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'Fear Factor' Is Running High as Currency Markets Resume Trading
- Zaskoda 7y agoIt's interesting that all of the current activity is speculation and the actual impact of supply chain disruption really hasn't started to hit yet. Given that we're at record levels of corporate debt, I would think we are likely to see a lot of ripples.
- Johnny555 7y agoApple, for example, already announced they will miss sales targets due to supply chain disruptions, so the market is going to factor that in whether or not the expected delivery was missed. But I think the impact is already being felt -- ports are already reporting a drop in container ships. https://www.wsj.com/articles/port-of-los-angeles-sees-coronavirus-impact-sharply-reducing-imports-11582648931 https://www.wsj.com/articles/port-of-los-angeles-sees-corona... And the lack of incoming ships doesn't just reflect a drop in imports, but it's also affecting exports that were waiting on those ships.
- hogFeast 7y agoLos Angeles isn't huge. Arrivals in Shanghai/Shenzen/Ningbo (and to a lesser extent, HK) are definitely down and vessels are staying in port but the world hasn't stopped. Busan is fine, Singapore is fine, Jebel is fine, Rotterdam is fine, etc. Maybe the virus gets worse somehow but when things resume, they will resume quickly. If you look at traffic stats for the Chinese cities above, you will see they improved last week...last Monday Shenzen was actually back to normal. Again, maybe the virus gets worse but the evidence is that we have stabilised.
- ohazi 7y agoThe Port of Los Angeles is the busiest container port in the United States. 20% of all US-bound cargo moves through this port.
- Johnny555 7y agoI don't know what qualifies as "huge", but around $300B worth of cargo passes through the Port of Los Angeles every year. And other ports are also reporting slowdowns. It takes about 2 weeks for a cargo ship to reach the USA from China, but it can take 30 days or longer to get a shipment through the entire cargo chain from start to finish, so even if things are recovering on the China side, we're still in for at least a few more weeks of disruption. And since cargo is stacking up on both sides, it'll probably take months to get everything back on track.
- hogFeast 7y agoThe top port does something like 4x the volume. Los Angeles is in the top 20 (just #17) but it isn't large. I just told you what the volume is (you can check for yourself, all of this is public information) for other ports. It won't take months. That is just not factually accurate, it takes a day or two to load the largest container ships, and they load more than one at once. It isn't "stacking up", that isn't how ports work...if you can't get space, you don't stack your stuff at the port, you just don't send it.
- ceejayoz 7y agoA 5,000 page book is still large if there's a 20,000 page book out there.
- arcticbull 7y agoEvidence is also that the virus just isn't that bad, it's the same order of magnitude as a bad seasonal flu. We definitely didn't know this at the start, so the reaction was justified, but evidence is showing us that this is both (a) likely not a virus we can contain in part because it's just not that bad and (b) that shouldn't really matter to us. Longer term, we'll have a vaccine and it'll be added to the usual seasonal flu vaccine package. Time to accept it: we're all going to get the coronavirus, and you know what? The vast, vast majority of us are going to be just fine. [1] So we're clear, the seasonal flu has killed 80,000 people so far this year vs 3,000 from nCov-19. The transmission rate is a bit higher than H1N1, the fatality rate is a bit higher than H1N1 (0.6% vs 0.45%). Treating this as some sort of ebola pandemic where we're all going to die is a massive overreaction. From the WHO report almost half of people are asymptomatic. Death rate for people under 7 is 0%. Under 40 is 0.2%. Under 50 is 0.4%. For older folks or the immunocompromised, it's naturally higher, because they're older and immunocompromised. Data shows the H1N1 flu is 10% fatal to old folks, too. We've reached peak unsubstantiated fear. [1] https://www.theatlantic.com/health/archive/2020/02/covid-vaccine/607000/ https://www.theatlantic.com/health/archive/2020/02/covid-vac...
- ookblah 7y agoThe thing is where is the balance in response to this? I too agree that it's going to just be one of those things we deal with every year like the flu, but the difference between it being manageable vs. out of control relies on everyone collectively having a set of standards. If everyone uses some common sense, washes hands, is on top of their symptoms and goes to the hospital, etc. everything will be fine. If everyone just acts like nothing is wrong you could have cluster outbreaks and seriously affect pockets of people. The fear factor plays in here. The fact that we haven't tested nearly as many in the USA and are acting as more of a passive observer gives me concern.
- deleted 7y ago[deleted]
- Johnny555 7y agoIf everyone uses some common sense, washes hands, is on top of their symptoms and goes to the hospital, etc. everything will be fine. Is that true though? Half the country gets a flu shot, yet between 10M and 50M still get the flu each year. And to be honest, I'd be very reluctant to go to a hospital for any reason right now unless I felt I was in danger of dying since everyone that thinks they might have coronavirus is going to be sitting in the waiting room beside me. Is simple handwashing enough top stop the spread of this coronavirus, or is stronger isolation needed? China seems to have a handle on the infection growth but as far as I know, many areas are still on lockdown.
- Avalaxy 7y agoI live in Rotterdam. You better believe the amount of containers coming in has recently drastically decreased.
- pmorici 7y agoIs it really just speculation? The China PMI number for February is being billed as the lowest on record. https://www.cnbc.com/2020/02/29/china-pmi-factory-activity-shrank-at-fastest-rate-on-record-in-february.html https://www.cnbc.com/2020/02/29/china-pmi-factory-activity-s...
- nugget 7y agoIsn't this one utility of free markets, to be a source of predictive consensus about what is likely to happen in the future?
- refurb 7y agoExactly. The equity markets are future predictors. When someone is self-interested in speculation, that also provides a signal to the broader market about what might unfold. That signal helps others plan as well.
- K0SM0S 7y agoYes, the prevailing assumption is that "everything is factored in price", including all the irrational (like some aggregate of our prediction of the future, which includes investors thinking like OP).
- alfiedotwtf 7y ago> really hasn't started to hit yet I guess you don’t talk to people in the construction industry. People have been let go because they can’t get supply. I’ve had multiple first hand accounts just in the past week in different parts of construction (commercial and realestate) saying how bad it is (Australia).
- brettproctor 7y agoThe % of corporate debt rated BBB has also exploded. It is likely these companies should really be junk, but are kept alive by reluctant/agreeable rating agencies and historically low rates. "At the same time, the lowest rated part of the investment-grade market has grown particularly quickly. Globally, BBB debt makes up over 50% of the market versus only 17% in 2001." - https://www.blackrock.com/institutions/en-us/insights/investment-actions/assessing-risks-in-bbb-corporate-bonds https://www.blackrock.com/institutions/en-us/insights/invest...
- caleb-allen 7y agoYikes. I've been worried that junk corporate debt would be what triggers the next recession, with the financial "innovation" of the Collateralized Loan Obligation where the mortgage based CDOs previously were
- samvher 7y agoRight - I am by no means an expert on this but I feel far more worried about ripple effects than about the disease or even direct effects of supply chain disruption. In October the IMF warned about corporate debt levels which could cause serious issues with a recession half as bad as what we had in 2008 [1]. This seems like a similar kind of systemic risk as what ultimately caused most of the trouble during that recession, but most people are talking only about the direct effects of quarantine and supply chains. [1] https://mobile.reuters.com/article/amp/idUSKBN1WV1N5 https://mobile.reuters.com/article/amp/idUSKBN1WV1N5
- gdubs 7y agoWith interest rates already so low, people are sure putting their hopes into monetary policy and another round of quantitative easing. This would usually be a good time to talk about fiscal stimulus options.
- to11mtm 7y agoEhhhhh You have to be careful with that. The market is a fickle beast; there's a chance that a stimulus too early may make future stimulus less effective, since "it didn't work earlier".
- pbourke 7y agoI think they should be planning for a substantial fiscal stimulus. Something like a temporary expansion in medicare, guaranteed free testing, etc. A temporary expansion in funds for paid sick time. Expansion of unemployment benefits. Or just say fuck it and cut people checks every month for a while. Plan to have these ready in case they're needed. Health-related ones can probably be activated soon (esp testing). Chance of any of this happening: 0%.
- brettproctor 7y agoHong kong already giving out $1,200 to each resident: https://fortune.com/2020/02/26/hong-kong-economy-stimulus-cash-handout/ https://fortune.com/2020/02/26/hong-kong-economy-stimulus-ca...
- steve76 7y agoHigher prices to bail out the people who turned a job interview into the Olympics.
- webninja 7y agoInterest rates are only in the range of 1.5 to 1.75 basis points... Historically, the Fed has had to cut interest rates by 4 basis points to pull the US out of previous recessions, IIRC. It doesn’t take a math major to tell we have a big issue if this slowdown turns into a recession.
- tempsy 7y agoI ended up saving my investment portfolio buying put options on the S&P and getting my portfolio to a yearly high even though my stock holdings dropped in value. In times like this hedging is an extremely useful tool.
- nostromo 7y agoMaybe. Or this will be another V event like Christmas 2018 and you'll have lost money buying an unnecessary hedge. If you need the money in 2020, hedging makes sense. If you don't, don't.
- tempsy 7y agoI took profits already so left with a smaller hedge. Definitely will not lose more than I would’ve if I had done nothing, even if it goes to 0, which is unlikely given the high volatility.
- benmanns 7y agoImplied volatility on one week puts is around 60% right now. Downside protection is very, very expensive, even if it does work sometimes.
- tempsy 7y agoI’m playing with house money at this point, and bought on Friday and Monday/Tuesday before IV got massively inflated. No good news came out this weekend, if anything it’s only gotten worse. A V shaped recovery is unlikely, but if it does go up this is a hedge, not a bet, and my portfolio is net long.
- AznHisoka 7y agoHedging is only effective when you don't need it. Sort of like home insurance - you don't buy it when you house is already burnt down - the premiums will skyrocket and it doesn't do you any good. Last week, and Monday afternoon was probably the last opportunity to buy hedge at a decent value.
- hogFeast 7y agoWe will either melt up tomorrow (which is basically inevitable at some point given historical performance) or we will start recovering. Just based on the data I am seeing, last week was a turning point. If things get worse this week, then we will move lower again, but...right now, it doesn't look like likely.
- deleted 7y ago[deleted]
- jameslevy 7y agoWhat is the functional difference between a melt up and recovering? Don't they both imply an increase in asset prices with different reasonings? What would indicate one versus the other?
- nostromo 7y agoChristmas 2018 was a melt up. You had a case where the market felt like it was in freefall. People piled into puts and some panicked longs sold their portfolios and sat on cash. Then, when it was clear the market had stopped falling and was moving up quickly, cash hoarders suddenly piled back into the market in a panicked attempt of buying the dip. Two weeks or so and the market was in an identical place. People that sold paid taxes on their gains, a huge hit to any portfolio. Everyone that held was better off.
- cycrutchfield 7y agoThis time feels quite a bit different from Christmas 2018. We have not yet hit rock bottom.
- hogFeast 7y agolul
- hogFeast 7y agoLook at the distribution of equity returns. A melt up would be 3%+ down, and people panicking (we saw panic towards the end of last week). A recovery would be stop falling or gain on the week. I would put the recovery scenario at far better than chance though. It looks like 60-70% to me. We may sell off more if things get worse later but right now, we have got through the point of maximum panic (just from what I witnessed, this was a December situation...I live in the UK so our December was motivated by Brexit but back then people were talking about stockpiling, etc. it was one of those times where you don't know whether to laugh or cry).
- brettproctor 7y agoTo me, I think the most critical thing to make note of is the extreme focus on what the fed and other central banks are going to do. The fact that most people (rightly) assume that fed action is the most significant factor for the market should really give people pause. Lastly, people should really consider what happens when fed action is no longer enough, and what happens then.
- pbourke 7y agoYeah. Fed was able to intervene in 2008 because it was a financial crisis. This is a physical event that will affect the real economy. You can print all the money in the world, it won't make people go to the restaurant or buy a car.
- brettproctor 7y agoAgreed. I've also appreciated the quote of "Last time I checked the fed can't print a vaccine"
- ceejayoz 7y agoThe Fed also has substantially less wiggle room now. Interest rates are already very low, especially for boom times.
- brettproctor 7y agoLast time they dropped it from 5.25% to 0, and still had to print ~$3.7T. With only 1.5% to cut and GDP 50% larger than it was back then, how much QE will they attempt this round?
- webninja 7y agoIn 2008+ when they “printed money” via “Quantitative Easing”, they would buy bonds off the market. This puts printed money in the hands of bond holders. Presumably bond holders are very rich. Presumably very rich people already have a good enough car and already frequent restaurants. Now if the Fed printed money and put it in the hands of the middle class, not just the hands of the upper class, I’d bet you new cars would be bought and restaurants would be dined.
- baby 7y agofear is indeed spreading faster than any disease here.
- KaiserPro 7y agoNone of this is going to be resolved this week or month. THe next big thing to watch out for is the virus spread in the USA. Now, unless something changes, I am not overly hopeful in containment for the USA. The rumours of poor/non standard testing, and the limited access to healthcare is going to make one hell of a mess. Could a US person explain who pays for the test/on going healthcare if an uninsured person rocks up to the ER with relevant history and flu like symptoms? Does the government step in to fund care? or is it left to the hospital to foot the bill?
- deleted 7y ago[deleted]
- mdorazio 7y agoDepends what you mean. The uninsured person is still technically liable for the price of care, which is why so many people in the US go bankrupt for healthcare reasons (you get a fat bill in the mail that you have absolutely no hope of paying). If they are completely unable to pay, the hospital foots whatever portion of the bill the person was unable to pay.
- claudeganon 7y agoThe person would be billed, but if they can’t pay it, the hospital sicks debt collectors on them and maybe eats it down the road. Hospitals are pretty good at wrecking people’s lives to get their due though. There have been cases of them putting liens on people’s houses while their still hospitalized if the expected cost of treatment is expensive enough.
- lonelappde 7y agoThe hospital sics debt collectors. The patients are already sick.
- daeken 7y ago> Could a US person explain who pays for the test/on going healthcare if an uninsured person rocks up to the ER with relevant history and flu like symptoms? > Does the government step in to fund care? or is it left to the hospital to foot the bill? AFAIK, currently it'd be just like if someone uninsured came in with any other illness: the hospital gives the care, the patient gets a bill they can't pay. The hospital essentially extends credit to the patient.
- jdkee 7y agoFTA: “ We also expect some institutional investors to start buying the dip on expectation of fiscal and monetary stimulus, virus spread being more contained in the West versus China due to the timely response from the respective health authorities . . .” That seems overly optimistic as the U.S. has tested about 500 persons as of 03/01 per the CDC.
- rwmj 7y agoCan anyone explain why the Japanese Yen is seen as a "safe haven currency"?
- webninja 7y agoBecause the Japanese Yen is one of the 5 reserve currencies that make up the Special Drawing Rights (SDRs) of the International Monetary Fund (IMF). It makes up 8% of an IMF SDR. IMF SDRs are important because all of the central banks hold a bunch of them. The Yen is not weighted higher because Japan’s debt is quite high compared to it’s GDP and Japan could try to print it’s way out of it’s debt. The Yen is not weighted lower because they’re fortune enough to be able to print their way out of their debt if need-be compared to many other countries that hold debt in non-domestically denominated currencies. That’s the best answer I can come up with.