular program of Fed bailouts, stimulus packages, $3.5 trillion deficits and free money for everyone."
***********************************************************
Daily Dose of Humor
via @mommajessiec
"I don’t know who needs to hear this, but now is not the time to try on your skinny pants."

via @wittysassbasket
"I'm intermittent feasting"

via @simoncholland
"Y’all, I don’t think we would have made good pioneers."

Cheers!

*PS thanks again to everyone that's come back and sharing the blog.  You can click the Facebook or twitter links below to share it. 

Tuesday, April 07, 2020

We're all okay, until the day we're not

The surface shines, while the inside rots.

- Rise Against "Audience of One"

This accurately sums up many of my thoughts on the past decade in the US where excessive debt masked many fundamental flaws in our economy (and I'll take any chance to expose more people to the band Rise Against). 

Markets: 
Today was a very interesting day in the stock market as an overnight explosion higher (up 3.5-4%) took stocks from the initial technical level of 2660 for the S&P 500 straight up to their next stopping point 2750-2800.  However, a funny thing happened on the way to collecting your 10% rally in 24 hours - stocks felt the weight of gravity all day and drifted lower throughout the day.  There were two late attempts to rally stocks at 3:15 and 3:45 both of which failed and guess where the S&P 500 ended up after all of those moves.....2659.41 or basically still 2660.  It remains to be seen if this become a floor or ceiling for prices, but it is very evident people want to see good news and may be convinced to jump the gun on every bit of positive news about the virus.

For perspective, stocks remain about 10% higher today than they were 15 months ago but the economy has been shutdown for 3 weeks and 10 million Americans have already lost their jobs.  Soooo.....

Also, take a peek at this chart....

Image
What this demonstrates is that earnings estimates are slowly starting to fall while stock prices have rebounded sharply (up 20-22%) in 2 weeks. 

Okay, everyone put on your 3rd grade math hats - when you combine a rising numerator (price) divided by a falling denominator (earnings) the resulting quotient Price/Earnings ratio is going to go up.  At noon today, we were back to near peak valuation of the stock market back in February.  My point to those looking to buy the bottom in stocks is that this denominator (earnings) is likely to keep falling sharply throughout the year.  Thus, you have to be comfortable that everyone is going to pay more for stocks later this year than they did at the stock market peak in February or you need to accept that prices may eventually be lower.
***********************************************************
I don't think unemployment gets as bad as this prediction but even it is 17-20% it still would be historic.  You don't have to be a student of US history to know that the other years on this chart - 1932, 33, 34, 35, 37 and 38 were not great years for the US. Many of these jobs will immediately return but many will not and people need to be careful to not to assume that we will instantly return to February 2020 employment levels.

Image
via CNBC and the Balance
***********************************************************
I've been concerned with two second derivative impacts on our society as we deal with prolonged lock down - mental health and child welfare.

Many children live in homes that are not safe environments but the daily trip to school gives them a respite from these issues.  I imagine that social welfare agencies are being overrun by cases right now and with social distancing in place, I imagine case follow-up is a challenge.

Today, I saw this quote from a story in the indystar out of Indianapolis which is the first hard statistic I've seen that detail the mental strain that the lock down is placing on citizens.

"During the "lockdown" Indiana's 211 mental health hotline has gone from 1,000 calls a day to 25,000. This is only the tip of the iceberg of the lives and destruction we're supposed to pretend don't exist"

If you know someone that might need to talk to someone don't hesitate to reach out or maybe find a professional to check in on them.

via www.indystar.com
*************************************************************
Stat of the Day:
The Fed's balance sheet expansion in just the past three weeks equals 2 full years of US military spending. 

via @NorthmanTrader
**************************************************************
This is a staggering example of what small businesses are expecting from February to March 2020. This would be materially worse than any recession in the past 35 years.
Image
via @KeithMcCullough
*************************************************************
This NY Times article covers something that I believe may be our new normal - we may have to cycle through various periods of suppression and lifting travel restrictions and social interaction until a vaccine or immunity appears.  This means 12-18 months of opening and closing different parts of our society.  An outbreak in Florida - shut down Disney - or an outbreak in Boston maybe the marathon gets postponed and Patriot's day is cancelled.

"We must all prepare for several cycles of a "suppress and lift" policy — cycles during which restrictions are applied and relaxed in ways that can keep the pandemic under control but at an acceptable economic and social cost.'"

************************************************************
Daily Dose of Humor:
via @HenpeckedHal
"I don't care how poorly they do, I'm giving my kids straight A's cause I'm not repeating this @#$% again next year."

via @portmanteauface
"So far I’ve gained 20 pounds of pure muscle. It used to belong to pigs though, and something got lost in translation."

via @picklerudd
"My family crest is an Oreo being dunked in Nyquil"

Cheers!



Monday, April 06, 2020

The world has coalesced

into one giant mess
of hate and unrest

So let's all sing along
a little bleeping louder
to a happy song
and pretend it's all okay.

"Happy Song" by Bring Me The Horizon* 

This was definitely the mantra (another BMTH album) of the markets today, as a mild overnight rally picked up steam throughout the day and just never let up.  If ever there was a day to validate the importance of the computers and lines drawn by technical analysts today was that day.  About two weeks ago, I mentioned that despite dismal data, stocks had started a sharp reversal and most of the charts said stocks were going back to 2660 or so, roughly 20% off the bottom.

Where did they goose stocks to today 2661 (or 2663 at final settlement).  It's comical that the markets are this predictable but it's the reality when the stock market has become the world's simplest video game and everyone is playing by the same rule book.

** EDIT: overnight the futures traders decided to push stocks to EXACTLY the next technical level 2725.  Remember when investing was about buying a company in the hopes that they would make a profit on their products? Yeah, neither does anyone else, now it's just gambling and the charts run the world.

Now that we have hit this number it becomes an interesting point of contention - is it a new floor or is it a ceiling?  I suppose the people that equate the stock market with the economy (generally, people that aren't very bright but I'm not pointing any fingers) will be thrilled with move and will probably start sending out more autographed copies of the stock charts.

However, even the most optimistic traders are starting to see the second and third derivative impacts on the economy.  People are getting optimistic about a return to normal in the Northeast by 5/1 but when you follow local news in other parts of the country it's staggering how long they are projecting an impact from COVID19 (things are being cancelled through August). Also, the thing that everyone seems to forget is that the problem with our economy is not COVID19 but an economy that has been on living on life support with a constant flow of excessive debt at every level (consumer, student, corporate) and COVID19 merely exposed our economic issues as too many were operating without a safety net.

It will take years to tell the final full story of COVID19 when we are fighting bad data at every corner.

Via NYC Council Health Committee - "It’s not just deaths in hospitals which are up. On an average day before this crisis there were 20-25 deaths at home in NYC. Now in the midst of this pandemic the number is 200-215. *Every day*."

*******************************************************
Won't someone please think of the poor banks?
I occasionally have this dream where the my fellow citizens suddenly realize they are being robbed by the nations banks in the name of helping us through another bailout but then I wake up and remember, that nope we still are a nation of the banks, by the banks and for the banks.

* As part of the $2 trillion bailout was the payroll protection program - a $350 billion treasure programs to assist small and medium businesses meet payroll.

* Well, the banks were hesitant to lend because it only takes a few loans to go bad to make the whole program unprofitable.

* Late today the Fed announced that it would establish a market for these loans if packaged and the end buyer of the loans is likely to be the Fed itself.

* So these loans are now effectively risk free and the banks will earn 1-5% "administrative fees" for loans which won't be on the banks balance sheet.

* In essence, because our Federal Government is so inept at it's job, we have to rent the services of the banks for $10 billion to pass your tax dollars to small and medium businesses.

I know when we're talking billions and trillions, a $10 billion transfer of wealth from you the taxpayer to your bank (who is still paying you 0% on your money, while charging you 15% on your credit card) seems like a small violation but it's not about the size of the violation it's about the continued efforts by our government to bailout the banks at the expense of everything else.
******************************************************
Stat of the Day: via @realwillmeade
The indicator Warren Buffett and every top hedge fund uses to value the stock market is Stock Market Capitalization to GDP ratio
Historical average is 0.8
in 2008 it bottomed at 0.5
Today its still a whopping 1.2

To go back to 0.8 the average, stocks would have to drop 30%

And I would add that those calculations are before accounting for rapidly falling GDP.  When you cut GDP 10-15% in 2020, it makes the market look even more expensive.  If you wonder, why every weekend people predict a Warren Buffett buying spree and every weekend he passes up the opportunity, it's because he's waiting for value and we aren't in the value range.
******************************************************
Quote of the Day:
Isaac Asimov from 1980:

“There is a cult of ignorance in the United States…. [It is] nurtured by the false notion that democracy means that ‘my ignorance is just as good as your knowledge.’”

Quote of the Day: Part 2

"Our entire society has forgotten how to take responsibility. We have forgotten that life consists of setbacks and that you have to have safety margins for difficult times" - Felix W. Zulauf
********************************************************
Daily dose of humor:
@daddydoubts "we're done with homeschooling, we just do anger management now"

@nayele18maybe "There’s nothing quite like removing a couch cushion and searching for a remote control to make you appreciate how truly disgusting your family is."

@mom_tho "My thoughts on Tiger King: I'm doing very well in life and should literally never worry about anything ever again."

Cheers!

*if you find the right video online you are likely to see me in the middle of the BMTH mosh pit during this song :)

Sunday, April 05, 2020

Weekend wrap-up

Since about mid-February, I've had then next 10 days circled on my calendar.  April 5 to April 15 should be the worst of this season's COVID19 outbreak in the Northeast. 

The death tolls will be staggering and are likely under-reported by a factor of 2-3x.  It has stunned me to watch leaders in our country act "surprised" by the timing and spread of this disease because its progression has been very easy to chart if you've watched the way it spread around the world. 

So, a week from now I expect New York State will have turned the corner and many of our surrounding states will also be trending in the right direction because we will have curtailed the spread of the virus through our lock downs and isolation efforts.

Unfortunately, large sections of the country did not react with the same speed and thus, the virus is likely to continue to rage in these parts of the country through the end of April.  On May 1st, we will have a difficult choice to make as a nation.  Open up for business and risk a major resurgence of the disease in June or continue with the lock down status for another 3-4 weeks when huge population centers on the East and West coasts are already on the mend.

This is not an easy choice but I suspect we will open back up for business on 5/1 with qualifiers - social distancing will still remain in effect (so no concerts/sports) - and the result will probably be some form of resurgence of the crisis in June.

Unfortunately, I'm equally worried about the ugly, American capitalist showing up early to start celebrating this week as the deadliest week of the outbreak takes hold in the US.

To that end, stocks are already up again tonight (+2% or so) as people want to get optimistic about the turnaround before the worst of the crisis arrives.
*****************************************************
Stat of the weekend: In the past 10 years the US added 22.8 million jobs (we can debated the validity of that number another time) but initial claims in the last 2 weeks have wiped out 47% of those job gains.

Something to watch out for - when the economy reopens many retailers, hotels, restaurants will hire people right back.  This will lead to some staggeringly strong jobs numbers.  Don't let any politician try to take credit for the "greatest jobs creation in history" when this happens. 
*******************************************************
via @birdyword

A description of what real contact tracing looks like in Hong Kong and how it compares to our response.....

"A friend caught covid-19, so I was put in a HK (Hong Kong) quarantine camp for close contacts 'til it'd been 14 days since I'd seen them. Been out a little while now, never had symptoms of any sort."

Now this isn't a realistic option in the US, but think about that response - every person who came in contact with a known carrier was removed from society and placed in quarantine in a facility (probably an empty hotel or college dorm).  It gives a little perspective on just how dramatically different government responses to this crisis have been.
*******************************************************
If you're interested this game plan in the New England Journal of Medicine for defeating COVID19 by the first week of June echoes many of the points I've made in recent weeks.

1) Form a national, unified command
2) Make millions of tests available
3) Supply hospitals with proper equipment
4) Separate risk groups and treat accordingly
5) Mobilize the public
6) Learn through real-time, fundamental research

All solid advice, I hope someone listens.

Cheers!

Friday, April 03, 2020

Friday fun

For everyone thinking about jumping back in the water to buy stocks - remember we've just lost 10 million jobs in two weeks and stocks are still up 5% from the lows 15 months ago. 

There is an interesting push/pull going on in the markets - a lot of people want to buy this bottom in the market thinking that it we will turn on a dime once things reopen. On the flip side, there are a number of people lining up thinking that this is the big one.  A great recession or possible depression, that will take stocks down 50%, 60% or even 80% further from here.  These people are waiting for one more good rally to get short the entire market. 
************************************************
Morgan Stanley is the first of the big investment banks to say publicly that the economic impact of this shutdown will linger.  They are now predicting a more U shaped recovery without a return to 2019 levels of economic activity until the end of 2021 (21 months away). 

Unfortunately, this may be an optimistic view.
*************************************************
Random hard to believe fact of the day - the Federal Reserve's balance sheet increased by $586 billion in the past week.  That's 30 billion more than they added during the entire QE 2 process which lasted 8 months.

In related news, it's interesting to note that in 2007 the US had a $19 trillion economy with a Fed balance sheet of $850 billion and total Federal debt of $9 trillion.

In 2020, the economy in the US will be under $22 trillion with Fed balance sheet of $9-10 trillion and total Federal debt of $23 trillion. That's not a good trajectory.
*************************************************
On the bailout plan's paycheck protection program - Secretary Mnuchin is imploring banks to participate because they can earn 5% in 90 days risk free. He stated today to the banks that "you'll never have this chance again." 

Do you know what 5% in 90 days works out to? Roughly 20% per year, which is probably more than what your local loan shark in Poughkeepsie would charge. 

Reminder - the bailout is not designed for you and I, it's designed to line the pockets of the banks.
***************************************************
Daily dose of humor:

@momtruthbomb
I made my very first loaf of bread today. Much like the pioneers, I started by going on to Pinterest and typing "Italian bread recipes easy."

@pork_chop_hair
“Just a little midnight snack”, I whisper, knowing full well I have no concept of what time it is, what day it is, or what the words ‘little snack’ even mean"

@jandalize
"Remember when we didn't cry when we accidentally rolled off too much toilet paper?"

Cheers!

COVID19 - In pictures

I'm going to take a different approach this morning and just share a few of the things I've seen over the past 24 hours. 

For every photo that I see like this of NYC as a ghost town...

Post image

Post image
I see one like this - which is allegedly the #2 train in NY last night.  There are countless stories like this around New York and as long as free movement is allowed, I don't know how we get back to normal.  Imagine what percentage of people on this train are essential - healthcare workers dealing with patients, etc.

Hey @NYGovCuomo - every school district in NYS has school buses that are sitting idle right now, maybe mobilize them to alleviate the strain on the subway system?


From NYC where the National Guard is deployed and 45 morgue trucks are now parked near hospitals to deal with the overflow of deceased citizens because our funeral homes can't keep up.
Post image

This is a great visualization of how disjointed our approach to this crisis has been as a nation.

Post image
So, NY, VT, MA, WA and.... Louisiana (good for them) are testing aggressively though it remains under 1 in 100 people being tested.  However, Texas, Oklahoma, South Carolina, Georgia, Alabama, Mississippi and ..... California are poised to be the next wave. 

Okay, well maybe those states with lower testing are already in lock down mode and that will slow the spread of the virus.

Hmm, Texas, Oklahoma, South Carolina, Georgia, Alabama, Mississippi....ugh.  This map uses anonymous cell phone geo-location data to measure average distance traveled by cell phone per day.  This is an average so if you drive 5 miles to the store but your kids are at home and your wife hasn't been outside since 2017, then the average of your 4 phones would be under 2 miles/day.  The Northeast and the West are doing a great job.  The southern plains and the South, not so much.

I'll have a further post later today covering the unemployment numbers and some economic data but this photo is worth sharing after yesterdays record jobless claims.  Someone took the NY Times cover from last week with an iconic graph showing 3.3 million jobless claims in a week and updated it for what it would have to look like after yesterday's 6.6 million number.

Image

Daily humor: Quarantine day 44 - Captain's log: I am no longer allowed to chew, swallow, exhale or sigh in her presence.  That is all.

Cheers!

Thursday, April 02, 2020

Yuuuuge, Amazing, Beautiful Jobless Claims

I imagine overhearing that in the White House today. 

"Biggest number ever!  10 times larger than Reagan's number. Amazing. Why even have an election, everyone wants me to keep this up, right?"

VP Pence then bends down to whisper "Umm, jobLESS claims means that people are out of work, so a big number isn't really a good thing..."



Last week I mentioned that when jobless claims came in at 3.3 million, that it was likely just the tip of the iceberg and that this week would likely be much worse.  Most economists did not agree with me as the consensus was for job losses to come in at "just" 3.5 million (which would still be another record). 

Shockingly, the insiders at Goldman had an outlier estimate of 6.0 million losses (boy, it's almost like someone inside the government - Mnuchin - is privately texting them information.....).  This should make everyone take note of Goldman's estimate for Q2 GDP decline of 34%.

Anyway, the final number was just announced - 6.6 million jobs lost last week.  Again, these are just numbers so here is some context:

1) The previous high for jobless losses was 665,000 in 1982.  Today's number was ten times as large!

2) That's 10 million jobs lost in 2 weeks.  During the entirety of the great recession in 2008-2009 we lost 8.7 million jobs.

It is important to note that many of these job losses are first derivative losses from businesses being shutdown - retail, hotels, restaurants - so while these are huge numbers it is possible that many of these jobs would come back fairly quickly when the world reopens for business.

However, the troubling part is that the longer things stay shutdown, the more likely companies are going to start laying of more permanent workers.  This second derivative wave of job losses will be more painful for the economy because the average wage of a software engineer, accountant or architect is 5-10 times that of a restaurant worker, so the loss of these jobs will drastically reduce spending in the economy and GDP further.  Yes, stocks have fallen from their all-time highs but they are actually only down about 10% from this time last year.  The downside risks right now are so significant that I don't think people are adequately prepared for what could lie ahead.

The market's reaction this morning was very odd.  Stocks were up universally, 1-2% across the board in the US and after the horrific jobs data they stayed elevated.  I'm not sure if people were confused or hoping that it would prompt another Fed panic move or what, but stocks stayed much higher for about 4 minutes before falling back to flat. 

Who knows what today brings---I would guess that every fantasy spending bill that Congress has dreamed about will get traction for the next round of bailout bills.  Green New Deal, Medicare for All?  Those would be cheap compared to what Congress will probably dream up.

The problem is that no amount of fake spending and liquidity can fix what ails our economy right now.  We need to reopen our economy but we can't do that without  the risk of killing maybe 1-3 million fellow citizens.

Right now we have 12 million people in the US over the age of 80.  If they represent the bulk of fatalities from COVID19 it would mean 1 out of 4 will die if we went back to a free economy.  Think about the first 4 people you know over the age of 80 and understand that it's likely one of them will die if we go back to work. 

These are not easy choices.

Not that anyone asked but here's my plan and I'm not an infectious disease expert but I play one on the internet -

Shut everything in the US down.  I mean everything - institute quasi martial law for the whole country. If you are out driving you need to be a doctor or a nurse going to work, otherwise you are going to jail.  No groceries, no gas, no going for a run (hey, I'm guilty of this every day), nothing.  Stay home or go to jail.

Do this for 30 days and on May 2, we re-open for business. 

The alternative is that we will be dealing with this in July and our economy will be heading into the Great Depression part 2.  I'm not trying to be hyperbolic, but we need some hyperbole to get the attention of leadership.  These are historic times that people are treating like it's just another blip on the radar.

As my friend says - Airport drinking rules are in effect so cheers!