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Category: Macro-Economics and Patterns

Dr Duy & a FOMO fix

Dr Duy & a FOMO fix

My investment thesis is unchanged that current prices are artificially elevated and gravity will have its day; my portfolio is cash rich in anticipation. However, this morning with futures up again, there were moments of FOMO …. YIKES!

Dr Duy posted his view this morning and it helped put some rationality and gravity in my thinking. It is totally worth the read …

His take-away puts the risk exactly where it belongs – the US government (that’s HIGH risk imho), quote:

Bottom Line: On a certain level this shouldn’t be that hard, at least from a macro-policy perspective. Keep pumping money into the economy to support incomes as you build out the public health infrastructure to contain the virus while gradually ramping back up the economy. We just can’t fully commit to that program. That lack of commitment leaves us with a few more downside risks than I would like.

Academic look at C-19 economic impacts – jobs

Academic look at C-19 economic impacts – jobs

This working whitepaper is about 1 month old (from the data used) but holds a couple of interesting take-aways.

Source: https://bfi.uchicago.edu/wp-content/uploads/BFI_WP_202059.pdf

I have to give credit to the authors for their attempt to use data and academic rigor to articulating a possible post c-19 jobs picture. It’s not an easy read, and I came away with two key points to help my portfolio management.

First, the post c-19 recovery is probably going to take longer than current equity prices assume. This article suggests 2H ’21 the earliest GDP could return to pre C-19 levels; but that does not suggest nor imply same levels of employment, revenue and profit – currently unknowable?

Second, a number of 77% of lost jobs are assumed to be either kept, returned or relocated. That leaves 23% lost until economic growth creates them … sometime AFTER 2H ’21 based on above. The absolute numbers are less important than the levels (~20% lost jobs) and one can easily do the math.

If the authors analysis and assumptions hold, then consumption driven activity will be reduced by some number close relative to that 20% – and, higher government support for unemployed, underemployed … discretionary spending will take a hit almost certain and local governments will be further stressed.

Mary Meeker’s team on C-19

Mary Meeker’s team on C-19

The ever insightful Mary Meeker and team put together a piece on C-19 following her typical content pattern. https://www.documentcloud.org/documents/6842117-Our-New-World.html

I did not find it as actionable as her regular internet updates, but she and team definitely put down things that a) need to be included in my framing of investment opportunities and risks, and b) are going to require additional research / work and time to provide actionable insights.

The piece is worth the read

I will leave their insights to your harvesting, but the one point she closes on and I totally agree … “We will get thru this, but life will be different”

Mr Duy on FOMC – April 2020

Mr Duy on FOMC – April 2020

The ever rational and candid Mr Duy posted his views on the FOMC decisions and actions from yesterday’s presser.

Here’s the ‘bottom line’ quote: “Bottom Line: The Fed has pulled out all the stops to support the economy and will continue to use every tool at their disposal to minimize the tail risks to the outlook and support the recovery. Powell and his colleagues have not declared victory; they anticipate a long road ahead. Here’s the thing: Powell gets it. He understands the enormity of the situation. He isn’t going to stand by and let it all fall apart without a fight. And he isn’t going to walk away after the first round.

For me, there were three things that hit me – 2 from Mr Duy and 1 from Mr Powell.

1 – Powell is the right person for this job and we almost lost him

2 – FED is in the game 100%; they have become the ‘pig’ at breakfast when so many others are hardly the ‘chicken’ (if you don’t know that little contrast, let me know)

3 – Powell made it very clear like at least 3 times – FED loans money, they (legally) do NOT grant money – that’s the job of fiscal lords (Congress and Treasury)

One more add to compliment Powell – (Heisenberg mentions it too in a rather cutting criticism of Powell’s critics) – he showed empathy to people suffering and to all of us dealing with this – something in short (very short) supply from current elected / appointed DC officials.

Jobs or no jobs … but people!

Jobs or no jobs … but people!

Heisenberg posted today on the job numbers which were a continuation of terrible. Two points struck me.

First, Heisenberg did a fabulous job (consistently over the last few weeks) of making sure we remember that behind those numbers are real people. I was often reminded when i managed teams and was required to redeploy human resources that there is a curse of dehumanizing it all due to the simplicity of spreadsheets and numbers – there are humans represented by those numbers; quote: “Obviously, one can extrapolate and otherwise work with the numbers to create a smorgasbord of alarming statistics, but, as I’ve been keen to emphasize, these aren’t just statistics – they are people”

Second, the stock markets took 4.4m jobless people as a positive as it was not even higher … what kind of world is that a rational response?

How will senior housing change post C-19?

How will senior housing change post C-19?

As part of my review of the value chain and business model impacts of Coronavirus / Covid-19, senior housing will be one of the canaries in the coal mine, or spotted owls in the old-growth timber ecosystems. I just find it highly implausible (regardless of the demographic arguments everybody fell in love with, myself included) that these value chains and human interactions will surface unchanged from 12 months ago.

Here’s a global view of deaths so far by country within “Care Homes”; note that US figures are missing

Infographic: COVID-19: High Mortality Rates Linked To Care Homes | Statista

Source: https://www.statista.com/chart/21439/estimated-share-of-total-covid-19-deaths-linked-to-care-homes/

2 scientific reports sustainable energy

2 scientific reports sustainable energy

2 recent studies were published that I found interesting and worth the read.

The first is about the solar panel cell chemistry improvements. Even with all my semiconductor design and manufacturing experiences, I found this science complicated but encouraging. https://www.sciencedaily.com/releases/2020/04/200415133625.htm

The second is complex modeling on the impact of wind turbines and their disruption to the micro weather (air-flow) patterns if capacity was increased. Even the authors’ description of the modeling was complex. Yet again, way encouraging if we can increase wind capacity without increasing unintended consequences, e.g., air flow around the turbines. https://www.sciencedaily.com/releases/2020/04/200414095737.htm

Disclosure: One of my main investment themes / narratives is sustainable energy, so I have a positive bias here.

Mr Duy update

Mr Duy update

Quote: “Bottom Line: Controlling Covid-19 requires drastically constricting economic activity; the proof that the plan is working is that the data collapses and we bend the infection curve. The former has definitely happened and it looks like the latter will as well – social distancing works. We still have a long way to go until we return to some semblance of normality, but expect people to begin working in that direction when the restrictions on activity ease. Most important now is to keep the pressure up on Congress to provide sustained support for the economy; that support should be open-ended, based on economic conditions not time or dollars.

Duy’s other great point is, quote: “Eventually that time will come (but don’t rush it or all the work we just did will be in vain; I am hoping by the end of June if not the beginning), and we should anticipate the economic numbers to pop on the upside. Think of the same story in reverse. Even assuming that reopening the economy is like turning up a dimmer switch, there will still be pent up demand activated and some activity will be starting from a base of almost zero. There is little place to go but up.

Bolds are his originals.

Source: https://blogs.uoregon.edu/timduyfedwatch/2020/04/16/its-ugly-out-there/

A view on small biz

A view on small biz

Note: I have tried to refrain from publishing COVID-19 information and data, as I strongly believe there is too much false, misleading and invalidated information floating around making the situation MORE dangerous.

Seeking Alpha, however, put out a short post on the current state of small business in US based on a recent survey from NY FED. If this does not increase your empathy for small biz owner, you may have lost your heart …

quote:

Some 86% of U.S. small businesses would need to take some action to mitigate losses if they missed two months of revenue, according to the New York Fed’s Small Business Credit Survey, which was conducted in the latter half of 2019 before the COVID- 19 pandemic emerged in the U.S.

Such actions might include using an owner’s personal funds, taking out debt, or reducing salaries of the owner or employees.

Less than half of small businesses have received funds from a bank in the last five years, according to the survey.

That’s particularly salient now because it could slow their access to the Payroll Protection Program funds available under the CARES Act, as banks still need to vet applicants to meet strict anti-money laundering and anti-terrorism laws.

Even before the coronavirus outbreak, almost two-thirds of the firms surveyed faced financial challenges in the previous year, with the most common being paying operating expenses (43%) followed by difficulties with credit availability (33%).

Source: https://seekingalpha.com/news/3559403-small-businesses-lack-cushion-for-missing-two-months-of-revenue-ny-fed

Post on FED’s bubble management

Post on FED’s bubble management

One of favorite writers put out a great post on the FED’s recent (COVID-19 required) actions to create another bubble to fix the bubble that just popped in the credit markets. Sounds like a comedy or a tragedy depending on your point of view. But Lance’s insights have helped me make and prevent losing money over the last couple of years. His inputs are worth the time to understand … I also echo the ‘pension problem’ issue and the recent decline in assets will make it bigger – but nobody is really talking about it yet.

https://seekingalpha.com/article/4334541-fed-trying-to-inflate-4th-bubble-to-fix-third

Quote from his conclusion: “The lynchpin in the U.S., remains demographics, and interest rates. As the aging population grows, they are becoming a net drag on “savings,” the dependency on the “social welfare net” will explode as employment and economic stability plummets, and the “pension problem” has yet to be realized. While the current surge in QE may indeed be successful in inflating another bubble, there is a limit to the ability to continue pulling forward future consumption to stimulate economic activity. In other words, there are only so many autos, houses, etc., which can be purchased within a given cycle.

There is evidence the cycle peak has already been reached.One thing is for certain, the Federal Reserve will never be able to raise rates, or reduce monetary policy ever again.

Welcome to the United States of Japan.” (lance’s italics)

Mr Toad’s wild interest rate ride … wiplash!

Mr Toad’s wild interest rate ride … wiplash!

From the beginning of the year … just eye-popping … what do you do w/it to preserve your capital and maybe beat inflation?

I’m still working on that answer for my own portfolio – hardest times I’ve seen since 1985 when I started investing.