Coronavirus

[KJP]

 

Shareholders don't need a bailout

 

I agree with you.  But I suspect that airline and cruise line shareholders, among others, will get one. 

[minten]

https://www.ilfattoquotidiano.it/2020/03/16/coronavirus-lo-studio-su-vo-euganeo-tra-il-50-e-il-75-dei-casi-sono-completamente-asintomatici-formidabile-fonte-di-contagio/5738910/

 

Not as fancy looking, but small italian case study that caught my eye:  50-75% of patients get the virus but are completely without symptoms(!), yet still infecting others. Exactly the same findings as that Chinese study that came out yesterday.

[EliG]

https://www.ilfattoquotidiano.it/2020/03/16/coronavirus-lo-studio-su-vo-euganeo-tra-il-50-e-il-75-dei-casi-sono-completamente-asintomatici-formidabile-fonte-di-contagio/5738910/

 

Not as fancy looking, but small italian case study that caught my eye:  50-75% of patients get the virus but are completely without symptoms(!), yet still infecting others. Exactly the same findings as that Chinese study that came out yesterday.

 

FT article in English

 

https://www.ft.com/content/0dba7ea8-6713-11ea-800d-da70cff6e4d3

 

[Read the Footnotes]

minten, thank you for posting. This explains why testing i.e. accurate information is a critical factor in early stage viral outbreaks.

 

For all we know, widespread testing could show the severity of this virus is totally overblown as critics on this thread have suggested, and therefore the pandemic responses are unwarranted. Our portfolios and emotions could have been spared much stress.

 

This is incorrect, and dangerous thinking.

 

It is true:  accurate information is a critical factor, but it is not possible for humans to obtain such early in these viral outbreaks.

 

The pandemic response is warranted - the precautionary principle is the only guide that would ensure the survival of the species.

 

In these situations, you don't need accurate knowledge of the probabilities in order to know what to do.

 

Our emotions and stress are wiser guide than our intelligence in deciding how to react.

 

Strongly agree with this. That's how the precautionary principle works. When there is wide uncertainty with a lot at stake, you err on the side of taking things seriously and overreacting.

 

I would have thought more people on this board would be fans of the margin of safety, but ¯\_(ツ)_/¯

 

By the way, I haven't been paying attention to the US election. Did Andrew Yang win? I hear the US Gov't is handing out cash now.

 

Yes Andrew Young (UBI), Liz Warren (student loan interest rates forgiven) won, Bernie (Medicare for all) is next. It’s free for all, Airlines, Cruise lines are already fed in the soup line. Shale and Energy is begging. I guess the lobbyists for all the industries are working overtime.

 

Clearly, we have an extraordinary economic situation, but it is still surprising to see much more government intervention than in countries that are called socialist here. I’d be more in favor of something that helps individuals, if we have learned anything from the GFC it should have been that.

You stole my follow on jokes that I had planned. Pretty amazing isn't it. Quite a shift

 

Trump has always been populist and a bit socialist. It's just a right wing and flyover state version of socialism.

 

The real outrage here is simply that better leadership and earlier action would likely have resulted in lower overall costs, less disruption, and less panic. Consistent governance might be better leadership than slashing, then growing in a panic.

[Cigarbutt]

https://www.buzzfeed.com/alexwickham/coronavirus-uk-strategy-deaths

 

The UK only realised "in the last few days" that attempts to "mitigate" the impact of the coronavirus pandemic would not work, and that it needed to shift to a strategy to "suppress" the outbreak, according to a report by a team of experts who have been advising the government.

 

The report, published by the Imperial College COVID-19 Response Team on Monday night, found that the strategy previously being pursued by the government — dubbed "mitigation" and involving home isolation of suspect cases and their family members but not including restrictions on wider society — would "likely result in hundreds of thousands of deaths and health systems (most notably intensive care units) being overwhelmed many times over".

 

This is what you happens when you try to combat a viral outbreak by listening to "nudge boy" behavioral economists and pseudoscientists.

 

Rapidly achieving "herd immunity" sounds good on paper, but then you have to actually think about what will happen on the way to getting there...

 

Some people still clearly have not learned the basic "flatten the curve" concept.

Thank you for the inputs.

Here's another perspective related to the UK situation and the "report":

https://www.bloomberg.com/news/articles/2020-03-17/prolonged-social-distancing-would-curb-virus-but-at-a-high-cost

FWIW, despite some reserves, I heavily support (indirectly and directly) the pro-active efforts deployed in my provincial jurisdiction which, for various reasons unrelated to the virus or the policies, has been relatively lucky, in terms of spread and impact, at least so far.

I guess it is still relevant to ask questions, to adapt and to go for cost effective measures (definitions of "cost" and "effective" remaining open for debate).

 

I just read that government officials announced that economic measures to be taken will prevent unemployment from rising to 20%. They are basically looking to flatten the curve. So a flurry of bailouts are coming and the emphasis has to be on the short term and I'm OK with that, at this point, although Bagehot, long ago, suggested that bailouts should balance the short term against the long term and moral hazard. As an avid follower of the GFC, I remember government officials suggesting then that another great depression could be avoided (although impossible to verify) with various monetary and fiscal bailouts. I would suggest that they tried to flatten the curve in a way but people ran out of will and perseverance and we've had the weakest recovery on record, a glaring absence of deleveraging and, in fact, developed economies have become very weak and compromised economic hosts and now a virus hits. It appears difficult to explain, at least from my humble perspective, why we should be surprised by the eventual course of economic events.

 

I just worry about unintended consequences and wonder if, at least, we can base our decisions on solid data, analysis and rational reasoning that truly balances the short term with the long term?

Can we think of (and implement) necessary reforms or do we just need that they become imposed on us the way natural selection can and simply hunker down?

[ERICOPOLY]

https://www.buzzfeed.com/alexwickham/coronavirus-uk-strategy-deaths

 

The UK only realised "in the last few days" that attempts to "mitigate" the impact of the coronavirus pandemic would not work, and that it needed to shift to a strategy to "suppress" the outbreak, according to a report by a team of experts who have been advising the government.

 

The report, published by the Imperial College COVID-19 Response Team on Monday night, found that the strategy previously being pursued by the government — dubbed "mitigation" and involving home isolation of suspect cases and their family members but not including restrictions on wider society — would "likely result in hundreds of thousands of deaths and health systems (most notably intensive care units) being overwhelmed many times over".

 

This is what you happens when you try to combat a viral outbreak by listening to "nudge boy" behavioral economists and pseudoscientists.

 

Rapidly achieving "herd immunity" sounds good on paper, but then you have to actually think about what will happen on the way to getting there...

 

Some people still clearly have not learned the basic "flatten the curve" concept.

Thank you for the inputs.

Here's another perspective related to the UK situation and the "report":

https://www.bloomberg.com/news/articles/2020-03-17/prolonged-social-distancing-would-curb-virus-but-at-a-high-cost

FWIW, despite some reserves, I heavily support (indirectly and directly) the pro-active efforts deployed in my provincial jurisdiction which, for various reasons unrelated to the virus or the policies, has been relatively lucky, in terms of spread and impact, at least so far.

I guess it is still relevant to ask questions, to adapt and to go for cost effective measures (definitions of "cost" and "effective" remaining open for debate).

 

I just read that government officials announced that economic measures to be taken will prevent unemployment from rising to 20%. They are basically looking to flatten the curve. So a flurry of bailouts are coming and the emphasis has to be on the short term and I'm OK with that, at this point, although Bagehot, long ago, suggested that bailouts should balance the short term against the long term and moral hazard. As an avid follower of the GFC, I remember government officials suggesting then that another great depression could be avoided (although impossible to verify) with various monetary and fiscal bailouts. I would suggest that they tried to flatten the curve in a way but people ran out of will and perseverance and we've had the weakest recovery on record, a glaring absence of deleveraging and, in fact, developed economies have become very weak and compromised economic hosts and now a virus hits. It appears difficult to explain, at least from my humble perspective, why we should be surprised by the eventual course of economic events.

 

I just worry about unintended consequences and wonder if, at least, we can base our decisions on solid data, analysis and rational reasoning that truly balances the short term with the long term?

Can we think of (and implement) necessary reforms or do we just need that they become imposed on us the way natural selection can and simply hunker down?

 

The downturn itself is essentially being ordered by the government.  This thing would blow through quickly if there were no "social distancing".

 

So given that they are effectively contributing to the severity of the downturn, we already have interference with free market principles before the first check is written.

 

Under that environment, bailouts are fair game and they do not introduce moral hazard.  It's very different situation from a financial crisis precipitated by extreme excess and rewarded with a bailout.

[Castanza]

https://www.buzzfeed.com/alexwickham/coronavirus-uk-strategy-deaths

 

The UK only realised "in the last few days" that attempts to "mitigate" the impact of the coronavirus pandemic would not work, and that it needed to shift to a strategy to "suppress" the outbreak, according to a report by a team of experts who have been advising the government.

 

The report, published by the Imperial College COVID-19 Response Team on Monday night, found that the strategy previously being pursued by the government — dubbed "mitigation" and involving home isolation of suspect cases and their family members but not including restrictions on wider society — would "likely result in hundreds of thousands of deaths and health systems (most notably intensive care units) being overwhelmed many times over".

 

This is what you happens when you try to combat a viral outbreak by listening to "nudge boy" behavioral economists and pseudoscientists.

 

Rapidly achieving "herd immunity" sounds good on paper, but then you have to actually think about what will happen on the way to getting there...

 

Some people still clearly have not learned the basic "flatten the curve" concept.

Thank you for the inputs.

Here's another perspective related to the UK situation and the "report":

https://www.bloomberg.com/news/articles/2020-03-17/prolonged-social-distancing-would-curb-virus-but-at-a-high-cost

FWIW, despite some reserves, I heavily support (indirectly and directly) the pro-active efforts deployed in my provincial jurisdiction which, for various reasons unrelated to the virus or the policies, has been relatively lucky, in terms of spread and impact, at least so far.

I guess it is still relevant to ask questions, to adapt and to go for cost effective measures (definitions of "cost" and "effective" remaining open for debate).

 

I just read that government officials announced that economic measures to be taken will prevent unemployment from rising to 20%. They are basically looking to flatten the curve. So a flurry of bailouts are coming and the emphasis has to be on the short term and I'm OK with that, at this point, although Bagehot, long ago, suggested that bailouts should balance the short term against the long term and moral hazard. As an avid follower of the GFC, I remember government officials suggesting then that another great depression could be avoided (although impossible to verify) with various monetary and fiscal bailouts. I would suggest that they tried to flatten the curve in a way but people ran out of will and perseverance and we've had the weakest recovery on record, a glaring absence of deleveraging and, in fact, developed economies have become very weak and compromised economic hosts and now a virus hits. It appears difficult to explain, at least from my humble perspective, why we should be surprised by the eventual course of economic events.

 

I just worry about unintended consequences and wonder if, at least, we can base our decisions on solid data, analysis and rational reasoning that truly balances the short term with the long term?

Can we think of (and implement) necessary reforms or do we just need that they become imposed on us the way natural selection can and simply hunker down?

 

The downturn itself is essentially being ordered by the government.  This thing would blow through quickly if there were no "social distancing".

 

So given that they are effectively contributing to the severity of the downturn, we already have interference with free market principles before the first check is written.

 

Under that environment, bailouts are fair game and they do not introduce moral hazard.  It's very different situation from a financial crisis precipitated by extreme excess and rewarded with a bailout.

 

Well put Eric. Even Justin Amash is in favor of individual bailout. It has to be one or the other. You either force shutdown and provide temporary loans to individuals or you let people stay open. Completely different from 08 as this wasn’t brought in by individuals.

[Viking]

Eric, you state: “ The downturn itself is essentially being ordered by the government.  This thing would blow through quickly if there were no "social distancing".”

 

I always like to look at the real world to understand what really happens when the rubber hits the road. Theories are nice but its always good to toggle to the real world. I am only aware of a couple of jurisdictions that tried no social distancing: Wuhan China, Iran, italy etc.

 

Every one of these areas after deciding they did not need social distancing quickly reversed course. And they all experienced a humanitarian disaster.

 

Are you aware of any country that has the virus in numbers that is currently not aggressively employing social distancing as a core part of its strategy? I am not and i would love to follow how the virus trends for them.

[ERICOPOLY]

Eric, you state: “ The downturn itself is essentially being ordered by the government.  This thing would blow through quickly if there were no "social distancing".”

 

I always like to look at the real world to understand what really happens when the rubber hits the road. Theories are nice but its always good to toggle to the real world. I am only aware of a couple of jurisdictions that tried no social distancing: Wuhan China, Iran, italy etc.

 

Every one of these areas after deciding they did not need social distancing quickly reversed course. And they all experienced a humanitarian disaster.

 

Are you aware of any country that has the virus in numbers that is currently not aggressively employing social distancing as a core part of its strategy? I am not and i would love to follow how the virus trends for them.

 

 

It isn't a theory.  It is compounding.  It would be fast.

[alwaysdrawing]

While some want millions to die fast to keep the economy moving, that seems like a bad idea to me (if it would even be possible without society breaking down).

 

https://www.washingtonpost.com/us-policy/2020/03/17/trump-coronavirus-stimulus-package/

 

Unfortunately, the economy is going to suffer in order to prevent that from happening.  Hopefully the government can help the people--Mnuchin says up to 20% could be unemployed--however, I believe this will be unkind to common shareholders.

 

The White House’s new $1 trillion plan looks to effectively flood the economy with cash, and officials said roughly $50 billion of it would go toward helping the airline industry, which is reeling from cancellations. While Senate Democrats largely embraced the idea of direct payments to Americans — while saying such payments should be paired with other elements, such as the suspension of loan repayments — they rejected other pieces of the administration’s proposals, particularly any industry bailouts.

 

“I am supportive of putting cash in the pocket of workers, families, consumers and small businesses because it will be spent, as opposed to massive corporate bailouts that could involve stock buybacks or other kinds of expenses that fail to stimulate demand,” said Sen. Richard Blumenthal (D-Conn.).

[Spekulatius]

Eric, you state: “ The downturn itself is essentially being ordered by the government.  This thing would blow through quickly if there were no "social distancing".”

 

I always like to look at the real world to understand what really happens when the rubber hits the road. Theories are nice but its always good to toggle to the real world. I am only aware of a couple of jurisdictions that tried no social distancing: Wuhan China, Iran, italy etc.

 

Every one of these areas after deciding they did not need social distancing quickly reversed course. And they all experienced a humanitarian disaster.

 

Are you aware of any country that has the virus in numbers that is currently not aggressively employing social distancing as a core part of its strategy? I am not and i would love to follow how the virus trends for them.

 

Germany has been late to the game , partly because health decisions are made by states,  but the Hammer came down this weekend. Based on what I am hearing (partly from my parents) compliance is pretty good also there is a lot of bitching by some.

 

So far e have been ~7k cases,  but the hospital system is holding up and there are few death so so. I think Italy hit the skids once they were at 10k cases, but I think Germany has more capacity (larger Population size too), so with a little luck it can avert disaster. It’s about 1 week behind Italy in terms of time scale.

 

* Edit - 8K cases.

[alwaysdrawing]

By the way, these industry bailouts are cute, but I believe the plumbing of the financial system is currently majorly stressed.

 

The Fed buying commercial paper, forcing banks to borrow through the window, and re-opening their primary dealer financing are all major indications of huge stresses within the financial system.

 

I suspect one or more major banks is currently either insolvent or on the verge of insolvency, and the bailouts for cruise ships will seem quaint to what is needed to bail out a major financial institution (or more).

 

 

[RichardGibbons]

It isn't a theory.  It is compounding.  It would be fast.

 

Yep.  By my calculations, it'd be roughly 3 months assuming 20K people infected now.  (20K * 2^14) = 327M.  We'd need 14 doublings to infect everyone in the USA, and we double every 6 days, so that's 6 * 14 = 84, or 12 weeks. Plus, say, a month for the disease to go from incubating to healed.

 

Of course, this would result in lots of unnecessary deaths, but it's probably optimal for the economy (barring second order effects like a revolution from people being annoyed at the widespread deaths and the government seemingly not doing anything.)

 

 

[ERICOPOLY]

While some want millions to die fast to keep the economy moving,

 

I haven't heard of that.  Any sources?

[Viking]

By the way, these industry bailouts are cute, but I believe the plumbing of the financial system is currently majorly stressed.

 

The Fed buying commercial paper, forcing banks to borrow through the window, and re-opening their primary dealer financing are all major indications of huge stresses within the financial system.

 

I suspect one or more major banks is currently either insolvent or on the verge of insolvency, and the bailouts for cruise ships will seem quaint to what is needed to bail out a major financial institution (or more).

 

 

 

The government should get Buffett to offer his suggestions of how to structure a bailout. Taxpayers would benefit and therefore would be more likely to support the many bails outs that will be given. The companies, of course, would much rather negotiate with Trump / politicians.

[meiroy]

By the way, these industry bailouts are cute, but I believe the plumbing of the financial system is currently majorly stressed.

 

The Fed buying commercial paper, forcing banks to borrow through the window, and re-opening their primary dealer financing are all major indications of huge stresses within the financial system.

 

I suspect one or more major banks is currently either insolvent or on the verge of insolvency, and the bailouts for cruise ships will seem quaint to what is needed to bail out a major financial institution (or more).

 

Nonsense. 

 

The only bank that had issues in 2008 was C and now even Mr. C is in a far better position than 2008. Actually got some today for the first time ever.

[ERICOPOLY]

I wonder what the outcome would be like if the "shelter in place" orders only applied to households containing a person who is 65+ yrs of age, or has chronic health conditions.  And focus the bail-out dollars on sustaining them and delivering food/care to them until a vaccine arrives.

 

The rest of the population, after three months, would have developed "herd immunity" and normal life could largely resume.

[alwaysdrawing]

By the way, these industry bailouts are cute, but I believe the plumbing of the financial system is currently majorly stressed.

 

The Fed buying commercial paper, forcing banks to borrow through the window, and re-opening their primary dealer financing are all major indications of huge stresses within the financial system.

 

I suspect one or more major banks is currently either insolvent or on the verge of insolvency, and the bailouts for cruise ships will seem quaint to what is needed to bail out a major financial institution (or more).

 

Nonsense. 

 

The only bank that had issues in 2008 was C and now even Mr. C is in a far better position than 2008. Actually got some today for the first time ever.

 

You seem to know a lot about the banking crisis.  I believe in 2008 Bear Stearns and Lehman Brothers also had problems, in addition to Citi.

 

https://www.nytimes.com/2020/03/16/business/fed-discount-window.html

 

Morgan Stanley was the first within the group to tap the Fed’s so-called discount window on Monday, according to three people familiar with the matter. Other banks, including Goldman Sachs and JPMorgan Chase — all members of the Financial Services Forum, an industry trade group — are expected to borrow as early as Tuesday, the people said.

 

“While forum member institutions individually have substantial liquidity and multiple sources of funding, they believe it is important to lead by demonstrating the value of the Federal Reserve’s discount window facility,” the group said in a statement late Monday.

 

https://alhambrapartners.com/2020/03/17/gfc1-aid-vs-stimulus-were-replaying-2008-because-2008-worked-out-so-well/

 

The eurodollar system is the backbone of the global economy, and we are in the midst of a eurodollar crisis.  The bond markets are gyrating as much as the stock market, and it's all about collateral, collateral, collateral.

 

I don't have the bandwidth to get into the finer points of this on this forum, however the Fed is taking all of these emergency actions not because of the stock market, but because banks are fearful of lending to one another, and worried about their collateral (e.g. with Lebanon's default a week ago creating mistrust in the eurodollar counterparties).  You could see this in repo in September, or FRA/OIS spreads widening, and more.

 

I'm not saying it's for sure that Morgan Stanley or Deutsche Bank, or Bank of America, or whomever specific is in trouble, however when banks fear lending to other banks, the commercial paper market siezes up, and the Fed restarts programs that didn't work the first time, I believe we are in big trouble, and about to graduate from a health crisis with a minor stock decline, to a banking crisis and much worse on top.

[mcliu]

GFC was a solvency issue. Lehman and Bear and other banks went down because the assets that they held, AAA-rated MBS/CDOs were worth 0 and they had a 5% equity buffer.

[Viking]

I wonder what the outcome would be like if the "shelter in place" orders only applied to households containing a person who is 65+ yrs of age, or has chronic health conditions.  And focus the bail-out dollars on sustaining them and delivering food/care to them until a vaccine arrives.

 

The rest of the population, after three months, would have developed "herd immunity" and normal life could largely resume.

 

Great idea. I would love for Trump to be “sheltered in place”. The sooner the better :-)

[StubbleJumper]

While some want millions to die fast to keep the economy moving,

 

I haven't heard of that.  Any sources?

 

 

There are no sources, Eric.  It's a back-handed accusation.

 

You have tabled a completely legitimate strategy.  Quarantine the aged and otherwise vulnerable for a number of months and let the virus go wild through the healthy population.  Once you hit ~60% infection rate, your R0 goes to about 1 and this thing will peter out on its own, assuming that you can't catch the virus twice (that remains to be confirmed, but in any case we are in a world of hurt if it is recurring).

 

Proponents of the alternatives are generally hanging their hat on one of two or three things happening:

 

1) A vaccine or other treatment gets concocted in reasonably short order, and this drops the R0 quickly (ie within perhaps 12 months); or

2) Social solidarity can remain in place for *years* at a time to slowly let this thing work its way through the system; or

3) A series of waves and countermeasures will be accepted by the population over a period of years (this is really a variation of #2).

 

I am unconvinced of the sustainability of #2 and #3, but time will tell, right?  Everybody is playing along just fine at the moment.  When financial hardship and boredom kick in, will they still play along?  Is it "just" to potentially impose these restrictions on the young for a couple of years in an effort to avoid imposing two years of additional mortality on each 80 year-old (look at the conditional life expectancy tables)?  In the interest of imposing social distancing, do you close schools for two years, effectively holding 8 year-olds out of school for a couple of years because grandpa and grandma won't want to self-isolate for 4 or 5 months in 2020? 

 

There should be no arrogant declarations that one solution is unambiguously better than others.  There are unhappy trade-offs amongst them all.

 

 

SJ

[alwaysdrawing]

GFC was a solvency issue. Lehman and Bear and other banks went down because the assets that they held, AAA-rated MBS/CDOs were worth 0 and they had a 5% equity buffer.

 

I know some people enjoy learning about finance through popular films, however 2008 was primarily a liquidity crisis.

 

The ultimate losses on AAA mortgage backed securities was only around 2.2%.

 

 

https://bfi.uchicago.edu/insight/research-summary/mortgage-backed-securities-and-the-financial-crisis-of-2008-a-post-mortem/

 

What happened was, then as now, MBS are used as repo collateral, and when banks don't trust that repo collateral can be sold for par (whatever it is ultimately worth is irrelevant), then they withdraw from the repo market.  That is exactly what happened in the "repo crisis" of September 2019, and when the tale is written, that will likely be marked as the start of the second great financial crisis.

 

If a bank does not have enough capital at the beginning of the day to remain solvent, and cannot acquire it through repo (which settles around 10:30 AM), then they are bankrupt.  If you notice markets have rough mornings until around 10:30 and then go up from there, it's because of the scramble for capital as repo settles.

 

Banks are giant complex machines, and their earnings power is based on their balance sheet, however when impairment hits bank balance sheets, they are giant leveraged towers with their legs getting knocked out from below.  That's where we are now, and anyone who simplistically thinks that last quarter's F/S is an accurate reflection of what to expect here is sorely mistaken.  I don't know if a major bank will fail, but the hits keep coming, and the Fed is acting like someone big is on the edge of failure.

[mcliu]

Thanks for the enlightenment, clearly you are much smarter and better informed. I’ll just go back to watching the Big Short again to brush up on my finance knowledge.  :-X

[ERICOPOLY]

While some want millions to die fast to keep the economy moving,

 

I haven't heard of that.  Any sources?

 

There are no sources, Eric.  It's a back-handed accusation.

 

Another post begins with "I know some people enjoy learning about finance through popular films"...

 

It's just very condescending.

[alwaysdrawing]

Another post begins with "I know some people enjoy learning about finance through popular films"...

 

It's just very condescending.

 

Better to have people posting false theories about the last major financial crisis in one liners, and telling Mr. Market to wake up because banks are trading as low as tangible book value before a depression.

 

Thanks for the enlightenment, clearly you are much smarter and better informed. I’ll just go back to watching the Big Short again to brush up on my finance knowledge.  :-X

 

By the way, I liked what you said before the edit in this quote better.  I think you're right, and I am wasting my time here.