Tuesday, 17 March 2020

Coronapocalypse - some thoughts

Over the past few weeks, markets have witnessed a legitimate 'black swan' event with the emergence of the covid-19 pandemic, which has resulted in a catastrophic collapse in global equity markets of a speed and severity that has rivaled - if not exceeded - that seen during the GFC panic.

While initial covid-19 news emerged in late January about a growing Chinese outbreak, which caused an initial 5-10% market sell-off from previously buoyant early-2020 highs, the selling eased and markets recovered during the first half of February, as the spread sharply slowed in China in response to aggressive containment measures. There have been multiple outbreaks in the past, including MERS and SARS, which both proved to ultimately have a far more benign impact than initially feared, and covid-19 appeared to be following a similar trajectory. However, from late February, news of the virus' rapid international spread triggered further sharp declines in markets, and these accelerated after news emerged about the effects in Italy and Iran being much worse than expected, including tales of healthcare facilities being overwhelmed, which were exacerbating death rates.

This was then followed by a slew of accelerating and increasingly aggressive containment measures being announced across the Western world (and some of the non-Western world), which began with the cancellation of large events, before moving on to work-from-home measures; travel restrictions; forced 14-day self-quarantines on arriving international visitors; full regional lockdowns; the cancellation of major sporting events such as the NBA; to finally the complete closures of public areas, including retail venues and restaurants, with accelerating implications for short term economic activity. Famous people have started to get infected, accentuating the sense of powerlessness. Every single day over the past 1-2 weeks has seen the news go from bad to worse, and falling asset prices and escalating economic effects have, in turn, given rise to fears that this may cause cascading liquidity/bad debt/unemployment effects that could morph into an all out financial crisis.

If that wasn't bad enough, markets have also been hit with a "one two punch" (hat tip Buffett) of a breakdown in OPEC+ supply discipline, with the cartel announcing that in an environment of rapidly falling oil demand, that they would not only not cut production further, but actually significantly increase supply, by perhaps 2-3m bbl/d. This is a separate and distinct event/shock from the covid-19 impact, as it was far from inevitable falling oil demand would lead OPEC+ to not only not cut further, but actually significantly increase supply. Oil prices have collapsed 50% to US$30/bbl, which will have significant consequences for the oil production sector (in particular the US shale sector, and its associated sizable high-yield bond sector), as well as the currencies, budgets, external accounts, and economies of the many oil producing countries in the world. Many will be forced to draw down on sovereign wealth funds to support government spending/social programs, exacerbating selling pressure in financial markets as they liquidate assets. In other words, the world has seen not one, but two shocks in sharp succession, which is an extremely rare occurrence.

So what is an investor to do in this sort of environment? Stay calm and behave rationally. It is an easy environment for investors to become emotional/irrational, as not only is uncertainty rife and markets in free fall - something that makes investors emotional at the best of times - but in this case the impact is amplified by the real and visceral fear investors feel for their own health & safety. But what is called for is a calm and dispassionate assessment of the facts. I do my best to provide one below.

There is no question that the impact on economic activity in the short term is going to be very severe, although some of the claims I have seen about the global economy essentially coming to a complete standstill are a vast exaggeration. At the front-end of consumer-facing retail and leisure, that will be the case, but large parts of the back-end global economy will remain relatively unaffected. Agricultural production, for instance, along with food processing, transportation, and retail, will not be affected. Most mining activity, processing and distribution, and construction activity will continue, particularly as China gets back on its feet and stimulates to support economic activity, and fiscal stimulus to counter the effects of the economic fallout through infrastructure spending rises in the West. The healthcare industry will most certainly continue to operate (19% of GDP in the US). Services delivered electronically, along with back-end fulfillment, will continue, as will service industries where employees can telecommute/work remotely (the world has unprecedented ability to do this in the modern era). Government salaries and services will largely continue. In addition, ignored at present is that economic activity is already quickly ramping back up in Asia - particularly in China - and large parts of the developing world with youthful demographics are likely to be relatively less affected, given that the disease disproportionately affects the old.

Nevertheless, there is no doubt that consumer-facing front-end industries such as retail, restaurants and leisure - particularly in the West - as well as the tourism and travel supply chain, are going to be very badly impacted in the short term. The airline industry, in particular, is facing it's worst downturn in history. With more and more countries implementing 14-day mandatory self-quarantine measures for international arrivals, international passenger traffic could fall close to 100% for at least a month or two - a downturn of unprecedented severity. Domestic travel will be less catastrophically affected, but will also likely still significantly decline as people defer non-essential travel.

However, it is important to remember that the ultimate impact of covid-19 will be a function not just of the severity of the effects, but also their duration. The impact is going to be severe, but there is a decent chance the duration of that severity does not exceed more than a few months. An overlooked reality in that regard is that the worse the short term severity, on account of more and more extreme containment measures (such as NYC's decision to shut all bars and restaurants), the shorter the duration will be, because extreme social distancing measures will inevitably result in a dramatic decline in the virus' average R0 (the average number of new infections each infected individual occasions) compared to the status quo ex ante, which was thought to be about 2.3.

Right now, with the world swept up in panic, there is an intuitive feeling amongst investors that not only is the impact on the global economy cascading from bad to worse, but also that a continuing uncontrolled spread of the virus appears inevitable from here. But that is assuming the worst of both worlds, and it does not seem justified. The spread will rapidly slow from here on account of these measures, and we have already seen in places like China that when extreme social distancing measures are enforced, the case load can rapidly decline, with a lag of perhaps 1-2 weeks.

Aside from government measures, human behavioural responses are also not to be underestimated. As people adapt their behaviour in response to safety concerns, people wearing masks; sanitizing their hands; and being highly sensitive to the presence of sick/coughing individuals nearby, and making efforts to keep a safe distance from strangers, could well (at a guess) halve the R0 by itself - particularly due to the widespread media coverage covid-19 has garnered. In my view, the most likely outcome from here by far is that lockdown efforts result in the volume of new cases starting to rapidly slow 1-2 weeks from now (the approximate lag duration between real case volume and diagnosed case volume).

Furthermore, provided healthcare facilities are not overwhelmed, the death rate appears relatively low. To date, South Korea has engaged in the most extensive testing (under-diagnosis is still a major issue in most markets), and the death rate in South Korea has been 0.6%, and even there, denominator effects are likely still overstating the death rate. Many people say they do not trust Chinese statistics, but South Korean statistics are highly credible. Death rates have been much worse in places like Italy primarily due to a late response and lack of adequate healthcare infrastructure, and it is the (appropriate) fear of the latter that has driven extreme measures in recent weeks in the West to contain the outbreak. That ought to be successful, for the reasons noted, such that death rates should be able to be contained at levels not too dissimilar from South Korean levels, which is about six times as bad as the seasonal flu (0.1%). The flu is also more contagious than covid-19.

In time, if needed, more sensible and less destructive containment measures might be devised and implemented. For instance, covid-19 spreads primarily through droplets emitted by people when they cough and sneeze, that are either inhaled while airborne, or which come into contact with surfaces which are later touched, and transmitted when the toucher rubs their nose or mouth. n95 masks are effective at filtering such airborne droplets. While for the moment, there is vastly inadequate production capacity, a simple and effective containment measure would be to simply require everyone to wear a mask while in public, instead of cancelling all public events/spaces. In most places in developed Asia, the simple combination of masks; temperature screening for all entering public spaces; and aggressive containment of identified cases and people they have associated with, have been largely effective in dramatically slowing the pace of transmission. Given the success we have already seen with containment in Asia, it appears likely to me that investors are being far too pessimistic about the ability of containment efforts to also work in the West at present.

The other important difference to GFC-type downturns from the perspective of the likely duration of the impact vs. its severity, is that a short term exogenous shock has different medium to long term effects than a downturn driven by the collapse of a bubble. When a bubble bursts - such as the US housing bubble during the GFC - demand falls from artificially-high levels to a more sustainable level, and a large measure of that decline is permanent (albeit there may be some short term overshooting effects). After the US housing bubble burst, housing construction and the mortgage financing supply chain, as well as all the consumer spending the prior rapid increase in leverage was supporting, had to revert back to more sustainable levels. The bubble excesses were not coming back (growth eventually resumed, but from a lower sustainable baseline).

A shock-induced hit to demand is different. As soon as the virus is contained and life normalises, demand will rapidly bounce back to prior levels - indeed it may even overshoot to the upside as pent up demand is released (e.g. people that deferred holiday plans take their postponed vacations; postponed conferences/events take place; and people that postponed buying a car or other consumer goods go out and buy them). The recovery will very likely be V-shaped in nature, which is very different to the post-GFC environment. It is being overlooked at present, but a severe and long-duration downturn is much worse than a severe but short-duration downturn.

Second-order cascading liquidity effects are also already being discussed and discounted, but people are exaggerating the risks here in my view. Prior to the GFC, many corporates and financial institutions were relying on short term paper, and money markets seized up. Due to the GFC experience, very few financial institutions and large corporates now rely on short term money markets to fund their operations, and most operate with large liquidity buffers and long dated debt maturities. This means there is much more time before pressures/debt market disruptions will impact funding. Short term debt markets might close, but that won't impact most companies for quite a while due to the presence of the said liquidity buffers, which included not just cash, but committed bank revolvers, which many companies are now in the process of drawing down.

Funding pressures in the banking system also seem unlikely, as not only are banks now much more liquid than pre-GFC, due to a combination of much higher regulatory liquidity requirements and management prudence (reflecting cultural change in the post-GFC era), but central banks are also implementing substantial liquidity support. After an initial spike, interbank rates have recently sharply fallen in the US for this reason. Furthermore, very significant fiscal stimulus is coming. There is a very good chance, for instance, governments provide financial support to airlines - the US has already suggested this, and I would expect the EU to follow in the not too distant future as well.

With respect to the banking system, while bad debts will increase, the magnitude of the hit to the credit-worthiness of their borrowers will depend on the duration as well as the severity of the downturn. Banks in the US and Europe have lent conservatively over the past decade, and interest rates and hence debt serviceability burdens are low. Most of their borrowers will therefore be able to manage through a 1-2 month hit to their incomes, and banks can and likely will provide short term forbearance measures on repayments. One of the risks is IFRS-9, which requires banks to front-load provisions on the basis of an expected credit loss model. This could force banks to take large upfront provisions, discouraging lending and pressure capital. However, European regulators have already said they are considering granting temporary capital relief to banks (relaxing capital ratios), and importantly, we are not coming out of a period of rapid credit growth. When credit growth goes from 20% to 0%, the economic effects are substantial, but when they go from 2% to 0%, much less so.

While there is much talk of debt levels being extremely elevated, this is a vast oversimplification. What has really happened is that government debt has significantly increased in the post-GFC era, but government bond yields have collapsed to zero, and while high government debt could be a problem long term, it is most certainly not a problem at present. Meanwhile, private sector debt intermediated by the banking system has been falling for 13 years in both the US and Europe relative to GDP. Household debt in the US, for e.g., has fallen from more than 100% to only about 75% at present. Banks, individuals, and to a lesser extent, corporates, have been deleveraging for 13 years. Furthermore, not only has debt to GDP fallen, but interest rates are also at record lows, such that the debt servicing burden is now actually at very low levels by historical standards.

There are pockets of excess, to be sure. Debt levels in the private equity space, for instance, have mushroomed. However, this debt is well structured, being covenant light, long term, and low cost, while the private equity industry has US$1tr of committed 'dry powder' (funding commitments clients have either provided or are obligated to provide when called, which is not yet invested). While private equity is arguably in a bubble, it is not a bubble that will quickly unravel.

The outlook for oil appears more challenged in the short term, as the combination of falling demand and rising supply ought to continue to pressure oil prices, and in the worst case they could easily fall to US$20/bbl or less. However, even here, it is not impossible OPEC+ comes back to the negotiating table. The demand outlook has rapidly worsened over the past week or so, and Saudi Arabia's response appears highly emotional. Russia's stance was more justified - they merely wanted to maintain existing cuts (rather than cut further), noting accurately that cuts to date had merely resulted in increased shale supply, and that it was too soon to assess the magnitude and duration of the covid-19 impact on demand. They did not want to suspend existing agreed cuts. Saudi Arabia, by contrast, were initially pushing for aggressive additional cuts, but angered by Russia's lack of co-operation, appear to have reacted emotionally, throwing their toys out of their cot and responded by saying they will instead begin to pump as much crude as possible starting from 1 April (likely about 2m bbl/d above their current production of about 10m bbl/d, at maximum capacity).

Sheiks don't like not getting their own way, but once their arrogant temper simmers down a bit, it is possible they could come back to the table - particularly because in Russia's case, one of the reasons they did not want to cut was that they felt it was premature to assess the demand impact, but the week or so since that stance was maintained has seen the demand outlook rapidly worsen.

If that does not happen, it seems probable oil prices will fall further and a rapid supply response from the shale patch will be forced. OPEC+ can ramp production up by perhaps 3m bbl/d, but shale produces something in the order of 6m bbl/d, and most of it is uneconomic below US$30/bbl. Importantly, shale wells have rapid decline rates, so you have to continue drilling in order for production to not rapidly decline by >20%/pa. If prices fall to US$20/bbl, you'll probably see US shale production halve in the next 24 months, absorbing all of OPEC+'s excess capacity, while it is probable global demand has recovered from the covid-19 hit and reached new highs comfortably within this timeframe, as trendline global growth in demand continues to exceed 1m bbl/d pa. In the meantime, an increase in inventories, tanker storage by oil speculators/arbitragers, and increases in government strategic stockpiles, might help absorb some of the excess supply. Bankruptcies in the shale patch nevertheless seem likely, and there will be some hits to the high-yield debt space here. However, the losses do not seem likely to be large enough to be systemically destabilising.

What does all of the above mean for markets? It is important to remember that the outlook for markets is not the same as the outlook for the economy. The US had one of it's worst recessions in history in 2009, and yet stocks had one of their best years in history in that very same year. Market prices are not driven by the economy per se, but instead a combination of liquidity and emotion, because these are the factors that drive the demand and supply for stocks, and that is what set prices (the economy can effect liquidity and emotions, but ultimately it is the latter factors which determine prices).

At present, we have record levels of global liquidity, as central banks slash rates to zero or less, and revert to rapid QE money-printing. However, that liquidity is not yet finding its way into stock markets as there is a sharp divide between risk/volatility tolerant capital, and risk-averse capital. The world is drowning in risk-averse capital, and central banks are creating more of it by the day, while the availability of risk-seeking capital is collapsing as people flee risk and hold more cash/bonds.

But how sustainable is this situation? It is likely that the magnitude of the sell-off has been amplified by two factors. Firstly, in an era of very low interest rates, people have 'reached for yield', and one manner in which they have done so is by increasing their stock allocations - particularly to yield stocks perceived as being relatively low risk (i.e. REITs, utilities, consumer staples, and other 'low volatility' stocks/sectors/ETFs). Money that would typically hold bonds rather than stocks is risk averse capital that is not cut out for the volatility that befalls equities from time to time, and a lot of this money has likely been panic-exiting.

Secondly, the widespread media coverage and the fear felt by the 'man on the street' has likely resulted in a larger than average amount of redemptions from end investors as well. This has created a major liquidity squeeze, forcing managers to dump shares to meet redemptions. On top of that, we have likely been witnessing rapid deleveraging of market players with leveraged books (along with margin calls), as well as fund managers increasing their cash allocations as their fears about the outlook grows, and as buffers against further upcoming redemptions.

That's a lot of selling and a lot of liquidity stress in a short space of time, but it can't last forever. The most skittish money will leave first, and during turbulent times, stock moves into 'strong hands', as they say. Deleveraging will end, redemptions will slow as anyone that is going to panic and pull all their funds is likely already doing it, and fund managers can only increase their cash allocations so much (often they are restricted by mandate as to how much cash they can hold). Furthermore, the more markets fall, the larger investors' cash and bond allocations become relative to their equities allocation simply because equities have fallen in value so much. This will eventually cause some investors to increase their exposure to equities - particularly as interest rates fall lower still.

Even if you're a fund manager who is bearish on the outlook, if you're maximum allowable cash allocation is 10% and you've already gone to 10%, and redemptions stop, you will stop selling. And investors often forget that market prices can rise not only due to an increase in demand/buying, but also due to a decrease in supply/selling. The latter is usually the primary means by which markets rebound from the depths of a panic/downturn - selling lets up and prices start to rise. In time, rising prices leads to an increase in demand, as confidence builds and buyers start to return.

In other words, at some point the amount of liquidity in the volatile equity space will stabilise, and the volume of selling will then abate, and at that point, markets will stabilise/start to recover even if the economy continues to weaken, because for stocks to go down, there has to be a new source of fear that triggers a new wave of selling. That requires either increased liquidity stress, or the news to get much worse, triggering even more people to sell in fear. If the news doesn't get much worse - it just remains bad - the impetus to sell more declines.

It is for this reason that markets will bottom not when coronavirus economic impact is at its worst, but when the crescendo of worsening news is at its peak. Over the past week, the news has continued to go from bad to worse at an accelerating pace, as the situation has worsened in Italy; the speed of new cases has accelerated around the world; famous people have been infected; and then more and more extreme containment measures have been announced, from restrictions on large events, to travel restrictions, to complete lock-downs; to now forced closures of retail and entertainment venues. That escalation in bad news has given people a new reason to panic more every day.

However, it is going to be hard for this acceleration in bad news to continue, because we have already basically reached the practical limit to which social distancing measures can be implemented (closing bars, restaurants, and retail establishments, such as in NYC), so the pace of shocking new headlines about such measures will have to slow. Meanwhile, the large temporary rallies we have seen during this downturn highlight how upside sensitive markets are to even a whiff of good news - a situation that likely exists because there is a record amount of cash sitting on the sidelines at present, which is a latent source of demand. As noted, it is hard to see how such aggressive containment measures will not result in a slowing in new case rates becoming evident in 1-2 weeks time, and any headlines that suggest the rate of spread may be slowing will likely cause markets to very violently rally.

The reason for the violent rallies we have already seen on a few occasions on the way down is easy to understand technically, because at present we have a 'multiple equilibria' situation: we have record amounts of liquidity on the sidelines which is looking to enter the market, but a wholesale reluctance to buy while prices are in free fall. What this means is the second investors feel prices might be set to rise, they will rush to buy, while when prices rise, the impetus to sell relents. In other words, demand is a function of price (demand increases as prices increase), and supply is also a function of price (supply increases as prices decrease). We should therefore expect extreme volatility for this reason.

Although it is impossible to know, my intuition is that we are very close to - if not at - the bottom. Indeed, there is already some good news starting to emerge in Asia that is being ignored by Western-centric investors. China, South Korea, Taiwan & Singapore for instance have all had success in containing the virus, and economic activity is rapidly recovering in China - one of the world's largest and most important economies, which drives significant demand for commodities and construction materials - which is very important to the economic outlook for commodity-exporting countries. There is more to the world economy than merely the US and Western Europe these days. It is surprising that no one currently seems to think that the rapid recovery the Chinese economy is experiencing is of any importance.

New anti-virals are also being worked on around the clock which could significantly mitigate the worst symptoms, and hence meaningfully reduce death rates, with some people optimistic antivirals could start to become available as soon as April. Vaccines will eventually follow but will take much longer. Right now, investors have assumed no such mitigations/treatments will become available, so this is a major upside risk.

It is often said that the four most dangerous words in the investing world are "this time is different", but perhaps the most important are "this too shall pass". In times of crisis and uncertainty, it is easy for investors' time horizons to shrink to mere months. However, taking the long view, human societies are resilient and adaptable - history proves that, and while humanity and the global economy are in for a very difficult few months, we will find ways to manage the impact, adapt, and get through this.

Good investing is a lot like sailing. When you set out to sea, you should not assume perpetually calm conditions even if all you can see is blue sky and calm in every direction. You should anticipate the occasional storm, and when you find yourself in a storm, while it is tough and uncomfortable, you should reassure yourself that the storm will eventually pass. We have currently entered a storm. One should have prepared themselves in advance by paying prices with a suitable margin of safety that reflect the fact that storms will happen from time to time; if you have done so, there is no need to panic when a storm arrives. The storm - while violent - will eventually pass.

If there is any good to come out of covid-19, it is that it has exposed a radical lack of government preparedness in the West for necessary pandemic response. For instance, if we had stockpiled n95 masks in large numbers, containing the virus would be easy - simply hand them out to all and insist that everyone wears one in public. The cost of doing that would pale in comparison to the economic costs now being incurred on account of that lack of foresight. In the long term, exposing this lack of preparedness might result in a change of behaviour, and better preparedness for future pandemics that could be much more catastrophic - for instance a highly contagious disease with death rates of 20%.

We should prepare for public health emergencies like this is in the same way the military prepares for war. You don't start building aircraft carriers only after war is declared - you need to be in a state of perpetual readiness that recognises that anything can happen at any time. The Western world has been caught completely unprepared, which is a failure of leadership - yet another that can be added to a very long list. With a bit of luck, this covid-19 episode will result in a change in behaviour and much better preparedness in the future.

In the meantime, stay safe.


LT3000

61 comments:

  1. Lyall, I'd really like to believe you that we are likely near the bottom (thougj I really I wish we were at the top, in terms of new cases). However the outbreak is growing out of control in major European countries, and has barely begun in others. What's more, it's barely getting going in the US and here in Australia - and whilst, for instsnce, public transport in still in widespread use (it is my umderstanding this can be transmitted by breathing the air of an infected person), I fail to see how containment is in sight. Then there's talk of the UK attempting a 'herd immunity' strategy.

    Perhaps I'm getting caught up in the whole thing, but when I put all that together, I struggle to see that we are near maximum panic, much as I'd like us to be.

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    1. Hi Mars,

      I'm not an expert so not 100% sure on this, but from what I've read/heard, there is a big difference between how the virus 'can' in theory be transmitted, and how in practical reality, the vast amount of actual transmissions occur.

      In theory, you can maybe catch it breathing the air of someone infected and asymptomatic, in reality that will be a tiny fraction of infection. If it was that infectious, the R0 would be massive massively higher than 2.3, and containment would have been utterly impossible, even in China.

      I think people are far too pessimistic about the likelihood that transmission rapidly slows in response to the quite draconian measures now being implemented.

      LT

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    2. Hi guys. Just my two cents to clarify a few things. I make a daily use of train/subway in one of the first affected (and managed) countries and I tested positive.

      Like Lyall mentioned, it is theoretically possible to catch the virus from someone breath. However, I believe the probability is quite low (especially with how trains are half-empty these days). On top of this, most people in my country wear masks in public transportation, making it a very unlikely medium for transmission.

      I can't say the same exact thing will happen in Europe and the U.S. but I hope this adds some context.

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    3. I am the anon above and I meant to say "I tested negative"
      Sorry about the confusion haha.

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    4. Thanks Anonymous for sharing your experience. Helpful.

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  2. Very well thought out article. A sane voice in the madness of the crowds...

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  3. Mars, my understanding is that the UK is backtracking on this herd immunity strategy.

    Lyall, we know that drastic "social distancing" measures does indeed slow the virus down, what happens when everyone that has been isolated reemerges and we potentially get a second wave of infections? Also, i'm still not sure we've seen the worst of it from a headlines point of view, in America for instance, we're seeing infections still rising but it is only now that these social distancing measures are being put in place so I suspect its entirely possible things will get drastically worse over the next 2 weeks or so, including potentially rising deaths.

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    1. Dr v.

      Right now the expectation is already for a continuing dramatic rise in infections in coming weeks. It's the increasingly drastic containment measures being announced that have been hammering markets of late.

      Agree it will take a week or so for slowing infections to come through in numbers/headlines, but it's not that far off. I suspect we will have started to see a drop in R0 starting last week already.

      Second waves are a risk, but if we've recovered from first wave, markets will already have rebounded a lot & probably won't retest the lows through the first wave. Also, more antiviral remedies & healthcare system readiness will be in place by then, while headline fatigue will set in at some stage also.

      Cheers,
      LT

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    2. Thanks Lyall. One thing I completely agree with you with is this idea that rebound will be sharp and rapid. I was struggling to properly form the argument why I felt that way, obviously it was in relation to the passing of the virus etc but you have articulated it beautifully by explaining how unlike an asset bubble, demand should return to previous levels.

      One other point, I thought your recent tweet how humans rapidly accept a new "normal" was very insightful and I completely agree. I was listening to a Malcolm Gladwell podcast recently and he made the exact same point and used the example of the HIV/Aids epidemic in San Francisco/USA in the 1980s amongst gay men, and how despite a significant portion of these men contracting HIV and many dying, it became a new normal despite the horrifying statistics.

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  4. Another four important words are "reversion to the mean." The CAPE ratio had only been this high recently on two other occasions, (2000 and 2008). Even after Monday's close, the CAPE ratio is still well above the historical mean.

    https://www.multpl.com/shiller-pe

    While I can understand thinking things will bounce back, perhaps the market was significantly overpriced (due to low interest rates essentially forcing people into equities) and now prices have just come down closer to historical valuations?

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    1. I've written about why the CAPE multiple is seriously flawed in a world with a lot of buybacks (not the case historically):

      https://lt3000.blogspot.com/2017/02/why-cape-multiple-is-fatally-flawed.html

      Secondly, it is a flawed approach IMO to benchmark where markets are vs. historical valuation averages, and say we are only back to historical averages and so the market is not cheap/oversold, because we are in a world with unprecedented liquidity and very low interest rates, which means the cost of capital has fallen vs. historical levels. Consequently, where markets settle out after the dust has cleared will be much higher than historical averages.

      And lastly, that's very US centric. Outside of the US, markets are at GFC lows on a P/BV level.

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  5. Thank you LT, nice reasoning.

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  6. Hi, thanks for the usual high quality content. I am an italian living in Italy in one of the most affected areas, even though not Lombardia that is the most affected area. I am not a doctor nor a scientist but the situation became a bit more under control, I even got to see people queuing in good order with masks respecting 2 metres distances between each other for entering the supermarket (they let us in little by little to avoid crowds inside the shops), which for Italy is quite surprising... I dont feel safe yet but these measures were established just few days ago and in a week we will start observing results, I expect to see a big impact on the statistics because the change in attitude and behaviour has been impressive and quick. For a bit of optimism to come, all we need to see is an effect of these policies on the statistics, which I think may occur for Italy in a week or so.

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    1. Thank you very much for the on the ground feedback Countryman - it is much appreciated. Very pleased to hear the situation is slowly starting to improve. Wishing you and your 'countryman' all the best & a speedy recovery.

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  7. More measured, but still over-optimistic.

    I would encourage you to go back and look at your Twitter since the start of the crisis, and note that you have consistently been too optimistic - this is not to urge overcorrection, but to make you aware of your bias.

    I'm reasonably sure the market will bounce as it did in April and May of 2008 and November 1929 to May 1930. Steep drops of this nature don't kill the bulls all at once. I am also reasonably certain this bounce will be a trap.

    We are some way off the end of the bad news. The UK and US are yet to lock down, and a long way off peak deaths. At some point the first quarter's earnings will hit, and that will be more bad news again.

    You're also, to my mind, a little slapdash in considering the second order effects. I'm inclined to agree with you that the debt servicing burden should be manageable in a world of such low interest rates, but it is also important to consider consumption, which is guaranteed to be impacted by large sectors of the population being unable to work for some months. Michael Pettis' Twitter feed has alluded to the impact on migrant workers in Beijing; the impact on hospitality and tourism industry workers in the West is just starting, and anecdotally effects are already visible in fields far removed from these such as parts of the tech sector.

    The likely consequences on consumption are not merely immediate, as money for luxuries and non-essential items dries up, but longer-term as people who had only small amounts of savings prioritise rebuilding and strengthening their reserves.

    I am not so keen to forecast a V-shaped recovery, particularly as there's limited room to use conventional monetary policy tools after extended flirting with ZIRP.

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    1. Thanks for your comment.

      I'm not sure what Tweets you're referring to. I only said I though the market was bottoming Friday morning Asia time. At the time I tweeted, US futures were limit down; Australia down 8%; and Thailand down 12%. Less than an hour after I tweeted markets ripped higher. The US went on to rise 10% that day - about a 17% swing from the lows, and Thailand and Australia also rallied by similar amounts. On Monday, the US sold off about 10%, giving back the regular session rally, and it's trading up about 2-3%. So so far, the market is up about 7% since I called what has (so far) been the exact bottom within a matter of hours.

      I might yet be proven wrong/too optimistic, but that certainly isn't the case yet. I might 'feel' wrong because markets got hit so hard on Monday, but you're forgetting they also rallied extremely hard on Friday also.

      The other Tweet I said was that I thought there was a big buying opportunity in oil and oil related currencies coming on the Monday after the weekend OPEC+ broke. I bought some Sberbank (ruble as an oil currency got crushed) near the open that Monday at US$8.90 ish. It's currently trading at about US$10.

      Again, that doesn't prove anything yet as markets are moving quickly, but I fail to see how this proves I've been 'too optimistic'.

      Delete
    2. I'd look further back, a couple of weeks.

      "Be greedy when others are fearful... This is a great time to be greedy." - 28th Feb. The entire conversation sparked off this looks dangerously optimistic in hindsight.

      "Seeing some of the best buying opportunities I've seen in 20 years outside of the GFC at present. Exciting times for value investors." - also 28th Feb.

      "Two thirds of the articles on WSJ’s ‘whats news’ section are currently on covid-19. Should we really be surprised markets are rallying? Headlines are a great contrary indicator. When markets become unifactorial in their attention u know the point of maximum market impact is nigh" - 2nd March.

      "Miller VP noting infectious disease expect Matt McCarthy estimates covid-19 ultimate death rate at 0.2-0.4pc, which is only 2-4x a bad flu season.

      Containment is futile. Ppl will learn to live with the risk and life & markets will move on." - also 2nd March.

      With two weeks of hindsight, it should be obvious:
      - 28th February was not in fact a good time to buy.
      - The point of maximum market impact was not "nigh" on 2nd March.
      - "Ppl will learn to live with the risk and life and markets will move on" is an absurdly flippant prediction given the current disruption across the developed world.

      Use your previous predictions as calibration for your current ones here, and don't succumb to confirmation bias.

      Delete
    3. I think you omitting to consider the second blow of the 'one two' punch I mentioned - the OPEC+ fallout, which also had a huge impact on markets, and was not foreseeable on 28th Feb.

      Secondly, I think it is fair to say that the degree of escalation we saw in terms rapid moves last week towards shutting down everything across Europe & the US; locking down countries, etc, was indeed worse than I was expecting at the time, so you are correct that events have played out more negatively than I anticipated on 28th Feb. Point taken.

      However, saying things like now is a great time to be greedy, or that I'm seeing fantastic buying opportunities, does not imply I think things can't possibly get worse in the short term; or that we are inevitably at a bottom. It is only very recently that I've gone as far as suggesting as much. I invest with a long term time horizon, and I am quite confident the things I was buying on 28th Feb will work out very well over time. And FYI, I've done a lot more buying over the past week or so than I did in late February.

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    4. My general impression is that you seem to think that things will swiftly return to business as usual, and earnings from last year are among the most relevant data to consider in the current situation. This is not impossible, but to me it seems very unlikely.

      To sketch my own thoughts: a good number of companies are going to perish, and while some of the larger ones may be bailed out by their governments, they may be nationalised or burdened with a debt load that will make them shareholder-unfriendly. The worst case is not earnings dropping to zero, but crippling losses and a subsequent fire sale.

      In particular, investing now in luxury goods (you mentioned Capri on your Twitter feed) looks dangerous. Capri is priced for a high probability of closing a great many stores and skirting administration; this may not come to pass, but it is the risk you take.

      Many stocks that were riding high in 2007 never recovered their former glory. You yourself recently posted a list of stocks from before the dotcom crash including Nokia, Nortel, Morgan Stanley and others chiefly notable also for not recovering; why is your baseline expectation that this time will be different?

      Delete
    5. For me some relevant questions to ask about a company right now would be:
      - how long can it afford to ride out an immediate large revenue drop?
      - is it in a sector likely to be more mildly affected by a pullback in discretionary consumption, or a cheaper substitute for former consumption?
      - are its competitors likely to be more weakened by the crisis than it is?

      Previous earnings are relevant, but IMO have to be seen in the context of the likely landscape of the coming year.

      Delete
    6. I also disagree with the V recovery thesis. A lot of businesses and individuals will require balance sheet repair after this.

      The method we have adopted for balance sheet repair as a society is ZIRP. This is essentially a slow debt jubilee dragged out over time. The lower the prevailing interest rates before the crisis, the longer the balance sheet repair will take. This method will lose effectiveness gradually.

      Delete
  8. What about the risk of feedback loops, whereby lower spending/rising unemployment in affected industries tips the economy into a longer term recession and therefore not a V-shaped recovery?

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    1. Those feedback loops have started. But, when case numbers decline and treatments become available, social distancing restrictions will be progressively lifted, and people will go back to their prior lives, and as they do, the feedback loop you mention goes rapidly into reverse, which is the very definition of a V-shaped recovery.

      Delete
  9. The antiviral bit is crucial. There are a number of drugs (The Economist printed a list of eight or so) which exist, are currently in production and use today for various purposes, and which there's good reason to believe might be effective against the virus.

    IMO in six months investors are going to look back in bewilderment at the absolute mauling and extreme overreaction in stocks - a product of hyper-extreme bullish positioning at the start of 2020, and the other psychological/positioning factors you describe. It's all a fascinating live-action case study in behavioral finance.

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    1. I completely agree with you MT, & exceptionally well said. I tweeted yesterday about one example of an effective treatment Australian researchers have already uncovered, which looks highly promising, and encouragingly, the drugs are already registered and commercially available, which means they have already been through human safety testing (although not yet efficacy testing for covid-19 indications, of course).

      https://twitter.com/LT3000Lyall/status/1239860794973499393

      Nailed in in your second paragraph. Couldn't agree more. I even stole your line for a tweet I wrote today, because I was thinking along similar lines and you said it so well.

      https://twitter.com/LT3000Lyall/status/1240075586606739456

      Best,
      LT

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  10. Everybody is staring themselves blind on those Chinese figures which are pretty unreliable for many different reasons.

    Worth noting is that WHO and other experts overestimated CFR of Swine flu by more than a factor of 10.

    What is reasonably accurate is the death number. What is far more likely to be underestimated is the total case number.

    That said, if it is still as high as 0.4-0.6%, and lock downs delay herd immunity, then it will still be an economic issue. As you will get more lock downs in the next couple years.

    All it takes is a few people that stay infected with little symptoms, that infect a couple other people, and it flares up again in November. If they screen more people they catch it quicker, but it will result in more panic.

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    1. Agree secondary outbreaks will happen, but you're perhaps overlooking that we will quite likely have effective treatments become available in the next few months that substantially reduce lung inflammation symptoms that contribute to high death rates. If death rates fall to close to zero due to availability of treatments, there will be no need for people to panic about infection levels rising again. People that need the treatment will get it; most will have mild symptoms and heal up with a few days rest. No big deal.

      We are not there yet, but we will be there in a few months time, quite likely.

      Agree historical precedent suggests the risk will be dramatically overestimated, and I don't see any evidence this time will be different. The issue in Italy was underestimated, but we have swung from one extreme to the other. Appropriate, at an early stage, but it will quickly let up. Society's tolerance for everyone sitting at home quarantined in their own homes for extended periods is limited. As discussed in the book Range, experts are also notorious for not using base rates enough or considering input from other fields/mental models. Many will not take into account behavioural responses, for instance. I think in hindsight a lot of the alarmism we are seeing today about massive imminent doom will appear kind of silly in hindsight - albeit I totally understand it from a public health pov at present at an early stage, when the scope of the risk is still not fully known, and treatment options & facilities not battle-ready. We will get there in the next month or so IMO.

      Delete
    2. Yeah good points.

      Have you looked at air travel related stocks? SAVE looks interesting, and AENA and FLU (both double till regulated, owned airports, manageable debt, very high profit margins and <10x 2019 earnings). And airports are allowed to "over earn" in a bad year. Since they are basically regulated monopolies.

      Delete
  11. Bravo! Excellent to hear your thought process of the whole situation, I too think the bottom may be in and the impact of bad news will fizzle out. Curiously, social media and smart phones usage makes the bad news spread far worse than in previous pandemic times. Of course, as you pointed out people will get desensitized to this bad news once it hits a tipping point and good news comes out. I will reference this post in the weeks ahead to see how much of what you write comes to pass, which I suspect will be very much prophetic.

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  12. Hello Lyall
    I work in construction as a Quantity Surveyor in Melbourne. I think there will continue to be disruption for a number of months after the virus is contained. Last December & January were the quietest i have seen in several years, we were not being asked to submit fee proposals for new projects (towards the end of February we submitted some) We do a lot of work for Universities and i have being told they have projects on hold until there financial situation is more certain. In addition 1 builder who i regularly work with told me he had to win more work as he has site managers not working. It is very competitive at the moment 1 of my responsibilities is to complete tender evaluations for our clients and we supply the format that the priced tender is to be submitted and margins on one recent project were $30,000 to $50,000 on a $1 million dollar project. (we ask prelims & margin be kept separate)
    The other consideration is lead times and equipment from overseas we import high end electrical/ mechanical equipment from Germany and China these items such as fan coil units, chilled beams (with lead times of up to 10 weeks) and transformers (the transformers already have lead times of 20- 24 weeks and come from China, Germany & Indonesia i have a project currently where we are replacing transformers. For high rise apartments glass & joinery is imported from China. I am seeing on tenders in the last week with qualifications regarding corona virus.
    There will be a backlog due to China being closed off and at least in Australia if we close down (and i think its a matter of when) we will fall further behind as ports close down. Construction projects will be on hold until these items arrive on site, an alternative is air freight rather than ship but this is expensive and i doubt many would have room in there budget. There will then be the second order affects of lay offs and builders going into liquidation.
    I think your right about it being a temporary disruption but that it will last a little longer than you anticipate and at least with Australia and our high debt levels could be very bad.
    Regards
    Anthony

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    Replies
    1. Thanks Anthony. Helpful on the ground colour.

      As I discuss below in my comment to Pete, I am far less optimistic on the outlook for Australia as I was bearish on the outlook to begin with; Australia is not entering the downturn from a period of strength & economy was already under some pressure.

      That being said, I would not be so pessimistic on the outlook for supply chains out of China at least (Europe is different). A lot of the feedback I am hearing from conference calls with corporates that source out of China is that after disruptions in Jan-Feb, things are basically back on line and back to normal now. Supply chains sources from Europe will be disrupted though as people stop work for a few weeks.

      Cheers,
      LT

      Delete
  13. Insightful and clear as always. Much appreciated Lyall. Wondering if you'd agree that countries like Australia, Canada and New Zealand should be considered distinct from US and Europe? Ie. Unlike US and Europe, house prices may be considered a bubble and household debt has been growing. Therefore risk of a long drawn-out impact resulting from covid-19 is far greater.
    Thanks in advance.

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    1. Thanks Pete,

      I think Australia, NZ, and Canada are much riskier/late cycle than the US and Europe. Unlike the US & Europe, they didn't have a cleanout during the GFC, so their banks are risky and leverage is at record highs, whereas in the US/Europe, the private sector & banks have been deleveraging for 13 years as I discuss in the article. Consequently, they come into this far more vulnerable than other Western economies.

      I blogged about how I was bearish on Australia a year or so back for reasons completely distinct from covid-19. I have been an remain short the USD Ausy ETF (albeit partly as a hedge to my longs, which now modestly exceed 100% gross long), and see the Ausy market as still being quite expensive/overvalued, so I'm far from optimistic on the outlook for Australia. I am not surprised to see it underperforming. Many small-mid cap tech stocks there have been in a legitimate bubble (I blogged about APT and said I think it goes down 90%+; its down 60% so far although not entirely for the reasons I argued, but it's down way more than the market, and yet it's still breathtakingly expensive).

      That said, the AUD has come down a lot and iron ore prices are doing ok & China is set to stimulate. This will cushion the blow. I have been & remain long FMG, although I have trimmed quite a lot.

      Cheers,
      LT

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  14. Looking at the above posts, what I see is a lot of focus on things getting worse, and perhaps even panic intensifying. I believe this is the likely (not certain) case too, and that LT is also being a little too optimistic.

    That said, I think the central point is that these are widespread sentiments, and so they can't help but be priced-in (relative to existing liquidity). That liquidity won't just dry up - in the next 6 to 12 months. The commentary is demonstrating what we already know, that markets are by necessity forward looking. So everyone is focused on the worst that's to come - naturally.

    The problem is, and here I agree with Lyall, by time we get to 'the worst', the market will already have moved on.

    ReplyDelete
    Replies
    1. You might be right Mars - it's impossible to know. However, it is intriguing that the daily caseload has now flatlined in Italy for about three days, I believe. No one is paying attention to these facts at the moment, as people continue to reside in their bloomberg/media/twitter bubble, while the media is having a field day with the clicks generated by a running commentary on the worsening doom that awaits us all. Commenter 'countryman' above also provided very useful on the ground colour.

      This situation is not sustainable. Markets remain highly volatile but they have generally stopped going down since Thursday last week, even though it might feel like they still are. This is also something that happened near the GFC lows - continuing big selloffs the perpetuate the sense of doom, but increasingly common sharp intraday rallies that pare losses, and the occasional big up day.

      Sentiment is currently about as bearish as I have ever seen it. It's even worse than in the GFC. Given that the facts on the ground are actually improving - including significant news in recent days that effective treatments are rapidly being discovered and will soon become available (one such example I tweeted about @ link below), it is hard for me to see how people can get exponentially more bearish from here. The headline momentum is very likely to turn in the next week or so as news of slowing case volumes and accelerating progress on treatments becomes more widespread.

      This will be followed by damping fear, and then in April after two week closures, we will likely start to tentatively see restrictions on restaurants and retail outlooks operating lifted & people coming back to office. Travel restrictions probably won't be lifted until May ish. Major events might require until June. Markets will be way way up from current levels well before we get to this point. A full market recovery by late 2020 is highly possible.

      https://twitter.com/LT3000Lyall/status/1239860794973499393

      Delete
    2. Lyall, maybe you misinterpreted my post. I'm actually broadly agreeing with all that. Essentially I'm saying that I believe main street will get worse, but wall st is already pricing-in all the negativity. So my point, Wall St may get worse from here (don't know), but prices are probably already substantially below fundamental values (on average).

      Delete
    3. I would ignore case numbers at this point.

      In the early parts of cycle case numbers likely overestimate growth (as they are lagging real cases and really go up as fast as they can be produced), and in later cycle likely underestimate growth as a limit is reached of how many can be tested each day.

      I would look at % tested being positive, and the deaths (which are likely more accurate).

      So far Italy is leveling off in deaths in the past few days, but that could be noise.

      It is interesting that the first registered case was in the US before Italy.

      Delete
  15. Lyle,

    What do you think about reports from WSJ and others that the young people in the US are simply not social distancing, going to bars, clubs, spring break etc. (https://www-wsj-com.cdn.ampproject.org/c/s/www.wsj.com/amp/articles/a-generational-war-is-brewing-over-coronavirus-11584437401)

    I ten to think that the collectivist culture in Asian societies leads to much higher rates of social compliance vs the individualistic culture of the West. I would not surprised to see us follow along Italy on the curve.

    ReplyDelete
    Replies
    1. It's not entirely irrational on their part - although it is socially irresponsible for sure - given that death rates among the young are negligible and symptoms present no worse than a typical flu in the vast majority of instances.

      You're right that it might hamper containment efforts in some regions.

      Delete
  16. Hope you are well & safe Lyall. Thank you for a great read.

    What is your current take on Sberbank? Loan book seems to have a large exposure to O&G commercial loans which look really shaky atm. Cheers

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    1. Hi Lyall, I am also interested in your take on Sberbank. How likely is a dividend cut like they did in 2015? What are your thoughts on Gazprom and the russian stock market in general? Maybe worth a single blogpost :-). Cheers from Germany

      Delete
    2. I don't think Sber's dividend will need to be cut, although it's possible they do cut/defer it out of prudence. Russia is well prepared for a period of lower oil prices; has low leverage; and the economy is already coming off a low base, having been suppressed by very tight fiscal and monetary policy. That said, covid-19 could well spread in Russia just like it has everywhere else & impact the economy near term. Russia's somewhat isolated status in the world though, and tough visa restrictions which reduce the flow of foreign travel, might well limit the amount of imported infections though.

      I am bullish on the Russian stock market in general, including Gazprom (which I own). The currency is cheap; the economy at a secularly depressed level; corporate profitability is high; corporate governance much better than people assume (and rapidly improving amongst SOEs); capital allocation amongst the best in the entire EM complex (increasingly modeled on US/Western best practice, with high dividend payouts and buybacks increasingly common), and valuations extremely low. The human capital stock is also very high relative to Russia's level of USD GDP per capita, and there are a lot of much underappreciated domestic reforms happening in Russia.

      I think Russia will probably be the best performing stock market in the world during the 2020s.

      Cheers,
      LT

      Delete
    3. I am looking for a third investment in Russia (I own Gazprom & Sberbank). What are your thoughts on Norilsk Nickel? Do you have another idea for investing in Russia?

      Delete
    4. Norilsk is a great company but looks fairly valued to me - at least in a Russian context it is relatively expensive compared to some of the alternatives. Rusal is a way to get a cheaper leveraged entry into MNOD if you want to own it IMO.

      Russia is full of very cheap stocks - they aren't difficult to find if one looks. Cheers

      Delete
    5. Noilsk has platinum and in the longer term PT is going to explode higher.

      Delete
  17. You said US companies have been deleveraging since the GFC. According to the data I've seen that's not true. Also, when you talk about federal debt, what about hidden liabilities like pension funds?

    Greeting, I really like your blog.

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    1. Agree with this. My other concern would be loans that are now exposed as no longer money good. As banks/lenders look to whittle down new bad loans (shale companies being a prime example, even though they're not a large %), good loans will get called and that capital may not be reinvested to the same extent that we have seen. So another system deleveraging of sorts.

      Delete
  18. Thank you. Excellent article!
    I agree except one thing.
    South Korean statistics are not credible.
    From 2017, their pro-Chinese regime is manipulating statistics.
    Their president is the one who openly saying he wants to follow Chinese dream.

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  19. LT thanks for all your tweets and blog posts, outstanding.

    You can name your restaurant when you come to NYC, when they reopen.

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  20. Hey LT3000 Name some US cyclicals?

    GM?

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  21. Lyall,

    I suspect you are broadly right regarding markets, but the dichotomy in performance will be enormous. Many economies (Australia in particular) did not have households deleverage through the GFC and would appear particularly vulnerable, regardless if the slow-down is simply short and sharp.

    One of the other consequences of the outbreak is likely to be the rapid increase in de-globalisation as businesses re-shape supply chains and adjust just-in-time inventory systems to carry more stock on hand (as an understanding of what dispersed supply chains entail in times of a geographically disperse 'crises'). These changes will begin to reverse many years of consumer price deflation (primary beneficiaries of globalisation), and have other unintended macro consequences.

    I think part of the OPEC+ issues also relate to this. In my opinion, the strong renewable energy uptakes in parts of Europe have been less driven by altruistic motives and more around energy security (in particular by reducing reliance on imported Russian gas).

    In response Russia has pivoted to China (e.g Power of Siberia) as a major customer but has competition from US shale producers (among others). I would think a base case is Russia uses this as an opportunity to boost supply and severely damage US Shale producers given respective breakeven costs.

    While it will damage Russian state finances in the short term, having just completed an election cycle (next 2024) there is no impetus at this stage for matters such as approval ratings (which dictated part of the Russian response in 17/18).

    Just my 2 cents worth. As always appreciate your thoughts.

    Will

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    Replies
    1. Thanks for your comment,

      I agree with you re Australia. I've blogged about Australia & Australia housing in the past, and while I've been somewhat wrong so far, I do agree that Australia is not well positioned for an economic shock. That being said, exchange rate flexibility helps a lot and the AUD has fallen significnatly. Many Eurozone member states do not have that advantage, although the Euro itself has weakened.

      I wouldn't overestimate the long term impacts on de-globalisation. I do think that JIT inventory will go out of favour somewhat and more buffers will be built into supply chains, and perhaps more diversification by geography (already happening in a world of trade wars/tariffs anyway). However, supply chain disruptions out of China proved fairly short lived.

      On Russia, there is a constitutional vote coming up in late April that might allow Putin to stay on as president until 2036. It is quite possible that an environment of crisis or perceived crisis might improve the chances of the vote being approved. Decimated oil prices in the short term might play into that strategy. Will be interesting to see if Russia's stance changes after the vote. If it does, it could support this theory.

      Cheers,
      LT

      Delete
    2. Gazprom will finish a second pipeline to Germany by the end of the year (Nord Stream 2). The Company will raise its gas exports to Europe because domestic gas resources (Norway, Netherlands, UK) are nearly exhausted. US LNG has way higher break even costs than russian russian gas, so there no competition to expect. More details here: https://www.gazprom.com/investors/presentations/2020/

      Delete
  22. There is something else going on besides the virus and it is in the oil market.

    Oil for sale is one of the most corrupt operations on planet earth.

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  23. Hello Lyall
    I believe I read on one of your posts that to invest in your found, we need to be qualified as a sophesicated investor is that still the case? And if yes have you any plans to open up to retail investors in the foreseeable future.
    Also I am curious on your views on gentrack you mentioned it on a recent post and I have a small holding of several years and am looking to sell to free up some cash
    Regards
    Anthony

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    Replies
    1. Hi Anthony,

      Thanks for your question. Unfortunately I still do not have a retail fund, and will not do so for a long time, so I can only accept funds from accredited investors. The regulatory costs are prohibitive for someone at my scale, unfortunately.

      I don't have any special insights on GTK. I disliked it a lot before but it's already come way down so it's now a lot less clear. I don't have any insights into whether it's come down enough at these levels.

      Best,
      LT

      Delete
  24. Hello, on mkt timing.
    The BOFA ML data on global AM holdings could help. Especially cash positions.
    Best

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  25. LT don't dial anything in, Hempton is in love with himself, he is so annoying.

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  26. It sure is scary to look at economic figures now. I hope you are right.

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  27. LT in case you missed this from Horizon Kinetics:

    file:///C:/Users/David/AppData/Local/Temp/Horizon-Kinetics_Update_FINAL_03202020.pdf

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  28. Just found your blog! Great stuff, I will definitely revisit! Best regards from Sweden! /Axel

    ReplyDelete