Covid-19

[specuvestor]

I take the generally accepted medical view that the vaccine will come in 18-24 months, which Gates who has been fighting polio, mentioned as well. The previous coronavirus didn’t get vaccine is also because of economics because there’s too few cases. That’s how it works in a capitalistic medical system which is dominated by US R&D

Governments will not be able to afford to lock down for too long. Even with unprecedented monetary stimulus if there is a structural decline in demand with 2nd order impact of bankruptcies and job losses, the economy will contract sharply, so swift recovery is key. Some are monitoring China for second wave of impact and I think even if that happens, lock down will no longer be viable.

Like I said: for those who believes in supply side economics this is your season to show it works... heck even for those who believes in modern monetary theory (MMT) this is your day

The market is expecting a V-shaped recovery. But it can only happen if economies restart and demand opens up, on the basis of a quick vaccine

The reality is that the lock down cannot last more than 2 months to have a permanent structural impact on demand and fiscal deficit, not to mention monetary policies as it dips into credit markets where losses are real. High unemployment with high fiscal debt and ZIRP are near wits' end if it doesn't resuscitate the patient. The other 3rd order impact is social unrest simply because people have to work to eat. If there is a second wave, which people are monitoring china, I doubt lock down will be viable anymore. It's a grim debate between deaths and the hardship of living; as a commentator remarked: the dead don't vote.

My expectation is the same that over longer term it has to be treated like a more deadly flu virus with low load community immunity as the goal. For example Germany and Sweden is moving towards that.

What most people don't realise is that despite the surge of the cases in Singapore due to extensive testing, the number in ICU did not spike as much. Migrant workers are mostly young; the bigger danger is in old folks' home which is already emerging in US. Like I mentioned before, if everyone is tested I'm pretty sure most countries are under declared, probably by factor of ~10, because only serious cases are tested

SG's mistake to be honest is to leave the causeway open after we knew the seriousness of the KL conference spread and proceeded to close down mosques. Half of Malaysia's confirmed cases is from that conference. And now people question the dorms when 1) we house a lot of those Malaysians in the dorms when they had nowhere to go 2) we arrested the Bangladeshi cluster back in Feb. The diff now is we decided to test everyone rather than the previous protocol of don't test and issue Quarantine to those close contact to confirmed cases (ie symptomatic)

Personally I think the market is too optimistic on the variability of the projections. Indeed this war is going to last longer than 2020. My only hope is that summer will prove effective in curbing the spread

market is way too optimistic...

Gilead's highly touted drug seems to be useless.
https://www.bloomberg.com/news/videos/20...rial-video

I suspect other known drugs being trialled and repurposed for covid will fail miserably too.

Given that we know with adequate testing the fatality is about 0.5-1% (this is assuming ICU facilities are not overwhelmed)
There really are only 2 options which i believe govs will gravitate towards finally.

1) Like USA and much of Europe(italy/spain/UK good examples) -> dont really care and let it spread like wildfire then have no choice but to do damage control and lock down entire cities when hospitals get overwhelmed and death rates spiral out of control to thousands dead daily. In which case they will have to print tons of money and economy still goes into a recession. Then reopen the economy in stages once things under control --> likely this will lead to a prolong period of stagflation.. Like in Wuhan we can see they have restarted somewhat with universities still closed and people still having the shadow of the virus hanging over all their activities.

2) Successfully shut down the viral spread like in NZ/Taiwan/South korea/Hongkong and even what looks like Australia becoming successful through lockdowns. this is more practicable in small island nations which can secure their borders. Once they have very very low cases, they can do random community testing to confirm this and implement effective virus tracking apps to quickly track and isolate any potential hotspot. Of course some form of community social distancing will still need to be maintained until either vaccine comes or the virus just dies out locally.

In any case, the solution will be extensive social distancing and bans on large social gatherings at community events like religious ceremonies or concerts or sports games for an extended period of time to allow the virus to slowly work its way through the population. 

Vaccine in 1 or 2 years time is really OVERLY optimistic. SARS since 2003 -> 43 vaccine candidates all failed. MERS-COV also some research continued from SARs in 2013 period and still no vaccine. 

Summer is not going to help as this is not seasonal flu. Lots of equatorial countries like Indonesia is getting it bad. Main thing is population density i reckon. If you can socially distance and let people have space it wont spread so fast.

There will be a second wave of spread in any nation that tries to reopen their economy without implementing some form of social distancing rules as well as protective equipment and screening at work places. 

IMHO we should see another big drop in stock markets over next half year as the viral impacts get priced in from 1Q and 2Q and as more vaccine and drug trials fall apart, i expect the virus spread ramps up in big population nations like USA/South America/Indonesia/India causing massive death toll as well. There might at the end of the year be at least a contraction of 1% in human population which will not be good for global economy. The stock market drop will then become a credit crisis for banks as property and other bubble assets fall apart globally.

V shape? Looking more likely a prolonged decade of recession is coming for the global economy.

[weijian]

the negative oil prices failed to crash the market last week...

the 26mil jobless figure again failed to crash the market last week...

what is pleasantly surprising was that FEDs moved in very quickly this time round to cut interest rate to ZERO, implement QE infinitely, buy ALL bonds (government & corporate).

all these monies will eventually find their way into the stock markets! Who can go against the FEDs and their money printing machines???!!!

Whether it is V shaped , U shaped or L shaped , FEDs will do whatever it takes to prop the economy . Are we brave enough to bet against this money printing machinery of FEDs ?

We may have to differentiate between a liquidity crisis and a solvency crisis. In 2008, it was more of a liquidity crisis than solvency crisis as money markets froze. Even then-healthy companies like General Electric which depended on the money market for its short term funding, were in danger of defaulting on its obligations.

In the 1990s era under Greenspan, the Greenspan puts in 1998 and 2003, in response to Russian default and dotcom crash/ 911 respectively, helped to revive the equity markets. But arguably, the 1998 puts set the stage for 2000 dotcom crash, while the 2003 puts set the stage for subprime mortgages to GFC2008. In the prior decade, Paul Volcker was reducing rates from double digit numbers and that set the stage for one of the greatest multi-decade for equity market boom in modern history.

Every action has a reaction. IMHO, the big mistake is to assume every reaction will always be the same for every action. Actually, a closer look at history (as i documented briefly above) already invalidates that assumption. Of course, our memories probably stayed in the last crisis. For now, our last crisis is GFC2008 in which Helicopter Ben's policies worked. Going back to memory lane in 2009/10, in the aftermath of his policies, toothsayers were condemning them because the then-memory was that of 1998 and 2003.

Back to the start of my post where i mentioned the difference between a liquidity crisis and solvency crisis - the Fed can't fix the latter. Only Gov can fix the latter via nationalizing companies like what Temasek is doing to SIA. A nationalized company will continue to survive many years from now but shareholders will not be comforted. That goes back to where specuvestor and most VBs have been alluding to the 2nd/3rd order effects translating to solvency issues.

Finally, to be honest, macro economics ain't my cup of tea. The best cure for low prices are low prices. End of the day, earning power and conservative balance sheets should be what drives a value investor in all climates.

[opmi]

Let hope Temasek/GIC has better timing this crisis. Their timing of banks purchases during GFC not great (on hindsight)

[Wildreamz]

..

 End of the day, earning power and conservative balance sheets should be what drives a value investor in all climates.

Indeed. 

As long as price is right, balance sheet is strong, business model is resilient, it's good opportunity to invest for the long haul.

[weijian]

..

 End of the day, earning power and conservative balance sheets should be what drives a value investor in all climates.

Indeed. 

As long as price is right, balance sheet is strong, business model is resilient, it's good opportunity to invest for the long haul.

It is a Trinity and you missed out the part about "low prices"
Well, different strokes for different people i presume.

[RachelProp]

Covid-19 and climate change
https://www.theedgesingapore.com/views/c...ate-change

SINGAPORE (Apr 17): Covid-19 is now a defining crisis of our generation. But it is not alone. As we mark the 50th anniversary of Earth Day, we must consider what the next 50 years might bring if we fail to address the crisis of climate change.

[holymage]

I take the generally accepted medical view that the vaccine will come in 18-24 months, which Gates who has been fighting polio, mentioned as well. The previous coronavirus didn’t get vaccine is also because of economics because there’s too few cases. That’s how it works in a capitalistic medical system which is dominated by US R&D

Governments will not be able to afford to lock down for too long. Even with unprecedented monetary stimulus if there is a structural decline in demand with 2nd order impact of bankruptcies and job losses, the economy will contract sharply, so swift recovery is key. Some are monitoring China for second wave of impact and I think even if that happens, lock down will no longer be viable.

Like I said: for those who believes in supply side economics this is your season to show it works... heck even for those who believes in modern monetary theory (MMT) this is your day

Even if there is a vaccine in the next 18-24 months, mass production of billions of vaccines could be a challenge as well.

Read that there are several cases of virus reactivation (outlier or norm?), which means that herd immunity may not be a viable solution as well.

Completely agree with the economic impact. It will not be a V-shape recovery. This has been mentioned by many authorities with access to data, Lee Hsien Loong, Angela Merkel, IMF etc. To recover back to 2019 economy peak in terms of GDP will likely take years, perhaps 3-5 years. 

Lock down as a cure is worse than the disease. I too think that the economic implications will lead to widespread financial difficulties, worsening inequality, subsequently social unrest and populism. Basically, it will be an aggravation of the situation we have been seeing for the past few years.

I think the market is irrational, given the massive disconnect between the real world economy and the overvalued stock prices. Many investors are banking on the massive stimulus. Even if companies don't go bankrupt, most of them are going to be zombie companies being propped up on life support with low interest rates. This implies that worldwide GDP growth is likely to be even lower going forward than during 2009-2020. With lower growth, it is hard to justify a high valuation.

In addition, due to this crisis, there is unprecedented amount of stimulus worldwide. Even Charlie Munger in his recent WSJ interview worries about inflation in the future. Inflation might finally arrive after a massive deflation, given the record pace of increase in M2 supply. And contrary to level 1 thinking, as supported by historical evidence, high inflation is bad for stocks.

I don't think the market is that forward looking (looking 3-5 years ahead), so I do think that this is an irrational bear market rally. If price discovery never return, then I think I would rather go RWS or Genting Singapore to invest my capital.

[Curiousparty]

https://on.mktw.net/3aJ6sE1 Check out this article from MarketWatch - Dow futures up 300 points on easing of coronavirus lockdowns as earnings season hits stride




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[dreamybear]

I don't think the market is that forward looking (looking 3-5 years ahead), so I do think that this is an irrational bear market rally. If price discovery never return, then I think I would rather go RWS or Genting Singapore to invest my capital.

Haha, that is a cute one.  

For me, even if the mkt continues to be irrational, I wld still invest in the mkt rather than going to RWS. I feel there is a higher chance in getting returns from unexpected circumstances i.e. company taken private, company bought over, some famous personality taking a substantial stake, etc. That is why I seldom cut loss unless it's a clear-cut mistake or urgent need of capital.

Interestingly, the West and the East seem to view the current situation somewhat differently. For US, it is still the world's de facto currency, and with the Fed's stance, I wld think US investors have lesser worries.

=========

"As some uber-rich U.S. and European clans rush to buy assets at bargain prices, their Eastern peers are generally more cautious -- managing their holdings and hoarding cash in preparation for worse to come."

https://sg.finance.yahoo.com/news/rich-a...35386.html

[Wildreamz]

Full economic recovery may be U-shaped, or L-shaped (depending on where you look), but financial market recovery is often V-shaped, as long as there is visibility towards the end of the crisis. Also, there are always pockets of strength and value in the market, if you look hard enough.