Coronavirus

[vinod1]

So, just to understand where people are coming from, and despite the internet muting my tone Ill say in advance that I am not being sarcastic or rhetorical, but... we have a pandemic that may temporarily dislodge tons of very significant economic variables. We just had, arguably one of the most hellacious and sudden market declines in decades, and both a President, who clear as day can not be deemed reliable, nor a media that can be trusted; people are surprised that the Fed is stepping up and willing to take action?

 

Isn't this what they have continually demonstrated that they will do? In who's interest, besides that of greedy investors, is it to have everything implode?

 

And again, as I said before, if we are talking valuations, we have a 1.2 10 year. Where should stocks be trading? Lets say you have a 30% cut to corporate earnings this year like some are modeling, ands then a 30-50% rebound the year after, should we be gapping down to 15x? Or is 20-25x depending on the business at least justifiable?

 

+1 Although it would have been more fun to read it in colorful language.

 

They way I see it, none of this should be really having impact on earnings 5 to 7 years out. As long as we are able to buy something that is going to generate good returns over this period why worry about what happens this year?

 

I have not bought as many stocks as I have in the last couple of days since Jan 2016. Some of them are based on valuation work that I had done last March and have not updated since, but the price are at such a discount to IV that I do not even need to make an update. Yes, they are at the epicenter of the investor fears. 

 

If the market tanks say 50% from here, so what. The opportunities in that case would more than make up for any losses.

 

Vinod

[Dalal.Holdings]

Exponential growth continues. As I asked a day ago--what happens to $4000 $6000 that compounds at 20% per day? That last dot represents 2/29 cases outside China (2/29 has not even begun in many places yet).

 

Sauce:

https://systems.jhu.edu/research/public-health/ncov/

[Dalal.Holdings]

Really hope that it gets to you and the most virulent kind.

 

Despicable, but I imagine given the lax attitude shown on this forum to you, you will be allowed to post as usual.

 

I wish no ill will to you or your family, but to each their own.

[Jurgis]

I have not bought as many stocks as I have in the last couple of days since Jan 2016. Some of them are based on valuation work that I had done last March and have not updated since, but the price are at such a discount to IV that I do not even need to make an update. Yes, they are at the epicenter of the investor fears. 

 

I'd be interested to hear what long term compounders are trading cheaper than last March and at substantial discount to IV.  8)

I guess EXPE is but it was cheaper in November and without virus overhang for near term business.

[no_free_lunch]

I have still held back from buying. I think it could get a lot worse still and the market at large is still expensive.

 

I don't even want to speculate on death rates or infection rates, still too many variables but we can focus on what we know. It is almost impossible to contain with a modern open society. You now have MSM starting to back the draconian measures taken in China. If we go down that route it's going to get ugly and perhaps actually predictable from an economic pov. Supply shortages seem very plausible and I don't know what central bankers can do about that.

 

[Spekulatius]

I have not bought as many stocks as I have in the last couple of days since Jan 2016. Some of them are based on valuation work that I had done last March and have not updated since, but the price are at such a discount to IV that I do not even need to make an update. Yes, they are at the epicenter of the investor fears. 

 

I'd be interested to hear what long term compounders are trading cheaper than last March and at substantial discount to IV.  8)

I guess EXPE is but it was cheaper in November and without virus overhang for near term business.

 

Me too. Even summer 2019 was cheaper and Dec 2018 was much cheaper. In Addition, we now have a Real problem with the economy that we didn’t have last year. A selloff always offers some bargain, thats true, but it was way more true in Dec 2018.

[ERICOPOLY]

The coronavirus is just a 'hoax':  the "new hoax" from the Democrats.  I wonder if you can guess who said that today.

[kab60]

I have not bought as many stocks as I have in the last couple of days since Jan 2016. Some of them are based on valuation work that I had done last March and have not updated since, but the price are at such a discount to IV that I do not even need to make an update. Yes, they are at the epicenter of the investor fears. 

 

I'd be interested to hear what long term compounders are trading cheaper than last March and at substantial discount to IV.  8)

I guess EXPE is but it was cheaper in November and without virus overhang for near term business.

 

Me too. Even summer 2019 was cheaper and Dec 2018 was much cheaper. In Addition, we now have a Real problem with the economy that we didn’t have last year. A selloff always offers some bargain, thats true, but it was way more true in Dec 2018.

Linamar! Auto parts, yada yada, cyclical, yada yada, but their growth is real. And you get in at an almost 50 pct discount to BV while their capital allocation is to go for plus 20 pct returns. Obviously, their ends markets are pretty bad, but even then you get a fat yield and 5-6xPE. And they tend to come out stronger through a downturn. Hasn't traded here since 2013 and has reinvested almost every penny in the business or bought back shares (talking my book, 18 pct position).

[writser]

Really hope that it gets to you and the most virulent kind.

 

This forum has degenerated over the past few years but this is a new low. I would say vitriol like this is inexcusable but that’s up to Parsad. At the very least you should delete that post and apologize like a decent human being.

[John Hjorth]

kab60,

 

Have you had the time to follow how this has evolved & has been handled by the public authorities over the last few days here in Denmark? [i'm appalled and in some kind of state of shock because of it.]

 

For info to all : We now have three confirmed cases here in tiny Denmark, which all track back to Northern Italy.

[finetrader]

https://www.cbc.ca/news/health/covid-19-china-epicurve-1.5479983

[Cigarbutt]

I’ve found that on-line discussions can skid (suddenly in the course of a few exchanges or gradually over time) and then it becomes a lose-lose.

 

It appears that artificial intelligence may eventually help by instituting a stupid bot that would “feel” when a specific exchange or a series of exchanges go in the wrong direction and prevent excesses by introducing generic comments whose function would be to indirectly remind members that they are human beings essentially having a face to face conversation.

 

Another effective way implies for respected member to directly intervene.

 

Another effective way implies for ordinary participants to try to steer the discussion in the right direction.

 

 

So, there’s lots of 'discussion' about the Coronavirus and its potential impact on markets. Here are 2 scenarios (obviously a spectrum for those who tend to drift rapidly in a binary thinking mode).

#1

If the fundamentals are strong or at least satisfactory, this virus will come to pass (the virus may persist but the sentiment will adjust) and things will get back to ‘normal’. We may get a recession (even a global one) but 2 years from now, this will mainly be a topic for nostalgic discussions and confirmation for buy-and-hold value strategies.

#2

If fundamentals are not so hot (it’s up to the individual to decide that), one may question the possibility of reverse causality here. The markets have become incredibly integrated and the fact that a simple virus originating in a single province in far-away China could have such an impact on global supply chains is food for thought. Many people assume a) that low interest rates justify high valuations and b) that the central put will come to the rescue. These two assumptions have held well in the last 10 to 20 years but these correlations have a poor historical record overall. If the B word applies, the needle may not be the essential element.

---

Humans (genetics, evolution religion, whatever) tend to look for explanations and some complex things are hard to explain but it’s important to think about these issues (framework), if possible ahead of time, ‘cause perspective can be lost in the action. I don’t see how the virus, by itself, should force you to take your eyes off the ball.

[Spekulatius]

I have not bought as many stocks as I have in the last couple of days since Jan 2016. Some of them are based on valuation work that I had done last March and have not updated since, but the price are at such a discount to IV that I do not even need to make an update. Yes, they are at the epicenter of the investor fears. 

 

I'd be interested to hear what long term compounders are trading cheaper than last March and at substantial discount to IV.  8)

I guess EXPE is but it was cheaper in November and without virus overhang for near term business.

 

Me too. Even summer 2019 was cheaper and Dec 2018 was much cheaper. In Addition, we now have a Real problem with the economy that we didn’t have last year. A selloff always offers some bargain, thats true, but it was way more true in Dec 2018.

Linamar! Auto parts, yada yada, cyclical, yada yada, but their growth is real. And you get in at an almost 50 pct discount to BV while their capital allocation is to go for plus 20 pct returns. Obviously, their ends markets are pretty bad, but even then you get a fat yield and 5-6xPE. And they tend to come out stronger through a downturn. Hasn't traded here since 2013 and has reinvested almost every penny in the business or bought back shares (talking my book, 18 pct position).

 

I agree on Linamar. Obviously a well run company, in a very tough industry with a bad  near term outlook.

 

Timing is key in these situations. It is not a buy and hold compounder in a sense that very likely, the bulk of the return owning this will be made in a short period of time, I think. That’s the Problem, value to the shareholder accrues very unevenly. There are lot of stocks like this currently on sale.

 

The basic problem is that even if these stocks are cheap, they will go down with the Market (if the Market falls) and probably go down even faster. If we get to the point where they stop going down and bad news, then it’s time to buy. Generally, such a moment never comes because value stocks never get cheap enough, relative to market.

 

The only time I remember is in 2000. I vaguely remember  buying Allstate insurance  in February 2000. I looked at it and told my coworker that it’s darn cheap, Gradeinteilung at way below book, low PE and buying back their own stock like crazy. He was laughing at me, everyone was in tech stocks back then. The Company stocks I was working for was up 500%, while Allstate stock went down.

 

Then I recall a big kahuna moment in March 2000, when tech stocks started to get destroyed. Allstate also missed earnings that month, but the stock ended up positive on earnings day. Every tech stock on my watch list was bloody red.

 

I don’t think we are at this point yet with value stocks. Perhaps we will never get back to this point any more with ETF and passive investment driving the bus.

 

End of rant, I am running out of juice. At some point I will own Linamar, I think. Thanks for posting about it.

[Gregmal]

We're at the "cant avoid it" phase where every time you go to a website. pick up a paper or turn on the news it is in your face and that is scary(notice ever since Trump has made the remarks about the media using it to bring him down, CNNs website is reformatted and Corona is the overwhelming topic blasted everywhere? I found that funny). But at some point people should become practical again just like with Ebola a half decade or so ago. Or H1N1. Every 2000 cases or whatever cant translate to 10% selloffs for the market, otherwise we'll be at zero pretty soon with people still alive and an economy that is still producing things and all of a sudden the machine trading will reverse and we'll notice companies with buybacks and dividends are still there and oh yea, maybe even some of the shitty ones too considering they can borrow at low single digit rates.

 

If you're scared use your brain to find some easy money shorts if your fears play out. PRTY, STNG, AAL, CBL, MAC, LYV, RCL, and others. Except, oh, these things are all down 20-50% already because of this, and you cant say you arent aware of the snapback potential because we've got a decade plus of instances to fall back on where that happens to be the end result, just about every time.

 

I am starting to agree with some of the Democrats though. I think there should be some sort of lifelines established for small businesses. The real coronavirus effects will obviously be on travel and retail. Its a key cog to the economy, but at the same time, not in theory all that different in terms of deriving an assistance program, than what we saw in agriculture during the trade war.

 

 

 

[rb]

I am starting to agree with some of the Democrats though. I think there should be some sort of lifelines established for small businesses. The real coronavirus effects will obviously be on travel and retail. Its a key cog to the economy, but at the same time, not in theory all that different in terms of deriving an assistance program, than what we saw in agriculture during the trade war.

I've been wresting with the idea for a while. But I'm not so sure travel related small (and even larger) businesses will be affected. My thinking goes that if people are cancelling their European and other overseas vacations because there are cases at their destinations or because they're afraid to share a tube with 400 other people they may instead stay stateside and go on a vacation here.

 

Instead of not going on vacation at all, they may get in their car, do a day of driving and spend time at a destination that never saw a Chinese person. It's a lot safer that way. If it actually turns out this way, there may be a bumper year for domestic travel related businesses.

[Spekulatius]

Fascinating story about the 1918 flu epidemic. It finally explains many details, - the fact that this flu was first mild, and the a second second wave much more severe killed many more people, why it is called ‘Spanish Flue’ (nothing to do with its origin) and how it may have shaped history. It’s an awesome piece of journalism:

https://www.smithsonianmag.com/history/journal-plague-year-180965222/

[EliG]

Can't have confirmed cases if you refuse to test for them.

 

 

[Liberty]

Too early to tell with precision, but I wonder what the impact of China’s high air pollution levels and high smoking levels (esp. men) have on complication probability for a pulmonary disease, and whether places without those negative cofactors can do significantly better.

 

[ERICOPOLY]

Can't have confirmed cases if you refuse to test for them.

 

 

Over the past week, there were only 200 test kits issued for all of California.  For a population of 40 million people.  New York has the same problem.

 

If you don't look, you don't find cases, it's just that simple.

[ERICOPOLY]

It took 11 days to diagnose her with COVID-19 after she checked herself into the Vacaville hospital (later transferred to UC Davis).

 

That's a lot of hospital personnel exposed to her for 11 days without a quarantine.  And what about the contact she had with the community before checking herself in?

 

 

Doctors at the University of California, Davis Medical Center, where the patient is being treated, said testing was delayed for nearly a week because the patient didn’t fit restrictive federal criteria, which limits tests only to symptomatic patients who recently traveled to China.

 

“Upon admission, our team asked public health officials if this case could be COVID-19,” UC Davis said in a statement. UC Davis officials said because neither the California Department of Public Health nor Sacramento County could test for the virus, they asked the CDC to do so. But, the officials said, “since the patient did not fit the existing CDC criteria for COVID-19, a test was not immediately administered.”

 

https://www.propublica.org/article/cdc-coronavirus-covid-19-test

[ERICOPOLY]

There are other ways to expand the country’s testing capacity. Beyond the CDC and state labs, hospitals are also able to develop their own tests for diseases like COVID-19 and internally validate their effectiveness, with some oversight from the federal Centers for Medicare and Medicaid Services. But because the CDC declared the virus a public health emergency, it triggered a set of federal rules that raises the bar for all tests, including those devised by local hospitals.

 

So now, hospitals must validate their tests with the FDA — even if they copied the CDC protocol exactly. Hospital lab directors say the FDA validation process is onerous and is wasting precious time when they could be testing in their local communities.

 

https://www.propublica.org/article/cdc-coronavirus-covid-19-test

[Castanza]

Too early to tell with precision, but I wonder what the impact of China’s high air pollution levels and high smoking levels (esp. men) have on complication probability for a pulmonary disease, and whether places without those negative cofactors can do significantly better.

 

 

That’s a pretty interesting perspective.

 

http://www.cidrap.umn.edu/news-perspective/2020/02/study-72000-covid-19-patients-finds-23-death-rate

 

“Less deadly than SARS but more transmissible.”

 

“Most cases are mild”

 

For the most part, the only individuals dying from this are ones who are already critically ill or have some type of a respiratory or possibly cardiovascular issues.

 

 

 

[Gregmal]

Too early to tell with precision, but I wonder what the impact of China’s high air pollution levels and high smoking levels (esp. men) have on complication probability for a pulmonary disease, and whether places without those negative cofactors can do significantly better.

 

 

Interesting, but the more interesting tweet I found was a couple below posting a link to this.

 

https://www.stlouisfed.org/~/media/files/pdfs/community-development/research-reports/pandemic_flu_report.pdf

 

Guess what happened next in the 20's?

 

But again, I can see how it is human and market nature to always assume the worst and then work backwards. As a historian myself, my application of understanding in situations like this, has always been to bet against the worst case scenario. If nothing else, you have the entire populations of politicians and bankers and experts working on your side. Similarly, how many people, even in a scenario like 2008, bet on failure and ended up losing? Getting squeezed out of shorts. Having insolvent counter parties? Seeing the Fed take actions that wiped out their bets? People like Peter Schiff who "called it" and still lost 80% that year. People who bought at the highs in 2007 and held tight in fact, did better than most of the doomsdayers.

 

The other arm of analysis, is, how far should this drag things down. People have mentioned a liquidity crisis, but as long as the Fed is where it is, I dont see that. Further, company profitability is not being zapped to 0, so couple this with the insanely low rates, and that debt markets certainly arent "closing". Demand in fact, should increase for issues from qualified borrowers, especially if the bond guys deem an economic seize up to be temporary. Basically just a bridge loan. If you are a shitty E&P or mining company, sure, but I'd gander 95% of S&P companies would have zero problem issuing debt.

 

So if we can eliminate liquidity induced plummet, then we have what? Just a recession to worry about. Is it possible we see Great Depression type stuff. I suppose, but probably not. Quantify what a temporary recession should do to the broader market... maybe comparable to something in the 70's or early 90s... but, most of those were greatly enhanced by energy/oil related issues and inflation, neither of which are really on the horizon here.

 

https://en.wikipedia.org/wiki/List_of_stock_market_crashes_and_bear_markets

 

Which one prior haven't we recovered from? Most were really just temporary shocks, similar to this, and exacerbated by program trading.

 

Further, at least here, plenty of investors prior to February, were cautious or paring down their exposure because of "valuation" concerns... in November, December, January, etc. We can call the recent rise a "blow off top", but I think thats silly considering that a 10% rise over a half year stretch isn't really a blow off top, nor did it take us anywhere that extreme compared to market levels back in 2018 or 2019. From late 2017 S&P ~2650. So from that point to today that "market" has blown off a whopping 5% annually? An 8% return would take us back to roughly were we were in January. Just because people have been crying about valuation for a long time doesnt mean it was true. Generally speaking, the "broader markets" are relatively efficient. I myself have had plenty of stocks where Ive pounded the table and said the valuation didn't make sense, but was ultimately just WRONG. Same can be said here.

 

The biggest issue I see right now is that the smart guys cant really calculate/model the impacts here so they're just throwing everything away. Still yet, I haven't really seen any of the fear driven people say where exactly the market should crash to or what levels it should now trade at. In fact, dare I say the value guys now just sound like momentum investors because "the trend is down". Again indicative of the above, and that fear is blinding.

 

 

 

 

 

[LongHaul]

Really hope that it gets to you and the most virulent kind.

 

This forum has degenerated over the past few years but this is a new low. I would say vitriol like this is inexcusable but that’s up to Parsad. At the very least you should delete that post and apologize like a decent human being.

 

+1 I agree.  That comment was beyond rude.  Deletion and an apology are the right thing to do. 

[Guest cherzeca]

Fascinating story about the 1918 flu epidemic. It finally explains many details, - the fact that this flu was first mild, and the a second second wave much more severe killed many more people, why it is called ‘Spanish Flue’ (nothing to do with its origin) and how it may have shaped history. It’s an awesome piece of journalism:

https://www.smithsonianmag.com/history/journal-plague-year-180965222/

 

1918 was pre-penicillin and pre-genomic sequencing.  but of course since the US no longer makes penicillin, one might think we are now post-penicillin