I am quite confident that it will come back. Demand is there. My dad owns a chain of bicycle stores. Sales have been absolutely through the roof during quarantine (they are "essential"). Like, blowing-away-previous-sales-records good. His customers represent all walks of life in the city he serves. He has stores in the wealthy areas and stores in the poorer areas; all are doing well. People want to spend money and they are desperate for places to do it. I predict that we will see a retail boom if we can find a way to reopen the economy and still be safe (masks everywhere, distancing). The trick is figuring out that safety. It starts with PPE and cleaning commodities. We need universal availability of good face masks, hand sanitizer, and effective cleaning wipes. We need to flood the world with so many masks that you get one for free every time you walk into a store. Figure that out soon and this economy will rebound.
The uptick of boredom induced outdoor leisure caused by banning social activity of all kind and an increase of disposable time. Bicycles seem well positioned to do well in this economy.
I can confirm this: whilst I never avoided riding due to traffic before, going for road rides now is amazing due to there being practically nobody else on the roads.
Definitely here I'm considering buying a new Nihola bike, mine got stolen a few years back and I never replaced, but now I need something (as opposed to just want sometimes)
The second large reason is that mass transits are actively being discouraged in order to limit spread, and people seems quite aware that sitting closely in a bus/tram/subway is a bad idea. Getting a bike is a much cheaper alternative than getting a car in order to solve that specific problem.
We’re already seeing record lines at food banks across the country[0], and some are already warning of food shortages. We’re already seeing the negative effects, our society just doesn’t want to pay attention to what’s happening to the poor.
We’re at serious risk for community starvation not seen since the Great Depression.
But those don’t look like cheap cars. No one is perfect, but still it looks like some people set the wrong priorities between saving money and buying status symbols
Loan companies only give you access to cars that have a reliable resale value. Since Americans basically buy nothing but pickup trucks or SUVs you can only get loans for SUVs and trucks.
That's completely inaccurate. Considering the instant depreciation once you drive off the lot, loans are dependent far more on your credit history/income level than linked to any specific style of car.
That’s definitely true, but can you blame them? They’ve been psychologically assaulted and bombarded from all digital directions to buy those symbols. It’s not like Facebook and YouTube are showing ads that encourage people to save their money.
This goes way back than Facebook and YouTube though, I recommend watching Adam Curtis' "The Century of the Self" [0] if you haven't yet and are interested in how we ended up with modern consumerism.
Almost all of those vehicles are from the standard automaker labels, very few luxury vehicles in those pictures.
I see one Dodge Charger in the bottom picture, which is a little sportier, and I’m sure I missed a few others, but otherwise I completely disagree with your observation. I’m not sure what you expect poor people to drive if not GM/Ford/Toyota, etc.
When half the Fortune 500 apparently need a bailout three weeks after this hits, it might be time to adjust expectations of individual preparedness to be more in line with observed reality.
There might also be a gap between what people realistically prepared for and what happened. I'm not entirely sure, for example, if a family with both parents employed in (what used to be considered) stable jobs should have foreseen the possibility of losing both jobs at the exact same time?
In the end, this is a numbers game: you can blame the individual up to a point. But when some double-digit percentage fails to abide by your standards of personal responsibility, you have to accept the sometimes flawed nature of humanity and try to work with it instead of insisting on futile efforts to change individual people.
and there's no reason this has to happen. the same way we can print money to hand out to companies we can print money and buy food with it and give it out to hungry people WITHOUT causing inflation.
that doesn't, however, create more food -- and the current problem is really that food is starting to run out, as production has fallen by 20% at the same time as supply disruptions have caused another 20% to spoil at the source
It’s so hard to see that happening though, and if it doesn’t, we’re in trouble.
We still don’t have scalable testing in the US, which is absolutely vital to reopening the economy safely. Without that, we risk losing all of the progress we’ve made flattening the curve.
Then all of these businesses have to open back up and hope they’re able to generate income quickly enough to stay afloat, which isn’t a guarantee.
There are also a growing number of experts saying that we’ll be in flux for the rest of 2020 unless we establish that survivors can’t be reinfected, which hasn’t been confirmed yet. Even if some areas are able to open up early, the economy will continue to suffer to its global nature. We’re just in no way able to say it’s going to be normal in 2 months.
> Without that, we risk losing all of the progress we’ve made flattening the curve.
I personally believe that the worst could be done in many places.
New York was too slow to institute controls and stopped just short of catastrophe. But, it's likely (based on extrapolation from serological data elsewhere), that 15% of people in NYC are immune and 20% will be soon. A disease with an Rt of, say, 1.8 is still scary and still requires controls and distancing, but it's a whole different ballgames from one with an Rt of 2.5. (-0.5 Rt for reduced susceptibility, -0.2 Rt for seasonal effects, say).
> There are also a growing number of experts saying that we’ll be in flux for the rest of 2020 unless we establish that survivors can’t be reinfected, which hasn’t been confirmed yet.
The case reports we have and clinical experience suggest reinfection is very rare. The bigger question is lasting immunity. Will most people be totally protected for 3 years like with a typical cold coronavirus? Or can we expect more like the 5+ years seen with SARS-CoV-1? And even if people become susceptible again, will the disease be less severe?
I also believe that in the long run, 2019-nCoV will become "just another" endemic common cold virus, and will kill small numbers of people every year just like the other endemic respiratory coronaviruses (229E, OC43 etc) do. I bet those would be pretty fearsome introduced into an immunologically naive population. Which really sucks-- say, 10% more severe respiratory illness forever is not good. But I think it's the path we're on unless we get a truly terrific vaccine, and I don't think we can bet on that.
Thanks for your post. Every news story seems to say "12 to 18 months for a vaccine" as if it's a given, and I always think of all the diseases for which we don't have any vaccine despite many years of effort. I don't have any background in that but I'm hoping we can see some more clear-eyed discussion of the likelihood of that.
One recent report: Two hospitals in NYC did universal screening of 215 pregnant women admitted for delivery between March 22 and April 4th. 15.4% tested positive. Most of those testing positive (87.9%) had no symptoms at the time they were admitted.
Pregnant women go to hospitals for the antenatal appointments a lot though. And hospitals are full of the virus. You would expect pregnant women to be more likely to be infected than general population
In any case, I think the interesting things are: A) the share of infected people who will never have symptoms, and B) the share of infected people that have minor symptoms and will not be diagnosed. There's reason to believe that both A and B are significant. If they reach 90%-- which there's reason to believe they likely do-- it means that with a 1.5% cumulative case count you have more like 15% of the population having been exposed.
NYC's case count is 111k and we know it's very low even vs. symptomatic people. The population is 8.4 million people. This is 1.3%.
Serological data from a random sample of the German town of Gangelt shows that even a robust testing regime missed about 90% of the cases. The known per-capita case count at the time of the study was similar to New York City's, but 14% of the sample carried antibodies to COVID-19.
The German testing regime is and has been considerably better than what's been in NYC. I'm inclined to think that an even bigger multiple of the known case count may have been exposed in NYC than in Gangelt.
Separately, Iceland keeps their test data in two bins; one for people with a known exposure history and any (even minor) symptoms, and one for members of the general population without a known exposure history or symptoms. Analysis of this data suggests about 50% of people never develop symptoms and don't have any known exposure history, in an area with a much more robust testing regime.
> Serological data from a random sample of the German town of Gangelt shows that even a robust testing regime missed about 90% of the cases.
The results are disputed to say the least. A random sampling study in Austria found that the true number of infected is likely to be only three times higher.
> Analysis of this data suggests about 50% of people never develop symptoms
At the time of the test asymptotic. They did not say never develop symptoms.
The odds ratio approach was backwards-looking, so it means "never developed symptoms [in a couple of weeks]".
Seems Iceland is testing a lot more than NYC and that their focused testing (which is still broader than NYC's overall testing) misses ~90% of cases.
Note that the Austrian study I've read shows that current infection as detected by RT-PCR is about 3x higher than present case count, which isn't quite the same thing I'm talking about with the antibody tests in Germany. If you're referring to something else, please share. In particular, no one knows the sensitivity for RT-PCR of asymptomatic people and it might be rather low--- it's not exactly wonderful in people who are quite sick and presumably shedding more virus.
I'm hoping in the next week or so we have antibody data from a couple of US jurisdictions, including the SF Bay Area. It can really inform policy.
> Note that the Austrian study I've read shows that current infection as detected by RT-PCR is about 3x higher than present case count, which isn't quite the same thing I'm talking about with the antibody tests in Germany.
The reason Austria wasn't doing antibody tests yet is because the quality of these is not anywhere close enough to be reliable.
Stanford estimates 2.49% to 4.16% seropositivity, versus approximately 1000 reported cases as of that date-- so about 75x the actual reported cases. Of course, the way that Stanford recruited their sample means that people who were previously exposed might be more likely to report, so I think this overstates things a little, but...
If blood donors are representative of the population as a whole, that means about 94% of cases have been missed. Again-- with better testing than the US.
I visited four food banks to offer them food over the last two weeks. Three of them were completely out of food. Only one of them had an abundance of food.
On aggregate, food banks may be stressed, just like on aggregate the measure we use to determine economic fortune may be down only 3%. In reality, this means there are lots of individuals literally starving and making $0.
Those people are going to struggle to hold out for however long it takes.
A month or two may be true in aggregate. For many, simultaneously, their jobs will never return.
I think there's also:
3. Traffic is at record low levels.
My city isn't at all bike friendly, but at the current traffic levels I'd feel safe enough to take a ride - the bikes themselves are just so absurdly marked up that I can't justify the expense, so I'm running instead.
I've read a story about Russian entrepreneur who sell bikes across the country and his sells are basically zero since quarantine. He's going to declare bankrupt soon.
In Italy the lockdown was very strict and going outdoors was severely limited to short walks in immediate vicinity (e.g. 200m) of your domicile. For Spain I heard rumors that it was even worse (with people walking with fake dogs, because you need a canine excuse to get out in the first place).
Here in Argentina (Buenos Aires City in particular, as other cities are slightly more relaxed), you can't even go out to walk the dog more than the minimum essential for it to relieve itself (say, half a block maybe). Going out for walks, run, cycling is forbidden.
Only allowed to go out for essential workers, or buying groceries at proximity stores, walking.
You need to have a permit to use your car or walk more than a few blocks from home (for essential workers, like security, health workers, grocery store workers, transportation, etc). If you are stopped driving without a permit, the car is seized, and you lose it forever. You also end up with a criminal record.
This severity has kept the numbers much lower than originally predicted, flattening the curve, but at the same time, it's draining the economy.
So, as you can see, different countries have different strategies. In some places the lockdown is severe, in others, not so much.
Stuffed animal with leash replaced by a stiff wire or stick? or maybe just drag it along and trust people aren't paying attention...
I've found it super interesting how some people are willing to bend the rules, and how far they're willing to go, and other's aren't. I don't know if the ones most railing about the 'panic and fear' being spread online are the ones that are also underestimating the risks themselves and so feel justified in bending the (unreasonable-to-them) rules.
> We need to flood the world with so many masks that you get one for free every time you walk into a store. Figure that out soon and this economy will rebound.
I'm pro-mask, but masks are but a small part of what it will take for the economy to rebound. Far more important are tests (short-term), treatments (mid-term), and vaccines (longer-term). For now, tests are the most important goal. We should have reliable diagnostic testing available in every doctors office, and reliable serological tests in every home.
If there’s no vaccine, which reports suggest there may never be, and you can be reinfected, lots of economic activity won’t come back as people will not be going to restaurants, airports, movie theaters, etc. like they were before. Most of these businesses cannot handle a sustained 50% drop.
As far as I know there is pretty high confidence in vaccine development and reinfection is completely speculative and in most cases it was the same infection.
Do you happen to have recent reports showing either problem?
We’re talking in the context of a recession. Continued social distancing will happen for a significant portion of the population until there’s a vaccine. A vaccine is far from a sure thing, especially anytime soon.
There are many seasonal coronaviruses that cause colds. We’ve never been able to create a vaccine. There was a NYTimes article in last few days, I’ll post it when I find it.
Finding lots of sources that there has never been a successful coronavirus vaccine and that reinfection is common. So, thinking there will be a vaccine anytime soon is happy thinking. If it happens, it won’t happen fast enough to stave off a deep recession. I know I won’t be going out like I was.
Nobody has tried very hard because the common cold is unpleasant but bearable. This vaccine is now a global priority, there may even be a few variants discovered.
Reinfection is neither common nor proven. Given the number of cases globally and the long incubation period plus unreliable tests such stories are not unexpected.
I agree a recession and layoffs are coming to every sector, but war is a greater fear. This could cause more unrest and wars than 2008 did if it lasts longer than a few months.
Imagine the common cold was also cured by some breakthrough in vaccine development. It (or its 200 variants, rather) may be merely unpleasant, but in aggregate, that's a whole lot of unpleasantness (and lost economic output).
I'm don't ordinarily lean towards conspiracy theories, but its pretty easy to imagine the cold-medicine companies trying to think of ways of hindering any cold-vaccine development, in the same way that they actively seem to encourage people using their cold medicine to get back to work right away to spread that virus around some more.
I'd love a world with less cold viruses running rampant. When I started working from home full-time (years and years ago) I immediately noticed that the number of colds per year I had went from something like 10-12 to 1 or less. And the colds I get now are usually correlated with a visit to my grandkids...
There has also never been a massive global attempt at a coronavirus vaccine. Also many coronaviruses have wildly different behaviors and mutation rates. I think the answer right now is nobody knows for sure, but it will probably take at while for a vaccine if it's developed successfully, which would mainly at that point serve to prevent repeated lockdown cycles as it returns seasonally.
I agree. The OP suggested a quick and immediate bounce back soon. I’m pessimistic about that for the aforementioned reasons. “Nobody knows for sure” is a reason for short term pessimism not optimism.
There exist successful veterinary coronavirus vaccines, and an optimist (at least, a sufficiently cynical one) would posit that we don't have any human examples because it has not previously been deemed sufficiently profitable (or, more charitably, an efficient use of resources better spent on more pressing issues) by whoever makes funding decisions for vaccine development, not because of a failure of science.
Edit: That being said, efforts to develop a SARS vaccine were quite horrifying on whole, so there's certainly no natural law that says a vaccine must exist to be invented/discovered.
From a systems point of view of "stocks and flows" the problem is we didn't shut it down. We shut _part_ of it down.
For example rents are still due. So money is flowing out of business and individuals stock and for those affected by layoffs or paycuts there isn't any flowing back in to replace it. This is the really problematic part that creates trouble for people. That creates it's own knock-on effects.
Maybe you can't zero rent, but you can significantly curtail it, especially in CA where Prop 13 keeps many landlord's property taxes at absurdly low levels.
Ignoring whether or not he will, what might be the mechanics of something like this? Is there any precedent of this in history? What’s a good way in which this might take place?
A lot of states have de-facto made it optional to pay your rent (and in some cases mortgages), by banning evictions, banning foreclosures, etc. Mine has also banned any late fees during the state of emergency, so there is really no penalty to just not paying the rent.
You still accumulate it of course, and at some point after the emergency ends, everyone is supposed to pay up the back months of rents and mortgages they owe, or face reopened eviction/foreclosure processes. That's where it gets dicey, to see who is left holding which bags. Non-zero chance of at least some cascade: if a bunch of your tenants never pay 3 months of back rent (b/c they have no jobs), and you were already a very leveraged landlord without much of a cash cushion, you're not going to be making your 3 months of back mortgage payments either, etc. Less leveraged landlords will just eat some losses. If the economy recovers quickly, maybe some of this will be papered over by repayment plans (you can pay your 3 months of back rent/mortgage over the next 12 months or something, and nobody has to admit any official losses). How big all of these categories are will make a pretty big difference to whether it cascades into foreclosure waves, banks with junk loan problems, etc.
Roll the clock back a year. This May's rent is due 01May2020, but not the first 01May2020, the second one.
I jest, but the logic is based entirely off the way we do daylight savings time: change the clock. In the fall, a TV program might start at the first 1am or the second 1am on the day DST ends. Same exact thing. Pacific Standard Time, Pacific Daylight Time, Pacific CoVID Time. @todo Figure out how to switch back.
The economy was showing cracks before the shutdown happened.
Now it's also due to bad loans but not for housing like in 2009 but corporate debt(stock buybacks anyone?) but it's just easier for the economists and politicians to point fingers at a new enemy without a face than to accept that the economy boon was a bubble.
The Coronavirus shutdown was bad timing but it's not the main culprit, it just accelerated the inevitable bubble burst.
Exactly! And now they’re going to reinflate the bubble and make the problem worse instead of the deleveraging, wealth redistribution, and regulation that we need to move forward.
I'm not sure its useful to phrase it as "we shut it down." It implies that we had a choice and because it was a choice we can turn it back on at will. We could social distance and slow GDP or we could get sick, lose lives and still slow GDP. This isn't a self inflicted wound and we won't bounce back as quickly as we shut down.
This is an incorrect way of looking at it. The quarantine isn't the proximal cause of the economic problems, the virus is. If we didn't do any of the social distancing, group limits and shutdowns, if we had just pretended like the virus was a flu that will disappear, then the economy would still have been devastated. People dying en masse have a tendency to make people stay home.
There's the looming CLO debt crisis that just got accelerated. That will be bigger that the CDO crisis in 2009. Corporate debt is 50% of GDP, the highest it's ever been.
The 2009 crisis started in 2007, lasted a few years till 2010 or so and was mild compared to the effects of a complete global shutdown.
There were signs of problems in 2019 (yield curve inversion, failed IPOs, US QE restart), and this will take years to work out. The US stock market is currently priced as if this will be over in 1 month and everyone/everything will bounce back. Unfortunately if it goes on a few weeks more (which looks likely) the economic impacts are going to last years and no sector of the economy will be untouched.
There were troubles in the debt markets brewing before this whole virus thing happened. I don't think every thing that is happening in financial markets and the economy is because of the virus. It will be blamed but it was merely the trigger for a trap that was already set in some sense.
A lot of loans are about to go bad because we shut the economy down. Do you think people are going to be keeping up with car payments and student loan payments and credit card payments?
This also shouldn't be treated as a signal for a market correction, for ex: from 'bad' behaviour in the marketplace, and making the subsequent moral hazards that were abundant in the various bailouts of the post-2008 crisis less likely (depending on your tolerance for 'rainy day' funds I guess, which for most small/medium-businesses is pretty unrealistic beyond a 2 months lockdown IMO, larger firms slightly less so).
I'm curious how this will influence economic research on the matter, possibly providing greater insight into 'force majeure' scenarios instead of merely propping companies and executives who helped cause the crisis in an effort to offset even worse consequences.
The US never 'recovered' from the 2008 crisis, we just printed money and used it to pay those 'bad loans'. That bad money is still in the economy, and since the loaning didn't stop, there are even more bad loans now. That is the reason for this crisis, it is why not even one week after the virus started hitting the US everyone was asking for a bailout.
People and Companies have no savings, they live paycheck to paycheck, loan to loan. This crisis is way worse because the loans are way worse and involve everybody.
My understanding is that it has already snowballed for a lot a small businesses, and I'm not sure loans to certains industries are saner, without even talking about the government debt of some countries.
The Coronavirus was just the trigger for the corporate debt bubble to pop. Why do you think the fed is printing trillions of dollars and using it to buy junk bonds?
Domestic demand as well. Sweden hasn't formally closed wide ranges of things, but many Swedes have chosen to avoid them anyway. For example, restaurants are open, but their business is way down.
Just reading the headline, what this means to me is that the "world economy" is doing a lot better than most of us are doing as individuals. I'm on a 25% furlough. Sales from my side business have dropped to zero. My other side job has dropped to zero. Among working people, I'm one of the lucky. My family actually has a little bit of money in the kitty.
"The economy" refers to a system that's primarily designed to concentrate and protect private wealth, and a 3% loss of private wealth isn't all that bad at all. The people who are really hurting have no wealth to lose.
I hope an outcome of this crisis is that we start to think about "the economy" in more humane terms.
But when we're measuring the "world economy" it's not like we're measuring the heights of the stacks of gold behind scrooge mcduck's coffers, right? These numbers represent things like society's ability to make products people want, and peoples' willingness to spend their savings on things that are useful (instead of stuffing it in their mattress). The effects on labor are terrible, and your furlough reflects that. I personally was recently laid off, and likewise many individuals are hit much harder than 3%. But it's not like we should wish that other parts of the economy were hit as badly. None of it is good.
> spend their savings on things that are useful (instead of stuffing it in their mattress)
People are literally spending all their money on food and rent, not stuffing it in their mattress. The only ones doing that are the ones on top, hoarding wealth and exploiting their underlings.
> ability to make products people want
Wealthy investors have decided this isn't important, all that's important is cutting costs so they can hoard more wealth, which usually means exporting production out of the country so they can exploit laborers in other countries where they don't have protection through the law. This is why we currently don't have enough masks and rely on foreign countries to produce them for us.
The "world economy" only seems to measure things that make rich people richer, and how effective these things are at doing so.
They are not actually hoarding “wealth”. No one is sitting on a pile of apartments, or ventilators, or college spots, or food distribution capacity. There is fixed amount of that stuff out there right now.
If it was possible to produce apartments for you for half the price, or deliver food, or an fda approved ventilator, and still have a profit investors would be jumping over themselves to do so.
Businesses are hoarding cash because they predict a drop in revenue and want to save as much as they can so they can continue operations and realign for the new economy.
> The large quantity of food going to the trash every day seems to indicate otherwise.
These are all kind of bad examples, but I'll go with this one. Food takes time to grow or produce, so you have to accurately predict months out how much food you can sell. So, who is to blame for imperfect predictions of future demand? We could donate all this food instead of just binning it, so then who's to blame for not building the mass infrastructure required to coordinate such distribution, and then running it all for free? And then if such an individual did do this, why didn't they spend their considerable resources instead on a project that could have benefited humanity way more?
I mean, you realize this is a catch-22 argument right?
We don't want the government doing anything in our lives, so we don't expect any sort of mass infrastructure to be built to support for food distribution. We expect the wealthy and corporations to be philanthropists.
But being a philanthropist costs money. So instead we have a bunch of farms and food producers instead tossing out food because it's cheaper to throw it away than it is to donate it.
So how can you claim it's a bad example when people would rather throw food away for profit?
Your expectation is that farms should operate at a loss such that no food goes to waste? Businesses that don't make money very quickly will get shut down. Or they could just always underproduce what the market needs in order to ensure that there is no waste.
Nice try, but when states and municipalities have made anti-food-waste laws, this hasn't happened.
In fact, with a little tweaking, most food businesses can profit from throwing away less food: garbage disposal isn't free, and food donations are a tax writeoff.
Someone I knew in Philadelphia used to trash pick food from the Trader Joe's dumpster. But they caught him on camera and then put up signs, and eventually put a lock on the dumpster. They literally spent money to buy signs and a lock, and pay people to put up the signs and lock the dumpster every night.
Oh, for sure, if the government is fronting the cost of donations via tax incentives, then we just need to keep on increasing those incentives until it's worth it for the farms to implement this for whatever we consider a "required" percentage of their waste.
Farms are already heavily incentivized to minimize their waste in the first place, since that's a ton of labor costs going down the drain, in a business with relatively low margins, but missing out on the sale is still more important for staying in business.
Then maybe we need to re-evaluate the idea that farms need to be making profit over distributing food. I mean, farms already receive massive subsidies from the government in order to operate. We just had a round of farm bailouts because they couldn’t sell their food to international markets. Now they are throwing food away because they can’t sell it locally. Meanwhile there are lines stretching miles long with people waiting for food. Perhaps for-profit food production should not be a goal for a society.
> The large number of empty apartments being rented 3-4 nights a month on AirBnb in most large cities seems to indicate otherwise.
High rent for shitty apartments has been part of SF and NYC life for 30 years before Airbnb. This is more of a NIMBY problem. It’s politically easier to blame Airbnb then to build high rises with affordable rent and change the “culture” of the neighborhood /barf
The gist of the article was that a CPAP machine was basically a ventilator with some features disabled in software. Given that there are many of these around, with a 3G internet connection and OTA updates, and that the manufacturer could easily turn a CPAP machine into a ventilator by "flicking a switch", yeah, I consider that an indication that they're "sitting on it". They'd rather sell you a new machine at over-inflated prices than enable existing machines to be repurposed.
They most certainly are. Vast amounts of private real estate in the most prime locations are sitting empty. See the Royal Family's property in Mayfair London for example.
> No one is sitting on a pile of apartments, or ventilators, or college spots, or food distribution capacity. There is fixed amount of that stuff out there right now.
Well actually, at least two of your examples are clearly wrong. In NYC, one of the most competitive housing markets in the world, one in four luxury apartments is vacant[1] while the homeless freeze to death outside each winter. Any shortage of food is hard to argue when we're turning corn into fuel instead of food[2]. The only reason people aren't sitting on piles of ventilators yet is that the high demand is new enough that a way of making money by letting people die of suffocation hasn't yet emerged.
Shutting down to save money isn’t hoarding wealth, it’s trying to save a business FFS. Paying employees for 4 weeks of doing nothing and bankrupting the business over it is much worse in the long term.
I think you're crossing separate points. Ordinary people are doing worse than a 3 percent drop, so this "world economy" is about something very different from how ordinary people are doing, and this is a problem.
Getting laid off isn't wealth hoarding, but does that mean there isn't wealth hoarding?
Indeed. I don't want anybody's money to just vanish. And while as others have pointed out, the numbers are a measure of productivity for somebody, the ability of workers to capture their own productivity in wages is not guaranteed.
The ability of workers to capture their own productivity gains is a lower than it's been in a century. This crisis will push the second derivative lower.
People, especially the press, don't talk about M2V because they don't understand it. No one does outside finance or econ classrooms, and most of them don't either. BTW, jibe, not jive.
Maybe productivity gains are vastly overstated? Or more specifically, productivity numbers are distorted by a few industries that have had extreme productivity gains, while most have stagnated.
The GDP (i.e. “the economy”) is a measure of all goods & services produced and consumed. Even if someone is paycheck to paycheck or hand to mouth, this means less goods and services they can make and consume.
If this response was about crashing financial markets the blasé tone would be OK (ignoring that many retirees rely on pensions or bank accounts tied to financial markets). But this is about the entire economy.
"the system" isn't designed to protect wealth so much as encourage productivity. There is a direct correlation between increases in productivity and increases in wealth, but a system designed to protect existing wealth would look much different than ours. For instance, cartels would not be illegal.
What do you call it when real wages don’t go up in a system designed to “encourage productivity?” Since the gains aren’t going to workers at all, they must be going to those at the top, right? That sounds an awful lot like “protecting wealth” to me.
While I agree with your sentiment that the system is flawed and not serving much of the population, I think the parent's point still stands. If the system was designed solely for protecting wealth, it wouldn't be encouraging competition -- ie. cartels and monopolies would be permitted.
Make no mistake, whatever the goal is, the side-effects are unfortunate.
Last time I checked both of these still exist and wield massive power globally. Just because something is “illegal” doesn’t mean that it isn’t part of the system. The system was “designed”, it’s behavior is emergent. States institute laws which have side effects and those side effects are part of the system.
Really? You’re gonna tell me cartels and monopolies don’t exist when 10 companies control nearly the entire food and beverage industry? [0] What good is it being able to choose among 195 brands of bottled water [1] when there’s not much of a difference among them? Is this what all our productivity is going towards? Or maybe it’s all that advertising they drown us in to convince us to buy this stuff?
Real compensation has increased dramatically. It's a great mistake to assume that a wage is the only cost of employing someone. The cost of labour has gone up significantly over the past few decades.
Exactly. As I said in a comment that was inexplicably flagged, "compensation" doesn't pay my rent. My paycheck does. Not only that, but I have to pay more in real terms for things like housing and education than people in the 70's did, and I have to fund my own retirement.
Wages stopped increasing when human productivity peaked. The continued gains in productivity we have seen since that time have come by way of mechanization/automation. Given that the system encourages productivity, those who bring that automation to the economy reap the rewards. Those who only offer their labour to the economy are stuck since labour productivity has peaked. Humans simply cannot provide more productivity on their own.
As most people only offer labour and only a small group offer the more and more productivity gains of automation, it is true that the rewards end up being concentrated in that small group of productivity providing people. "The top" as you put it. That disparity is meant to incentivize you to develop your own technologies that increase productivity further instead of "wasting" your time selling productive-constrained labour, but in the real world it is unquestionably difficult to recognize where productivity can be gained.
The understanding of that was the basis for the idea behind pushing everyone into post-secondary schools, with a promise that higher learning would teach you how find solutions for increasing productivity, and thus increasing your reward for increasing overall productivity (a.k.a. providing you with a higher income). However, the real world is again messy and it hasn't really worked out. Despite a substantial increase in post-secondary attainment in recent times, the vast majority of graduates are making no more than they would have without having attended a post-secondary school (wages have been stagnant for decades upon decades) as they by and large end up only selling their productivity-limited labour.
> The continued gains in productivity we have seen since that time have come by way of mechanization/automation.
but that has been true since the first chimp figured out how to shove a stick into an anthill and get more tasty bugs than just picking off the ants on the surface. We use tools, better tools are how productivity advances.
Yes, yes, we have better tools than ever before, to the point where they don't look like tools. We can build a machine to do a thing and then leave, and only come back and tinker with it when it breaks.
Some time in the previous century basically everything switched over to assembly-line type production, where nobody built the whole widget themselves. the current switchover is to, uh, I guess you would call them robots. Tools that do the thing with one time input to guide them (and, of course, lots of ongoing maintenance)
But make no mistake, these "robots" we have are still just tools; tools that give massive leverage to the labor that programs those robots and that maintains those robots.
I think a lot of it is politics and labor leverage and education. after the new deal and the second world war and the GI bill, a lot of our workers had free education. We had a serious safety net for the time and a very progressive tax system with very high top marginal rates to pay for it. and lots of unions. All things that give workers more negotiation power.
Time goes on, machines get cheaper, the surplus doesn't go to the inventor but to the people buying the machines. So wealth turns into more wealth.
Even if a person can't provide productivity "on their own", productivity per person increases, and it's bad for that to be tied to an increase of wealth inequality.
And trying to have everyone invent solutions sounds like a weak justification for a broken system to me, along the lines of the temporarily embarrassed millionaire.
> Humans simply cannot provide more productivity on their own.
Sure they can. Who is designing and building and installing all that automation?
I know that you recognize this since it's a key point of the rest of your post. But I don't think you've fully realized the implications. The problem is not just that post-secondary schools haven't lived up to their promise of teaching people how to increase overall productivity. The problem is that, fundamentally, increasing overall productivity is entrepreneurship, and entrepreneurship is not something that can be taught in schools. It's a fundamental change in viewpoint: you have to stop thinking of yourself as an employee, a wage earner, and start thinking of yourself as a business owner. But schools teach people to be wage earners, and as you quite correctly point out, there is no real growth to be had at this point in being a wage earner.
> Sure they can. Who is designing and building and installing all that automation?
The work of designing, building, and installing remains constrained to the limits of human productivity. The only way to make those jobs more productive is to use tools, and, like always, those who control the tools are those who reap the additional spoils.
The difference between the median and the average strikes again! The popular comparison is that median real wages have only risen slightly from the 70s while average productivity (because by definition the labor productivity numbers are averages) has risen substantially. But much of that is due to the increases in productivity from high productivity individuals, say maybe those whose job it is to tell fancy electronic machines how to do low skill repetitive tasks. Some of those people might even browse this forum!
There is actually fairly weak data to support the popular theory of a decreasing labor share of income (and thus an increasing capital share) causing more inequality and to the extent such an effect could exist its size is only a few percent of GDP over the past few decades.
Because high skilled workers have seen both their productivity and income rise substantially. The median and other lower skilled workers have not. This will lead to an increasing average but a stagnant median, but it doesn’t mean that the idea people are mostly paid based on productivity is wrong.
I never claimed that. I claimed that workers generally are no longer reaping the benefits of increased productivity. If you want to offer income inequality as an explanation, then I'd be interested to hear how you work that all out, and if the math adds up. But, my contention that all the gains from increased productivity are going to those at the top seems to be exactly what you are espousing, yes? Are you agreeing with me in different words, or am I misunderstanding?
The benefits of increased productivity go to the people who made the changes that increase productivity, which is basically the managers who made the investment and the people who implemented the solutions using that investment, such as software engineers. Why should it accrue to those simply using the new better solutions when they are not responsible for the productivity gains provided by those solutions. If anything, their jobs usually become easier than it was previously with the advances.
This idea that only management making the investment and shareholders benefit from productivity gains is wrong. People like myself and many others on HN that are engineers are major beneficiaries of the productivity gains because we’re the ones actually building the solutions responsible for those gains.
Because those “investments” don’t matter if there are no workers using the tools. Look around you. How is the economy doing with everyone staying at home due to the pandemic?
Last I checked, I and many other people are still working from home. Just because our jobs don't have to occur outside the home doesn't mean that we're not still making improvements that lead to greater productivity.
There is no issue with people using the tools. The issue is with workplaces where multiple people need to work together. People with jobs where they use the tools but don't need to be around others or very many others are generally still working.
Also, not all productivity improvements are from tools that still need to be used by workers. A lot is from automation.
Anyways, my point is that tons of people who are not at the top of the businesses experiencing increased productivity are reaping the rewards of productivity improvements. It's a falsehood to think that only those making the investments are reaping the benefits. It only looks that way if you myopically don't look beyond the firm whose productivity improved.
> Anyways, my point is that tons of people who are not at the top of the businesses experiencing increased productivity are reaping the rewards of productivity improvements. It's a falsehood to think that only those making the investments are reaping the benefits. It only looks that way if you myopically don't look beyond the firm whose productivity improved.
Your point literally misses the point. From the perspective of improving the lot of ordinary workers, "beyond the firm whose productivity improved" doesn't matter. What matters is peoples' paychecks.
Before the mid 70's, when overall productivity went up, wages went up. That is no longer the case. It wouldn't be a problem if things like housing (both home prices and rents), education, medical insurance, and healthcare services (which is still important even for those with health insurance due to out of pocket maximums and deductibles). Notice how all of these are basic essentials of life, some of which are essential enough to form the base of Maslow's hierarchy of needs? I also want to stress that people today have to fund their own retirement, because there are no more company pensions.
Things that have gone up at or below the rate of inflation since the mid 70s are, by and large, not essentials: cars, computers, airline tickets, phone service, TVs, and clothes. [0] Granted, clothes, and sometimes cars are essential, but the savings there don't come close to making up the shortfall in the other things.
> Also, not all productivity improvements are from tools that still need to be used by workers. A lot is from automation.
If anything, I would guess that automation has harmed workers by eliminating good jobs, rather than benefiting people overall. Yeah, we have free stock trades now, but who cares?
I'm open to being convinced otherwise on the automation point, but I have a hard time seeing how people like my mom and dad, neither of whom went to college, could make it into the middle class today if you waved a magic wand and made them 25 again.
Before the 1970s, when overall productivity went up, the individual contributors has a much bigger contribution to the productivity improvements. Even with the improved tooling, you still needed people with the skills to take advantage of the improved tooling, so workers back then still had the ability to claim a portion of the increased productivity.
As the tooling and automation got better, the skills contributed by the worker have been responsible for less and less of the productivity gains to the point where the worker is contributing almost none of the productivity gains.
From the perspective of improving the lot of ordinary workers, "beyond the firm whose productivity improved" does matter. You can still make it to the middle class life today, but you do so by taking those jobs that help improve productivity like being a software engineer. I'm middle class myself. I got there by contributing to productivity gains.
Make no mistake, even prior to the 1970s, there were plenty of jobs that would not have gotten someone into the middle class life. Those jobs that didn't get you a middle life back then have a lot in common with those that won't get you a middle class life today in terms of the amount of skills and effort required.
> What do you call it when real wages don’t go up in a system designed to “encourage productivity?
Low skill immigration. Without them McDonalds workers would earn $25 an hour in San Francisco like they do in Zurich since otherwise nobody would want to work there.
"the system" is designed by people with wealth and is absolutely biased towards protecting it. Its just that encouraging productivity generates them more wealth.
That don't negate the parent's argument, that many measures and structures for protecting wealth are outlawed/regulated agaisnt in our world including monopolies, rent seeking, cartels, etc. That seems to be an argument against the claim that the system is designed to protect wealth.
Given that the population growth is around 80,000,000 yearly, or 1 percent, we are looking at a world GDP per capita decline of 4 percent.
Since large parts of the world's population barely had enough for food as it were, and that even in the first world, a lot of the production goes to create wealth for the few rich, and most people don't save much or anything to begin with, it's going to be felt.
And do we really believe it stops there? Will people actually want to travel and dine out as much as they used to once the lockdowns are over? Or will they be careful for months or maybe years to come? What happens when the virus really spreads in Africa, India, South East Asia and South America? Will they barely care because they are so young it's not dangerous to them? And what about the second and third wave in the first world? What if the vaccine or cure is not that easy to make and distribute so we don't have any before mid or late 2021?
"The economy" refers to a system that's primarily designed to concentrate and protect private wealth, and a 3% loss of private wealth isn't all that bad at all
This isn't really true.
A 3% contraction in the world's economy is the sum of all countries GDPs. That's a measure of how much "stuff" (goods and services) is produced.
It's more closely correlated with unemployment than with the stock market (ie, with private wealth).
Except there is no concentration of private wealth in the long term, and income from capital plays an exceedingly small role in the overall economy. Even those in the top 0.1% mostly make their money from wages.
What you observe is that fact that a great majority of people live on fixed income which doesn't get hit (because these people are useless anyway, like most government employees), and many live off pensions, plus government boosts it's spending. So those who actually make their living, lose a lot more. But same is true about good times, when economy books it's not policemen or school teachers who get biggest raises. Those with capital are even further up the risk curve: when stock market drops, they directly lose money. And dividends on the stock can easily drop to almost zero.
The stock market is basically at late 2019 levels when everything was totally fine. The disconnect between the market and the economy is quite dystopian.
It's more difficult to wrap our heads around, but stocks face "value inflation" much like currencies do. You can think of stocks similar to a currency exchange to the extent that as money gets pumped into one side (in this case, the securities market, via liquidity injections) the price represented by the other side (USD) goes up, but the value of the asset may actually be declining.
Many of the securities that are at their December 2019 valuations are in a much worse state today than they were then. Stores are closed, manufacturing faces significant delays. Employees are let go or furloughed.
This means the "item" that you're paying for today with the same USD that you may have spent in December is of considerably lower "quality" compared to then.
---
That said, it's an interesting situation as drastic financial crisis typically come with some short term deflation, which we're likely seeing the beginnings of now. Many stores are running discount sales to boost purchasing, effectively lowering consumer goods prices (as a whole). This is a prime example, if it continues, of currency deflation.
However, once all is said and done, depending on how the market moves from here, we may very well see the asset inflation turn into currency inflation and bloom for a bit before more drastic financial policies are needed to curve it.
Value is measured (by currency). Are you referring the combination of inflation in currency and the price to earnings ratio seen here: https://www.multpl.com/s-p-500-pe-ratio ?
Semantics for sure, but while value is perhaps represented by currency by what people are willing to pay and sell for. Others have different metrics for determining value -- "value investors", for example, measure the "value" of a security quite differently than it's current price.
But to your point, yes, the combination of currency inflation (as seen through the securities market due to liquidity injection, and perhaps not yet seen elsewhere) and changes in PE ratios is roughly what I'm referring to. As earnings drop, if prices remain as high as they are due to this inflation, the ratios should see a spike, not unlike the one seen in the chart linked for 2009.
Not really. Currently the economy is in a bad state but this is not permanent. We expect things to eventually bounce back when we have the virus under control, and that has been priced into the current valuations. If it wasn't priced in then now would be a great time to buy which would push the prices up due to higher demand. When you own a stock, you own it until either you sell it or the company goes bust. Therefore the price is based on investor belief about the future, not just the current situation.
That may be the case but I feel you are mixing cause and effect. Trading algorithms don't cause a company to make more profit and therefore distribute dividends.
True, but that has very little to do with stock price. In fact, making a profit doesn't cause companies to distribute dividends. When stock prices aren't based on dividend potential, stock price slowly becomes detached from reality. Price becomes pure speculation. Worse, you can do insane things like borrowing money to buy back your own stock: this drives up the price while harming the company's future prospects because they now have to pay that loan back with interest.
And companies didn't suddenly make trillions of dollars in profits in a week to recover from the bottom of the crash a couple weeks back. The market is only up right now because the sharks are feeding on the stimulus money created out of thin air. Automated trading systems are trying to make money right now, not six months or even a week from now.
I don’t think you understand how valuation works in the stock market. The prices of the securities are based on what investors think the company will be doing in 6-12 months, not what it’s doing now.
That’s why in really uncertain times the stock can drastically move without any of the current financials changing drastically. Everyone knows companies are shut down now and are bleeding cash, that was why the market quickly crashed immediately after the shutdown. Now that we’re into the shutdown and it looks like maybe a re-open by summer, how do the businesses look then? Especially when they’ve had bailout money to help pay expenses during the shutdown.
> The prices of the securities are based on what investors think the company
That's a quaint view, but the logistics is completely mathematical. The prices of securities is absolutely and completely based on the bid and offers. It is a completely mathematical outcome of transactions. Of course, prices feed into the psychology of investors, as well as their estimates of future performance. But a huge amount of cash in the market is there to make short-term profits, not long term profits. Automated systems trade huge amounts of money based off technical analysis and price prediction on multiple timescales. There are computer systems with stupid amounts of computational power who only think about how to make two cents by being ahead of the market by 1 millisecond, 1 second, one day, one week. And they make billions.
> That’s why in really uncertain times the stock can drastically move without any of the current financials changing drastically.
I think we're into a rathole here, but this statement basically contradicts your earlier point. If prices are based off the future 6-12 months from now, then crashes wouldn't happen, or be so severe. This is obviously false. Bubbles pop violently.
For a consumption based economy where 15-25 million people will be unemployed temporarily, I don’t think business is going to look like July 2019. More of those jobs will be lost permanently than most people are forecasting, and consumer confidence will take longer to rebound as well. Once the second wave of infections hit when places start reopening, people will voluntarily head back inside.
I have a large short position on IWM right now and have since last week. If the next leg down doesn’t start from Q2 earnings, Q3 earnings will.
Prices are pushed up by purchases, and you don't make money by getting stuck with stock that isn't worth anything. Automated trading is all about very very temporary wiggles, and those are not something to worry about long-term.
It's not like a 3% drop in the economy should cause stocks to tumble in the first place. Drop but not tumble.
I don't see how it's dystopian. Why would we expect the stock market be a measurement of how bad things are right this second, and who's getting hurt if it isn't?
It’s supposed to be forward looking, yes, but I’d argue if it is at 2019 levels that it’s basically pricing in a full V shaped recovery. Nothing indicates to me that unemployment and consumer demand will just revert back to historical lows and highs as soon as a lockdown is lifted and we return to some level of normalcy.
It's possible the market's wrong, and if it is then some investors will end up losing money. That doesn't seem terrible - they won't be in a worse spot than if the market were already lower today.
A lot of commentary is missing that if you believe the Fed and Treasury will put a price floor on the market, for instances by providing liquidity to buy equities or even directly buying equities as proposed- then the EV (your expectation of future values) is heavily skewed upwards.
By analogy, the expectation of location for a random walk which has a floor at 0 is strictly positive and increases monotonically.
Does anyone have an explanation (preferably with source links) for why the US stock market is not absolutely tanking given the depths of economic disruption? I mean I get that the government is supplying stimulus, but I don't see how that can make up for the years of rebuilding that will be ahead even after we reach the bottom of the current jobs-and-small-business freefall.
Do not pretend the past 2 months did not happen. You wonder why it "did not tank" but it DID TANK. It tanked when risks were unknown and everyone with a calculator could understand that exponential spread could kill large numbers.
Now 2 months later the exponential spread has been controlled. Now 2 months later those who think the economy is going to disappear have already sold. Anyone holding stocks now is doing so because they think Coca-Cola is going to be worth a lot of money over the next 30 years. Short of new and surprising bad news the market has no reason to price in further uncertainty.
Do you think the market is appropriately pricing risk?
Do you feel the economic outlook and prospects for growth are the same now as they were in June 2019 when the S&P 500 was at a similar level?
Honestly I think the jury’s out on whether double-digit percentages of the S&P exist in their current form 2 years from now, even with the US government interventions.
Agreed. Price discovery feels broken to me. Maybe it is because of the FED interventions. Infinite is infinite, right?
Perhaps the market is pricing in inflation instead of real growth? Perhaps it's because there's literally no other way of investing your money right now?
It's really become hard to say. The downturn in the previous weeks seems to be way too weak given the current circumstances.
Q2 earnings season started this week, I expect the market to start pricing in reality again soon (down). There is no way we just go back to record low unemployment and high consumer confidence a month after the entire world was in lockdown.
Ahahaha, no. As in, it did tank but if you think it's all done now I think you're gravely mistaken. The financial crisis took a good 15 months to fully manifest and I could say the same thing about other recessions.
Come on now, that was nothing. Just took the last few months off the top of the bubble. The bottom is going to be somewhere between 10,000 and 15,000 for the Dow.
People can point to algorithms, QE, things being priced in, speculation that everything will return to normal as quickly as it stopped. Or maybe it'll go the other way and something will trigger a collapse that brings down a house of cards.
Nobody knows with any reasonable amount of certainty. The best we're going to get is when all this blows over and we can do some kind of post-mortem.
This explains everything. Central banks all over the world will do everything they can to prevent deflation, which means inflation absolutely will happen.
Market priced simply included that as a fact. Verbal interventions work!
Current monetary conditions are extremly good for stock market (as we have learned from post 2009 market).
There is unlimited amount of money and a buyer (FED) determined to buy everything (ETF, junk bonds, baseball card) regardless of price and underlying financials.
So for people who have capital there are guarateed returns in stocks. For the little guy it is other story.
The belief is that there is a price floor on the market. If the market drops, the Fed and Treasury will buy any assets. A price floor has an inflationary effect on prices by skewing the expected value.
If you consider the price of an asset as the expected value of its probability distribution over possible values, then you cut off the negative tail of the PDF by creating a price floor, the expected value shifts significantly to positive.
The stock market dropped nearly 35% from it's all time high. So it did tank. But also the value of stocks is largely speculative. And they are priced compared to the next best alternative. The bond market is not great now, and investing in real estate is impractical in some ways, and it has different risks.
There is too much money around. The rich are so rich, and they have only a few places to store their money. The banks don't want their money, so they invest it, and one of those places is the stock market.
A pretty significant part of stock valuation comes from projected future value. Since most ‘experts’ are saying that we’ll bounce back from this within 6-18 months, the markets reflect this optimism.
Jim Cramer was talking about this very issue yesterday. I have an explanation for this but will reserve it till I get a source for you (I think big investors are playing the market).
Ray Dalio gave a "TED Talk" a few days ago about this: https://www.youtube.com/watch?v=yrxYhv2O3wU. Worth watching. tl;dr He's pretty bearish and uses the depression term in conjunction with "years".
I'm betting on inflation in the next few years. I'm a long-term investor without enough cash or experience to invest in other inflation hedges, so sticking with stocks seems wise to me. I agree, it seems insane, but for a lot of us who don't need money for 20 years it sort of makes sense to stick with it. We've already lost our money.
The S&P 500 average price to earnings ratio is actually only at about 21, which is not an unusual level for the last 20 years. It's relatively high compared pre-1990 levels, but in comparison, during the 2009 crisis, the PE ratios blew through the top. I was actually surprised when I looked at it because, like you apparently do, I expected prices to be through the roof. As this crises continues, though, I suspect we'll see it creep up. People are burning through their limited savings. When that runs out, there will be a crunch -- I would imagine.
That's a 12-month trailing PE though, which has only a small amount of the covid disruption baked into it so far. The (unknowable) PE ratio calculated based on forward earnings might in reality be a lot higher if the "E" part is tanking (it did in 2008: 2008 S&P earnings were down 75% on 2007).
Analyst estimates for what earnings will look like this year are all over the place, predicting anything from a 5% to a 40% drop in S&P earnings per share. If you side with a 5% drop, then the forward PE only rises to about 22. If you think a 40% drop is a good prediction though, that's looking like a forward PE of 35.
The market seems to be pricing in a full recovery. Anything less than a return to normalcy when it comes to demand or unemployment by end of year will send markets lower than now, I’d imagine...
Not the original poster, but a mirror in the context of websites usually means a backup copy of a piece of content that is accessible from another source.
Amazing - how did they figure out that when only everyone has been saying it for the last month? Besides coronavirus, we were already in a period of anemic growth masked by the arguably inflated performance of the stock market. Federal Reserve activity going back to last September or so suggested an economic overhang.
As I see it GDP measures national revenue, not national profit. The closest proxy to national profit has historically been net exports, which is why every country wanted to export a lot but import very little.
Frankly, if "the economy" falls 0.1% in a Great-Depression (as alluded to by the current Democratic presidential candidate) scale catastrophe (for reference, the Great Depression was more believably 25% of GDP) maybe we've massaged the statistics too far. So frankly, why not just gauge "the economy" not by GDP but by estimating actual human profits of working, the money they have left over after rent is paid, food is on the table, and health taken care of. Further, take into account diminishing marginal utility of surplus income. How much do people have left over and how does that change over time?
More seriously, you emphasize a most important point. The delta of information is precisely where it's at.
I wonder if this is exactly the same thing as what we call "bias" in trading / investing. (as a function of some objective knowledge + subjective experience)
I mean, we all have the same information but if my bias happens to be correct, I will be able to outperform others (however much depends on how much risk I'm willing to take, how much hedging I conversely do). That's the delta I create with taking a stance, when I press that button, which conditions I choose to enter/increase/reduce/exit a given asset.
It wasn't a depression in the sense that economic activity mostly continued, it was a deleveraging. People are overestimating the leverage in play in the current situation, other than giant public companies, there is less toxic debt, so it's more about actual economic activity (E.g. trade).
That's what they said at the start of the financial crisis too. I'm too tired to write an essay, but wait until there's a de facto default on college debt.
It's definitely possible that real estate (both commercial and residential) is going to see a bunch of deleveraging as the debt becomes unserviceable. Right now everything is frozen in place. But once it restarts and everyone is supposed to get up to speed on their rents and mortgages again, a bunch of landlords are going to realize they're never getting those n months of back rent that are officially just temporarily suspended. At that point, the more leveraged ones are going to end up with cash-flow problems and mortgages going into default (also currently officially just temporarily suspended). I won't venture a guess on how widespread that's likely to be though.
That’s because it wasn’t a reduction in our national output (real production output). It was a reduction in perceived future earnings (I.e. loans). Today we are facing real production losses that will lead people to really stop buying. As prices increase and many many more people are out of work.
> "2 years of environmental progress made in 3/4 of a year. Incredible."
Which will rebound in a bad way. People who are unemployed will not give two hoots about how much the environment gets trashed as long as they get fed.
This temporary environmental progress is nothing to celebrate about.
I can see environmental regulations getting trashed to get the economy going. I'm worried. Here in Canada, I suspect Alberta will be given a major stimulus to get their oil workers active again. This will happen all over the world.
I don't think that's true. Environmental progress must mean a shift away from fossil fuels. What we currently have is just lower demand, but not for reasons of improved efficiency. I don't think that a lot of solar panels, wind turbines, or heat pumps were installed during the shutdown.
we've reduced demand by realising most of our travel was utterly pointless. things can go on fine without us traversing our cities and the world constantly.
Does anyone know what the "3% contraction" is actually referring to? The IMF report[1] it is based on says GDP, but world GDP contracted 1.9% during the great recession[2], so that doesn't make much sense.
Also, looking at their calculations they have "advanced economies" (basically US, Europe, UK, Japan etc) forecast to contract 6.1%, India expand 1.2% and China 1.0%, ASEAN expans 1.9% and everything else shrink. That can't possibly make a 3% contraction (if 2/3rds of the world's economy shrinks 6%, then 1/3rd can't make it up by expanding 1.5%!).
GDP is what the economy produces. Well then, if you shut everything down for a month, you expect to lose 8% of GDP, because you're not producing during that month. If you shut it down for two months, you expect to lose 16% of GDP.
It will be an interesting test to see what happens after things return to "normal".
Real economic downturns happen because deep structural issues have developed in the economy that cannot be dealth with other than by broad scale cyclical restructuring. But in this case there is not an underlying structural issue - everything was "fine" and then an externality prevented normal productivity. So in one theory of things, once the lockdowns are over people will mostly go back to doing what they were doing before and apart for some one-off bad debts, etc life will just resume. In another theory, economic downturns are like self-fulfilling prophecies and once started will take many years to work out.
It will be interesting to see which one of these happens.
People were incredibly leveraged before the this virus. Not earning for several months could prove fatal to enough people to create a wider catastrophe.
Think about cascading failures in software systems. One relatively smaller sub-system fails which others were dependent on. These other dependent subsystems now fail because their dependency is now unavailable. It snowballs until the entire system is unavailable.
There were signs that everything wasn’t fine before the crisis. The periods of inverted yield curve and freeze up in the overnight repo market last fall come to mind.
The tide has gone out and we’ll quickly find out who wasn’t wearing their bathing suit.
But in this case there is not an underlying structural issue
There is - inequality. It's just that the market is still resistant to pricing it in, and until now people had enough coming in that they were merely unhappy rather than angry and desperate. Laugh now, but book mark this thread and take another look at the end of the year.
Let's say a vaccine happens. You still have to get it to 7 BILLION people or at least disseminate it across the entire globe. It's going to take forever and even if the developed nations are back to normal it's going to be a shit show in the rest of the world.
you know what? things are kinda bad right now, I even lost my job but I'm still hopeful. Hopeful that this "thing" will end and we as humans will grow from that bad experience.
I think the 3% refers mostly to the effect on large corporations, and I think that number is low, even understanding that most government bailouts are going to the financial industries and mega corporations.
I think that number is very low when talking about regular people, their purchasing power and what I predict to be a large drop in discretionary spending.
We have 4 months of real-world experience with the threat but we're supposed to project what 1 year of it looks like. We're not even done with the very first phase.
Color me skeptical.
Such hubris is vain at best and dangerous at worst in times like these.
3% is massive. You can't just compare it with other things contracting 3%, thinking it doesn't sound like a big deal. The effects of each 0.1% the world economy contracts will shift whole industries.
Sure. And if that had happened two months ago, I would have thought that it signaled good times, too. But in the context of when it happened, the recent run-up looks more like "things aren't going to be as bad as we thought" rather than "things are good".
How does this translate into human deaths? Does that amount outweigh the potential human deaths adverted by causing the economic downfall through worldwide lockdowns in response to covid-19?
It sounds like you're trying to time the market... Stocks are down and as long as the market exists they will recover. Going long now is a guaranteed profit
Good point that it's possible to lose decades. Our situation is also very different. This isn't the collapse of an economic bubble, and we haven't had 350% inflation over the last 6 years. This is an intentional economic halt. Our market was very healthy and robust. Recovery is highly likely
Japan's xenophobia is so strong that they don't care about doing what they need to to get back on top (embrace immigration). The USA may be headed in that direction but we are no where near the shitstorm of demographics and xenophobia that Japan is dealing with.
> Japan's xenophobia is so strong that they don't care about doing what they need to to get back on top (embrace immigration).
This old argument gets so tiresome. And then what? After they import 10 million people and then they stagnate again, do they have to import 20 million people?
If the economic system depends on immigration, then there is something terrible wrong with the economic system and it needs to change.
> The USA may be headed in that direction but we are no where near the shitstorm of demographics and xenophobia that Japan is dealing with.
Nonsense. We are all xenophobic. It's human nature. Maybe we are better at hiding it now than japan, but that's probably not a good thing when you think about it. In times of crisis, japan is going to be better off as a homogenous and united population has proven to be far more stable than those with racial/ethnic/religion divisions/tensions.
I still think there's way too much naive optimism out there that things will all be back to normal a month or two from now. I found this [1] deeply fascinating. Some highlights:
- Corporate earnings have been pretty much flat since 2014 (this one in particularly surprised me). So the last 5 years has been a disconnect between earnings and valuation and that always comes crashing back to earth at some point, Covid-19 was just the spark.
- The demand for US dollars will likely devastate some developing nations (who borrow in US dollars) with all that entails;
- The US is in a fiscally weak position;
- Because of the strong dollar and huge deficit the US essentially has to print money to buy its own bonds. A real (rather than nominal) devaluation in US government debt is not out of the question;
On the Covid-19 front:
- Making a vaccine takes time. Proving it works and is safe takes time. Even after you've done all that you have to manufacture it somehow. This is a nontrivial problem. For the flu vaccine the US government actually pays billions to grow eggs for this purpose [2]. This is unsatisfactory in many ways and there has been a long search for an alternative but so far to no avail. Influenza viruses reproduce in chicken eggs. Coronaviruses do not.
- It will take time--possibly years--for spending to return to previous levels. We have examples of this already with the SARS and MERS outbreaks in Hong Kong and South Korea where spending took 6 and 12 months respectively to return to previous levels [3].
- Some industries will take years to recover. Cruise lines are an obvious one but airlines, hotels and tourism are in the same boat (at least it's not the Diamond Princess). I wouldn't be surprised if a lot of frequent flyer miles just evaporate or getting hugely devalued;
- Some businesses just won't come back. Those businesses spend money. They paid employees who spend money. All that money went to other people and businesses who then spend money.
- Social distancing may be here for the long term [4].
- My own belief is that the protracted response to this is there will be some permanent changes in behaviour. This will create new opportunities but also devastate some sectors.
For some reason, share buybacks are the latest bogeyman and I really don't understand why. They're just another form of dividend (ie returning money to shareholders). Borrowing money at low interest for share buybacks is just a tax deferment strategy (one that I don't think should exist but it does).
There's still significant market and economic downside potential and at best I think we'll have stagnant growth for several years.
The problem here is that many people now have no memory of what an actual recession looks like. Even the GFC was quite localized (but of course devastating to many).
> Anybody who advocates unchecked economic growth as some sort of magical savior is an idiot. On the scale of the planet the current situation is very positive.
Anyone who thinks the current situation will lead to anything other than mass poverty and death is an idiot.
The only thing that has prevented riots and general instability of governments is mass bailouts that are hardly sustainable for 2 months, let alone indefinitely.
>The only thing that has prevented riots and general instability of governments is mass bailouts
Yes. This is more to the point that the current economical doctrine is very much misguided.
What I was of course talking about is how positive the situation is for the biosphere.
It's way more grim if the biosphere can not support us anymore. The fact that human political systems cause mass death, poverty and suffering is not news.
That only works if the things that are exchanged for money aren’t destroyed on use, which doesn’t apply to most of the services industry, the food industry, etc.
If everyone just gets free money from the government, nobody will actually do work to receive money from everyone else.
Money is not a closed system. It’s only useful when it’s traded for something that isn’t money.
Keynes described what was wrong with the economy in the 1930's as 'magneto trouble'. Then as now all of civilizations farms, factories, and houses. All oil wells and dams and coal mine were still there.
There isn't any reason the world cannot be fed during the current crisis. Do I need new clothes? Not really. Do the people who make and sew clothes need to be fed? Yes.
It's a modern disease to think the only reason people work is because of money and the fear of being homeless.
In WWII the US increased agricultural production in order to feed Britain and the Soviet Union. Despite very tight limits on non essential goods. Workers took their wages, paid off debts or them in the bank.
Even if we somehow completely shut down production of stuff to buy, and all existing stocks disappeared... there are plenty of people that would accept large paychecks to save for later. We need less than one percent of the population to be harvesting food.
To avoid starvation, people only have to harvest enough food for themselves. They don't have to harvest food for millions of other people who aren't harvesting food themselves. But there's no way for all those millions of other people to go and harvest their own food. That's just not the way food production is set up. Nor should it be, if we want to have anything more than a bare subsistence standard of living.
But the people that are working are the ones producing the needed goods and services.
Which suggests that most of what we need is produced by about 10% of the workforce and the rest is largely busy work.
The longer this goes on, the more that will become apparent.
Then the discussion starts about what the 90% have to do so the needed 10% do a full week to look after all of us rather than just stopping on Tuesday when they have made enough for themselves.
I think classifying goods and services in "needed" and "unneeded" is a fool's errand.
It's also none of our business what people choose to do with their life and money. If they want to waste it on frivolous things, that is their choice and privilege.
It would be a nice silver lining if first-world countries could come out of this and continue consuming less. Keep some/most jobs WFH, stop trying to produce just for the sake of it (as in, we don't need a new phone/car models every year), work <40 hours/week, keep unemployment insurance healthy. It'd be a huge boon for both the environment and people.
I think we'll stop we will naturally stop buying a new phone/car when it stops being worthwhile buying them.
To be honest these days I couldn't fit a bigger TV in my living room if I tried nor can I appreciate the difference between 4k and 8k, so as far as I'm concerned there are close to zero reasons for me to want a new model of this particular technology.
Phones are much the same. I see phones coming out with 5 cameras on the back. I just need one.
It'll all naturally slow down. I'm happy for it to run it's course. So far the innovations have been pretty good. It has to end somewhere eventually.
God I hate this argument. It pops up in every thread about climate change. Yes, yes, we know. The "Earth" is a rock, space, mater, existentialism, George Carlin thinks the earth wants plastic, blah, blah, blah. We're talking about our got damn descendants.
It's not an argument, it's a statement designed to point out the sheer hubris of thinking we actually matter, which is the root of all of the world's problems: human pride. If you hate it that much, it was probably meant for you.
That’s bullshit. It’s a statement designed to sound intellectual, but it’s tired and unhelpful. Climate change is a tangible, human made problem, and it can be solved for the betterment of future humans. If we care to.
Oh, sorry. Are you referring to the fact that this is a WSJ article and it's not free to viewing? If I find a free article with similar info I'll post that.
Well, if COVID's R0 is 5.7, then herd immunity is 82%, which we could hit before there's a vaccine. Death rate is 3.4%, according to WHO (which is absurdly low in my mind), then population would drop by 2.8%, meaning GDP would drop by the same...assuming those that die spent an average amount of money
If the WSJ wants me to show some concern, they should eliminate the paywall on certain articles. I don’t care that the large amount of their content is paywalled, but if they want me to read their opinions, they can’t hide them.
Lots of people have lost lots of money trying to short the market. Your fighting the fed and their trillions of liquidity they dumped into economy. Even shorting junk bonds etfs which seemed like easy money is getting helped by the Fed.
It’s not about shorting the market but readjusting your investments to capitalize on rapid recovery. In 2009 turned my $5000 from 1 year of 401k into $14000. It’s just using the down economy in your favor to sell mediocre stocks (everybody looses when the market sags so much) to buy really low stocks/funds that either recover before everything else or grows tremendously from a tremendous loss.
> It’s just using the down economy in your favor to sell mediocre stocks (everybody looses when the market sags so much) to buy really low stocks/funds that either recover before everything else or grows tremendously from a tremendous loss.
If you can reliably identify good vs mediocre stocks, why aren't you a billionaire instead of messing around with pennies in your 401k?
That’s not it at all. It’s about identifying risk and gambling your personal money on it. You don’t have to be a genius visionary. Risk is identified for you by the fund managers.
In 2009 I moved all my money from growth funds to an emerging market fund. It was hit harder and earlier than the other funds available but also produced huge growth earlier and faster than the market average.
This time I waited for the first market spike to sell anything when my losses were only about 15% then moved about 20% of my money to airlines, cruises, and a low density pipe metal company that just spun off. My new purchases have gained about 50% over the last two weeks. They are still losses overall and will hold on them until market recovery.
One of the issues of such a contraction is its impact on stocks. People often think it's just for the rich. It's not! Think of all the teachers, firefighters, nurses, police - all those first responders whose pensions are invested in stocks. Such contraction will terrible for their eggnests.
Yes and No. Yes, if the top 10% of households is called "working class".
If a cop and nurse family is the representative of working class, yes, use the people in the service sector (restaurants, gig workers, contractors, etc) to bail out the govt fat cats.
> Yes, if the top 10% of households is called "working class".
The working class (proletariat), especially the proletarian intelligentsia, overlaps with the top 10%. “Working class” is an economic relationship, surviving principally through selling labor, rather than through a balanced mixture of capital and labor (“middle class" or petit bourgeoisie) or principally through returns on capital (capitalist class, or *haut bourgeoisie).
But a cop and a nurse on average would make about $130k (round figures, $55k for the cop and 75k for the nurse), 90th percentile household income is about $185k, so while it's possible for a cop/nurse couple to reach it, it's not remotely typical for even that couple.
In 2009, the economy collapsed because of bad loans. In 2020, the economy is shutting down because we shut it down.
That’s said, our shutdown could certainly snowball into serious issues with the economy where the pre-existing economic activity doesn’t come back.