james22

Now 10.5% Small Value, 9% Emerging Markets, 4.5% Stable Value.

In this type of market, it’s important to watch how equity prices trade all the way to market close to get a sense of how many leveraged investors need to raise collateral to satisfy their margins with their prime brokers. Often during the depths of the 2008-09 global financial crisis, the equity market would appear to stabilize 20 to 30 minutes before close, only to see the indexes drop precipitously over the last 15 minutes of trading. This happened because hedge fund managers waited until the end of the day to get the most accurate calculation of just how much cash they needed to raise before the markets closed, and then liquidated what they could to raise enough cash to meet collateral calls. This type of end-of-day market action has already occurred several times during the COVID-19 crisis. Once the leveraged funds are shaken out of their positions and forced selling begins to decrease, we expect a substantial amount of market volatility to subside. https://www.morningstar.com/articles/973164/even-safe-haven-assets-are-feeling-the-pressure

I'd guess the latter. 42% Say China Should Pay Some of World’s Coronavirus Costs https://www.rasmussenreports.com/public_content/politics/current_events/china/42_say_china_should_pay_some_of_world_s_coronavirus_costs

Grr.

Now 9% Small Value, 9% Emerging Markets, 6% Stable Value.

He's right, of course. At some point though we'll trade elderly lives to save the economy.

Nailed it!

Probably a good point. With any kind of legal cover, no one will care about the GSEs. There'll be lower hanging fruit to complain about (Boeing, etc.).

I like the idea: Companies that generate free cash flow do much better coming out of a recession than companies that don’t. And, what’s most interesting is that buying cheap and illiquid companies does massively better. So if you go into the market and say, I’m going to take advantage of this recession by buying small companies, where the stock price has just gotten puked out because people are panicking, but it’s profitable and cash flow-generative, but it’s so cheap and it’s illiquid, which means that the small change of the market was down five, this thing is so illiquid it went down ten that day – you go and buy that stuff, your returns coming out of the recession are extremely attractive. https://thereformedbroker.com/2020/03/04/what-you-should-buy-in-a-recession/ But almost by definition seems too hard to make a list? A Small Value fund seems to make more sense. I'm building up my position in Vanguard's VSIAX.

Goldman Sachs: 50% of Americans will contract the virus (150m people) as it's very communicable. This is on a par with the common cold (Rhinovirus) of which there are about 200 strains and which the majority of Americans will get 2-4 per year. 70% of Germany will contract it (58M people). This is the next most relevant industrial economy to be effected. Peak-virus is expected over the next eight weeks, declining thereafter. The virus appears to be concentrated in a band between 30-50 degrees north latitude, meaning that like the common cold and flu, it prefers cold weather. The coming summer in the northern hemisphere should help. This is to say that the virus is likely seasonal. Of those impacted 80% will be early-stage, 15% mid-stage and 5% critical-stage. Early-stage symptoms are like the common cold and mid-stage symptoms are like the flu; these are stay at home for two weeks and rest. 5% will be critical and highly weighted towards the elderly. Mortality rate on average of up to 2%, heavily weight towards the elderly and immunocompromised; meaning up to 3m people (150m*.02). In the US about 3m/yr die mostly due to old age and disease, those two being highly correlated (as a percent very few from accidents). There will be significant overlap, so this does not mean 3m new deaths from the virus, it means elderly people dying sooner due to respiratory issues. This may however stress the healthcare system. There is a debate as to how to address the virus pre-vaccine. The US is tending towards quarantine. The UK is tending towards allowing it to spread so that the population can develop a natural immunity. Quarantine is likely to be ineffective and result in significant economic damage but will slow the rate of transmission giving the healthcare system more time to deal with the case load. China’s economy has been largely impacted which has affected raw materials and the global supply chain. It may take up to six months for it to recover. Global GDP growth rate will be the lowest in 30 years at around 2%. S&P 500 will see a negative growth rate of -15% to -20% for 2020 overall. There will be economic damage from the virus itself, but the real damage is driven mostly by market psychology. Viruses have been with us forever. Stock markets should fully recover in the 2nd half of the year. In the past week there has been a conflating of the impact of the virus with the developing oil price war between KSA and Russia. While reduced energy prices are generally good for industrial economies, the US is now a large energy exporter, so there has been a negative impact on the valuation of the domestic energy sector. This will continue for some time as the Russians are attempting to economically squeeze the American shale producers and the Saudi’s are caught in the middle and do not want to further cede market share to Russia or the US. Technically the market generally has been looking for a reason to reset after the longest bull market in history. There is NO systemic risk. No one is even talking about that. Governments are intervening in the markets to stabilize them, and the private banking sector is very well capitalized. It feels more like 9/11 than it does like 2008. https://www.zerohedge.com/markets/half-america-will-get-sick-here-what-goldman-told-1500-clients-its-sunday-conference-call Interesting.

If Hussman though the market might lose two-thirds before reaching fair valuation (without overshooting), I'll be curious what he thinks it might lose with the pandemic. After buying today, I've now burned through half my dry powder. Probably prematurely, but the popping has been a long, long time coming. I'm afraid it's frayed my discipline (I fear Trump/Fed intervention too). When you (and others willing to chime in) make comments about being premature in buying, what timeframe do you have in mind? It seems like there’s no way to know the bottom. Personally, I’m just continuing to buy most of the same stuff I had been before the virus because I think in 5 years those businesses will be doing well. Am I being naive and underestimating this virus and its impact on the economy? I think he means because he expects the markets to continue dropping. And while I have generally been optimistic about the impacts on the economy long-term, I did have a conversation today with a local banker friend of mine who thinks SBA loans are going to get soaked and he doesn't see any banks willing to lend in this environment. A credit crunch on top of the dramatic drop in economic environment on top of the dramatic drop in oil seems like a confluence of a lot of events that are very impactful in and of themselves. This may be way worse than anything I anticipated if policy makers don't prevent a total lock up of the economic gears. Yeah, I'm just guessing as we see big numbers of cases over the next couple weeks/months the market will continue to fall. But I cannot know, so I'll continue to buy as it falls. I can't time the bottom, but I'll capture what discount from the highs I can. The only thing worse than having expected a 50% crash and buying in before then would be having the market rescued by Trump/the Fed before I get a chance to buy and be forced to wait for another popping of the bubble..

If Hussman though the market might lose two-thirds before reaching fair valuation (without overshooting), I'll be curious what he thinks it might lose with the pandemic. After buying today, I've now burned through half my dry powder. Probably prematurely, but the popping has been a long, long time coming. I'm afraid it's frayed my discipline (I fear Trump/Fed intervention too).

Now 7.5% Small Value, 7.5% Emerging Markets, 9% Stable Value.

Very possibly. I'm thinking I've probably been too early nibbling.

Jaysis, could we leave the politics out of this for the moment? There'll be time for that later (and in another thread). These are difficult times and there are no easy answers. Is it really impossible to assume Trump and those around him are doing the best they can? You can explain to me later how President Biden or Sanders would have been more successful.

How lame will the next .25% cut seem?

Scientists around the world have worked overtime to get a handle on Covid-19, yet one great unknown remains. We still don’t know for sure whether this is only a medical crisis, or also a medical system crisis. The distinction matters for the novel coronavirus for the same reason it matters for other “natural disasters” that aren’t entirely natural. It is now widely understood that famines arise from local political failures in the trade and distribution of abundant global food supplies, not from local crop failures. Floods devastate communities not because the local rivers are unusually watery but because poor zoning and subsidized flood insurance encourage people to build homes in flood plains. This is the context for a conspicuous feature of Covid-19: It is not untreatable, but many health systems are struggling to deliver effective treatment. Nowhere is this more so right now than in Italy, where nightmarish reports are emerging from hospitals in the hardest-hit areas. Doctors in Italy know what to do to treat severe cases, such as using ventilators in intensive-care units. But hospitals lack the beds and equipment for the influx of patients and Italy doesn’t have enough doctors even to make the attempt. Ill patients languish in hospital corridors for want of beds, recovering patients are rushed out the door as quickly as possible, and exhausted (and sometimes sick) doctors and nurses can’t even muster the energy to throw up their hands in despair. Is this more a result of the severity of Covid-19, or of long-term failures to invest in the Italian health-care system? One starts to suspect the latter. Italy lags other large European countries in provision of acute-care hospital beds, furnishing 2.62 of them per 1,000 residents as of 2016, according to the Organization for Economic Cooperation and Development. In Germany it’s 6.06 and in France and the Netherlands it’s 3.15 and 3 respectively. That year, Italy devoted around $913 per capita to inpatient acute and rehabilitative care, compared with $1,338 in France, $1,506 in Germany, and $1,732 in the U.S. U.K. policy makers understand what such analyses portend—because underinvestment in Britain’s creaking health-care system is even worse. The U.K. spent the princely sum of $901.70 per capita on acute care in 2016, according to the OECD. British data don’t distinguish acute-care beds, but a comparison of available beds overall isn’t any more favorable to the U.K. (or to Italy). In 2017, when Germany provided 8 beds per 1,000 residents and France offered 5.98, Italy managed 3.18 and the U.K. only 2.54. https://www.wsj.com/articles/europes-coronavirus-fate-is-already-sealed-11584025664

Perhaps Berkshire can now buy Microsoft.

Is SV small cap value? Sorry, yes. Small Value (SV) and Emerging Markets (EM).

The 10-Year Bull Market Just Died Of Coronavirus (John Hussman & Chris Martenson) Given the extraordinary and historic meltdown underway in the markets, we've just recorded interviews with two of the most prominent financial experts we know to make sense of what's happening, and what's most likely to come next. John Hussman is famous for his accurate predictions of both the 2001 and 2008 stock market crises, on which he made tremendous returns for investors. John makes very few public appearances -- this is his first media interview in years. Steen Jakobsen is the Chief Investment officer of Saxo Bank. His macro market and political outlook are in high demand, making him a regular (though often contrarian) on major media such as CNBC and Bloomberg News. Both have been warning of the structural excesses and instabilities in both the global economy and financial markets that set the stage for the current breakdown we're witnessing. That said, they remain extremely concerned that the carnage that has started is far from over. Here is video #1, of Chris in conversation with John Hussman, offering arguably the best and freshest insight on what's driving this violent market sell-off and what concerned investors should be paying most attention to at this point.

Now 6% SV, 6% EM, 12% Stable Value.

And be thought a fool by everyone with a strong opinion? Better to remain silent. ;) Mr. Marks, in your new memo to Oaktree clients, you discuss the coronavirus outbreak and the uncertainties surrounding the impact on the global economy. What’s your advice for investors in this volatile market environment? The great American author Mark Twain once said: "It ain’t what you don’t know that gets you into trouble. It’s what you know for certain that just ain’t so." In our business as investors, there is no room to be certain about anything, and especially not today. Nobody knows what’s going to happen with the new coronavirus or what the implications are. But if you’re sure you know the answers and you bet heavily on it and it’s wrong, then you lose a lot. What does this mean for investment decisions? In our industry, a sentence that starts with "I may be wrong, but ...," or "I don’t know, but..." is unlikely to get you into trouble. You have to know what you know, and you have to know what you don’t know. If you think you know and you really do know, then your investment decisions are going to be very profitable. But if you think you know and you really don’t know, then it’s very dangerous. You have to know the difference, but too many people have too high an opinion of their opinion. Then again, is there really nothing we can say about the economic impact of the new coronavirus at this stage? No, too many things are currently unknown and unknowable. So clearly, there can be no such thing as a reliable statement regarding the implications of the virus. We don’t know how long this outbreak will last. We don’t know how many people will be affected. We don’t know how many will die. So how can we possibly estimate the impact on the economy? Yet, many brokerage firms come out and say GDP growth for the US economy will be 1.5%, for instance. There are as many forecasts as there are forecasters. They tell you what’s going to happen in the second, third and fourth quarter. But how the hell do they know? They may feel an obligation to make an estimate, and it may be their best guess. But there’s a big difference between "this is my best guess" and "this is correct." So how are you personally dealing with uncertain times like today? I don’t feel I have to make an estimate. https://themarket.ch/english/howard-marks-of-oaktree-capital-nobody-knows-ld.1674

24% in my 401k beginning the week: 3% SV, 3% EM, 18% Stable Value. Shifted 3% Monday from Stable Value into SV and EM when they were both down 25% from their 2018 highs. (Now 4.5% SV, 4.5% EM, 15% Stable Value.) I'll continue to shift 3% with every additional 5% drop until down 50% (or until I believe we've hit bottom). I hope to end up 12% SV, 12% EM coming out of this. We'll see how it goes. I'd like to see a healthy correction, but I'm afraid Trump/the Fed will again inflate assets before I have a chance to fully invest.

::)

And be thought a fool by everyone with a strong opinion? Better to remain silent. ;)