Coping by moping

The Thinker by Rodin

In the week since I last wrote, life has been wholly upended for most Americans. But in many ways, life is unchanged for us. There’s just the two of us (four if you include two cats). Being retired, we are minimally impacted by COVID-19.

For us, the biggest financial impact is our stock portfolio. It’s down $180K at the moment, or about 19% from its peak on February 19. It will probably go lower, but the good news is that we don’t draw it down much, just $1900 a month and that comes from selling bond funds. So the stocks inside it wait for a more prosperous time when share prices recover.

Those with money that survive it will be the winners. On Monday we met virtually with our financial adviser. We actually bought some stocks on the theory that they are historically cheap and over time will recover. It amounted to 5% of the portfolio so it wasn’t that risky. Since no one can time the market (although I got lucky), those with money buy incrementally when values go down precipitously should eventually reap nice profits. I think that’s what our financial adviser is doing. Since he is paid as a percent of our portfolio, if he’s right, then he too will be enriched some years hence. Meanwhile, a steady pension and social security provide the bulk of our income. I can’t see those going away.

The government may give all Americans money to get through it. If so, we are unlikely to spend it. Since we don’t need it I hope there is some means testing. I’d rather it go to those who do need it, which is most of us.

In truth, being retired already, things haven’t changed that much for us. Mainly there is a lot more washing of hands and cleaning of surfaces than there used to be. We shop minimally and go through an informal protocol of bringing sanitary wipes with us when we shop to wipe surfaces like shopping cart handles. When we get home we wash hands and clean things we touched. So far it’s working. Eight days ago we got off a cruise ship and flew home, and there are no signs of COVID-19 here. Some items were in short supply at the store, or not available. But so far coping hasn’t been hard. Coping is accomplished mostly through moping. I do have some consulting work that generally keeps me busy. It hasn’t dried up at all, for which I should be grateful. Thankfully, it’s all work that can be done remotely.

We have plenty of incentive to be sanitary, because the one thing we can’t count on now is our health care system, at least if we come down with something serious. We might get some advice from doctors over the phone. But if we need hospitalization, as this thing gets worse it’s unlikely that we will get it.

I got my hair cut yesterday. It was our last opportunity as our hairdresser is going on hiatus starting Monday. It was all done carefully, but there was some risk. It’s likely that my hair will get quite long before it is cut again.

As this drags on, we will miss things like going out to dinner and travel. There is no place to go, and it certainly won’t be on a cruise ship. Unless we want to take in a mountain vista nearby, we might as well stay home. All this of course will just feed the recession sure to come, which looks like it could easily topple over into a depression.

This would be a good time to spend some money to stimulate the economy, but that too has risks. I wouldn’t mind a bathroom on our upper level, but not at the cost of having construction workers in my house for weeks on end bringing in who knows what with them. I bought a new car last year and we really don’t need to replace my wife’s car. The house is well furnished, so there is no need to replace anything.

The YMCA is closed indefinitely so exercising with weights won’t be happening for a while. What exercise equipment we have at home is cardiovascular. My principle form of exercise is walking, and that’s at least still okay. When I go walking I see plenty of neighbors, so at some level it’s like nothing is happening. Generally they are keeping their social distance, but I see couples not doing so. The park across the street from us is closed, but that hasn’t kept people from parking in the part that isn’t closed and walking around it. There were a few hundred people in the park yesterday. Occasionally I do see questionable behavior. A group of kids on bikes on the local path were probably breaking protocol. I just don’t think they care and figure they won’t get it.

What I do know is that this is just ramping up. Its economic consequences are already evident and will get much, much worse. A month from now the threat won’t be so much not being able to find toilet paper, but from having a supply chain under strain. As grocery clerks and pharmacists get sick, things will get much more dicey. I’m already seeing cops parking along the sides of the road in places they normally wouldn’t, I think mainly to signal to the community that big brother is nearby. I expect in time we will see them guarding grocery stores and pharmacies. We may think this is the new normal.

I do believe all this is temporary and things will rebound nicely when it is over. But it’s likely to last longer than thought. Complacency may set it, bringing a resurgence of the virus. Clearly, it’s going to have huge ripples. When it’s over, society is likely to be reorganized in pretty fundamental ways. We probably will see this time as a period of great change where things we took for granted, like an abundance of local retailers, largely come to an end.

The wizards of Wall Street are no wizards

The Thinker by Rodin

During our recent cruise, we at least got grainy MSNBC satellite TV. When I watched it, I watched the stock market yo-yo back and forth pretty much every day: the DJIA down a thousand one day, and it would often recover it the next day. The general trend though was down, a lot.

In a way, it was good to be on one of the last cruises because I was mostly insulated from this madness unless I sought it out. (Our cruise turned out fine. No passengers developed COVID-19 symptoms, but berthing in Fort Lauderdale we learned that the half dozen ships in port weren’t going anywhere for a month. I felt sorry for the staff, many of who were likely facing unemployment and a one-way ticket home.)

Today though takes the cake, with the DJIA having its worst day since the crash of 1987, down more than 3000 points in just one day. It all feels so predictable by now. I’m just wondering why the wizards of Wall Street are so late to this party. All the signs were there for those with clear eyes. I’m no Wall Street wizard, but I saw it coming. And I took some steps before the crash to mitigate our risk.

Today’s crash was because Wall Street suddenly discovered that the Federal Reserve had essentially used up all its ammunition, which means in effect that there is no steady hand on our financial system anymore. On Sunday, it dropped the Federal Funds Rate to 0%. Soon predictably it will probably go negative, charging banks to temporarily give them money to insulate them from even graver financial calamity. It probably won’t calm markets.

These same wizards of course were cheering companies that bought back their own stock with borrowed money. It gave the market a sugar rush and made stock prices worth way more than they were actually worth. Now many of these same companies, in debt to the max, are discovering the downside: they don’t have a whole lot of liquidity to ride out an economic downturn. In short, expect a lot of these companies, including some of the biggest of the blue chips, to go into bankruptcy.

The coronavirus is going to cause a recession, if not a depression. The virus though is just the trigger that revealed the larger problem, which has been sinking markets. Margins are gone. Businesses are in hoc up to their eyeballs, as are most consumers. Layoffs have already started and are inevitable. When public gatherings of fifty or more are not allowed, restaurants and many public-facing businesses like theaters close down for the interim. This takes money out of the economy and with predictable results. People living on the margins won’t be able to pay rent, or afford to see a doctor, and there are plenty of them thanks to a gig economy that Wall Street just loved but which added immensely to our overall financial fragility.

Stock market declines show that people are sobering up. Donald Trump of course is making things much, much worse by his lack of leadership and counterproductive strategies. He’s also making it worse for himself by continuing to shake hands with people. Most of his supporters still haven’t figured out what a fraud the guy is and are doing really stupid stuff like licking toilet seats to “prove” coronavirus is a myth. Sadly, it is likely that in a few weeks they need to only go to their local hospital’s morgue to see how wrong they are, if they are not victims themselves.

Children are out of school, day care centers will probably just pass on the virus, so parents predictably will stay home with their kids and fret. For many of them, this will collapse their house of cards. Social distancing should help reduce the number of cases, but it’s likely that there will be far more patients in need of critical care than our hospitals can handle. Our wonderful private health care system will prove unable to handle the coming crush of cases, which will kill lots of people needlessly as well as probably feed a mostly downward economic spiral.

It’s Republican government that will prove bankrupt once again, as it did in 2008, in 1987 and of course during the Great Depression. We never learn. The fall in the stock market proves these stocks were wildly overvalued and did not factor in the risks that are now obviously manifest. Having come off a cruise ship on Saturday and now home, I got to experience it first hand at our local supermarket where the meat counter and frozen food aisles were mostly empty. So far people seem to be soldiering on, but there is the pervasive undercurrent of social disorder. Things could get ugly not just medically, but civilly. We may be seeing the partial collapse of civilized behavior.

So we’re doing what we did before: hunkering down. We can’t count on our medical establishment, so we have to look out for ourselves. We wash our hands regularly. We take calculated risks going to the store. We wipe surfaces. We reflexively do social distancing. We also try to handle things soberly, mindful of the risks but realizing that we’ll likely survive this; it’s not really the big one. Lots of people won’t though, mostly the elderly and infirmed, and we are approaching our elderly years.

We can’t stop all pandemics and likely we could not stop this one either. But it could have been managed much better. Similarly, the collapse on Wall Street was entirely predictable. We just chose not to keep in place the regulations we needed to cushion this fall. And in search of short-term profits we refused to provide sick leave for workers, raise wages, invest in our public health or do the sensible stuff that government is supposed to do. It’s all so pointless and unnecessary.

We can control only what we can control. We can hunker down. Our pensions should provide a steady income in good times and bad. Moving to bonds at peak market insulated our losses. We are fortunate. We will also likely thrive in this challenging time because we didn’t do the stupid stuff. Unlike Wall Street, we acted logically as best we could best on a sober assessment of the world as it actually is. It was smart of us to do it, but it didn’t have to be this way for the rest of us. As a society we chose to ignore the obvious risks right in front of us.

Expect a recession

The Thinker by Rodin

A recession is coming. It’s probably already here; we just can’t prove it yet.

The trigger was the emergence of the coronavirus and the resulting COVID-19 disease in late 2019 in China, but if it hadn’t happened it would have likely happened later in the year anyhow. As predicted it’s spreading all over the globe. People are already starting to hunker down. In some places it’s getting hard to find bottled water, toilet paper and hand sanitizer.

This is an overreaction. You don’t need bottled water unless the public water supply system goes out, which it won’t. And even if somehow the water is unclean, you can boil it. Fear of course makes people overly cautious, but it’s currently way overblown. It’s the fear that is driving down the stock market and making people buy too much toilet paper.

The world economy is now built on specialization and trade, so when China’s manufacturing sector takes an indefinite hit, it’s going to have large worldwide ripples. It’s already happening, but if you need proof you just have to look at Chinese ports, where little is going out or coming in. When items like rolled sheet metal don’t make it to manufacturing markets, value-added products can’t get produced. That will cause layoffs. But fear in general will cause people to be cautious with their money. The Fed can cut its discount rate by half a percent, but it won’t do much to solve the underlying problem.

Coronavirus was perhaps half the reason I sold twenty percent of my stocks and moved them into bonds on February 14, at just about peak market. Even then, it wasn’t too hard to see how this was likely to go. With the wholly inept response by the Trump Administration, it was clear that an intelligent response to the health crisis wasn’t going to be forthcoming. We could have been much better prepared than we were, but instead Trump cut the Center for Disease Control’s budget. Voters won’t forgive incompetence when it kills their family, friends and neighbors.

It’s also becoming clearer that this virus will not only put us into recession but turn into a pandemic. It’s pretty much there already. It’s not hard to catch and there is no vaccine available. Potentially 40-70% of us could contract it. For most of us, a bout of the flu will be much worse, but since it will spread so easily and has about a two percent mortality rate, it’s going to take a lot of lives.

There are 330 million Americans. It’s realistic that 10% of us will contract the virus this year, and there may be more next year. At a two percent mortality rate, it’s likely to kill about 660,000 of us this year, principally the aged and infirmed. This is just a ballpark figure, but it’s likely to be the biggest public health crisis since the 1918 Spanish Flu. I live in a 55+ community, with most of my neighbors probably 75+. If it gets me, it’s unlikely to kill me, but it’s likely to kill a few of my neighbors. Most neighborhoods will see at least a few casualties from this virus.

So of course we are going on a cruise. It’s hard to get out of as it’s paid for, but the cruise line won’t let in people cruise who fail a health check or who have traveled through certain countries recently. It’s unlikely to affect our cruise beyond perhaps being denied ports of call. But it’s still worrisome. 660 people on the cruise ship Diamond Princess out of Japan contracted the virus and 7 died, in part because Japan wouldn’t let them off the ship into proper quarantine facilities.

I’m not panicking. Prevention is mostly being vigilant, which means washing hands frequently. Still, cruise ships are great places to pass it on, as the Diamond Princess learned, because of the centralized air conditioning which can push the virus through the whole ship. In general, being in close quarters is not a good idea, and you can’t avoid that on a cruise ship.

Speaking of which, the travel industry will slump. Actually, it will go into a depression. And that will affect a large supply chain of its own, which will feed a downward economic spiral.

What can you do? Don’t overreact, but also take sensible precautions. Wash your hands regularly, particularly after touching foreign surfaces, with soap, for 20 seconds or more. A vaccine is probably at least a year away. This means you could easily get the virus anyhow, just realize that it probably won’t kill you, but it will be widespread.

With luck you can avoid it until there is a vaccine, but even when it’s available it will go to the elderly and infirmed first. One in 50 odds of dying is very good odds. Unfortunately, the way our society is ordered will make it worse here. So many workers have no sick leave, so they will come to work and spread it further. It’s the downside of a gig economy and our poor labor standards. Those who can will work from home. Those who can’t will bear much of the risk and be the principle carriers.

It also probably means that Trump will be a one-term president. He is managing this as ineptly as we feared. It won’t take too many MAGAers to die before their friends notice. It will help people put their prejudices aside and force them to understand the value of science again. At least I hope it will. It should.