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My $0.02, we're going to see bifurcation that the market hasn't fully priced in. Not a good time to be in broad ETFs. Highly likely: Coronavirus is going to be
by ethbro 6y ago
My $0.02, we're going to see bifurcation that the market hasn't fully priced in. Not a good time to be in broad ETFs.
Highly likely: Coronavirus is going to be circulating until the end of 2021 (based on transmissibility & vaccine timeline). We'll have better therapeutics to blunt the symptoms.
But steps required to (intermittently) re-suppress transmission (NYC is ~20% exposed? So at minimum 1-2 more spike repeats) are going to continue to harm the economy over that period.
There is no version of social distancing or lockdown that permits normal brick and mortar economic activity (and therefore normal employment levels).
And there is nothing shy of those that dent infection spread once it gets going in an urban center.
50/50: Government stimulus cannot replace normal market demand over that period (i.e. "V-shaped recovery").
Firms and industries that can adapt (curbside pickup, work from home, pivot to online delivery) and are deemed essential do fine by cannibalizing their peers.
Eventually, the demand destruction will hit the markets. You can't sell product to people who are unemployed and have no disposable income.
Consequently, adaptive companies are going to survive & maybe thrive. Everyone else looks pretty economically grim under likely scenarios.
- war1025 6y agoOne interesting possibility is that the people most likely to get infected (different from most vulnerable if infected) are going to get infected this first round. What that potentially means is that they will act as effectively a fire-break for the broader population. Basically a burning of the highest throughput avenues for mass spread. If true, that would mean we get lots of localized outbreaks, but the probability of that spreading back out into an uncontrolled pandemic is much lower.
- bavell 6y agoVery insightful, hadn't considered that! I'm not sure how effective this 'firebreak' will be in practice but it will certainly slow the spread to some degree.
- shibeouya 6y agoThere are recent research papers supporting that theory, and lowering the threshold for herd immunity much lower to 30-40% If that is the case then places like NYC are probably pretty close.
- ethbro 6y agoAny links?
- nate_meurer 6y agohttps://arxiv.org/abs/2005.03085 https://arxiv.org/abs/2005.03085 - The disease-induced herd immunity level for Covid-19 is substantially lower than the classical herd immunity level https://www.medrxiv.org/content/10.1101/2020.04.27.20081893v1 https://www.medrxiv.org/content/10.1101/2020.04.27.20081893v... - Individual variation in susceptibility or exposure to SARS-CoV-2 lowers the herd immunity threshold This effect will be amplified if the initial vaccinations are given (as they should be) to the potential superspreaders, like healthcare workers and essential manual laborers.
- JMTQp8lwXL 6y agoIf the Fed starts buying stocks, much like how the Bank of Japan has been doing for doing 7 years, asset prices could remain high. One nearly certain continuation is cheap (low interest) debt. Cheap debt allows for further stock repurchases by corporations, and the cycle continues.
- treyfitty 6y agoCan you define what this bifurcation in ETFs look like? I can’t grasp how this situation will crumble the ETF market- aren’t ETFs in theory safer than stocks?
- ethbro 6y agoHappy to be corrected, but I believe it would be more accurate to say that ETFs are less volatile than stocks. They accomplish this by bundling together like stocks, such that each's individual volatility balances out others. This essentially allows you to buy "oil stocks" or "retail stocks" or "all large-cap US companies." However, what goes into those buckets are any companies that meet the criteria. Hence why ETF fees are lower than actively managed mutual funds. The downside is that you own all the companies in that bucket. If half of those companies can coronavirus-adapt and the other half cannot, is that the bucket you want to be holding?
- softawre 6y agoNo. I want to hold the "will survive in the future" bucket. Can you sell me that ETF?
- dharma1 6y agoGreat comment. Coming out of this will take until vaccine (1-2 years) unless this turns out to be less severe than we think and people will just ignore it. Recovery will be highly company specific and overall reduced consumer spending will hurt even those companies who can operate under social distancing.
- everybodyknows 6y ago>no version of social distancing or lockdown that permits normal brick and mortar economic activity I happen to agree, which is why I struggle to explain the last few week's stock price gains for companies that can hardly adapt e.g. DRI, SIX. Sit-down restaurants and theme parks.