Cigarbutt

Sometimes the strategy is to steer the conversation away from the real issues. In my area, schools will re-open soon and public health authorities along the political people on top imply (they are careful with the words) that community spread is an established fact and aim to slowly reach some kind of herd immunity. People in general seem to agree to go along with that. People also talk about reforming the way chronic care homes are organized and run but i've heard that before.

Lately, there has been great demand to meet rising supply of investment-grade debt securities, especially with the newly erected backstops and FFH did well to wait a bit for the dust to settle. It's interesting to compare to their last June 2019 500M CDN debt issue (unaudited and some adjustments because of the CDN USD differential): June 2019 issue= 10-yr risk-free=1.53% + IG spread=2.38% + FFH-specific spread=0.33% =) 4.24% April 2020 issue= 10-yr risk-free=0.61% + IG spread=3.26% + FFH-specific spread=0.78% =) 4.65% By waiting a few days (since the "peak" CV vertigo on March 23), the IG spread has come down by 0.61% and i would bet that the FFH-specific spread has come down also. There are many potential perspectives on this but they recently mentioned that they used part of the funds obtained on the revolver to buy corporate debt and now they are paying back the revolver using funds obtained while issuing Baa3 debt. https://www.moodys.com/research/Moodys-rates-Fairfax-Financials-senior-notes-Baa3--PR_1000002674

Other complementary data about attitudes (bipartisan to some extent) concerning exit strategies: https://thehill.com/hilltv/what-americas-thinking/493053-poll-voters-uncomfortable-with-going-to-most-places-when-social @DooDiligence "The only locations a majority of voters said they were comfortable returning to when restrictions are lifted were grocery stores, at 62 percent." @Gregmal New Jersey (is that where you live?) has quite a reputation for mosquitoes and some have suggested that it's because the state is "swampy". @Investor20 Lately and because of the virus, i've been meeting many ex-colleagues who invariably ask: how was it possible to retire in your early 40s? Because i made many mistakes. For interest: https://www.insurancejournal.com/news/national/2020/04/24/566159.htm Humans have a tendency to converge and this polarization thing has to subside.

So many questions (and unknowables) and so little time! It looks like health insurers will face much higher costs from COVID-19 but other costs may go down. Anyways, they can always catch up with premium increases after. Hospitals and providers will take a huge hit from less elective procedures which are higher margin items. More people are likely to forgo care but that also may result in unexpected net results at the population level. Costs will somehow (with various deductibles and co-pays along the way) be transmitted from the employer to the individual with presently devised bailouts (of the Medicaid type, and depending on the state), recently adopted (and to be defined) legal provisions and likely other public bailouts to come. Workplace safety claims is an issue that needs to be resolved. The CV has exposed some strengths of the system but also the deep deficiencies. What's happening tells a lot more about the host than about the disease. It's hard to see an outcome that doesn't involve more public oversight and possibly outright nationalization (whether one likes it or not). So what about investments? In the long term, this simply means that all health-related stocks' returns will gravitate to utility-like regulated returns. Players that clearly don't bring value to the system are likely to suffer (there are many of those now). There will be opportunities for under-the-radar small private entities (that may be allowed to grow before private equity shows up) that may be able to bridge gaps during the changing roles and balance between the private market and central public entities. If you're looking for some kind of scorecard of CV vs systemic response, see: https://www.cfr.org/backgrounder/comparing-six-health-care-systems-pandemic This discussion could end up with specific names if there is sufficient interest.

I find this aspect relevant. In my province (beside clutch's Ontario), 80% of CV deaths occur in retirement homes and in 50% of those cases (more frail, chronic care, poor autonomy) life expectancy is similar. However, the "average" statistics here are skewed because a significant number of older people that are transferred to these chronic care institutions after a hospital stay have a poor prognosis and then it represents end of life care. It looks like median survival is somewhat higher even in these specific institutions. Life expectancy in other retirement homes is much higher. Using good methodology about comorbidities, the typical patient admitted for CV in a NY City hospital has about an expected 50% 10-yr survival. All that to say that about 50% (perhaps slightly more) who die from CV (main disease or multi-organ failure trigger) have a relatively poor quality of life (sick and cognitive impairment) and would have died anyways shortly after. But the loss of life expectancy for the rest is more significant and includes a period of reasonable or good quality of life. Another concern (based on similar epidemic episodes or the COVID-19 episode that happened elsewhere before), it appears that sub-optimal (to be defined) policies (on top of causing more deaths) cause the mortality curve to shift to younger and 'healthier' (relatively) populations.

I love the confidence! Even though you are so consistently proven wrong, you still post with gusto! What is the Infection Fatality Rate of the flu? Nobody actually believes it is 0.67%, do they? This comprehensive review shows ~10 deaths per 100,000 H1N1infections: https://www.ncbi.nlm.nih.gov/pmc/articles/PMC3809029/ So comparing your bogus numbers for CV to these bogus numbers for H1N1, CV is 67 times more deadly than the flu! I love the stupidity! the 21% positive antibody test results on NYCers (3000 person sample) is the best DATUM we have on creating the correct denominator of the mortality per infection rate. what is your problem, Larkin? https://www.statnews.com/2018/09/26/cdc-us-flu-deaths-winter/ I agree that this is a meaningful study. It’s large enough and reasonably random. There might be a bias in just choosing people outside vs at home but it is likely not a strong one. 0.67% morbidity is ~7x deadlier than the flu though. The flu kills between 10-50k annually and infects ~30M (roughly ) so thats in the 0.1% ballpark. In addition, it’s much more infective. The inferred image of the invisible part of the iceberg is slowly getting clearer and the visible part of the iceberg is narrowing down to real value even more. -For NY State, annual death rates of influenza and pneumonia 2014 4702 2015 4881 2016 4513 2017 4517 2018 4749 -For NY State, death rate from Covid-19 is now 15 740 and it is reasonable to expect a total between 25 to 30k deaths reached within the next few weeks. This would tend to support the hypothesis of 6x more deaths with measures in place.

i'm not sure what you're looking for exactly and cannot guarantee the validity of data (and there is a small date discrepancy) but it is possible to derive a range of outcomes for CFR which is in the same ballpark. In NYC, about 10 to 15% of people admitted go to ICU and about 20% of people who get admitted don't leave through the front door. https://www.statista.com/statistics/1109831/coronavirus-cases-rates-by-age-new-york-city/ https://www.statista.com/statistics/1109867/coronavirus-death-rates-by-age-new-york-city/

Oh, why did the Fed make us take on too much leverage over the past decade! Who knew that leverage can be a bad thing! Let’s see who makes it out of this stronger—PE with high leverage or BRK with cash on hand... just as a data point, BX just said they took no money from the government, don't plan to, and have ample reserves to support their companies. just as a data point, the largest 19 US banks 'returned' almost $80B to shareholders between the third quarter of 2007, when some felt trouble was being contained, through the accelerating phase of 2008. Interesting to note that the $80B (and more) was 'returned' to banks as part of a plan labelled, as typically is in those cases, with capital letters. The banks are much better capitalized at this point and the present environment, by itself, has little 'predictive' power but this is only to say that it may be risky to assess risk from the point of view of actors (like private equity) who tend to act pro-cyclically and to be lagging indicators.

This is no time for definitive answers and there is potential airborne transmission over long distances. The critical variables are virus load, proximity and one's susceptibility. Unlike other infections (example: Legionella bacteria, Legionnaires' disease) which thrives in ventilation systems and transmits this way), CV does not appear to transmit through ventilation systems. But do you own work. References below. Don't hesitate to ask more questions even if answers cannot be provided. :) https://www.nature.com/articles/d41586-020-00974-w https://msystems.asm.org/content/msys/5/2/e00245-20.full.pdf Personal note: spending time on this will invariably cause you to focus on your environment and to the realization that microbes are terribly ubiquitous. Why do you limit your choices to only two extreme outcomes? Isn't it possible to get the boat going while simultaneously devising rescue units. As a society, we take these decisions all the time. What's different here is the suddenness, uncertainty and complexity of the issue but aren't there a lot of intelligent people on this boat? In general, i think a high value belongs to individualism and would normally rather live in the US versus Singapore but wonder if the balance may require temporary adjustments to deal with abnormal transitions. Take a look (if short on time 10:16 to 10:26): "Therefore, it is critical that we go into this eyes open,with strong leadership and good government, united and determined, to see this through."

cherzeca, you've been a regular contributor to this thread and the diversity of opinions is welcome. Some comments: -You now imply that the obvious strategy would have been to "protect" the 'vulnerables' from the onset (isolate, masks and gloves). However, your initial contributions at the onset suggested that the virus should have been allowed to run its course. It's OK to change opinion but trying to retroactively instate a new opinion is a kind of misrepresentation. It's still unclear, in practice, how isolation of older (at some point you mention age 80 or above and then modify gradually to include immunosuppressed and eventually delegate to the government for the definition and handling of the at-risk groups, about a third of the population in the US)) could be accomplished while allowing (even encouraging) community spread. Some above mentioned the common sense statement that the institutionalized elderly population needs a high workforce ratio from outside who could be at-risk themselves or who could have at-risk individuals in their own household. Presently, i'm involved (in various degrees) in strategy modification efforts in chronic care institutions and common sense experience shows how difficult it is to "isolate" nursing homes when the virus has already spread widely in the community. -You also tend to recommend various treatments based on anecdotal observations which is weak evidence, especially if such recommendations are tied to controversial theories or to theories that are not globally supported by relevant peers, when the threshold for proof then should be extremely elevated. -You still also recurrently equate CV with the flu, "this is the flu". While there are many common themes, there are also fundamental differences, the major ones being that natural immunity for CV is much lower than the flu and the most frequent cause of death is not bacterial secondary infection but a viral-induced inflammatory reaction in the lung tissue. -Mortality rate in the US now is above 47K. In a few months, the total mortality from CV and flu will result in a very high and unusual number of virus-related deaths. You often underestimated the number of deaths and the duration of the CV episode, at times suggesting that the containment efforts actually contributed to an increase in number of deaths which is contrary to most evidence and most common sense. In all likelihood, the containment efforts contributed in a reduction of mortality. And while there are costs, a more relevant discussion may concern ways to maximize the cost-benefit equation. Tough questions need to be asked especially, at this point, about the exit strategies and i will look forward to your inputs.

It's an interesting idea (oxygen measure as an indicator) but there are fundamental conceptual issues with the application (not the place to discuss that). Wearable (watches) devices are getting there but there are potential problems with sensitivity and specificity. ----- The following is likely to be irrelevant for 99.9% so skip. i've transposed the underlying physiology to investments because it fits well with margin of safety. The % oxygen saturation (to oxygen pressure) curve is not a straight line. Long story short, at high %, the curve is relatively flat and below 90% the curve becomes vertical. In real life (breathing people), a decreasing saturation may not look like anything much but once at a certain stage, things can go downhill very rapidly. People with CV who develop disproportionate inflammatory responses in their lungs (final common pathway to ARDS) may be a reflection of that. Companies that flirt with financial distress (knowingly or not) often show this pattern (exponential rise in cost of capital at certain stages and firm survival issues). This is also reflected in underfunded pension plans when non-linear changes can be introduced when plans have 90% and below funded levels. An unfortunate feature may be that people put emphasis on prevention at the wrong place in a way because it may be that CV people who don't do well already have the vulnerabilities (immunity, comorbidities etc) and what you do once the virus elects residence may have little effectiveness (at this point anyways). Somehow this connects with something i read yesterday (from somebody whose tactics are despicable but whose gut instincts tend to be well grounded): "How did the world's financial markets miss the slowest-moving black swan in history?". From a humble perspective, it may be because there is an unusual number of zombie companies living on cheap borrowed time and it is as if the Surgeon General Reserve had suspended the use of oxymetry altogether. I hate to say it but many are on the edge of the curve and may end up behind the ball. ---) Back to the virus

Cigarbutt, do you see ways to play the decline in used car prices from the long side? I haven't jumped in yet but things like LKQ and AMA look interesting from a value perspective. Not sure if there's much correlation but worth a thought. Thanks That's an interesting angle (auto parts and the DIY aspect, using Snap-on tools would be a + :) ). What's AMA? More seriously, i haven't looked at this segment in a while and perhaps should. I remember having a deeper look at LKQ some years ago but felt like late to the party. The angle of this thread is more about CACC (and also SC i guess) and how money could be made. i continue to think that a long position could eventually make sense but wonder if stars are aligning for a profit opportunity on the down side?

https://publish.manheim.com/en/services/consulting/used-vehicle-value-index.html https://www.sec.gov/ix?doc=/Archives/edgar/data/885550/000088555020000042/cacc8k20200420.htm Livin' it up when I'm goin' down Lovin' it up 'til I hit the ground -Aerosmith

^Assessing the size of the invisible part of the iceberg is important. The California serology studies are interesting and need to be taken into account. However, if the validity of results is reduced by the same methodological flaws (selection bias, specificity bias underestimation {a specificity of 98% vs 99% can have a major effect on results} and extrapolation risk), results may be precise (values similar and pointing in the same direction) but also precisely wrong (not accurate). I think Mr. Maboussin discusses this noise-versus-signal issue for investments. See below for the tests used (if i understood correctly) and look at specificity. There have been issues with tests rapidly going to the markets in this environment. https://imgcdn.mckesson.com/CumulusWeb/Click_and_learn/Premier_Biotech_COVID19_Package_Insert.pdf An interesting aspect and a way to build power of knowledge for the future would indeed be to use a similar (to California studies) methodology to highly affected areas. Applying the same approach to the NYC area or NY state, one would expect (by + or - similar extrapolation) about a 50% positive rate of seroconversion in the general population. This would also help to put a price tag on the strategy based on reaching natural immunity. It is a well known fact that Scandinavian countries have developed expertise for long-term longitudinal studies. One of the reasons (beside talent and experience) is that the populations are considered to be relatively captive. It seems that the US just decided to increase the degree of captivity in a protectionist way. Slippery slope.

In my area (Canada), about 75% of people who died were living in chronic care institutions. Half of these were living in public institutions (more frail versus other half) where pre-CV statistics showed the following: risk of dying after admission: 20% in 3 months 45% in a year The present situation will force a re-evaluation of previous decisions related to capital allocation (flu, chronic care) etc For CV, it looks like the following factors to take into account (individual risk, population risk) for cost effective measures are: age and comorbidity, proximity, promiscuity and intensity. In my area, there is a slow awakening to the fact that there have been forgotten issues such as people on waiting lists and inactivity risks.

Since this thread has morphed to emerging economies, currencies and commodities, it's interesting to note that the Mexican government has had a policy to hedge its export production at 49 WTI this year, apparently 100% hedged and called the Hacienda hedge (versus 55 last year). In Canada, the last quote on WCS is 4.23 (maybe lower tomorrow) which is about 50$ lower than exactly a year ago. Canadian operators have various hedges in place and it may not be as efficient as the Hacienda hedge and I will let you guess who the counter-parties are (hint: they are fully back-stopped by the Fed). ---) Back the low interest rates are great topic So help me out here... the investment banks (like Goldman) do the hedging for Mexico but who do they offload the risk to? Mexico has made as much as $6 billion in the past with this hedge; likely more this time round. https://www.bloomberg.com/news/features/2017-04-04/uncovering-the-secret-history-of-wall-street-s-largest-oil-trade Short answer: i don't know. Institutions likely use offsetting transactions to a large degree and remaining net positions are likely hedged rapidly and somewhat efficiently. Banks occasionally get stuck with losses, it seems, especially with rogue traders who don't follow the playbook. Various commodity traders also occasionally show negative surprises. As to where the risk goes, who really knows? And Goldman Sachs always seems to be on the right side of the trade. The size and speed of this year's decline is impressive, again, and i doubt airlines will be net large buyers of upside price offsetting protection going forward, at least for a while.

Since this thread has morphed to emerging economies, currencies and commodities, it's interesting to note that the Mexican government has had a policy to hedge its export production at 49 WTI this year, apparently 100% hedged and called the Hacienda hedge (versus 55 last year). In Canada, the last quote on WCS is 4.23 (maybe lower tomorrow) which is about 50$ lower than exactly a year ago. Canadian operators have various hedges in place and it may not be as efficient as the Hacienda hedge and I will let you guess who the counter-parties are (hint: they are fully back-stopped by the Fed). ---) Back the low interest rates are great topic

^Shorting the JGBs in the last few years would have been a very frustrating exercise indeed but does that mean all is hunky dory? BTW, as a CDN, USD-labelled 'investments' are north of 80% at this point. I would challenge the assertion about domestic demand for JGBs. Many financial institutions in Japan have regulatory mandates (forced) to hold JGBs and the main buyer of JGBs is...the Bank of Japan(?). In the last few years, the BOJ has been buying the vast majority of bonds and its share of total JGBs is now above 50%(!) leaving the price discovery just about dead. Also, lately, the rate of BOJ activity in the JGB market has accelerated.. Last checked, the Federal Reserve's share of total US public debt was around 15% so, in a way, there is further room to grow.. In the early 30s, Finance Minister Takahashi got the BOJ involved in government bonds and that was one of the factors behind the relative good outcome out of the Depression but Mr. Takahashi lost control of the situation (and his life) when a group of leaders thought it was time for national morale building.

^Some numbers. -CAGR of GDP (real) 1950-1969 (the year when Fed independence was redefined): 4.6% 2000-2019 (the year when Fed independence was redefined): 2.2% Since 1950, GDP growth has been gradually and structurally going down. During the "peak" years (2016-9) ---) CAGR of real GDP: 2.3% -Deficit per GDP (not taking into account massive off-balance sheet items) 2016: 3.1% 2017: 3.4% 2018: 3.8% 2019: 4.6% 2020: ???? The government (that has the ability to issue debt in the domestic currency) has the ability to issue 'cheap' DIP financing but isn't this a classic case of restructuring?

I wish the above bold part would not matter for the S&P 500 but it does. This may sound like a TED talk given by a retired Microsoft executive a while back about pandemics. Who really cared then? Animal spirits and market psychology will carry the day eventually but, for the bold statement, i submit the opinion that this time may be different, perhaps wildly so. The US is taken as a poster child. Unemployment was at 14.6% before US involvement in WWII. Taking the publicly held debt above 100% of GDP required an unusual amount of government control and patriotism. During the war, government's share of GDP went from about 15% to about 40% of GDP. The defining features coming out of WWII were residual central control allowing financial repression and a context of sowing the seeds of painful inflation. It was a good time to invest then (see early partnership letters) because it was a time of amazing and robust growth in GDP (and productivity) {with low interest rates and low valuations} and the US started the period after 1945 with a very low level of private debt. Entitlement spending (funded and unfunded) was also a tiny fraction of what it is now and the age profile was much more favorable. Here's an interesting data point from 2012: https://www2.deloitte.com/us/en/insights/industry/public-sector/the-untold-story-of-americas-debt.html The knee-jerk reflex is to dismiss the conclusion because their forecasts have been wrong even if the underlying analysis is right. Animal spirits somehow accommodated to lower interest rates with lower rates of growth being more than mitigated by much lower interest rates. They were 'predicting' that the % of interest payments over budget would reach 20%. Since 2012 to now, numbers show that it moved from 6.2% to about 10% for 2020 ('forecast' before CV). In terms of productivity growth, will Facebook and Netflix get us through? Market psychology makes this impossible to predict but what about fundamentals? And then there is a thread about Mr. Buffett's inactivity with many expecting that things will get back to normalized earning power in no time..

I don't know the mechanics of how/why, but warm weather seems true (when it's been questioned whether it will be so) and 'viral dose' seems to matter. Healthcare workers are getting disproportionately sick and they might be skewing bad outcomes in younger brackets. That would certainly be encouraging for the broader population (that it's not as bad, to your points on what you see). I don't know. We'll see what data shows. HC worker data is from CDC. I'll dig up the article later. https://www.cdc.gov/mmwr/volumes/69/wr/mm6915e6.htm?s_cid=mm6915e6_w The viral load is an important issue (as well as the frequently documented situation of insufficient protective equipment in high-risk environments, acute and cumulative).

I understand that you're not into controlled experiments and use more common sense and hunches. Just for a second though, assume that we could go back in time (at the outset) and somehow the US applies your model (try to selectively protect the at-risk population and keep things going as much as possible somehow; you still need to explain how this would have been done as roughly a third of the adult population in the US is at risk). What do you think the mortality and ICU admissions would have looked like? better? same? worse? Looking at (and comparing) what other countries have been doing may help formulate an opinion? Do you believe in the memory of water concept? I think the interesting thing about how to deal with this epidemic is that so little is known from the get go and everyone learns as we go and adjust to new data coming in. It’s and iterative process not a fixed playbook. Also, none of what happens is deterministic, at the moment orders for shelter in place are givens the future path is changed and we can never know what would have happened alternatively. I think if the government had done absolutely nothing, people would have reacted and some of the things that were ordered would have occurred anyways (social distancing, sports events canceled , restaurants emptying out or being closed etc). It’s less about right or wrong from the beginning, but more how you react to data, using precautionary principles and using proven techniques used to solve similar problems (meaning other epidemics) and iterate from there. A year or two from now, we will much more about this (death rate, asymptotic rate, treatment) and even then, I suspect there will be significant disagreement about what is right or wrong and how to interpret data or deal with newer slightly different situations. People will say “how stupid that none one wore masks” when this thing broke out and future generations may laugh at us just we cringe how they treated the medieval plague epidemics back in those dark times. Absolutely! It will be trial and error., to some degree. Also, given the wide uncertainty, a relatively diverse way to deal with the issue should help the learn as we go philosophy (learning from others, what others do wrong and also what others do right). Yesterday, our prime minister (who and where does not really matter here, this is not to be condescending as my area is showing quite poor results, on a relative basis, for deaths in chronic care homes) openly acknowledged mistakes (mistakes done at the outbreak and errors of omission before the outbreak {resiliency issue}) and it looks like he may have won more votes doing so. Recognizing mistakes is OK. On a personal note, I just learned the death of somebody I knew on a personal level (extended family member). She died in her late 60's. She was born with some kind of syndrome but was able to earn a living until she reached her 50s and was then institutionalized. She had a rough personality and a lowish IQ but (IMHO) our generalized standards of living have not given proportional care for her.

I understand that you're not into controlled experiments and use more common sense and hunches. Just for a second though, assume that we could go back in time (at the outset) and somehow the US applies your model (try to selectively protect the at-risk population and keep things going as much as possible somehow; you still need to explain how this would have been done as roughly a third of the adult population in the US is at risk). What do you think the mortality and ICU admissions would have looked like? better? same? worse? Looking at (and comparing) what other countries have been doing may help formulate an opinion? Do you believe in the memory of water concept?

Pentagon suggests otherwise: https://futurism.com/neoscope/us-military-unlikely-covid-19-created-lab-bioweapon It’s a big enough disaster to investigate closely and maybe even go down some rabbit holes, but the way the virus got started as well as Occam’s razor and existing genetic evidence suggests that this virus got its start in nature. It's hard to disprove theories which can be unfortunate for alleged conspiracies of various sorts. 1st step: evidence Most of the genomic work that came out suggests that the mutations were natural (although not 100% sure). A good example (quite 'scientific' but included as some may be interested; i know Gregmal for instance has an interest in advanced genomics): https://www.nature.com/articles/s41591-020-0820-9 2nd step: source The main source, Mr Luc Montagnier, after the work that led to the Nobel prize, has become REALLY bizarre. He has postulated about the use of antibiotics for autism, DNA "teleportation" and especially about the "memory" of water. (bad-taste joke removed here)