Free eLetters

April 2020

A Looming Meat Shortage Demonstrates the Fragility of Supply Chains

April 29, 2020John Banks

Supply 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

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Bayesian Priors and the Trouble with Antibody Tests

April 28, 2020John Banks

On the COVID-19 medical front, the hot new thing is antibody tests. The idea is that, if a person tests positive for antibodies, it would show they have already contracted COVID-19. That would imply (though not guarantee) they are safe from getting infected again. Antibody tests could also indicate the overall percentage of a population that has already had COVID-19. In the state of New York, for example, 21% of New York City residents may have been infected (as reported

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The Next Wave of Layoffs will be White Collar — and People Working From Home

April 27, 2020John Banks

On 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

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Heed the Message of the Crude Oil Forward Curve

April 24, 2020John Banks

To quickly recap recent commentary, we explained on April 17 why the oil price could go negative. And then, on April 23, we explained why negative pricing came so quickly. Some of you wrote in to ask, “Who was buying oil at the negative lows? Were they taking delivery?” It’s possible the big global commodity houses were buying to take delivery. Outfits like Vitol, Trafigura, and Glencore specialize in trading not just paper commodities, i.e. futures contracts and derivatives, but

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How a Trade Went Spectacularly Wrong — Sending Oil to Negative $37.63

April 23, 2020John Banks

We recently explained “How the Oil Price Could Fall Below Zero.” The piece felt a little “out there” because, at the time it was written, the possibility we were explaining — oil contracts trading below zero — had never happened before. When we explained how the oil price could go negative, we thought a looming lack of storage space might cause it to happen in a matter of months, or possibly a matter of weeks. Instead it happened the very

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Unsettling News from L.A. to Sweden (and Japan to Singapore)

April 22, 2020John Banks

It’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

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Have all the CEOs and Venture Capitalists Gone Crazy? (Spoiler Alert: No)

April 21, 2020John Banks

When it comes to re-opening the economy, Americans are cautious. A new poll of 900 registered voters, conducted April 13-15 by NBC News and the Wall Street Journal, shows that 58% of respondents were more concerned about the risks of re-opening too quickly, versus the costs of re-opening too slowly. Based on this poll, it seems a majority of Americans “get it.” They recognize that COVID-19 is a serious threat, that social distancing has saved lives, and that the current

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Bitcoin Doesn’t Need Aircraft Carriers

April 20, 2020John Banks

“How many divisions does the pope have?” The question (possibly apocryphal) was asked rhetorically by Joseph Stalin, the iron-fisted dictator, to emphasize the military might of the USSR. Stalin measured rivals by how many tanks and guns they had. He is long gone now, but people still think about currencies the same way. The value of a currency is backstopped by the power of the state; the more powerful the state, the more benefit the currency receives. The U.S. dollar,

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How the Oil Price Could Fall Below Zero

April 17, 2020John Banks

To get an idea of how through-the-looking-glass this environment is — and just how far gone “normal” is — think about the following data point: Netflix now has a larger market cap than Exxon Mobil. It seems impossible, but it’s true. As of this writing, Netflix Inc. (NFLX) is worth $195 billion. Exxon Mobil Corp. (XOM) is worth $166 billion. Let that sink in for a minute. A company that was stuffing DVD rentals into envelopes by hand 20 years

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The Problem With Starbucks, or, Why Retail Ain’t Bouncing Back

April 16, 2020John Banks

Complacent market bulls got mugged by data this week. It wasn’t pretty. But before we address the data, let’s back up a bit. Wall Street has a contingent of smug optimists who (still) expect everything to bounce back quickly. From where we stand, this viewpoint is almost bizarre. Its very presence inspires armchair psychology hypothesizing. Is it magical thinking? Data blindness? Devotion to Norman Vincent Peale gone wrong? Perhaps it’s a reliance on “gut feel” ill-served by novel developments (no

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Why the Big Airline and Hotel Companies (and Others) Should Be Allowed to Fail

April 15, 2020John Banks

It is conventional wisdom by now that the major players in the airline industry, the hotel industry, the gaming industry, and multiple other industries hit hard by the pandemic should be “rescued,” meaning, the government should send them tens of billions. But what if that logic is wrong-headed? What if a better path — with better results for the economy — would be letting them all fail? Chamath Palihapitiya, a billionaire venture capitalist known for blunt talk and controversial views,

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Simplistic Messaging is Making the J-Curve Worse

April 14, 2020John Banks

On March 5 we said, “America is Entering the Coronavirus J-Curve.” The J-Curve concept is used in economics, geopolitics, and venture capital. The basic message of the curve is that “sometimes, things have to get worse before they get better.” For a longer description with examples, you can revisit the original piece here. We are revisiting that piece because, just over a month later, the J-Curve is now in full effect. (When the original piece came out, there were 177

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