In early April — which was only 12 weeks ago, but feels like a lifetime ago — we said in these pages that domestic travel bans were highly likely for the United States. We further said that, due to variations in how infections would spread, the U.S. would be sorted into “green zones” and “red zones” (or something to that effect). The green zones would then have reason to keep red-zone travelers out. Fast forward to late June, and the
Read now“Hysteresis” is a vital concept in mechanical engineering. It also applies to economics, medicine, and financial markets. Hysteresis occurs when changes to a system happen with a time lag. It can also be defined as systemic state-dependence, meaning, whatever happens next is influenced by the past. There is no hysteresis in, say, rolling a pair of dice. The outcome of the dice roll has no relationship with past rolls. There can be a frustrating amount of hysteresis, on the other
Read nowOn June 15, Hertz announced plans to raise $500 million in a new share offering. This was controversial because Hertz is in Chapter 11 bankruptcy, the creditors have dibs on the assets, and the new shares have statistical near-certainty of being worth zero. We wrote about this fiasco on June 17. That same day, the Securities and Exchange Commission (SEC) put a stop to the $500 million offering by announcing they had comments on the disclosure document. (If you are
Read now“The COVID-19 recession is over,” said Mark Zandi, the Moody’s Analytics chief economist, last week. But then he added a qualifier: “Barring… a major second wave, or real, serious policy errors.” In other words, if the world avoids events quite likely to happen — with a probability significantly greater than 50% — the COVID-19 recession is over. This is head-scratching logic, but the market appears all in. Through the power of magical thinking, the virus is being wished away. In
Read nowThe strength of the stock market rebound has been a mystery. (To give you a sneak preview, today we’ll explore a narrative that solves the mystery.) It’s not just that stocks — not all stocks, but a favored group — are showing a kind of bizarre optimism, relative to a catastrophic collapse in the real economy, the ongoing challenges of the pandemic (with a “second wave” on deck), and the inescapable realities of a painful and prolonged recovery. In addition
Read nowThe U.K. government achieved a dubious milestone on Wednesday, May 20. It sold its first ever batch of negative-yield bonds. In 2016 — when Brexit took markets by surprise — a one-month U.K. treasury bill went negative. But May 20 was Britain’s first time for a conventional longer-term bond. The offering was for 3.8 billion pounds worth of three-year gilts (debt securities issued by the British government). The auction was more than twice oversubscribed, with 8.1 billion pounds worth of
Read nowJerome Powell, the Chairman of the Federal Reserve, said extraordinary things in a May 13 speech. And to make sure his points were heard, Powell reiterated them on a May 17 60 Minutes interview. The “extraordinary” part came from the context. Under normal circumstances, a central bank never gives policy advice to the government. Nor does a central bank chief speak of the economy in dire terms. Yet Powell did both of those things, by way of his May 13
Read nowSupply chains are a marvel of modern commerce. The links of a supply chain can span tens of thousands of miles, traversing whole continents and crisscrossing the globe. Supply chains are also fragile and vulnerable to disruption. Under adverse circumstances, a supply chain can easily get backlogged or broken. The lack of a part from a single factory, or the shutdown of a single processing plant, can wreak havoc far down the chain (and half a world away). The inherent
Read nowOn March 31 we said “The Odds of a V-Shaped Recovery are Zero.” The analysis still holds — and the case has only grown stronger. On March 31 we pointed out that the retail, restaurant, and travel industries account for 73.4 million jobs by self-reported estimates, accounting for nearly half of all U.S. jobs. In terms of layoffs, those three industries — restaurants, retail, and travel — were hit first, and arguably hit hardest, by the COVID-19 mitigation response. That
Read nowIt’s possible that more than 400,000 people in Los Angeles county (population 10.1 million) have already contracted COVID-19. The estimate comes from a new study conducted jointly by the University of Southern California (USC) and the LA Department of Public Health. The study conducted antibody testing on 863 people, with results pointing to a 4.1% infection rate. The data matches the consensus expectation of infectious disease experts, which estimates a current U.S. infection rate between 2 and 5% of the
Read nowA global pandemic is about as serious as it gets, and this is going to be a long fight. Even if an “apex” comes in April, we’re only at the beginning of this thing. It’s important to be clear on this. If you look at a situation realistically, without downplaying it or sugarcoating it, you can steel yourself for the hardships and challenges ahead, and then you can focus on building and executing a plan. Once the plan is in
Read nowThe hockey legend Wayne Gretzky summed up his approach in one sentence: “Skate to where the puck is going, not to where it has been.” The quote has probably been used — and abused — by tens of thousands of corporate executives. But the quote is popular because it captures an important idea. To be competitive and prepared, you have to be in tune with what is likely to happen next — not what happened yesterday. For markets as of
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