Spekulatius

The whole thing looks pretty deflationary. If we indeed get $20 or even just $30/ brl crude, not just shale, but oil sands won’t even generate cash flow, much less return on capital and even the oil majors are going to be unprofitable. Midstream /LNG will see collateral damage as well. Huge losses in credit markets for energy, much higher than what we have seen in 2015. I agree with SD that this seems somehow related with thr Saudi MbS putting 3 fellow princes on ice. I wonder if his “saw” crew gets more jobs...

We May have to rethink when we state that China screwed up their response to the epidemic. https://www.nytimes.com/2020/03/04/health/coronavirus-china-aylward.html I think the screwups occurred early on but once they got going, it looks like the Chinese government really pulled all the stops. Also for now, it seems like China has stopped the spread out side of Wuhan, which to me seems like an amazing feat. Seems that the government can do quite a bit. Another I interesting tidbit is that asymptotic virus carriers don’t seem to spread the disease. That’s good news for containment. This fact alone is amazing:

The catalyst for BRK will be Warren starts throwing blankets to naked people in dry tide pools. I think they should go with the times and instead of Warren’s phone, they should put a button on their website for payday loans: Loans from $1B-30B available immediately! Cost 8-12% interest+ Equity warrants. Decision within 24 hours. I think demand in the next 12 month will go through the roof.

Greece, BlackBerry, Stelco, Airports have gone down substantially since YE 2019. I wish I had sold more at $470. I hope they can take advantage of the hard Market but the lower bond yields are going to be quite some headwinds in the coming years and a 97% combined ratio isn’t really that great of bonds are yielding close to zilch. These combined ratios for insurers really need to come down to the low 90% in that framework.

GOOGL, MOGA, BWEL, TXT, PINS, FOX I have sold out of WMB a while ago, took my tax loss. Will need to obey the wash sale rule a few more weeks before getting back in.

Some leftover Citizen cider and some Finger Lake Riesling wine. Got to finish up some old projects before I start a new one.

Times are so dire that even my teenage son started to wash his hands before dinner

We are concerned because the a) mortality rate is 3.4% vs <0.1% for the flu, b) COVID-19 is more infectious than the flue, c) there is no vaccine. So you have the potential to infect more than 35M people that got infected with the flu with a 34x higher mortality rate. I think you can run the numbers yourself Or you can just have a hunch and stick your head into the sand.

People stating that we were fine in 1918 are missing that the world and Financial markets are very different now ( much more connected stronger feedback loops ) and back then WW1 was actually a much larger problem ( and the reason why information about the flu was censored ). I am sure we as a species survive this, we survived 9/11 which imo is the closest comparable, but it wasn’t pretty. I also think that we will see more political changes based on how the people in power handle this ,or how it is perceived.

For those hunting for Japanese bargains - Kenkyoinvesting apparently has lowered his subscription fees and also added a free Tier. I signed up for the latter, a great resource. If I do more with Japanese stocks, I would probably pay for the kenkyo plus. https://www.kenkyoinvesting.com/services/

Coronavirus predicted in “Asterix and Obelix” in 1981:

I have a much better idea - force some skin in the game, as Taleb would say. Force some of the head honchos to have the same exposure with the same protection that the people working in the trenches do. I‘d like the head of the CDC or Mr Pence stand in front of a bunch of wheezing untested patients without mask. No worries, the strong will survive! The Romans would have the engineer sleep under the newly build bridge and if it didn’t hold, I guess the next bridge would be build by another engineer. Well, some of the Roman bridges are still standing now, so that system seems to be working quite well.

Delta has a presentation out today fwiw - https://www.sec.gov/Archives/edgar/data/27904/000119312520061029/d887033dfwp.htm Interesting, secured credit AA- rated collateralized by a couple year old aircrafts in front of a major disruption in air travel potentially. Who the hell would buy this and what is the interest rate?

II mentioned this before - my wife is working as an RN (contractor) on specialty care in several hospitals. I have talked to her and so far zip safety precautions, no COVID-19 testing (apparently no test kits) and not even N95 masks for personal. Can‘t believe it. Now a neighboring hospital has a confirmed case and they have a suspected case, but no way of knowing yet. They will start safety training this week and get N95 mask this week supposedly, probably test kids too. The patients my wife deals with have high mortality to begin with, so if they get infected, they are most likely gone. I don’t know who is to blame here, the hospital admin, the state bureaucracy , CDC or federal government institutions, my guess it’s all the above. There will be lots of blaming and law suits when this is over.

The way DAL is trading ( static share price around $46) while other airline stocks are falling, Warren‘s bid put a floor under its price for the tone being. I bet he buys a ton of DAL as I type this.

FOX, RHM.DE and LDO.MI ( the latter two are plays on my European defense theme)

Energy. It’s already down on the ground and now it gets a swing with a baseball bat to the head.

I haven’t lived in NY state too long, but that’s exactly how you eat Pizza in NYC. Use a fork and they will use a pitchfork and chase you out.

Valuation multiples really don’t matter. We heard already in another thread that with a 1% discount rate , a 2.7% FCF yield is a great bargain. Now if interest rates go to 0.1% even a 0.27% FCF yield is a great deal too. That’s a 10x upside right there, no growth needed. Europe and Japan are ahead of us and it has worked great for them.

I just refinanced and see me doing it again in a couple of month. Sounds like our banking system is going the way of Europe and Japan. I guess we can buy them for 1/2 tangible book in a couple of years, when they earn 2% NIM.

A lot of commodity business ( energy, mining, steel etc) and their suppliers may succumb to lower prices/ demand and possibly tighter credit. E&P‘s had structural issues before and weaker prices may make the situation far worse ( if that’s possible). Same with steel.

I think the best similar case is that we can expect a mild form of 9/11. I expect travel and related industries to take a hit. Travel is responsible for about 10% of the global GNP, so if you haircut this by 10-20%, it’s going to be a 1-2% hit to global growth. Then there are trickle down effects on restaurants, malls, sport events, conventions and possibly business travel, aerospace (especially aftermarket parts) Best case scenario , this blows over in a few weeks and it’s just a minor speed bump with a bad quarter in GNP growth. Worst case, this leads to lockdowns to slow down the epidemics and then it comes back next winter and cause more lingering effects. Some countries like Greece, Spain, Thailand etc skid in recession and need a bailout. https://knoema.com/atlas/topics/Tourism/Travel-and-Tourism-Total-Contribution-to-GDP/Contribution-of-travel-and-tourism-to-GDP-percent-of-GDP

Do you think a lockdown in the US is priced in? I don’t think so. A couple weeks of lockdown would do considerable damage to the economy, considering how large a percentage of US lives paycheck to paycheck. US is most likely underreported because so few people have been tested. The hospitals my wife works (nurse in dialysis) in here still don’t have any protocol for this or tests done on as far as she is aware of. Europe is getting worse though and markets continue to drop. Italy may be past containment with so many new cases and most likely this is going to jump to other countries in the same area.

If one dead is only worth 200k, the 3000 killed in 9/11 would be worth a mere 600M. out in the value the asbestos contaminated WTC ($500M) and the goal cost would not have been more than $1.1B. Yet we spent more than 1000x that much to wage a war against terrorists and protect us against a second one. I think you are forgetting about 2 things and both are related. 1) reflexivity - it does matter what actually happens, it matter what people think what may happen 2) tail risk - with a new thing like this, nobody knows exactly what it going to happen. So preparing for the worst and hoping for the best actually makes a lot of sense. We know already that there is going to be an economic slowdown which probably kills profit growth this year if not worse. Otherwise we might have seen a 5% if not higher profit growth, so a 5% hit is entirely rational. If you assume a worse scenario, the current 10%+ correction from the top, bringing us merely back to last October’s Levels not irrational. So while there is some irrationality about the selloff, there was quite some irrationality about the rise before that, so it’s not clear to me that the market is overly pessimistic or too optimistic. The only thing I am sure about is they the volatility is going to go down. If I had to guess, there are going to be nasty surprises in I’d individual stocks that miss their forecast by a mile in the next round of earning releases, which makes it hard to handicap what to buy in affected sectors or those that are economically sensitive.

By far the most level headed logical approach to this situation. Castanza, "Level headed" ? - Please look at the "/6" and read it again. Basically all countermeasures to contain this thing are now enabled. It's BS. Level headed as in not inducing panic. The facts we have are the facts we have. Speculation to the extreme doesn’t solve anything. I’m not saying this guy is 100% correct in his analysis. One thing I have learned in financial markets is that you want to panic before everyone else does. ???