Economic implications of a SARS/Coronavirus outbreak

[Smurf1976]

The spreading collapse of Greensill is not going to create confidence in the economic future of many companies particularly with the long term impact of COVID. Good analysis on the ABC. I suggest there may be some very naked swimmers out there.!!

Agreed - it's exactly the sort of thing that tends to happen toward the end of a major bull move. Something blows up and exposes the proverbial naked swimmers that were already there, just previously unnoticed.

This is one to watch in my view - not so much for Greensill itself but in terms of what happens next.

 

[sptrawler]

If Whyalla is allowed to go down, it shows there is no intent to bring back Australian manufacturing and most of what has been said will have been no more than rhetoric.
Time will tell.

 

[over9k]

"Twenty-nine vessels loaded with containers were anchored Sunday outside the biggest gateway for American trade with Asia, compared with 30 a week earlier, according to officials who monitor traffic in Southern California’s San Pedro Bay. Eighteen more are scheduled to arrive over the next three days, with 10 of those set to drop anchor.

The average wait for berth space was 7.5 days, down from 7.7 days a week ago, according to the L.A. port".

https://www.bloomberg.com/news/arti...-in-los-angeles-drags-on-bogging-down-imports




Increase in dockworkers' hours should help alleviate this a bit.

 

[over9k]

Alright the CPI data is in and it's below expectations:

https://www.bls.gov/news.release/cpi.nr0.htm

So bonds plummeted & stonks (particularly tech) screamed in response:



With oil/energy still on the move, holding our respective nerves looks like it's going to pay off here

 

[over9k]

Just in case anyone's wondering how much money is going to be borrowed this year.

And this is before we even start on monetary stimulus. There's been a lot of talk about monetisation of debt/inflating the debt away, but so far, it's only been talk.

 

[over9k]

Lol and it seems we're getting round two of gamestop and the meme stock madness.

Keep holding.

 

[over9k]

All looking good for stocks, and the stimulus package just passed too

 

[jbocker]

...choke on the water... ok thats dunnit..

from Prophets in Deep Purple

some stupid with a debt gun
burned the $ to the ground
Choke on the water
No Flyers in the sky

...sorry bit early and its not Friday... carry on.

 

[againsthegrain]

Denmark suspends use of AstraZeneca Covid vaccine over reports of blood clots

Not good news for Astra Zenica

www.cnbc.com/amp/2021/03/11/denmark-suspends-use-of-astrazeneca-vaccine-over-reports-of-blood-clots.html

 

[qldfrog]

Denmark suspends use of AstraZeneca Covid vaccine over reports of blood clots

Not good news for Astra Zenica

www.cnbc.com/amp/2021/03/11/denmark-suspends-use-of-astrazeneca-vaccine-over-reports-of-blood-clots.html

And in my not fully informed opinion, a bad news for the expected increased numbers of guinea pigs of the ARN vaccine versions. Soon we will sée sheeps here in Oz demanding to become Pfizer lab rats.

 

[jbocker]

I wonder if it is worth the rush to have a vaccine in Australia right now. We have gone this far and I wonder about waiting a little longer and watch what the vaccine real world results are, in other countries first. I understand that the sooner we are vaccinated the sooner we can open up international borders - the economic implication.
It is my understanding that being vaccinated does not stop you getting covid-19 but it does significantly lessen the level of sickness. It is better that we continue to be happy with the health of those that arrive into this country first.

 

[over9k]

They want the foreign students. This country is totally reliant on foreign sources of income.

 

[over9k]

Also, massive pull last night all round. I'll do a weekly summary after tonight. Meanwhile:



Still holding ERX, GUSH, NRGU, no intention of selling anything.

 

[Dona Ferentes]

Hmmm

 

[over9k]

"It is predicted that as a result of a decline in international student fee revenue Australian universities collectively will have a shortfall in discretionary income available to support research over the next five year to 2024 of between $6.4 billion to $7.6 billion. The shortfall will result in a reduction in the research force of between 5,100 to 6,100 research student and staff researcher positions, approximating some 11% of the current research workforce. The precarious situation currently faced by the sector, because of the loss of overseas student revenues due to the COVID-19 pandemic, is underscored by the fact that for 2018 university dependency on discretionary fee revenue to support research was equal to 51% of all externally sourced research income and government research block grant funding. Some universities were committing more of their own discretionary funds to research than externally sourced research income. The impact of the pandemic means that the discretionary funds available system-wide will be reduced from the current 51% to less than 30% of external funding for 2020 and beyond...Universities spent A$12.2 billion on research in 2018. Discretionary income used to fund Australian university research that year amounted to $6 billion, of which $3.1 billion came from international student fees".

https://theconversation.com/7-6-bil... billion,came from international student fees.

Good. Defund the entire system and outlaw university education for non-citizens while they're at it. Maybe all these parasites can start producing a product that is actually worth buying and/or get a real job like all the rest of us.

 

[againsthegrain]

"It is predicted that as a result of a decline in international student fee revenue Australian universities collectively will have a shortfall in discretionary income available to support research over the next five year to 2024 of between $6.4 billion to $7.6 billion. The shortfall will result in a reduction in the research force of between 5,100 to 6,100 research student and staff researcher positions, approximating some 11% of the current research workforce. The precarious situation currently faced by the sector, because of the loss of overseas student revenues due to the COVID-19 pandemic, is underscored by the fact that for 2018 university dependency on discretionary fee revenue to support research was equal to 51% of all externally sourced research income and government research block grant funding. Some universities were committing more of their own discretionary funds to research than externally sourced research income. The impact of the pandemic means that the discretionary funds available system-wide will be reduced from the current 51% to less than 30% of external funding for 2020 and beyond...Universities spent A$12.2 billion on research in 2018. Discretionary income used to fund Australian university research that year amounted to $6 billion, of which $3.1 billion came from international student fees".

https://theconversation.com/7-6-bil... billion,came from international student fees.

Good. Defund the entire system and outlaw university education for non-citizens while they're at it. Maybe all these parasites can start producing a product that is actually worth buying and/or get a real job like all the rest of us.

Article almost brings a tear to my eye, the question is what research do they do and produce that
1. is so important
2. costs so much

The primary function of a university should be to educate local kids who then contribute to the local economy

 

[Smurf1976]

The problem with universities is that they're another thing on the list of victims of Australia's obsession with making a quick buck at the expense of the future.

Problem is, we've done that for long enough that the future's arrived and the effects of those past actions are mounting up, hence it's harder and harder to keep the game going.

 

[over9k]

Article almost brings a tear to my eye, the question is what research do they do and produce that
1. is so important
2. costs so much

The primary function of a university should be to educate local kids who then contribute to the local economy

and 3: isn't yielding a return.

This was one of the hardest realisations I had growing up - that the universities, institutions which are supposed to be there to help you and should, outside of the police force, have the highest integrity of any institution in all of society, are run by absolute scumbags.

I now anticipate a titanic fight within the uni's as funding goes to whoever can wield the (probably political) power necessary to attain it rather than to where it might actually yield a return. I bet all the gender studies garbage remains whilst tech or engineering or whatever gets nuked. Mark my words, I bet it happens because the arts etc types are almost invariably the ones that end up running the uni's unless they're tech colleges like MIT (which is obviously in the USA) or something.


This is not going to result in the fat getting trimmed, in fact, they'll probably cut the meat and retain the fat. They've already done it at the teaching level (cut the local students but retained the foreign ones and thus churn out absolute garbage graduates) so why not do it with research as well?

The whole thing needs to be burnt to the ground IMO. The milquetoast stuff the federal pollies announced where they're cutting a bit out of the arts etc: https://www.studyassist.gov.au/news/job-ready-graduates-package-higher-education-reforms-0 doesn't go a tenth as far as necessary.

 

[over9k]

Alright so the madness of the past month or so clearly needs explaining. If you want the tl;dr version, it's not actually the bond market directly, it's just pure market irrationality and a bond run triggered by the texas snowstorm/not a long term thing. But here's the full (long) post of just what has sent everyone's heads spinning over the last three weeks:

The last week looks like this (all triple levered):



The last month looks like this:



And the year to date looks like this:




As you can see, everything except the dow topped out on the 16th of feb and then commenced a run of absolute madness (plummets, spikes, and everything in between) from there on out. There's been both a downtrend on average and a massive increase in volatility.

If you were to believe the talking heads on the news, there's been a huge run in the bond market and this is smashing risk stocks. Whilst this is correct, it's like usual, only half the story. What we need to understand is WHY this is going on and to put it into context.

If you were to only look at 10 year treasuries over the past month, you'd be forgiven for thinking "oh yep, big spike, classic inverse correlation with stocks as the risk premium and p/e both get whacked, exactly what you'd expect":


I've marked 1.3 for a reason, and I'll explain why in a moment.


But look at the 10 year yield over over the past year:



Didn't exactly start on the 16th of feb, did it?

So in a classic case of post-hoc analysis, all the talking heads are pointing to previous articles like the following and being all "yeah see people were concerned about this ages ago":



And then followed this up with the previous carryon about the 1.3% point. I mean, everything went mental and flipped at the nice round 1.3% point so that must have been it, right?

Well, no.

Remember that inflation fears play a huge part in bond markets. You're not going to loan money out if inflation will eat away any returns you make, are you? So if inflation is high, you're going to want your return to be above the inflation rate in order for your investment to actually be worth something by its expiry. I mean, that all makes pretty obvious sense I would have thought.

Now, there was something that triggered massive inflation fears on the 16th but it wasn't any kind of actual inflation data like CPI numbers getting released or something like that, oh no.

What happened was that a once-in-a-century weather event, a massive snowstorm (because we haven't had enough once-in-a-century events lately) absolutely smashed an enormous part of the united states' power grid in its south, where power-producing assets are not built for cold weather endurance because, well, it never snows there. Until it did:



It was so bad that it even got its own wikipedia pages:

Of particular note is this one, all the political BS about renewable energy began virtually immediately but reality was that even the fossil-fuel derived power generation was smashed on account of not being built to handle the cold:



And so that all went very quiet very quickly.

But what couldn't be swept under the rug was what this did to power prices. Remember, as it shows in the wiki entry above, in texas they couldn't even import their power from other states, so power prices went stratospheric. Remember, pay close attention to the dates of everything in this post:



And this is what triggered the massive inflation fears. This was so bad that even hospitals, perhaps the only buildings actually outfitted with any kind of redundant power system (all hospitals have onsite generators precisely to keep them going in the event of a power outage) had to be evacuate.

And to be fair, can you really blame markets for getting worried about this? Texas actually has a massive and growing tech sector and is well on its way to becoming the USA's #1 tech state as companies are bailing out of california like mad so you can imagine just how concerned an awful lot of companies and investors (and therefore money) became about this.

However, like all market reactions, it was an overreaction.

Texas is the country's energy capital, both in terms of greentech and conventional power. It's by far the top U.S. state in terms of wind power generation, it is rapidly moving up the ranks for solar power, and everyone understands' that it reigns supreme in oil and natural gas.

The storm front seized up everything. It coated wind turbines with ice, forcing 7GW—approximately 10% of Texas’s available grid--offline. It turned associated water that often occurs as part of natural gas production to ice, shutting in half of the state's production. Oil was similarly impacted, stopping some two-thirds of Texas’s output. Between these direct issues and follow-on ones – water coolant at nuclear power plants froze, forcing shutdowns; insufficient natural gas led to fuel shortages shutting down nearly 17GW--approximately 25% of Texas’s available grid; oil and power curtailments necessitated shut-downs of the bulk of Texas's refineries leading to mass gas station closures – some seven million Texans lost power. Some for days.

Anti-Green voices were quick to condemn the wind turbine issues as proof that greentech will never work. Anti-fossil fuel voices were quick to condemn conventional fossil-fuel thermal-power generation as broken beyond repair. Both are wrong. Deliberately, stupidly, hilariously wrong. What happened is a lot more basic:

Texas doesn't normally get winter, and so isn't winterized.


But the good news is that this is actually going to be absurdly, comically easy to fix. Peter Zeihan explains below:

"The technologies and equipment required to operate energy systems at temperatures below 20 degrees are not new. They have been used regularly for decades in places as far removed as Ohio, Oregon, West Virginia, Peru, Tajikistan, Chechnya, and Bosnia. They aren't technically difficult. They aren't overly expensive. What they are is usually unnecessary in areas that never have winters. You're just not going to see things like heating elements embedded in the blades of wind turbines or insulation on natural gas pipes in places like Brazil, Sicily, Vietnam…or Texas.

The entire incident has dented Texas' reputation (for now) as a low-regulation, low-risk and above all else low-cost place to do business. Winterizing isn't difficult or overly expensive, but it cannot be done overnight, and it is not free. Those costs must be passed on to anyone who uses fuel or electricity, which is, well, everyone. I still believe Texas will be the U.S. state that will do the best in this rapidly deglobalizing world we are entering, but some of the shine has undoubtedly come off.

A post-mortem of the recovery process will make it very obvious which pieces of infrastructure will recover more quickly. Burst pipes must be repaired or replaced. Homes that require natural gas for heating will have to have everything inspected to prevent catastrophic follow-on fires and explosions. Coal piles that have frozen through all the way to the ground will take several days to fully thaw. But wind turbines? A little sun on the blades and they can start spinning again.

We've all assumed that the intermittent nature of greentech generation is a negative, necessitating it being backed-up and balanced-out by more reliable conventional electricity sources like natural gas burning power plants. For the most part that remains true, but this coming week Texas will demonstrate that in some circumstances wind is actually more reliable than supposedly rock-solid, non-intermittent, fully-dispatchable fossil-fuel driven power. That unexpected lesson will lodge itself into Texans' collective subconscious and color infrastructure decisions for years.

That lesson will find itself reinforced by the issue of longer-term costs.

Safeguarding wind turbines so the events of this past week can never happen again only requires some built-in heating elements or a few drone ports to manually de-ice. Once (or maybe twice) and done. But safeguarding more conventional power generation? Insulating every above-ground oil, natural gas, and water pipe in a state that's bigger than France? Building out internal storage for coal piles at coal plans? Developing natural gas storage depots rather than relying upon just-in-time fuel deliveries? Insulating the country's largest concentration of petroleum refineries? Each incremental improvement might be easy, but Texas will need to upgrade everything. The cost will easily run into the tens of billions.

But Oklahoma does this as a matter of course".

So in summary?

It's not nearly as bad as everyone think it is. Expensive to fix yes, but not overly difficult, and that's the key takeaway here: Winterising everything will be expensive and annoying, but not difficult.

So long term, it's a speed bump. Nothing more. But our headache in the short term is that the markets haven't figured this out yet.

In fact, the fears are so bad that a run has effectively been triggered on bonds and risk stocks, with 10 year treasuries continuing to scream and risk stocks (like tech) continuing to be smashed day after day after day.

We had a brief respite on thursday when the CPI data was released and inflation was actually below expectations and so everything flipped immediately:

 

[over9k]

And then just went back to plummeting on friday as everyone went "oh, that was last month's data. I bet this month's will be awful on account of that storm". Check out the orange line here (two day graph) to get an idea of what I mean:



Which of course inversely correlated with treasuries resuming their trip to the moon (week graph), as shown here:



But if this wasn't enough carryon, we've also had the meme stock madness to contend with at the same time as well. Oh yes, it's time for wallstreetbets's round two with gamestop, because we haven't had enough black swan events lately:



And here's GME against TQQQ over this period:



Please note that I've had to plot GME and TQQQ on different scales (right and left hand sides respectively) due to the GME movements being literal orders of magnitude greater than even a 3x leveraged index ETF.

As you can see, it hasn't had the effect that it did in round 1... yet.

YET.




So in summary?

Well there's a combination of utter lunacy from meme stock madness and a total head-spinning overreaction playing merry hell with the markets at the moment. But the key takeaway is that even though we might see some more madness from wallstreetbets, it's going to be temporary, and all the inflation fears coming from a belief that texas et al are going to see big spikes in power prices (and energy prices, as we all know, effect the price of everything on account of being a primary input just like oil is/does) are completely overblown.

As I've shown in several previous posts, basically all of the cause of any inflation we're seeing is a SUPPLY side issue through ships sitting at anchor or car factories being mothballed because they can't get the microchips needed to make their cars or meat plants running at 40% capacity as coronavirus runs through their entire workforce.

Both of these problems are going to be fixed and they won't even really take that long to do so - the northern hemisphere is well over the hill of winter, vaccines are being deployed at record rates, all texas needs to do is literally copy exactly what has already been done in the other states, and virus cases are continuing to drop precipitously:



When the market is going to figure all of this out, however, is another question. If I was running some in & out plays, I'd say that when the next batch of CPI data comes in way, way, way below expectations, we'll see a HUGE move in the markets in response.

In the meantime, inflation-winning plays like energy, oil, and the banks, continue to absolutely scream as they already had momentum from reopening/recovery expectations and have just been put on steroids by inflation expectations as well:



However, with no way of actually knowing when the market is going to realise all this carryon is overblown (as I said, I'd guess it to be the next batch of inflation data but that's pure guesswork. Educated guesswork, but guesswork nonetheless) and the fact that energy and the banks have organic recovery/growth tailwinds pushing them completely irrespective of any inflation beliefs, my play from here on out is exactly what I said a few posts back:

Continue holding everything.