Economic implications of a SARS/Coronavirus outbreak

[againsthegrain]

I'm kind of tempted to do a two grand challenge where I literally just buy on red days and sell on green days and that's it. Just see if it does any good.

If you do it on asx and post your entry and exits close to real time id shadow that for a punt

 

[over9k]

If you do it on asx and post your entry and exits close to real time id shadow that for a punt

I was thinking of using TQQQ with the nasdaq as tech's the most volatile at the moment but we could do it with GEAR on the asx too.

Volatility is key with a degen trade like this so we really need to target the most volatile.

 

[over9k]

And now they're carrying on about how energy costs are the single biggest driver of inflation and the oil price is the single most significant energy price and thus the only way to see any kind of sustainable/long term inflation trend would be if the oil price kept increasing, which as I explained in this post:

Post 2/3 as I've realised I'm going to need a third post to finish all of this:


Graphically, we need economic activity (earnings) up and/or inflation down in order to see stocks grow. If we get both at the same time, stocks grow a LOT.

What we currently see is a tug-of-war with inflation expectations increasing but economic growth expectations increasing as well:

View attachment 121656View attachment 121655

And obviously, for now, inflation expectations are winning this particular war. But as I've pointed out, I think this is all going to be quite short lived because of how much of this is being caused by supply side effects of coronavirus.

Think about this for a second - if we were to solve all of the shipping problems (for example) tomorrow, we'd see a huge supply side restriction lifted and a huge increase in economic growth at the same time as people can actually get the stuff they want and do so at way cheaper prices. The reason why we can't do this is because all the dockworkers, truck drivers etc etc are all off work and/or quarantined because of the bloody virus.

If that's true (and I think it is) then the key to solving all of this is to simply get people vaccinated. It really is as simple as that. This would both allow the economy to get moving as people go out & do stuff as well as all the supply lines to get moving (and thus bring prices down) simultaneously.

What has me concerned is that almost nobody is actually talking about this at the moment. Everyone are just pointing at bond yields running on inflation expectations, then pointing at the massive stimulus package and saying "that'll drive demand and therefore inflation higher" and at no point is anyone talking about the whole other side of this equation.

Check out this interview with Paul Krugman (who I am generally speaking, no fan of at all) which begins at the 24 minute mark:

Wall Street Week - Full Show (03/19/2021)

One of the most iconic brands in financial television returns for today's issues and today's world. This inflation edition of Wall Street Week features David Westin's interviews with Bridgewater Associates Co-Chairman and Co-CIO Ray Dalio, Former Treasury Secretary Lawrence H. Summers, Nobel...

www.bloomberg.com

Paul correctly points out that the last time the United States saw any kind of significant inflation like everyone are carrying on about them soon being about to get was in the oil shock of the 1970's. Aside from then, you have to go all the way back to the great depression to see anything of any real significance at all.

And what's even more amazing is that the United States, thanks to the shale oil revolution, is now actually oil independent and just ticked over being a net exporter of oil, not importer, just before coronavirus hit:

View attachment 121659


View attachment 121662

So not only is the security problem completely taken care of, but shale oil, thanks to technological changes like this:
View attachment 121660View attachment 121661

Is only becoming cheaper and cheaper and cheaper to produce by the day:

View attachment 121663


So not only is there what appears to be a zero probability of any kind of oil shock, but there is actually deflationary pressure on the entire market on account of the fact that the United States just continues to figure out how to produce oil (energy) and therefore everything else cheaper and cheaper and cheaper as time goes on.

When you combine this with the fact that the vaccine rollout rate is actually accelerating as time goes on:

View attachment 121664View attachment 121665

All I'm seeing is a massive easing of the supply side restriction (inflationary pressure) along with a massive increase in economic activity at the same time as a huge deflationary pressure on energy (and therefore inflation) prices.

Post continued below.

Simply isn't possible.


I'm starting to wonder if these people really are market making or are instead actually just genuinely incompetent.

 

[Dona Ferentes]

still stuck



brought to you by "Belt and Road Initiatives" in collaboration with Trans Siberian Railways.

 

[over9k]

Inb4 the virus going through all the recovery teams and several weeks being added.

 

[over9k]

Alright so there's a fair bit to cover for this week so couple of longer posts ahead.

Here's the week:



Couple of things to note:

Same/similiar path followed by everything except FNGU on friday (more about this in a bit) and a huge, like HUGE uptick right at the end for absolutely everything.

Here's the day specifically:


Notice how everything, absolutely everything just took off at about 2.50pm and screamed right up until the close?

The fact that absolutely everything moved in such a massive way in such a coordinated fashion tells me that something unusual went on. I suspect that, when you look at how it was coming out of a dip, this was a major institution making a pretty serious cash deployment (dip buy). The whole thing looks suspicious as hell and short of some major news being announced right at that moment like the fed chair speaking (and I'm not aware of anything) then there's some kind of f*ckery afoot.

Now you probably noticed on the previous graph that a lot of stuff is down on the week but there's far more to the last few weeks that meets the eye IMHO.

Take a look:




Remember before how I was saying that tech was being smashed but banks, energy, and industrials have been screaming?

Notice how the dow (industrials heavy) is off long term trend in the same way that the nasdaq is to the inverse, but the S&P (which is banks & energy-heavy) is virtually right on its long term trend? Same with semiconductors?

Well we all know that we've had treasury yields playing merry hell with things but what we've also forgotten is the U.S vs China spat and the fact that China itself has been cracking down on its own big tech and big companies, so with FNGU being 20% alibaba and baidu, we can see how this has been hit hugely disproportionally to everything else.

The reason why I bring this up is because there's several macro factors effecting the market and one of them looks like it might actually have finally hit its bottom:

Treasury yields



But not only are treasury yields finally on the downturn, but Biden's doubled his target for deployed vaccinations within his first hundred days (so the vaccine supply has increased twofold):



And so even with the big spike we saw at the end of trading, futures are deep, deep, DEEP into the green:



Now I don't want to say that these are the only reasons why the market seems to have changed trajectory, the spike in everything was too sudden and too correlated for there not to be something afoot, but it's clear that someone out there knows something I don't at the moment and bought up big just before close so they could get in before monday.

To get an idea of how bad the bond market rout has been, here's the cliff notes:



So with all that in mind, I'll talk about what I'm thinking my play will be from here on out next.

 

[over9k]

Right so the other factor at play outside of treasury yields and vaccine rollouts (and with them, economic growth expectations) is the U.S-China trade war. Biden's been about three times as hawkish on China and done it about three times as quickly as anyone was expecting:




And so anything to do with China has basically just been absolutely smashed lately by it. When you combine that with the treasury yields hitting risk assets (i.e tech) you can see how the absolute worst place to have been would be Chinese technology companies, and, well, here's the results:



HOWEVER...

The market does seem to have kind of found a bottom by now. Take a look at micro (TNA) mid (MIDU) and mega (FNGU) caps lately. You can see how our previous barbell spread of micro & mega were both beating midcaps, but take a look at things since the snowstorm, which I've marked here:



Midcaps have actually managed to keep their head above water (just) over this time period, but it's when we zoom out that we can get a bit more context:



As you can see, they're right on a slump at the moment and have also spent the entire post-presidential-election-period trading in this beautiful little channel I've shown here and are in fact right on the support point right now.

Other names which were smashed in the wake of the snowstorm, like TAN, appear like they might have also found a bottom:



And AIRBNB, the quintessential reopening trade, seems to have developed a nice range post-snowstorm as well:



So what I'm saying here is that whilst tech has been smashed lately, it does actually appear that it has finally found a bottom and looks primed for a rebound, but along with that, we also have some quiet achievers and pretty clear patterns that have developed and are currently sitting RIGHT on their support levels and are a reopening play.

In short, BOTH appear to be quite good bets at this point in time - tech primed for a rebound, and the things which weren't smashed to continue their slow but steady climb and in beautiful patterns right where we want them to be for some cheeky in & out plays. I didn't deploy my cash on monday like I was going to but I sure am now and MIDU will be my bet so I'll keep everyone updated on it.


The only thing left is the political environment of china vs usa and that's only going to deteriorate further (the only question being the rate at which it does) and so it's probably time to cut your losses/chinese tech exposure if you haven't already. This was always going to happen and the plan was obviously to bail out before things went pear shaped but they've done so way faster than anyone expected so there's really nothing to do there except take it on the chin & move on as everyone in the region including the USA are already way ahead of schedule manoeuvring to counter china:

https://www.japantimes.co.jp/news/2021/03/22/national/south-korea-japan-military-cooperation/

The South Korea-US 2+2 Talks: Who Came Out Ahead?

While the two sides were careful to avoid open disagreement, there are clear areas of tensions, from approaches to China and North Korea to alliance issues involving Japan.

thediplomat.com

https://asia.nikkei.com/Politics/In...d-in-new-Cold-War-Defense-Ministry-think-tank

So even in a great growth industry like asian tech, automation etc there's some major, major, major political/stability risk there now.



The bottom line is that we're very much in the home stretch of finishing the virus off (and doing so way faster than expected) and so everyone are now already planning for the post-virus environment and thus that (those plans/what they are up to) is what you need to pay attention to now.

 

[Smurf1976]

The bottom line is that we're very much in the home stretch of finishing the virus off

Something I've noticed is that the issue is being rapidly "faded" in terms of media, government etc. It's one of those situations where it's just step by step but it's happening.

First the local supermarket removed the wipes at the entrance for cleaning trolley handles etc with.

Then the COVID sign-in book was moved to a location where they know basically nobody will sign it. Classic example of still having something in case anyone asks where it is but knowing full well that it's been mostly done away with in practice.

Go to Bunnings and there's still some signs up about social distancing but everything else COVID related is gone.

The local council is having a public meeting. The subject's irrelevant and has nothing to do with the pandemic but point is, they're back to doing such things.

Schools are back to having fairs and things like that.

Etc.

Just subtle things like that. Nobody seems to have gone around with the intent of removing all evidence that the pandemic ever occurred but it's happening, all the things related to it are one by one being taken down or otherwise disappearing in practice.

 

[over9k]

Dunno what state you're in smurf but outside of vic life's kind of largely been as usual for quite a while now. About the only things still remaining are social distancing limits putting caps on sports events and that kind of thing. Other than that, if you didn't know better, you wouldn't know anything was happening.

The other thing is that the news used to be almost nothing but the virus but it's almost an afterthought now - it's everything else and then the virus is just stuck on the end like "Oh yeah we still have this thing in the meantime".

Virus data is an afterthought and whatever it is, it doesn't seem to change anything any more. About the only thing which is consistently getting hammered is semiconductors (but that's a demand side increase not a supply side choke) and shipping (because there's nobody to unload the bloody things).

The moment that stevedores, truck drivers etc etc are all vaccinated the world's metaphorical "pipes" will be unblocked and it'll be full steam ahead (pardon the pun).

In fact, this suez canal blockage might actually give them the exact breather they need to catch up to the backlog already at anchor at the ports.

 

[qldfrog]

Something I've noticed is that the issue is being rapidly "faded" in terms of media, government etc. It's one of those situations where it's just step by step but it's happening.

First the local supermarket removed the wipes at the entrance for cleaning trolley handles etc with.

Then the COVID sign-in book was moved to a location where they know basically nobody will sign it. Classic example of still having something in case anyone asks where it is but knowing full well that it's been mostly done away with in practice.

Go to Bunnings and there's still some signs up about social distancing but everything else COVID related is gone.

The local council is having a public meeting. The subject's irrelevant and has nothing to do with the pandemic but point is, they're back to doing such things.

Schools are back to having fairs and things like that.

Etc.

Just subtle things like that. Nobody seems to have gone around with the intent of removing all evidence that the pandemic ever occurred but it's happening, all the things related to it are one by one being taken down or otherwise disappearing in practice.

Yes, we have decided it is over.as we had decided it was an actual sizeable thread to mankind.Sadly for Australia, this is bad timing with winter coming down south, it could spread back at any time as we enter the flu season.
After wiping up fear and hysteria for a year, we are at the risk of unwanted public reactions when the next flu/covid variation starts killing the weakests among us as it has done year after year, with various level of "efficiency".
.Another reason to be very careful on the oz market specifically.y
You can not die twice so US, Europe, Brazil will be ok, vaccination or not. We have not that luxury.

 

[Smurf1976]

Dunno what state you're in smurf but outside of vic life's kind of largely been as usual for quite a while now.

SA.

Life’s pretty normal but taking supermarkets as an example, at the height of the pandemic it was a government-mandated sign with a QR code at the entrance, a paper form for anyone without a mobile, wipes to clean the trolley handles with, hand sanitizer, signs everywhere and lines marked with tape on the ground to indicate required social distancing. Plus plastic screens around checkouts.

Looking around the shops, nobody's intentionally removed it all in one go but I'd describe it as fading. Slowly but surely that stuff's going away. The QR code's still there, the checkout screens are still there and there's still some fading tape on the floor but overall the whole thing is far less visible than it was previously. Fewer signs, nobody's wearing masks (can't recall the last time I actually saw anyone in public with a mask, that idea's gone completely around here at least), etc. It's still there but it's fading.

It's much like what happens to an obsolete technology. There was no one moment when everyone got rid of them, but I really can't recall the last time I saw anyone using a film camera for example. One by one everyone went digital until a point where film was effectively obsolete.

All the COVID-related stuff seems to be much like that. No grand dismantling, just one by one it's being wound back and disappearing. You can just walk straight into Bunnings now and last time I went there I didn't even spot any mention of the pandemic. At the height of it, it was socially distanced queueing up outside the shop with limited numbers inside and so on.

Which means:

Sadly for Australia, this is bad timing with winter coming down south, it could spread back at any time as we enter the flu season.

Is a very real concern in my view.

An outbreak and a renewed lockdown, or spike in deaths, could get "interesting" in terms of consequences in Australia yes. I'm not predicting it will necessarily happen, but I think it would come as quite a shock to many if it did since we do seem to have counted our chickens before they've hatched.

A vaccine's been developed. That's nice but, and this is the bit everyone seems to be forgetting, most people haven't received it yet and they won't until we're well into or past winter.

I'm not forecasting disaster but I do think it's possible. Chance that we have another major outbreak isn't zero.

 

[qldfrog]

SA.

Life’s pretty normal but taking supermarkets as an example, at the height of the pandemic it was a government-mandated sign with a QR code at the entrance, a paper form for anyone without a mobile, wipes to clean the trolley handles with, hand sanitizer, signs everywhere and lines marked with tape on the ground to indicate required social distancing. Plus plastic screens around checkouts.

Looking around the shops, nobody's intentionally removed it all in one go but I'd describe it as fading. Slowly but surely that stuff's going away. The QR code's still there, the checkout screens are still there and there's still some fading tape on the floor but overall the whole thing is far less visible than it was previously. Fewer signs, nobody's wearing masks (can't recall the last time I actually saw anyone in public with a mask, that idea's gone completely around here at least), etc. It's still there but it's fading.

It's much like what happens to an obsolete technology. There was no one moment when everyone got rid of them, but I really can't recall the last time I saw anyone using a film camera for example. One by one everyone went digital until a point where film was effectively obsolete.

All the COVID-related stuff seems to be much like that. No grand dismantling, just one by one it's being wound back and disappearing. You can just walk straight into Bunnings now and last time I went there I didn't even spot any mention of the pandemic. At the height of it, it was socially distanced queueing up outside the shop with limited numbers inside and so on.

Which means:



Is a very real concern in my view.

An outbreak and a renewed lockdown, or spike in deaths, could get "interesting" in terms of consequences in Australia yes. I'm not predicting it will necessarily happen, but I think it would come as quite a shock to many if it did since we do seem to have counted our chickens before they've hatched.

A vaccine's been developed. That's nice but, and this is the bit everyone seems to be forgetting, most people haven't received it yet and they won't until we're well into or past winter.

I'm not forecasting disaster but I do think it's possible. Chance that we have another major outbreak isn't zero.

And vaccines do not prevent contagion, at best they lessen consequences which were really mild for most.so there is no interest just risk for anyone below 60 or more unless already pretty sick.so we could ultimately get our first wave..with casualties vacv9nes or not

 

[qldfrog]

SA.

Life’s pretty normal but taking supermarkets as an example, at the height of the pandemic it was a government-mandated sign with a QR code at the entrance, a paper form for anyone without a mobile, wipes to clean the trolley handles with, hand sanitizer, signs everywhere and lines marked with tape on the ground to indicate required social distancing. Plus plastic screens around checkouts.

Looking around the shops, nobody's intentionally removed it all in one go but I'd describe it as fading. Slowly but surely that stuff's going away. The QR code's still there, the checkout screens are still there and there's still some fading tape on the floor but overall the whole thing is far less visible than it was previously. Fewer signs, nobody's wearing masks (can't recall the last time I actually saw anyone in public with a mask, that idea's gone completely around here at least), etc. It's still there but it's fading.

It's much like what happens to an obsolete technology. There was no one moment when everyone got rid of them, but I really can't recall the last time I saw anyone using a film camera for example. One by one everyone went digital until a point where film was effectively obsolete.

All the COVID-related stuff seems to be much like that. No grand dismantling, just one by one it's being wound back and disappearing. You can just walk straight into Bunnings now and last time I went there I didn't even spot any mention of the pandemic. At the height of it, it was socially distanced queueing up outside the shop with limited numbers inside and so on.

Which means:



Is a very real concern in my view.

An outbreak and a renewed lockdown, or spike in deaths, could get "interesting" in terms of consequences in Australia yes. I'm not predicting it will necessarily happen, but I think it would come as quite a shock to many if it did since we do seem to have counted our chickens before they've hatched.

A vaccine's been developed. That's nice but, and this is the bit everyone seems to be forgetting, most people haven't received it yet and they won't until we're well into or past winter.

I'm not forecasting disaster but I do think it's possible. Chance that we have another major outbreak isn't zero.

We did not have to wait for long here in qld ?, was servicing car and in the time it took to change the tires, the shopping center moved to mask on mode for a good 30pc of people there and many retailers, and the queue at woolies expanded.
And we are not in li6ck down yet here on the sunny coast

 

[over9k]

Well worth a listen from 1.55, blackrock are currently running record levels of cash on account of the total uncertainty (utter bull****) expected to continue into the future.

So in other words, lots of chop to trade from here on out.

 

[over9k]

Just in case anyone's wondering where the chop and so forth we're seeing lately is coming from, it's literally just these two graphs playing tug-of-war with each other:

View attachment 121501View attachment 121502

Obviously not going to make a big post about the relationship between the bond & equities market if everyone already know how they interact, but if there's any newbies out there that don't know how this all works then let me know and I'll give you a crash course/maybe add it to the duck's thread

Jobs report much better than expected: https://www.bls.gov/news.release/empsit.nr0.htm



(so almost 50% better than expected)

So the first graph is winning.




Inverse correlation with treasuries is now completely busted:



And then the last week:




Here's how the the four major indices have looked since the feb 17 crash:



You can see how big tech & microcaps were smashed the hardest but also rebounded the most in the last few days on the good economic data.

Here's how all the major sectors look over the same time period:



You can see how the big banks are almost perfectly inversely correlated with the fangs, giving us an excellent hedge and holding both evenly puts you at about net breakeven since the plunge.

However, whilst the dow has been the best place to be over the past 6ish weeks, running the graphs out longer term tells a very different story:



So yeah. Don't sell the banks.

 

[basilio]

I think the economic consequences of the loss of hundreds of thousands of overseas students in Vic is just beginning. From my personal contacts I have already heard that Melb Uni is considering laying 500 plus staff because of the lack of students. I'm also aware that businesses in hospitality are unable to find workers. Essentially O/S students were underpinning these industries - and always at very cheap wages.

On the larger scale I can't see how general retail trade in Victoria will cope with losing hundreds of thousands of customers . This will be particularly the case for small cafes in the city and close to Unis. Likewise there will be tens of thousands of student apartments left empty . I suspect most of these owned by individual investors who have bought them through the large development companies that built them in teh first place.

'I didn't realise how much we relied on backpackers': Employers struggle to find staff as unemployment drops

The unemployment rate continues to fall, with another 70,700 jobs added in March, according to official estimates.

www.abc.net.au

 

[sptrawler]

On the larger scale I can't see how general retail trade in Victoria will cope with losing hundreds of thousands of customers . This will be particularly the case for small cafes in the city and close to Unis. Likewise there will be tens of thousands of student apartments left empty . I suspect most of these owned by individual investors who have bought them through the large development companies that built them in teh first place.

'I didn't realise how much we relied on backpackers': Employers struggle to find staff as unemployment drops

The unemployment rate continues to fall, with another 70,700 jobs added in March, according to official estimates.

www.abc.net.au

Well unfortunately the bright side is, all those businesses that everyone has been complaining about for exploiting staff, are probably now out of business.
So there is always a light, even in the most gloomiest of times. ?

 

[over9k]

I think the economic consequences of the loss of hundreds of thousands of overseas students in Vic is just beginning. From my personal contacts I have already heard that Melb Uni is considering laying 500 plus staff because of the lack of students. I'm also aware that businesses in hospitality are unable to find workers. Essentially O/S students were underpinning these industries - and always at very cheap wages.

On the larger scale I can't see how general retail trade in Victoria will cope with losing hundreds of thousands of customers . This will be particularly the case for small cafes in the city and close to Unis. Likewise there will be tens of thousands of student apartments left empty . I suspect most of these owned by individual investors who have bought them through the large development companies that built them in teh first place.

'I didn't realise how much we relied on backpackers': Employers struggle to find staff as unemployment drops

The unemployment rate continues to fall, with another 70,700 jobs added in March, according to official estimates.

www.abc.net.au

So excellent news all round then?

 

[basilio]

So excellent news all round then?

Nah just a scratch really.

 

[bk1]

Rubbish, widen your field of view..

https://www.commsec.com.au/market-news/the-markets.html : Reports

Job bonanza
Consumer confidence strongest since 2010
Business conditions hit record high