Stocks Halt; Oil and Bonds Drop in Sync
wsj.com
wsj.com
Could you explain why you think this will happen?
But if 1% of the population dies, that's a permanent demand drop!
The monthly bills for 100 remote workers is easily 10K -- their internet connections alone would probably hit that. A single person renting a desk at a co-working space is going to spend a few hundred a year.
> Your crappy internet keeps cutting out? Not our problem. Poor work performance. You're fired.
What if the amount of over-leveraging, interdependence and fragility in our financial system results in things never going back to "norms"?
If those businesses get bailed out that should be for their value to the world, not for the purpose of rescuing shareholders.
I'd go so far as to say that the government should take a 51% stake in return for their bailout money. I'm not saying nationalize the businesses or hold that controlling position indefinitely, but just for the time being to reorganize and guarantee the bailout money is used appropriately and executives fired for juicing their options with buybacks.
Also keep in mind there's a number of mechanisms that pushed the market up that will now push it the other way:
Credit cycle makes collateral worth more, giving more capacity to extend credit.
Momentum funds buy when things have gone up.
Risk parity funds add when risk is low. And risk as measured by realised volatility gets lower as we creep up.
Retail sees the market is going up, much like momentum funds.
Selling options makes sense when there's barely ever a move in the market.
Now try these in reverse.
IMO, I don't think it could have even been contained then. Once this thing left China, the genie was out of the bottle. Now, the rest of the world is just trying to manage the spread best they can by 'flattening the curve.' Which, as you mention, is really going to end up with the plan the Brits said out loud.
I wonder how long it will take everyone else to catch on that the Brits plan is happening regardless?
It's mathematics. Assume a country of 100M people, of which roughly 2/3rds have to be infected to achieve herd immunity. That's 66M people. Of these, expect 2M people to die if the mortality rate stays at 3% (at the moment it's 3.4% according to WHO).
Now, as no medical system in the world has enough beds, expect that the mortality rate goes through the roof once the ICU beds are full - Italy at the moment is at 10%. This would mean 10 million deaths in the assumed country.
Or, scaled to the US: 32 million deaths.
"Herd immunity" is mass slaughter on a scale not seen since Mao's "Great Leap" with 18-45M deaths.
The Netherlands only have 4.18 beds which isn't much more so with more people being infected thanks to inadequate protection they will be overloaded, sending the mortality through the roof.
The US have it worse, they only have 2.89 beds and many people who are sick will still go to work to survive PLUS many won't dare go to the hospital unless they are facing death due to fear of extreme bills so coronavirus has the potential to be a massacre. Plus, unlike Europe where most citizens believe the experts, large parts of the US population takes pride in ignoring science (40% per https://www.msnbc.com/rachel-maddow-show/glaring-partisan-di...).
Looking at Wuhan, a total shutdown can dramatically reduce the number of new cases. We can’t really afford that for long, but it buys time to prepare and may be required if things start to fall apart.
AFAIK Wuhan and South Korea are both at the tail end of their their infection trajectory and they are still not back to normal working situations/environments. I'm still not sure if this will be a short, blunted infection with all the quarantines taking place, or something we have yet to see the top side of.
Either way, this is going to crater a ton of small/medium sized businesses. All of the gains the market made in the last few years has been completely erased by this virus.
A middle ground between doubling every 3 days and total shutdown looks really appealing in that context.
That will probably be insufficient in duration:
”We [...] show that policy strategies which aim to mitigate the epidemic might halve deaths and reduce peak healthcare demand by two-thirds, but that this will not be enough to prevent health systems being overwhelmed. More intensive, and socially disruptive interventions will therefore be required to suppress transmission to low levels. It is likely such measures – most notably, large scale social distancing – will need to be in place for many months, perhaps until a vaccine becomes available.”
https://www.imperial.ac.uk/news/196234/covid19-imperial-rese...
> A middle ground between doubling every 3 days and total shutdown looks really appealing in that context.
A middle ground between “do nothing” and “don’t do enough to stop the healthcare system from collapsing” sounds really appealing?
Basically the quarantine option has a known outcome in the short term, and doing nothing as millions die is another option. But, they have such high costs and are so far apart a middle ground seems desirable.
We're intentionally stopping the economy from producing goods and services.
Stimulus is intended to get the economy to _start_ making goods and services.
If you throw more money at less goods and services, all you will get is inflation.
Mass shutdown and quarantine will be viewed as a horrible mistake of available choices, but only in convenient hindsight. It will turn out we unnecessarily destroyed trillions and trillions of dollars in wealth and capital, because our understanding of the situation was very poor (how wide spread the virus actually is).
It's estimated that there is at least a scale of 10x unknown infected vs known infected. South Korea, Taiwan and Singapore have only been able to stay nearly CV-free because they have extremely strict testing regimens - while the US has almost no testing capacity at all (and many have to ignore a positive test as they need to work to survive/keep health insurance), and Europe doesn't fare that much better to be honest.
South Korea will not be able to remain quasi Covid free, unless they plan to never open their borders up ever again. The rest of the world is going to be flooded with the virus and the disease. The bulk of the populations in the EU and the US will likely get the virus, and as you note, fortunately, the death rate hopefully maybe plausibly is 1/10th or 1/20th what we think it is due to the volume of unknown cases roaming about.
The only way SK remains mostly free of Covid, is if the virus goes away and doesn't come back next year (and or we get a vaccine they can use next year). SK can hold in place, while the US and EU and other regions (China already) likely go back to work; then as it fades elsewhere with increasing herd immunity, SK can come out of their protective shell. Otherwise they'll have to remain in perma lockdown, perma quarantine, perma heightened mode.
If we can do it for even just 30 days, it drastically reduces the surge load on the medical system.
The only upside I see is people are saving money by self isolation which is going to ease the recovery significantly.
There are two problems. A public-health problem, which is killing people. And a quarantine effects problem, which is putting people out of work.
Throwing money at the latter works. It keeps unemployed bartenders paying rent. That keeps them in their homes and their landlords from defaulting.
As the first problem evolves, however, it makes the second worse. That means we don't know how much support is enough. Until we know how bad the first problem is, the second's effects will remain poorly constrained. That turns every public action, with respect to either the first problem or second, into a cause for panic for the markets. (It doesn't help that the quality of communication around these actions has been poor.)
At the same time, everyone who can get liquidity is taking it. That's stressing the notoriously-chaotic credit market. This is a problem entirely manageable through throw-money-at-it central banking solutions.
But really, it doesn't matter. What was happening at Saudi pumps last week was a speculative event, the size of the petroleum market for the next few months has absolutely nothing to do with OPEC decisions, it's about quarantine restrictions on travel all over the world.
Saudi might continue pumping, but as others are pointing out when the tankers and storage facilities fill up, they'll stop. Because there's nothing else to do.
It doesn't help that unlike oil electricity is produced in a just in time fashion, we produce it the same second we want to use it, not days or months before hand. I.e. there is nearly no buffer capacity in the supply chain.
Does the same apply to oil? Can we not just turn the pumps off and leave it in the ground with what basically amounts to flipping a switch?
Can one? I don't know enough about oil wells to know if that's a simple thing to do. It could very well do permanent damage to the well, in excess of selling negatively for a few months.
The big issue is that if lots of oil companies go bankrupt (many US fracking ones are highly leveraged and must sell oil at a certain price in order to survive) and people get other types of jobs, you can't ramp up the creation of new wells very easily. Oil from fracking takes a lot more effort and wells than the old style wells.
I'm not sure why anyone would have signed such a contract, which is why I called it weird, but it does seem plausible.
Usually when there is a reason to reduce capacity on a rig (mostly due to weather) it's normal to just stand-by (sometimes for weeks) until they can continue with the job. When I worked offshore it was never possible to say when I get back home, e.g. the job was estimated to last 10 days but could end in 4 months. And once we were done we were almost always flown to a new destination (so they would try to keep us out there as long as possible). While places like the North Sea regulations would be strict (28 days offshore would be max before you have to go back to shore), in the Golf of Mexico, or in Asia we would never have such rules. I know people who spent months locked in the compression chambers (sat system) or until the project was over. And none of us dared to say we want to go home (it would be career ending).
[1] Oceaneering, McDermott, ...
https://www.ytdreturn.com/vglt/
Edit: rephrase to clarify what I'm confused about
To be clear: the price you pay to buy a bond is going up while the price you pay to buy a share of stock is going down. It is exactly how you expected, you were just looking at the wrong number.
The President mentioned something about wanting to backstop money market funds, so that may be part of what you are seeing.
Bitcoin crashed as well and gold isn't overperforming either. So rather than having a huge transfer of assets from stocks to bonds/gold/bitcoin like we've seen during past periods of market volatility, I think we are seeing falling prices across all the forementioned asset groups.
The one open question for me is Real Estate (I work for a small commercial real estate developer). REITs are down 20%. My contacts in the Broker community have told me individual property sales transactions have dried up due to an inability to do property showings combined with no interest from buyers or sellers to make big moves until things shake out. RE moves slow so we haven't yet seen how this dynamic will impact sales prices.
Interesting! If so, maybe we could see an end to the financial markets' seemingly insatiable demand for Treasurys?
On another note, the federal funds rate is at zero but bank stocks are cratering anyway, possibly because Trump announced there will be no foreclosures/evictions through April. So landlords and homeowners have no incentive to pay their mortgages for a couple months, which will definitely hurt banks.
“The risk in the current environment is that sustained illiquidity of the UST market … could cause leveraged UST investors to reduce their Treasury positions on a large scale. This would essentially result in a Treasury ‘supply shock’ as these funds reduce their positions & force dealers to sell those positions in a very illiquid market. Significant position reduction from one large leveraged UST investor would likely lead to a cascading effect whereby U.S. Treasury yields rise sharply and force liquidations from other similar investors. This would worsen conditions for dealers to intermediate risk in the U.S. Treasury market, exacerbate the rise in U.S. Treasury yields, and further cheapen Treasuries.”
That would explain why all assets are going down.
So you've definitely got a huge demand-side crisis, and coupled with whatever Saudi Arabia and Russia are trying to do (fighting between themselves or fighting between themselves in order to bring down the US shale companies, I'm never quite sure) that means that the only way is down.
This is the key. They are cooperating to destroy US efforts at self-sufficiency.
On the bright side, the canals of Venice are clear (you can see the fish) for the first time in recent history.
This is completely shocking to me.
I remember complaining about gas when it went above $2 and my grandfather sat me down and related several stories about the 1970's oil crash, Jimmy Carter saying we needed to be energy independent, and other fascinating stories about OPEC.
To honestly see a day where OPEC and the Russians see the US oil production as a threat is pretty incredible when you think about it.
This is naive. The real target is Iran, the Saudis would never do this without US approval.
That's simply impossible. Best they can do, is bankrupt the current owners of fracking oil wells. But the equipment and sites / wells remain, and will be taken over by new owners, which will remain pumping oil as soon as price reaches sufficient levels (or until the US needs it for "national security").
The new owners may be Saudi...
I've stopped using subway last week, and can still run errands by bicycle, i.e., don't need a car. But I also mostly WFH so it's easy, of course.
I suppose that works unless the companies become insolvent?
Which funds is he referring to? Do we have any references more solid than a tweet?
"their strategy involved selling options on volatility exchange-traded products, which is essentially a bet that profits when markets stay calm."
Would this fund be considered "large" at 600mm?
There are also some older ones in the news e.g.:
https://www.ft.com/content/da193096-63af-11ea-b3f3-fe4680ea6... (March 11, Solus's flagship fund, 4.3bn, distressed debt focus)
You can see the bot changed its name and profile pic to match the OP so it isn’t clear to casual Twitter users that the scam is from a different account.
The problem is that Twitter's moderation teams are hopelessly overwhelmed, massively understaffed and, for the lack of better words, utterly incompetent/unable to understand cultural context - probably somewhere in India, Vietnam or wherever else you have a large number of cheap heads.
The quarantine measures required to control it continue to be required to control it. So while the virus itself might not be spreading, its economic effects persist until we reach herd immunity or distribute a vaccine. Both are year+ long time scales.
The market is, frankly, being much more rational than people expect. This isn't going to get better soon.
He says they are not completely relaxed in public, but getting there. They still observe social distancing. But from his understanding, infection rates are way down all around China.
So yeah we need reports from the ground, if anybody reading this is in China please chime in and give us a quick rundown of the situation over there. Thanks
>>People back home have asked me for updates from 'ahead of the curve' in China so here is today's: China has added USA to the list of mandatory quarantines. My friend just arrived yesterday to Shanghai from the Bay Area and was taken from the airport to a testing facility and was then put under a 14-day quarantine at his apartment in Shanghai (even though he tested negative). Meanwhile, those of us out of quarantine are free to move around the city with our green cards. And many are indeed choosing to do so while still observing social distancing. Infection rates are way down all across China.
He goes on to say the following in two of his responses below...
In regards to how long
>>China was worst around early February. So I'd guess at least a month to get over the hump.
In regards to a 2nd outbreak coming
>>Have not heard that at all. I wouldn't say it's 'relaxed' more like 'beginning to relax a bit'
That's all I got from the ground.
Most recent news from this morning: Schools are opening across the country in stages from April. This is strong signal. I don't think "coverup" and "school opening" can do together because viruses won't listen to either CCP or Trump.
As a Chinese with so many friends in China, I would say that articles from WSJ/NYT about China may not reflect the reality. They are telling the truth, but there are many truths and reporters just want to pick whatever they want. E.g., there are sad stories for sure, but there are also plenty of moving good stories. In this mixed-up world I found it very difficult to find real "objective" reports, aside from your own eyes...
Thanks for the uplifting report and take care out there mate.
A fellow human
There is absolutely nothing preventing the virus from resuming to spread as soon as economic and social activity continues to return towards normal level. In fact, most experts expect exactly that to happen, albeit maybe at a bit of a slower speed than before (due to some people being immune and people generally being a bit more cautious in their daily lives now).
Oh, and due to the incubation time, you'll not see any negative effect in testing results from removing the brakes for about 10-12 days. It's the same thing as when they were applied. So what's described above will happen, even though for 10 days you might wonder "What's the deal? The infection numbers still look good!".
This is far from over, in China and anywhere else.
I can tell you personally, factories I was in contact with about totally non-pandemic related industries, with capacity that I highly doubt can be repurposed for supplies, are still talking about extensive delays for any sort of order.
It's quite simple: noone is permitted to go outside without a mask, and they ramped up testing and manufacturing masks, like any reasonable country would.
Meanwhile in the west ,,masks are not important for people, just for doctors''.
Local clusters can be suppressed when your testing and contact tracing capacity greatly exceeds the number of new cases. China's new domestic cases are in the single digits now. Even unsupressed, it will take weeks for the disease to become out of control again.
These so called "experts", particularly those in positions of power in the UK will cause untold damage if they rely on their assumption of this phantom second outbreak.
The only thing I agree to is "it will take weeks for the disease to become out of control again". Yes, it will, and that is part of the problem - it'll be at least half a month until it's even possible for you to notice that you're getting the same problem all over again.
Everyone knew the last few circuit breakers were going to be hit in the morning because of futures
This morning it was actually surprising that we didn't hit the circuit breaker at open
We actually might have gone the whole day without hitting them too... it went off during Trump's conference when he seemed to go completely off the rails.
A lot of people will recoil to that statement saying it's an oversimplification or attempt to unnecessarily politicize this, but Trump's conferences in the last few weeks have had IMMEDIATE effects on the stock market.
The algorithm aren’t the reason Trump bumbling an interview shocked trader confidence.
If your job is not secure, you should account for that by increasing your emergency funds (typically a savings or money market account).
One approach that gives up some of the return but escapes the most volatile time:
You won't predict the bottom, and you might not get all of your money in in time, but you'll still wind up ahead when the markets recover.
And they will recover, unless we somehow get to a point where the entire monetary system collapses. The only question is whether it will take a few weeks, months, years, or decades.
Pick your starting point depending on how long you can wait. Buying early makes you less likely to miss the dip, but it might take longer to start seeing green numbers. Buying late means that you stand to gain more in the short term, but you might not get all of your money in in time.
Personally, I think we're still straddling the "early" line around now, but your guess is as good as mine. This is what they call a 'roller coaster' :)
1. We are close to having hit the bottom.
2. Once we do hit the bottom, there will be a magical, fantastic, quick recovery, that you will miss out on if you don't act quick.
If either one of these is true, then buying stocks right now is jumping the gun. If both of them is false, you should buy everything you can.
If you want to be safe, liquidate, and sit on cash. If you want to be greedy, the best play may also be to liquidate and to sit on cash.
There's also been news this morning that the government will bail out commercial paper and corporate bonds, and that this has caused investors to move from treasuries to corporates.
It strikes me that both explanations may be true.
And I guess another possibility is that the US is already running a large deficit, and that is probably going to get much worse shortly. So maybe some are losing faith in the safety of treasuries?
I certainly would like to hear from others on this.
Best that can be done are quarantines, but they're crushing the economy. Many outlets are reporting that a vaccine is at least a year out. So all we can do is slow this down and stagger cases. The Harvard epidemiologist who projected 40-70% of the world's adult population ultimately contracting covid was probably right.
At some point, governments will likely realize that they need to send younger segments of the population back to work (a la the UK), respecting the medical system's capacity, or risk triggering a depression. The economy was already systemically vulnerable for a number of reasons and this situation threatens to push it over the edge.
It's possible the market has not yet fully priced in extended quarantines or the likelihood of much of China and most other important economies experiencing a significant disease burden. The paradox is that the quarantines have slowed down the progression but are not an economically sustainable tool to fight this, so the numbers being reported are artificially deflated. On the other side, you have the medical system's limited capacity. One way or the other, we'll have to face the music on this.
This is the only sensible approach moving forward.
We need to quarantine the very old and very ill and provide them with financial assistance. Quarantining everyone is an overreaction and unsustainable.
When the not-very-old and healthy have built up antibodies and resistance, we'll have heard immunity and the very old or ill can return to normalcy.
For example today, all schools have shut.
People believing this approach is sustainable and acting on it are killing people and will not solve the problem.
Sure we do, universal, rapid result testing with isolation and contact tracing of positives. It works fine and is minimally invasive, and preserves the economy. First you get the exponential growth down with a shutdown, then only allow those who are tested to resume activity. If we had done it at the start we wouldn't have ever had exponential growth to begin with.
At some point you push past what's possible to manage, and I think we're there at this point.
It is technically reasonable to test everyone once a day, and quarantine the positives - but it cannot literally happen here in the next few weeks. The vice president just said, "Do not get a test if you don't have symptoms - to preserve them for the sickest people."
I'm not sure we can rely on that. It sounds like tests on asymptomatic carriers aren't reliable.
"The tests looks for the viral RNA by RT-PCR. This is a test based on viral RNA from swabs of nose and throat. Corona-symptoms appear due to viral replication destroying cells which we cough or snees/snot out." https://twitter.com/_Adora_Belle_/status/1237704056489082880
Keep in mind, for example, that the US is not technically under quarantine at the moment. And there are plenty of examples of people across the country recklessly defying the advisories.
The virus is especially virulent and controlling it in the way you describe requires stamping it out totally with extreme measures. We know that if even one case remains in the general population, it's just a matter of time before we're once again under pandemic threat.
At least in less-dense areas of the country if people stay somewhat social distanced
i.e., if one case shows up in my town of 25,000 people - we could test everyone that possibly had any contact with that person and likely require a couple hundred tests. If those measures fail, you implement a more local lock-down much sooner, test more aggressively, and then ease up again locally.
- It becomes endemic, enough people have had it that it's no longer a huge problem; so long as you ignore the hundreds of thousands who died on the way there.
- We develop and test a vaccine. Great except pressing pause on the entire world for a year or more is a challenge.
- We somehow manage to contain the spread and eliminate it. Some counties seem to have had some success with this technique but we need all countries to do it, at massive economic and social cost.
We don't seem to be holding a particularly attractive hand at the moment.
It has higher risks of something being wrong with the vaccine, but at the same time our existing process only tests the vaccine for a relatively short period of time relative to human lifespan, and one can say it is already a risky move. In this case the risk of reducing testing and starting to roll out the vaccine sooner may be justified.
Even rushing the testing phase doesn't give me much hope that that will be in place by this time next year.
I guess there is a 2.c where we find an existing drug which is mass manufactured and, at least, makes the worst cases more easily managed.
A problem being that, 60%-100% of your teams end up getting it and being incapable of work for 2 weeks, in staggered cases. So cutting the workforce in age, then in 60% segments of 2 week periods; of which 1-8% might die.
A thought is that a few changes are likely to come from this;
1. We'll be more remote
2. We'll have smaller teams
3. No more all hands meetings or open offices
In this case: http://archive.is/y9Mxy
You can use the Bypass Paywalls extension for FF. Pretty sure there is something similar for Chrome? https://github.com/iamadamdev/bypass-paywalls-firefox
This is in the FAQ at https://news.ycombinator.com/newsfaq.html and there's more explanation here:
https://news.ycombinator.com/item?id=10178989
https://hn.algolia.com/?dateRange=all&page=0&prefix=false&qu...
Short version: paywalls suck but HN would be worse off without WSJ et. al.
There have been rumors floating around that the economy was basically running on fumes. The yield curve was heavily inverted and the 7 year cyclical recession cycle was skipped.
Life is about to get really hard in the US and will likely continue to be so after the virus - and even that will probably drag on for 2-6 months. Get ready for Soviet Union style living. Bank runs are probably coming soon. This is unprecedented - both the virus and the rate at which the market is crashing.
Edit: even CNN is warning about triggering bank runs!
https://www.cnn.com/2020/03/18/economy/banks-cash-coronaviru...
https://www.tdainstitutional.com/tdai-en_us/resources/docume...
A society built on top of perpetual growth is about to grind to a halt for 2-6 months, after already showing signs of poor economic health. This doesn't even get into the potential political mess that awaits us.
Why would we bother continuing to quarantine if people are dying in the streets from (presumably) the roving band of cannibals you'll predict next?
Stop scaring people. It has real impacts. The world has survived pandemics before. It will again. Our 401(k)s will be fine
The world is rapidly changing. It will not return to normal once the virus is eliminated. The signs are everywhere. Governments in flux.
We just had two $1.5T federal stimuli effectively fall on their faces. Treasury Secretary is predicting 20% unemployment. That's great depression level and I suspect they were being conservative to avoid even worse panic. This is going to continue for many months if not years after the virus troubles are over.
Yes, life will get hard. Yes, this really sucks if you were planning on retiring soon. But life will go on. Calm the fuck down.
Grinding to a halt may be an exaggeration;
There's little reason for
- food production to grind to a halt (California, Midwest, Florida) as these are not high density jobs with a high risk of contagion.
- Technology oriented jobs; These have been increasingly work remote or from small offices; In many ways technology production should be stimulated in solving many problems presented by our now quarantined economies.
- Existing Construction jobs; Maybe they're slowed down to decrease worker density. these have a potential for low density, especially Crane operators, concrete trucks, etc. If you touch your face or take off your helmet you're going to have a bad time in these roles already.
- Power Company. Whether it's hydroelectric, coal, or nuclear; few of these use worker density to run or be maintained. Major projects will likely be stalled for those 6 months. These are also places where touching your face is already avoided.
Even in China at the height of the crisis, the grocery stores were still stocked. Credit & ATM cards still worked. Life went on.
Is the economy fucked? Yes. Will this cause very real, crippling harm to many people? Absolutely. But there's a very real difference between a crisis and a collapse. We're not there, and we won't get there.
"A Treasury official said Mnuchin was not providing a forecast but trying to illustrate the potential risks of inaction." (literally the 3rd sentence).
https://www.cnbc.com/2020/03/18/mnuchin-warns-senators-of-20...
The CNN article is an opinion piece which is effectively advising caution and even sources reliable information that FDIC protection is still in place. The tone is completely different...please be more responsible.
Current feeling is that they are suffering sufficiently from COVID and internal political chaos that they won't be able to organize to do that.