Coronavirus

[Chi town]

Summer of 2021 will show our new way of life. Not Summer of 2020.

Also, 6.6 million unemployment claims as of 4/2/2020 and still rising in super turbo speed. Again, this only took days to double from 3.3. million claims just 6 days ago.

A "V" shaped bounce back is almost impossible. The economy is not bouncing back that fast. It's gonna a "U" graph bounce back or flat lined "L" graph like Japan and Greece.

20 million unemployment claims in the good ol' USA? That figure looks realistic to reach at this pace.

I think it will be way more than that in a couple months when the new normal sets in... lots of those businesses aren’t coming back.

[coldfish]

Well the debt related to GDP is generally what people track, and so while the debt has grown massively, so has GDP which makes it less of a big deal. We do owe a lot of the money to the American public, institutions, and other government agencies. A huge amoutn of social security is held in the debt (probably the biggest government owner of it). It's hard to say how much it matters, but unless we just don't pay retirement to government employees or social security, we still owe the money.

for what it's worth, japan's net government debt (% of gdp) is nearly double what ours is

And it doesn't seem to kill them. They don't even have high interest rates or inflation. It took me a long time to really wrap my mind around what the fed is and what our money really is. I used to hate the fed but now I get it. I still really struggle to understand national debt. My knee jerk reaction is to treat it like personal or business debt and say "too much is a bad thing". I'm not sure that is the case when you pay off the debt with money that you can make with a few strokes of a keyboard. Its almost meaningless. The only thing that really matters is inflation/deflation and that's determined by the amount of money in true circulation in proportion to the amount of value being created.

[TheStig]

Doug, I understand and agree that is true today. What I'm trying to say is that after the virus situation is resolved, then in the coming months after, hiring and the economy will start to pick up. I think businesses and consumers want to get back to normal.

After the virus is resolved, you will have the following after effects:
1: Many cost cutting measures will not be rolled back because companies will use this as an opportunity to trim the fat.

2: Many consumers will not immediately go back into pre-coronavirus mode with spending because they lost so much in the meantime and need to financially recover.

3: Lack of spending means businesses won't snap back immediately in terms of revenue or earnings either and gives them more reason to not hire back to full right away.

4: Many industries will be permanently damaged by this and won't recover, there will be huge losses of corporations that will simply disappear. This will create opportunity for others, but in the short term it means that there could be large losses in bond portfolios and other investment areas which impact the markets.

I'm not telling you what to do with your money, the stock market often behaves irrationally and was irrationally high prior to this event to begin with. There is also a ton of money on the sidelines of people just sitting in cash waiting to find something to invest in which could also push prices up fast.

However, what I am saying is that fundamentals of our economy will probably be poor for at least a year from today (from a corporate perspective). People whom lost their jobs, just like in 2008, are likely to initially come back to work underemployed compared to the past and spending will take a longer time than you think to get back to normal.

From a governmental perspective, who knows what we've done here. We may have set the bar for a massive inflationary event for our currency which causes all new kinds of problems (that said other countries may be in the same boat so maybe it all cancels?). We may end up adding 25% to the national debt before all of this is done as well, and that could have serious after effects.

States like Illinois which were barely solvent before are going to be facing tough decisions coming up too. Even the ones in good shape are going to struggle dealing with the loss of revenue.

I agree overall. I don't see an inflationary cycle though. The fed has significant leverage over the economy and can draw down excess money in circulation quickly. At most, you might get shortages in certain sectors as supply chains get damaged through this. This or that good might go way up but the general trend is going to be significant negative price pressure. With everyone hoarding money and just working on paying down debt, I'm guessing that the money in circulation is collapsing even with fed actions. This whole collapse is an interesting case study in fractional reserve banking's impact on money supply. People stop loaning money, money supply tanks.

I don't really understand the national debt at this point. I kind of get the impression that the fed is holding a lot of the debt. Its almost like the national debt is meaningless.

In general, I think this is going to be a nasty recession. I got out of stocks as much as I could albeit too late. I continue to be surprised at the market's resiliency. Its going to take the threat of a major company going bankrupt and wiping out shareholders for prices to get reasonable.

Yeah, that is the one confusing part. A large value of a company is the earnings it produces and we will have major markets shut for 6 weeks (half a quarter) by may 1.

Also confusing when you see multifamily property hit the market at retail price. Those guys are getting killed by reduced or no rent as their tennants tend to be the ones most impacted.

[dice]

for what it's worth, japan's net government debt (% of gdp) is nearly double what ours is

And it doesn't seem to kill them. They don't even have high interest rates or inflation. It took me a long time to really wrap my mind around what the fed is and what our money really is. I used to hate the fed but now I get it. I still really struggle to understand national debt. My knee jerk reaction is to treat it like personal or business debt and say "too much is a bad thing". I'm not sure that is the case when you pay off the debt with money that you can make with a few strokes of a keyboard. Its almost meaningless. The only thing that really matters is inflation/deflation and that's determined by the amount of money in true circulation in proportion to the amount of value being created.

it's largely a matter of how confident the borrowers are that they will be repaid. and investors in US debt are almost preposterously confident that they will be repaid:

https://www.macrotrends.net/2016/10-year-treasury-bond-rate-yield-chart

japan's 10 year bond year is actually -0.01% right now. germany's is the lowest in the world at -0.44%. those governments are effectively being paid to hold on to investors' money

even greece has only a 1.77% 10 year bond rate (after spiking to over 35% during their debt crisis at the beginning of the last decade). only 3 major nations are over 2% (brazil at 8%, mexico at 7% and india at 6%)

[fleet]

Read on Twitter

[Dan Z]

When you go out to a place like the grocery store do you wear a mask? I keep hearing mixed things about masks.

[TheStig]

When you go out to a place like the grocery store do you wear a mask? I keep hearing mixed things about masks.

I wear a mask and gloves. Might even start wearing goggles. People were coughing out in the open and touching everything last time I went.

[dice]

When you go out to a place like the grocery store do you wear a mask? I keep hearing mixed things about masks.

the government is not recommending it currently, but the decision is under review. dunno if that's based more on the behavior of the virus or the supply of masks. they definitely don't want civilians buying medical grade masks, but some are suggesting that homemade masks, bandannas or scarves might be beneficial

update:

https://www.washingtonpost.com/health/2020/04/02/coronavirus-facemasks-policyreversal/

[MrSparkle]

When you go out to a place like the grocery store do you wear a mask? I keep hearing mixed things about masks.

Well the only reason not to is because there is a shortage of n95 masks on the frontline.

But absolutely - if you have the germ it pretty much blocks 95% of germs exiting your Mouth/nose when sneezing, coughing or even breathing. So for all asymptomatics out there spreading the virus, it would pretty much majorly stop the careless spreading and allow the country to re-open and function if everybody wore masks and took the proper sanitary precautions entering and exiting public spaces (sanitizer on way in and out).

[Dan Z]

When you go out to a place like the grocery store do you wear a mask? I keep hearing mixed things about masks.

the government is not recommending it currently, but the decision is under review. dunno if that's based more on the behavior of the virus or the supply of masks. they definitely don't want civilians buying medical grade masks, but some are suggesting that homemade masks, bandannas or scarves might be beneficial

update:

https://www.washingtonpost.com/health/2020/04/02/coronavirus-facemasks-policyreversal/

Do you have a mask that you wear?

I have a cloth one and I'm debating on using it for a run to the grocery store.

[dice]

When you go out to a place like the grocery store do you wear a mask? I keep hearing mixed things about masks.

the government is not recommending it currently, but the decision is under review. dunno if that's based more on the behavior of the virus or the supply of masks. they definitely don't want civilians buying medical grade masks, but some are suggesting that homemade masks, bandannas or scarves might be beneficial

update:

https://www.washingtonpost.com/health/2020/04/02/coronavirus-facemasks-policyreversal/

Do you have a mask that you wear?

I have a cloth one and I'm debating on using it for a run to the grocery store.

if you have one, might as well use it. where are they sold?

[Dan Z]

the government is not recommending it currently, but the decision is under review. dunno if that's based more on the behavior of the virus or the supply of masks. they definitely don't want civilians buying medical grade masks, but some are suggesting that homemade masks, bandannas or scarves might be beneficial

update:

https://www.washingtonpost.com/health/2020/04/02/coronavirus-facemasks-policyreversal/

Do you have a mask that you wear?

I have a cloth one and I'm debating on using it for a run to the grocery store.

if you have one, might as well use it. where are they sold?

My Parents made it out of scrap material. It has elastic and something in it to make sure it's tight on my face/nose.

[Dresden]

https://www.yahoo.com/news/trump-administration-ended-pandemic-early-233508840.html

We failed to provide more funding for a program that helped predict new pandemics, and it ran out of money last September....

[wolffy]

Wouldnt it be a pretty colossal failure of U.S. intelligence to rely on the word of the chinese govt for real info on a contagious virus? Im of the mind that we have sources that knew how bad it was there. Hell twitter had enough proof that i was concerned early on.

[Ccwatercraft]

Doug, I understand and agree that is true today. What I'm trying to say is that after the virus situation is resolved, then in the coming months after, hiring and the economy will start to pick up. I think businesses and consumers want to get back to normal.

After the virus is resolved, you will have the following after effects:
1: Many cost cutting measures will not be rolled back because companies will use this as an opportunity to trim the fat.

2: Many consumers will not immediately go back into pre-coronavirus mode with spending because they lost so much in the meantime and need to financially recover.

3: Lack of spending means businesses won't snap back immediately in terms of revenue or earnings either and gives them more reason to not hire back to full right away.

4: Many industries will be permanently damaged by this and won't recover, there will be huge losses of corporations that will simply disappear. This will create opportunity for others, but in the short term it means that there could be large losses in bond portfolios and other investment areas which impact the markets.

I'm not telling you what to do with your money, the stock market often behaves irrationally and was irrationally high prior to this event to begin with. There is also a ton of money on the sidelines of people just sitting in cash waiting to find something to invest in which could also push prices up fast.

However, what I am saying is that fundamentals of our economy will probably be poor for at least a year from today (from a corporate perspective). People whom lost their jobs, just like in 2008, are likely to initially come back to work underemployed compared to the past and spending will take a longer time than you think to get back to normal.

From a governmental perspective, who knows what we've done here. We may have set the bar for a massive inflationary event for our currency which causes all new kinds of problems (that said other countries may be in the same boat so maybe it all cancels?). We may end up adding 25% to the national debt before all of this is done as well, and that could have serious after effects.

States like Illinois which were barely solvent before are going to be facing tough decisions coming up too. Even the ones in good shape are going to struggle dealing with the loss of revenue.

I was wondering about the sales tax losses that states are probably discussing on conference calls, there has to be an expectation of massive drops in revenue coming.

[dougthonus]

Also think all social gatherings will greatly change. Conferences, theme parks, concerts will be dead for awhile. That will be a big hit to the economy.

Will be interesting to see if that is a long term or short term change.

[League Circles]

for what it's worth, japan's net government debt (% of gdp) is nearly double what ours is

And it doesn't seem to kill them. They don't even have high interest rates or inflation. It took me a long time to really wrap my mind around what the fed is and what our money really is. I used to hate the fed but now I get it. I still really struggle to understand national debt. My knee jerk reaction is to treat it like personal or business debt and say "too much is a bad thing". I'm not sure that is the case when you pay off the debt with money that you can make with a few strokes of a keyboard. Its almost meaningless. The only thing that really matters is inflation/deflation and that's determined by the amount of money in true circulation in proportion to the amount of value being created.

I agree with the sentiment that it's hard to wrap your head around what the fed is really doing and what it means. I also have come around a little bit on their methodology. But I have to disagree that inflation and deflation are all that matters, because that presumes that real prices should remain static, and I just can't accept that as the case when both preferences and production costs change over time. Real prices should change, which would make inflation a poor metric, but I don't think the government trusts that people can handle/understand real price changes so they try to make the system appear stable by controlling inflation at the cost of preserving the value of capital.

The big problem with printing money and government debt is that it entirely skews our perception of our own societal production (gdp is a ridiculous metric IMO), and encourages over-consumption and malinvestment, which then cause instability in the forms of booms and busts, instead of in the form of gradual, but continual, and thus "less unstable", real price changes.

And idea I've come up with in the past couple years is that we could consider tieing the money supply strictly to population level. Not to gold supply which is appealing at glance but has it's own problems for sure, and not to the whims of the Fed trying to trick the people into thinking that inflation or deflation are inherently bad. That way, you'd largely eliminate the valuation problem with money, and be left with a much, much clearer problem of distribution of money. In the current system you have tons of valuation and distribution problems of money.

When the government prints a ton of money, those who suffer relatively speaking are the individuals and companies who were responsible and saved money and resources, because now those savings are worth less. It's kind of like a tax on savings.

Now, I actually happen to think that if we could pull it off on an executable level (I have doubts), and asset based tax system would be far preferable than an income based one, but the basic idea is that you want people and companies to save (because that represents under-comsuption and selective investment which are great fundamentals), but not hoard. And when they hoard, you want that money, which then tips the scales to essentially become under-investment, you want to tax that.

This is what I offer in a League Circles presidency lol.

[League Circles]

for what it's worth, japan's net government debt (% of gdp) is nearly double what ours is

And it doesn't seem to kill them. They don't even have high interest rates or inflation. It took me a long time to really wrap my mind around what the fed is and what our money really is. I used to hate the fed but now I get it. I still really struggle to understand national debt. My knee jerk reaction is to treat it like personal or business debt and say "too much is a bad thing". I'm not sure that is the case when you pay off the debt with money that you can make with a few strokes of a keyboard. Its almost meaningless. The only thing that really matters is inflation/deflation and that's determined by the amount of money in true circulation in proportion to the amount of value being created.

it's largely a matter of how confident the borrowers are that they will be repaid. and investors in US debt are almost preposterously confident that they will be repaid:

https://www.macrotrends.net/2016/10-year-treasury-bond-rate-yield-chart

japan's 10 year bond year is actually -0.01% right now. germany's is the lowest in the world at -0.44%. those governments are effectively being paid to hold on to investors' money

even greece has only a 1.77% 10 year bond rate (after spiking to over 35% during their debt crisis at the beginning of the last decade). only 3 major nations are over 2% (brazil at 8%, mexico at 7% and india at 6%)

I may be wrong, but are you sure on the bold part? My understanding was always that the listed bond yield rates are what is happening as an effective yield in the secondary market, not what governments are paying as the "coupon" yield, which would always be positive interest to the bond holder. I think when you see a negative effective bond yield list like I assume you're presenting here, what that actually means is that the bond holder is willing to sell the bond at a value so much less than it's face value, because despite the near certainty that technically the issuer (the government) will pay the coupon interest on it, the secondary market seller of the bond is basically scared of rapid inflation. They don't believe the coupon interest they're owed by the government will be of decent value because of pending inflation.

Also worth considering how few of these bonds may be moved in this price environment. If we can't sell bonds at super high volume anymore because investors are bracing for high inflation, we lose something like 1/3 of our federal budget, which would be catastrophic in many ways.

People are all freaked out at the falling stock market prices but not many are talking about the drastic fall in trading volume (last I checked).

Please inform me if I'm wrong.

[Chi town]

Update from France via worldometer.

On April 2, France reported 884 additional deaths that have occurred in nursing homes over the past days and weeks [source]. The French Government did not include these deaths in their official count, as their count only takes into consideration deaths of hospitalized patients. Following international standards of correct inclusion, our statistics will include these deaths, and will add them to the April 2, 2020 count following the attribution criteria of date of report.

EVERYTHING IS UNDERREPORTED.
California says that 64% of the test given are still backlogged.

[dougthonus]

I think when you see a negative effective bond yield list like I assume you're presenting here, what that actually means is that the bond holder is willing to sell the bond at a value so much less than it's face value, because despite the near certainty that technically the issuer (the government) will pay the coupon interest on it, the secondary market seller of the bond is basically scared of rapid inflation. They don't believe the coupon interest they're owed by the government will be of decent value because of pending inflation.

If a bond has a 5% coupon at par (100), and you buyit for 102 (a premium) then the yield less. You are now getting 4.9% instead of 5% (5/102 vs 5/100). So the higher the premium on the bond, the lower the yield. The higher the discount on the bond the greater the yield.

Now no matter how much premium you pay for a bond, you are still getting positive coupon. Where the negative yield comes in is when you pay a premium so high that the total interest you get on the bond doesn't make up for the premium.

Say I have a 1000 bond paying 5% interest for 3 years and then matures. My cash flow looks like
50
50
1050
Total cash received is 1150

Now say I pay a premium of 120 vs 100 par (so I paid 1200 for this bond), now I'm still getting an interest rate of 50/1200 which is 4.1% interest for each of the three years, but the overall yield of the bond is negative, because I lost 200 by purchasing so far above market.

People are all freaked out at the falling stock market prices but not many are talking about the drastic fall in trading volume (last I checked).

Trading volume is at a ridiculously high level since all this took place. Liquidity is definitely not a problem in the stock market. In the bond market, liquidity was a short term problem for about a week.

Bond Liquidity can become a problem much easier than stock liquidity just due to the fact that it's OTC and you don't have market makers like you do in the stock market and depending on the bond type there just aren't people waiting to buy your bond while in electronically traded stocks there is always a market for your bond from the market makers and there is a requirement that market makers always list a bid and ask and that traded stocks typically require a minimum of 3 market makers at all times.

With bonds, the liquidity problem came when retail bond owners all decided selling bonds, which forced broker dealers to get enough cash to pay off all the retail investors, the market collapsed, but then it recovered quickly by non retail owners whom still needed quality interest. Companies like banks and insurance companies that are arbitraging rates bought all these bonds at deep discounts, and are now much better positioned than they would otherwise have been (at least the smart ones).