Friday, 27 March 2020

Winners and losers of Covid19 pandemic

Winners so far:

Strong goverments who put it about a bit...

Amazon - having nearly destroyed the retail economies of the West, they have now been handed them on a plate...

Toilet Roll Makers - surely a one off in history?

Medics and carers - becuase they are so key and important at this time

Rishi Sunak - all those female journalists seem to like socialist policies from a good looking guy - who knew?

Super Market Workers - this get the award for the most surprising heroes of the coronavirus war

Loser so far:

Libertarians - sadly total freedom when your whole species is under attack does not cut it as a political strategy.

Airlines and Tourism - This will turn out to be a real long term hit, less travel, just like after 9/11 is baked into the system now. Countries may keep their strict visa systems too.

Government debt - an early and fatal casualty has been any ideas around keeping some sort of track on the Government spending. At least we won't be needing a new runway at Heathrow anymore.

China  - not happy with their Government, not one bit.

Tuesday, 24 March 2020

Why Hitchens Is Wrong

This is potentially going to upset some of our most loyal readership, but ... Hitchens is Wrong.

I first met him a long time ago: I was editor of a student newspaper and he came to interview me.  His write-up was flattering, and he didn't choose to report that we carried nudes on page 3.  Student life was more robust in those years: pitched street battles with the NF; open IRA meetings in pubs; it took (if I may say so) balls to be a rightwinger in them days.  Many students are stroppy and angry now, but they are a bunch of wimps.  (If anyone had taken against the statue of Cecil Rhodes back then - and they didn't - it would have been torn down and smashed the same evening.  "Rhodes Must Fall"?  Pah.)   Students I meet nowadays say: it seems to us that you had more fun back then ... and indeed we did.

But I disgress.  Hitchens wrote recently in opposition to a lock-down and associated regulations: 
Is shutting down Britain – with unprecedented curbs on ancient liberties – REALLY the best answer? ... I see very little evidence of a pandemic, and much more of a PanicDemic ... Epidemic disasters have been predicted many times before and have not been anything like as bad as feared ... dissent at this time will bring me abuse and perhaps worse. But I am not saying this for fun, or to be ‘contrarian’ –that stupid word which suggests that you are picking an argument for fun. This is not fun. This is our future, and if I did not lift my voice to speak up for it now, even if I do it quite alone, I should consider that I was not worthy to call myself English or British, or a journalist, and that my parents’ generation had wasted their time saving the freedom and prosperity which they handed on to me after a long and cruel struggle whose privations and griefs we can barely imagine.  
No time to write a lengthy rebuttal, so let's cut to the chase.   We All Know What He Means: and even the Grauniad (this is significant, subject of a later post perhaps) argued strongly for the sunset clause to be set at 6 months, not 48.  True, what's happening now is, in large measure Fear of Fear Itself.  But it's real, for all that, and needs to be addressed as such.  To say that the population - the real 2020 population of individuals who routinely behave as though they expect and deserve to live forever, not the WW2 generation that knew better - could and should take a higher level of "avoidable" early deaths on the chin, is like saying that nobody alive today suffers from "Absolute Poverty" because they all have smart 'phones and housing benefit.  

We all understand that argument, but it's irrelevant.  Oh, and by the way, even the universally Godfearing populations of the 15th, 16th and 17th centuries were not at all sanguine about the Plague.

So keep going with your articulate contrarian stuff, Hitchens - you're allowed to, and it's needed.  (Peregrine Worsthorne had an even better line in columnar contrariness - really ingenous, he was.)   But you've overcooked it this time.

And now I must go and bury a close relative.  They tell us it wasn't the virus; but it was certainly pneumonia, and who knows these days?

Have at it in the comments.  Fearlessly.


Monday, 23 March 2020

What purpose does keeping financial markets open serve today?

In normal times, markets are a keep lifeblood of a capitalist economy. They send the singal to participants and the Government about the state of the economy and are a general barometer of health for a market economy.

But in times of crisis they are scary places. The markets are run these days by both human traders and their pet algo's. This means they experience both euphoria in the good times and fear in the bad times. Sometimes the algo's are designed to exploit the fear even further.

At this unprecedented time of crisis, I don't see the point of the markets remaining open for stocks and shares. We know the crisis is only going to get worseover the next few weeks. Then hopefully better. As such the markets are just going to keep dropping on every bit of bad news.

Meanwhile, Government's like the UK have stepped in to effectively nationalise the workforce. A completely unprecedetned move. Plus loans and tax holidays for businesses. These may work or may not work.

So to me the unknowns are so large that the markets will have no real option but to fall much further. This only unbalances the economy further for any recovery - hurting savers and allowing well-heeled Private Equity a chance to buy up lots of companies on the cheap at a future date. The answer surely must be to halt trading for 6 weeks.

Forex can continue for trade as can commodities as these are life essentials for a function global economy. But stock markets are a one way bet and the lack of price information is not going to change how our Governments make decisions in the next few weeks.

I am amazed at the lack of discussion of this in the media - this can only be because the responsible types at the Financial Times worry that this discussion will cause a stampede to cash by retail and other investors and thus another steep fall.

However, we need to be rational, a collapsed market will not be the basis for a quick bounce back and reset in a few months time if we are lucky enough to get to that point.

Debate needed..

Saturday, 21 March 2020

Ride a Black Swan

One of the many great things about Enron, long before it went under, was that it brought really strong financial practices into the energy industry and made people take financial risk management (FRM) seriously.  We can talk about the rich, deep ironies another time.  I was never a risk manager myself, but was strictly schooled in its principles, technical and pragmatic, the better to negotiate sound contracts (which is my trade).

One of the interesting aspects of FRM is that no commercial institution, even a bank, is held to providing 99.9% certainty in its hedging etc - not even 99% in fact; because it can't be done using shareholders' equity without crippling economic cost.  Everyone knows that 100% physical safety is impossible - the cost of moving from, e.g. Five Nines to Six Nines is prohibitive - and likewise that extreme financial events happen out in the "fat tails" of the distribution, that can't really be catered for within the economics of an enterprise in the same technically-sound ways that can be implemented out to two standard deviations.  But what if folk are deeply risk averse, as they surely have the right to be?  The textbook solution to this puzzle is that they must take (partial) responsibility for their own FRM, by diversifying their exposures.  Not everything will go pear-shaped simultaneously ...

Except of course when a Black Swan glides onto the waters.  At this point, hitherto non-correlated risks all become correlated, in the shit-direction: so Diversification fails (as well as hedges not performing and insurance not paying out).  And then we are down to the last resorts:  burning through capital reserves (which were anyway set at the 95% risk level, so by definition they don't go far enough), and then ... socialisation.

Now as CU said the other day, 2020 looks like making 2008 seem like a picnic.  (E.g., I had a massive hedge on against 2008, and it paid up.)   This time, it's straight through to socialisation, and pray God that good decisions are made.

A lot of Socialists are drawing understandable (sort-of) but very wrong conclusions.  Wonderful, they say - and let's keep it fully socialised thereafter because Capitalism Doesn't Work.  This is the merest crap.  I won't rehearse what a feeble-minded misunderstanding that represents as regards What Capitalism Is; suffice to say that they were saying the same thing at the outbreak of WW1, and WW2 (and in fact every day of every week).  It was equally ridiculous then as it is now.  We socialise against the Black Swans, the Kaiser, the Nazis, the C-virus.  And in normal times, we optimise our affairs intelligently.  Leftist snipers can f*** off, and do something useful in the community. If they know how.

One more weekend thought for now.  The EU can f*** off, too.  Their threats will have no force whatsoever, when negotiations recommence.  What, they gonna threaten us with a 1% hit on GDP?  Shortages in the supermarkets and bread riots?  By then, we'll have solutions for all that stuff - and quite possibly better ones than theirs.  Small comfort right now, but I'd confidently say we'll get a sensible deal quite easily - with whatever's left by then.

Keep safe, all.


Wednesday, 18 March 2020

UBI debate - a good idea or a sily one?

As we know the virus is currently laying waste to the UK economy. The Leisure and Tourism industries combined are over £400 billion of revenues per year according to Government statistics.

The £350 billion that the Government announced in bailout loans yesterday is only going to be a band ai for a few months, unless the virus challenge is overcome, then so too will our modern economy and our Government finances.

What a challenge that will be!

However, we cna hope that the worst of it is over in the next couple of months. Until then the US Government is considering giving everyone $1000 into their accounts to help them with bills and see through these dark times. On paper I like this idea, as it is simple and easy to do (IRS/HMRC have everyone's bank account details already) - it gets the cash where it is needed.

I am less sure about Universal Basic Income as a long term play though - becuase although it should allow for a more felxible and less stressed workforce it is also ruiniously expensive. It ends up being a middle class subsidy for wannabe actors and muscisians or those who endlessly study degrees - or even those who want to apprentice as MP's for a while. Meanwhile the workes pay huge taxes to support this and the truly needy see their benefits cut.

To give an example, the NHS costs around £2200 per person, with UBI we would have to give say £500 a month for it to be realistic - so £6,000 a year. That plus the NHS is £8,2000 per person per annum. At over £750 billion, that is more than the UK Government's entire spending and 250% more than we currently spend on all social benefits and the NHS added together.

Where would the tax come from when so many people could eeek out a meagre living by doing nothing?

So for me the principle of UBI is quite sound, the practical implementation of it makes it financial suicide - what do you think?