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Thanks. This is super interesting. Can I rephrase to make sure I understand? What you're saying is that; due to debt issuance in the US, it's hard for commodit

Thanks. This is super interesting. Can I rephrase to make sure I understand? What you're saying is that; due to debt issuance in the US, it's hard for commodities and consumer goods to be priced efficiently. I interpret "confusing price signals" to mean that e.g. Apple can charge $1k for an iPhone and sell out to families who wouldn't typically be able to afford it, but the price of bread remains the same. Your medical bill comment -- you're basically saying that when one of these families hits a statistically predictable snag, they're instantly bankrupt because they've always been functionally broke, propped up by the consumer debt industry? And so you're saying that most commodity goods face deflationary pressure as a means to stabilize the market? So if the price of commodity goods does increase significantly beyond the capacity of debt issuance, we're likely to see a depression?

yourapostasy 6y ago
> I interpret "confusing price signals" to mean that e.g. Apple can charge $1k for an iPhone and sell out to families who wouldn't typically be able to afford it, but the price of bread remains the same. It is more an interplay between wages and price signals of consumer goods and services than between price signals of separate commodities and consumer goods. Consumer debt (primarily credit card, but also HELOC) distorts the timely impact of purchasing signals upon pricing, but wages-offered signals are much quicker to respond. The debt acts as phantom wages, but only for awhile does this levitating act suspend disbelief in the pricing signals, until the debt service overwhelms consumers. By then, the purchasing decision has already long since been priced into the market, and the correction of the debt overwhelming the consumer is either completely ignored because it is by now disconnected, or attenuated away into irrelevance. "Awhile" in this use case is longer than the time horizon of most consumers, on the order of a few months to a few years depending upon the individual, but in any case long enough to modify consumer behavior. The glass half-full perspective is this behavior implies a strong optimistic bias to consumers; nearly everyone believes they will make the debt nut over time. Looking at the historic patterns of US institutions laying off however, most working and middle class US consumers should be much more secularly pessimistic in looking after their own interests: they should be acting on a cash-basis only, and make very austere purchasing decisions therefrom until they can use capital to help themselves, instead of capital using them via debt (with extremely few exceptions, like home mortgage in very circumscribed circumstances which most of them do not qualify for). > Your medical bill comment -- you're basically saying that when one of these families hits a statistically predictable snag, they're instantly bankrupt because they've always been functionally broke, propped up by the consumer debt industry? Correct. Most working and middle class families are under-insured. Using plans that only pay 80% of covered procedures. Or have very high annual deductibles to afford the premiums, which are orders of magnitude more than what they can pay from savings. Most such families struggle to find $400 to spare [1]. A typical high-deductible-low-premium health plan will typically set back a family $2-4,000 before the plan kicks in, and for many of these families, the plan offered by employers only pays 80% of covered procedures, and there are many exceptions to covered procedures. Unless you are well-educated, persistent, have time to set aside, apply an extremely low time preference, and able to learn the ropes, these families are completely unprepared for the probable budget killing black swans. One bad broken bone, or God forbid a serious disease, they first get blind-sided by a $2,500 deductible. Which they'll take on debt to meet. Then they start getting the bills and dunning letters. Many of which are wrong, but that's where the "well-educated, persistent, have time to set aside" part comes into play: you have to be willing to pay the cost in your own time and energy to make the phone calls and figure out which bills are legitimately what you have to pay, and which the insurance company has to pay, and do other people's jobs for them by pointing out where it says in the black letter policies their own companies wrote. So many of these families start good-naturedly taking on more debt for multi-hundred (if they're lucky) and multi-thousand (typical) bills they shouldn't, which they cannot afford. It is not unusual for a mean household income of $68,000 to get blindsided with $30,000 in medical debt. At high double-digit interest rates. Mix in a chronic, terminal or serious illness, and they start racking up nearly that much every single year. The US system is fundamentally broken. > And so you're saying that most commodity goods face deflationary pressure as a means to stabilize the market? So if the price of commodity goods does increase significantly beyond the capacity of debt issuance, we're likely to see a depression? Most commodity goods consumed by working and middle classes are facing deflationary pressure on the consumer buy side because the bulk of consumers in working and middle classes are barely staying afloat through sheer, literal luck of the draw. But yes, with those qualifiers in place, you rephrased what I intended convey. Due to the US lack of adequate response to COVID-19, the presence of an unknown, yet statistically significant recovered population exhibiting what so far appear to be chronic after effects, and the above dynamics with medical debt, one factor to the US economic recovery story I'm watching is how many people go into bankruptcy because their after-acute-recovery conditions require too much care (in the US, any ongoing care is too much for such financially-stressed families). 19.9M infected is large enough to affect the margins if enough of them require even medium-term (3-7 year) care, not to speak of life-long care. I wish I had hedge fund-grade access to data, as this is tradeable information at the macro scale. [1] https://www.cnbc.com/2019/07/20/heres-why-so-many-americans-cant-handle-a-400-unexpected-expense.html https://www.cnbc.com/2019/07/20/heres-why-so-many-americans-...
- mbajkowski 6y ago
  This is very informative. During the financial crises of 2007 to 2010 about 3 to 4M properties went into foreclosure. I have not looked into statistics of home ownership vs rent for those impacted by covid, but given the number of infected you stated and if there are long term care requirements, could this lead to another large set of foreclosures? Unlike last time though, the housing supply currently seems fairly tight in many areas, so a large pricing collapse downward seems not nearly as likely.
  - yourapostasy 6y ago
    > I have not looked into statistics of home ownership vs rent for those impacted by covid, but given the number of infected you stated and if there are long term care requirements, could this lead to another large set of foreclosures? US numbers are missing on how many enter aftercare; when someone contracts COVID-19 then is eventually discharged from acute care to rehabilitation, as far as I have been able to tell, they disappear from the statistical models, lumped into an unhelpful puddle called "Recovered". Only the insurance companies and Medicare/Medicaid have those numbers for their individual policy holders. That's why I think only a hedge fund would have the funding and clout to call up and cajole those kinds of numbers out from each of those entities to assemble a data mosaic. Because of this, there is just no telling how widespread this issue is at this time. It is widespread enough that some medical specialists like pulmonologists and cardiologists are noting very abnormal (worst in their professional experience) rates of complications requiring extensive and sometimes life-long rehabilitation. Not widespread enough (yet?) to tax the available rehabilitation resources. We have rough ideas of available rehabilitation resources in the US, but to make a speculative bet on this ahead of the crowd, you'd need this information before it gets to that point. One microsecond after the headline "US Rehab Units Full from COVID Patients" hits the Reuters news wire, all the good bets are already placed. A common narrative going around is with the anticipated failure of US politicians to enact sufficient financial relief for working and middle class members, there will be a lot of foreclosures on that dynamic alone, and residential rental will see lots of demand. Lots of long bets have already been placed on residential multi-family rental ventures (wish I knew of an exclusively US MFH residential REIT, but my EFT screening yielded none such, lots of them are over-salted with extensive commercial properties holdings, but I'm only using public data sources). Backing in from your 4M figure, if the US hits a 20% (and declining, as the number of infected keeps rising) rate of long-term aftercare complications, then it starts to seriously toy with the possibility of a medical bankruptcy-induced foreclosure wave just as big as the 2007-10 recession. This is on top of the pain from economic disruption, which lowers the threshold when medical bankruptcy would be declared; I'm pretty sure that data of general versus medical DTI before bankruptcy is declared could be teased out of historical bankruptcy data at various banks and then assembled into risk tranches along various categories of profiling, pretty straightforward ML work. The US political and financial establishment will probably try to amortize the pain out as much as possible through piling up medical social benefits debt and various kinds of staged mortgage note relief for the capital holders (I see insufficient political power on all sides to directly assist citizens sufficiently to have the same effect, and the decision makers are probably tunnel visioned into the systemic damage done if the capital underwriters of the notes zero out without noticing they get a two-fer by transiting the stimulus funds through those who took out mortgages first). So whether the US enters another credit crisis comes down to some mix of political, monetary, and currency exchange factors. > Unlike last time though, the housing supply currently seems fairly tight in many areas, so a large pricing collapse downward seems not nearly as likely. I suspect this is more due to the large amounts of monetary stimulus that makes its way into investment venture fundings than organic demand shaping. But yes, I believe for partly the reason you cite, and mostly the reason I gave, that the pressure to hold up residential (and to some extent commercial) real estate asset pricing is immense, and likely to continue. The US is walking straight into the 80's Tokyo Trap: real estate asset pricing levitated by so much hot money flows that it mostly disconnected from its original utility to function as a natural world good. Kind of ironic, natural persons using natural world goods usurped by corporate persons using financial world goods. But this levitation continues for much longer than most people expect (Keynes' “markets...irrational longer than you...solvent” quip), and I suspect this continues until the US Congress' spending is reined in by the forex markets (which might be in a kind of a regulatory capture of their own peculiar kind). Use every year the US political establishment kicks the can down the road to put away your larder. It's going to be a bumpy ride if the levees break the way I fear they will in about 3-4 years.
imtringued 6y ago
Actually the real problem is that the iPhones are not produced in the US so any profit that accrues goes to well paid Apple engineers and Apple shareholders. If you are not a highly skilled worker you are not going to get a share of the profit. That's the general problem first world countries are facing, lack of demand for low skilled labor unless it is illegal immigrant labor because that is the only form of labor that is cheap enough to compete with foreign countries. You can either train everyone (very hard) or make sure there are enough low skilled jobs (government stimulus).

yourapostasy 6y ago

> I interpret "confusing price signals" to mean that e.g. Apple can charge $1k for an iPhone and sell out to families who wouldn't typically be able to afford it, but the price of bread remains the same. It is more an interplay between wages and price signals of consumer goods and services than between price signals of separate commodities and consumer goods. Consumer debt (primarily credit card, but also HELOC) distorts the timely impact of purchasing signals upon pricing, but wages-offered signals are much quicker to respond. The debt acts as phantom wages, but only for awhile does this levitating act suspend disbelief in the pricing signals, until the debt service overwhelms consumers. By then, the purchasing decision has already long since been priced into the market, and the correction of the debt overwhelming the consumer is either completely ignored because it is by now disconnected, or attenuated away into irrelevance. "Awhile" in this use case is longer than the time horizon of most consumers, on the order of a few months to a few years depending upon the individual, but in any case long enough to modify consumer behavior. The glass half-full perspective is this behavior implies a strong optimistic bias to consumers; nearly everyone believes they will make the debt nut over time. Looking at the historic patterns of US institutions laying off however, most working and middle class US consumers should be much more secularly pessimistic in looking after their own interests: they should be acting on a cash-basis only, and make very austere purchasing decisions therefrom until they can use capital to help themselves, instead of capital using them via debt (with extremely few exceptions, like home mortgage in very circumscribed circumstances which most of them do not qualify for). > Your medical bill comment -- you're basically saying that when one of these families hits a statistically predictable snag, they're instantly bankrupt because they've always been functionally broke, propped up by the consumer debt industry? Correct. Most working and middle class families are under-insured. Using plans that only pay 80% of covered procedures. Or have very high annual deductibles to afford the premiums, which are orders of magnitude more than what they can pay from savings. Most such families struggle to find $400 to spare [1]. A typical high-deductible-low-premium health plan will typically set back a family $2-4,000 before the plan kicks in, and for many of these families, the plan offered by employers only pays 80% of covered procedures, and there are many exceptions to covered procedures. Unless you are well-educated, persistent, have time to set aside, apply an extremely low time preference, and able to learn the ropes, these families are completely unprepared for the probable budget killing black swans. One bad broken bone, or God forbid a serious disease, they first get blind-sided by a $2,500 deductible. Which they'll take on debt to meet. Then they start getting the bills and dunning letters. Many of which are wrong, but that's where the "well-educated, persistent, have time to set aside" part comes into play: you have to be willing to pay the cost in your own time and energy to make the phone calls and figure out which bills are legitimately what you have to pay, and which the insurance company has to pay, and do other people's jobs for them by pointing out where it says in the black letter policies their own companies wrote. So many of these families start good-naturedly taking on more debt for multi-hundred (if they're lucky) and multi-thousand (typical) bills they shouldn't, which they cannot afford. It is not unusual for a mean household income of $68,000 to get blindsided with $30,000 in medical debt. At high double-digit interest rates. Mix in a chronic, terminal or serious illness, and they start racking up nearly that much every single year. The US system is fundamentally broken. > And so you're saying that most commodity goods face deflationary pressure as a means to stabilize the market? So if the price of commodity goods does increase significantly beyond the capacity of debt issuance, we're likely to see a depression? Most commodity goods consumed by working and middle classes are facing deflationary pressure on the consumer buy side because the bulk of consumers in working and middle classes are barely staying afloat through sheer, literal luck of the draw. But yes, with those qualifiers in place, you rephrased what I intended convey. Due to the US lack of adequate response to COVID-19, the presence of an unknown, yet statistically significant recovered population exhibiting what so far appear to be chronic after effects, and the above dynamics with medical debt, one factor to the US economic recovery story I'm watching is how many people go into bankruptcy because their after-acute-recovery conditions require too much care (in the US, any ongoing care is too much for such financially-stressed families). 19.9M infected is large enough to affect the margins if enough of them require even medium-term (3-7 year) care, not to speak of life-long care. I wish I had hedge fund-grade access to data, as this is tradeable information at the macro scale. [1] https://www.cnbc.com/2019/07/20/heres-why-so-many-americans-cant-handle-a-400-unexpected-expense.html https://www.cnbc.com/2019/07/20/heres-why-so-many-americans-...

mbajkowski 6y ago
This is very informative. During the financial crises of 2007 to 2010 about 3 to 4M properties went into foreclosure. I have not looked into statistics of home ownership vs rent for those impacted by covid, but given the number of infected you stated and if there are long term care requirements, could this lead to another large set of foreclosures? Unlike last time though, the housing supply currently seems fairly tight in many areas, so a large pricing collapse downward seems not nearly as likely.
- yourapostasy 6y ago
  > I have not looked into statistics of home ownership vs rent for those impacted by covid, but given the number of infected you stated and if there are long term care requirements, could this lead to another large set of foreclosures? US numbers are missing on how many enter aftercare; when someone contracts COVID-19 then is eventually discharged from acute care to rehabilitation, as far as I have been able to tell, they disappear from the statistical models, lumped into an unhelpful puddle called "Recovered". Only the insurance companies and Medicare/Medicaid have those numbers for their individual policy holders. That's why I think only a hedge fund would have the funding and clout to call up and cajole those kinds of numbers out from each of those entities to assemble a data mosaic. Because of this, there is just no telling how widespread this issue is at this time. It is widespread enough that some medical specialists like pulmonologists and cardiologists are noting very abnormal (worst in their professional experience) rates of complications requiring extensive and sometimes life-long rehabilitation. Not widespread enough (yet?) to tax the available rehabilitation resources. We have rough ideas of available rehabilitation resources in the US, but to make a speculative bet on this ahead of the crowd, you'd need this information before it gets to that point. One microsecond after the headline "US Rehab Units Full from COVID Patients" hits the Reuters news wire, all the good bets are already placed. A common narrative going around is with the anticipated failure of US politicians to enact sufficient financial relief for working and middle class members, there will be a lot of foreclosures on that dynamic alone, and residential rental will see lots of demand. Lots of long bets have already been placed on residential multi-family rental ventures (wish I knew of an exclusively US MFH residential REIT, but my EFT screening yielded none such, lots of them are over-salted with extensive commercial properties holdings, but I'm only using public data sources). Backing in from your 4M figure, if the US hits a 20% (and declining, as the number of infected keeps rising) rate of long-term aftercare complications, then it starts to seriously toy with the possibility of a medical bankruptcy-induced foreclosure wave just as big as the 2007-10 recession. This is on top of the pain from economic disruption, which lowers the threshold when medical bankruptcy would be declared; I'm pretty sure that data of general versus medical DTI before bankruptcy is declared could be teased out of historical bankruptcy data at various banks and then assembled into risk tranches along various categories of profiling, pretty straightforward ML work. The US political and financial establishment will probably try to amortize the pain out as much as possible through piling up medical social benefits debt and various kinds of staged mortgage note relief for the capital holders (I see insufficient political power on all sides to directly assist citizens sufficiently to have the same effect, and the decision makers are probably tunnel visioned into the systemic damage done if the capital underwriters of the notes zero out without noticing they get a two-fer by transiting the stimulus funds through those who took out mortgages first). So whether the US enters another credit crisis comes down to some mix of political, monetary, and currency exchange factors. > Unlike last time though, the housing supply currently seems fairly tight in many areas, so a large pricing collapse downward seems not nearly as likely. I suspect this is more due to the large amounts of monetary stimulus that makes its way into investment venture fundings than organic demand shaping. But yes, I believe for partly the reason you cite, and mostly the reason I gave, that the pressure to hold up residential (and to some extent commercial) real estate asset pricing is immense, and likely to continue. The US is walking straight into the 80's Tokyo Trap: real estate asset pricing levitated by so much hot money flows that it mostly disconnected from its original utility to function as a natural world good. Kind of ironic, natural persons using natural world goods usurped by corporate persons using financial world goods. But this levitation continues for much longer than most people expect (Keynes' “markets...irrational longer than you...solvent” quip), and I suspect this continues until the US Congress' spending is reined in by the forex markets (which might be in a kind of a regulatory capture of their own peculiar kind). Use every year the US political establishment kicks the can down the road to put away your larder. It's going to be a bumpy ride if the levees break the way I fear they will in about 3-4 years.

imtringued 6y ago

Actually the real problem is that the iPhones are not produced in the US so any profit that accrues goes to well paid Apple engineers and Apple shareholders. If you are not a highly skilled worker you are not going to get a share of the profit. That's the general problem first world countries are facing, lack of demand for low skilled labor unless it is illegal immigrant labor because that is the only form of labor that is cheap enough to compete with foreign countries. You can either train everyone (very hard) or make sure there are enough low skilled jobs (government stimulus).