Friday, May 1, 2020

May 1st Links

  • One way to explain the bafflingly heterogeneous results we are constantly being confronted with is to posit Viral BioDiversity: there could be different strains in different places. For example, VBD could potentially account for why there are so many more deaths per person with antibodies in New York City than in Miami: it could be that there's a New York City variant that is more lethal than the variant prevalent in Miami. One problem with this explanation is that it's unfalsifiable. You can use it to explain away any anomaly, which might lead you to overlook something that you could do something about. For example, maybe New York City is doing something wrong that Miami is doing right, which would be useful to figure out. [Sailer]
  • The G strain is predominantly on the East Coast of the United States, and the D strain is predominantly on the West Coast. This mutation of the SARS-CoV-2 S protein spike is conserved in coronaviruses. Point mutations in a murine coronavirus spike protein can result in increased virulence through instability of the viral machinery and altered viral to cell membrane fusion. This observation may partially explain the discrepancy in predicted deaths from COVID-19 between the East Coast and West Coast, and possibly explain that other factors aside from social distance, such as competition between two strains of differing virulence, may be at play. [NLM]
  • How many genes are involved in innate and adaptive immunity? I don't even want to guess. 30%? Even very basic housekeeping genes like the elongation factors necessary for protein synthesis are under selection to be capable of being regulated by other proteins that try to shut off protein synthesis in virally infected cells. Those proteins that try to shut them down are also under selection from infectious diseases. Lots of us probably carry null mutations in a few antiviral genes, but don't suffer much from it because we're heterozygous with a functional copy. Even when we're homozygous for a null allele, we tend to do okay because there are so many other proteins involved in innate and adaptive immunity. But people who are null for choke point genes, genes the immune system doesn't function without, like men with Severe Combined Immuno-Deficiency, they have to live in germ-free bubbles, because colds are deadly. But who knows, sequence the genome of everyone who dies of the flu, and there's a good chance they have very rare alleles for some immunity genes, and very rare almost certainly means broken. [West Hunter]
  • It was pure luck that led to the actual discovery of vitamin C. Axel Holst and Theodor Frolich had been studying beriberi (another deficiency disease) in pigeons, and when they decided to switch to a mammal model, they serendipitously chose guinea pigs, the one animal besides human beings and monkeys that requires vitamin C in its diet. Fed a diet of pure grain, the animals showed no signs of beriberi, but quickly sickened and died of something that closely resembled human scurvy. No one had seen scurvy in animals before. With a simple animal model for the disease in hand, it became a matter of running the correct experiments, and it was quickly established that scurvy was a deficiency disease after all. Very quickly the compound that prevents the disease was identified as a small molecule present in cabbage, lemon juice, and many other foods, and in 1932 Szent-Györgyi definitively isolated ascorbic acid. [Maciej Cegłowski]
  • Even if Lockdown Socialism is justified in theory, Inept-Lockdown with Printing Press, Crony-Socialism is what we get in practice. The better the Lockdown, the less the need for the Socialism. The better the Socialism, the more politically and fiscally sustainable "hard but quick / rip off the band-aid" lockdown strategies would be. But the first thing to remember whenever USG is involved is, "This is why we can't have nice things." [Arnold Kling]
  • This prior experience underscores the problem for the Tesla and its directors with relying on Musk to provide "substantially equivalent coverage." His agreement to provide coverage to the directors is dependent on his financial ability to honor his commitment. However, the directors' need for coverage could arise in a set of circumstances that could itself undermine Musk's ability to honor his commitment. Of course Musk is famously wealthy (albeit with his wealth tied up in companies, including Tesla, with a truly impressive propensity to lose money). But as the above example shows, things can change – things can change in a hurry. In that regard, it is important to keep in mind that the most important function of D&O insurance is to protect a company's directors and officers in times of crisis and catastrophe. It might well be that the directors need Musk's promised "coverage" at the very moment when both Musk and Tesla have both encountered a dramatic reversal of fortunate – as indeed was the case with the bank I described above. [DandO Diary]
  • The classic beginner's mistake in Argentina is to neglect the first steak of the day. You will be tempted to just peck at it or even skip it altogether, rationalizing that you need to save yourself for the much larger steak later that night. But this is a false economy, like refusing to drink water in the early parts of a marathon. That first steak has to get you through the afternoon and half the night, until the restaurants begin to open at ten; the first steak is what primes your system to digest large quantities of animal protein, and it's the first steak that buffers the sudden sugar rush of your afternoon ice cream cone. The midnight second steak might be more the glamorous one, standing as it does a good three inches off the plate, but all it has to do is get you up and out of the restaurant and into bed (for the love of God, don't forget to drink water). The afternoon steak is the workhorse steak, the backbone of the day. [Maciej Cegłowski]
  • This is not to say that washing your hands is bad, just that it turned out not to be the talisman to protect your health that you were assured it would be in February and March. Granted, one of the reasons we were told, over and over, that Science proves we shouldn't wear masks was out of a Machiavellian but rational desire to preserve the shamefully few facial masks in stock for doctors. And a few deep thinkers in the Establishment might have been worried that the Chinese shutdown of exports of medical masks might raise awkward questions about the wisdom of globalization. And there might even have been some profound pundits who realized that the inevitable resentment of the Chinese in America who methodically stripped all the N95s from the shelves of American retailers and mailed them home to China would be bad for their politicians... if anybody noticed, which almost nobody has. [Sailer]
  • We intend to know as much as possible about the viral health status of our community. This could include pre-testing of students and staff before arrival in August, for both infection and post-infection immunity through antibodies. It will include a robust testing system during the school year, using Purdue's own BSL-2 level laboratory for fast results. Anyone showing symptoms will be tested promptly, and quarantined if positive, in space we will set aside for that purpose. We expect to be able to trace proximate and/or frequent contacts of those who test positive. [Purdue]
  • The worldwide glut of capital has caused low quality debt to be bid up to outrageous levels. Subprime debt has already had a severe correction. I believe this will spread to the "Alt-A" market, which is defined by slightly higher credit scores but similar programs and underwriting. I think that Downey Financial (DSL), a California savings and loan is another possible play. Downey has branches in CA and AZ, and focuses on residential mortgage lending. As of June 2006, 89% of DSL's approximate $15.4 billion residential real estate portfolio was secured by properties located in southern California. 78% of the residential mortgages were based on borrower stated income. 10% were underwritten with no verification of borrower income and/or assets. This is especially bad because mortgage fraud is so prevalent in southern California. 19% of the Company's loans were originated in 2006 and 40% were originated in 2005. In 2005, approximately 81% DSL's one-to-four unit residential real estate loans were originated or purchased through outside mortgage brokers. Of course, this creates severe moral hazard. 85% of its residential portfolio consists of adjustable rate mortgages subject to negative amortization with the majority structured as option-ARMs. [CBS]


Stagflationary Mark said...

Buffett Stays on Sidelines With Cash Rising to $137 Billion

(Bloomberg) -- Warren Buffett has been waiting years for stocks to look more attractive. He apparently didn’t think the first-quarter plunge was that opportunity.

As the coronavirus slowdown started to grip the U.S., the famed investor’s Berkshire Hathaway Inc. was building its massive cash pile to a record $137 billion by the end of March. The company said that figure climbed even higher as it dumped more than $6 billion of stocks in April, making Buffett a net seller of equities so far this year.

If there was ever any doubt in my mind about sitting in cash right now, that doubt is gone. I previously stated that I’ve never been this content sitting in cash. I’m now even more content. I just wish I was this content about the economy and the future of our country. Might let me sleep better. Sigh.

CP said...

They stopped buying back shares when the market crashed! No repurchases after March 10th.

CP said...

Funny comment from a friend:

@CokeFiendCompounder Warren Buffett (blue check):
"BRK share price too high imo"

Stagflationary Mark said...


Funny comment from a friend...


New secret quotes from Buffett:

“We simply attempt to be fearful when others are greedy and to be more fearful only when others are even more greedy.”

“The tide doesn’t need to go out for you to discover that the beach is closed.”

“Risk comes from not knowing what a pandemic can do.”

“If you've been buying USO for half a year and you still don't know who the patsy is, you're the patsy.”

“If past history was all there was to the game, the richest people would be librarians and the libraries wouldn’t be closed.”

Stagflationary Mark said...

For your gallows humor amusement:

August 16, 2019
Macy's Deflates, and Now It's Even More Undervalued

It's plagued by slow traffic and markdowns, but we think the dividend's safe.

It’s definitely deflated and plagued. But what isn’t? Sigh.

Allan Folz said...

Great link round-up. Loved Argentina on two steaks a day piece. Definitely makes me want to go there.

Mark, you gotta go. Your girlfriend is a horse lover, but are you really be a horse lover if you've never been to Argentina?

Do it to own the Don. He sent you twenty-four large and you spent it in Argentina. ;)

Allan Folz said...

Um, you'll have to wait at least until the fall, which is their Spring, so not a problem after all.

Stagflationary Mark said...


Mark, you gotta go.

I’m not an international man of mystery. I’m the local man of lethargy. Just point me towards the hammock with music, a book, or a video game and I’m more than content.

As for my girlfriend, she doesn’t even see her own horses near as often as she would like, much less the ones in Argentina. I’m not going to blame the cat sleeping on her, the comfortable couch, and/or the television for it though. Much. Ha!

P.S. I’m not entirely sedentary. I’ve walked 8 miles since midnight. I’m walking leisurely right now as I type this. The local man of lethargy never runs unless forced though. ;)

Allan Folz said...

I don't think you've actually read the link. That excerpt isn't the punch-line. It's the set-up!

"Can't go to Argentina, but I've got my mid-night walks." How'd we ever become friends? ;)

Hear me now and believe me later, you no show at the Rubicon party at CB's house and I'll be calling an impromptu to your cul-de-sac after mid-night.

Stagflationary Mark said...

Rubicon Party Theme Song

CP said...

In my opinion, silver is now in crazy tin foil hat territory. I have no idea how long it can stay there or how much higher it can/will go but I can say this. I am a believer in a return to the mean/median someday.

This does not necessarily mean I think that inflation will remain tame. I'm simply saying that there is serious risk that silver will not keep up with inflation long-term if bought at these levels. If one must buy silver at these prices, then at least consider hoarding some toilet paper to go with it. Toilet paper hasn't been bid up by speculators with potentially itchy trigger fingers and get rich quick hopes and dreams. As a hoarder of toilet paper, I can say that with 100% certainty.

Stagflationary Mark said...


I’m now following another exponential trend that you might be interested in. This one is the exponential decay of weekly initial claims. Based on the last 4 weeks of data, I’m seeing a -16.5% weekly growth rate. That might sound like good news, but it most certainly is not. Here are my current best guesses if the trend stays in place.

5/2/20: 3.15 million (The next report is coming out shortly.)
5/9/20: 2.63 million
5/16/20: 2.20 million
5/23/20: 1.83 million
5/30/20: 1.53 million
6/6/20: 1.28 million
6/13/20: 1.07 million
6/20/20: 0.89 million

That adds up to another 14.5 million on top of what we’ve already seen. And the weekly claims for 6/20/20 will still be higher than the worst week in the Great Recession. Sigh.

More bad news. My model may be too optimistic. As more data comes in, I expect the decay rate to slow down some. When I’ve done this in the past, there’s usually a steep initial fall followed by a slower consistent decay. We’re not quite to the consistent decay stage yet though. Therefore, I expect the next report to show more than 3.15 million (and every other prediction to be too low). The consensus estimate of 3.3 million seems very likely.

I’ll offer new predictions as new data comes in. Is it any wonder politicians are seemingly desperate to open this economy back up? It’s a no win situation to me. If opening back up causes the virus’s exponential death trend to resume, the lockdown would have served no purpose AND people will still be having massive consumer confidence problems. This credit-based economy cannot handle consumer confidence problems.

UBS Wealth is now saying hoarding cash isn’t an investment strategy. Of course it isn’t. They are missing the point. It’s a disinvestment strategy. This is not a time when I want to assume more risk. This is not a time I wish to invest or be greedy. This is a time that I wish to preserve capital. This is also clearly a time when Warren Buffett wishes to preserve capital.

I hope I’m wrong. I hope the economy opens up and initial claims plummet. I’m just not willing to hold my breath, unless someone coughs near me right now. Sigh.

CP said...

We want a chart!

Stagflationary Mark said...

You talked me into it.

Illusion of Prosperity: Initial Claims

CP said...

First post in three years!

CP said...

Now I just need to get you to post more charts of interesting ratios.

Something like...

S&P/Case-Shiller WA-Seattle Home Price Index (SEXRNSA)
Producer Price Index by Commodity for Lumber and Wood Products: Plywood (WPU083)

Stagflationary Mark said...

Ouch. I live in the Seattle area. That one’s hitting a bit close to home! Literally.

Since you want charts of interesting ratios, here’s one for you. It’s extremely relevant right now. It shows New York City’s food service and drinking places employees as a percentage of all New York City employees.

October 29, 2014
Illusion of Prosperity: New York City's Theoretical Jobs of the Future

In any event, I offer a prediction that is guaranteed to succeed. We will return to the exponential trend line in the chart at some point in the future and we will fail to the downside. It is a mathematical certainty. For example, it is utterly impossible to stay above the trend once the trend hits 100%. In all likelihood, it will fail much, much sooner than that. Will the failure happen in my lifetime? That I cannot say for sure. I could die early, lol. Sigh.

Looks like the failure will happen in my lifetime. But who knows? My odds of dying early have gone up, gloves, face masks, and disinfecting wipes notwithstanding.

CP said...

Seattle trend failure?

CP said...

Uh oh:

Front-end forward rates implied by Fed fund futures declined into negative territory for the first time ever, and swaption markets are now implying a 28% probability of negative policy rates, the highest on record.

Stagflationary Mark said...

Everywhere trend failure. Sigh.

October 30, 2014
Illusion of Prosperity: Food Services and Drinking Places Employee Productivity

The first fully automated restaurant chain is going to make a killing.

If there weren’t plans to automate restaurant chains before the pandemic, I’m guessing that there are now.

How long before Amazon’s warehouses are fully automated?

What if the Fed’s cheap money is used to speed up automation?

What if more automation leads to more deflation?

We’re riding a crazy train of long-term unintended consequences.

CP said...

M2 up at a 20.6% pace over last 52 weeks. At a 54% annualized pace over the last 13 weeks. I don't know how to NOT be concerned about that.

Yet prices aren't really rising. As I said,

"The Federal Reserve balance sheet expansion is easy to measure, and people obsess about it. Deflationary forces are real, but harder to measure."

Stagflationary Mark said...

implying a 28% probability of negative policy rates

Tempted to buy a share of J.C. Penney on this news, assuming I can still get it for 19 cents tomorrow.

In all seriousness, it’s not too late to buy EE Savings bonds if you think we’re turning Japanese. Will double in price if held a full 20 years. Can always cash them out early if you change your mind (only 0.1% annual interest if you do).

It’s like holding cash long-term with the opportunity to double your cash if we get semi-permanently stuck in ZIRP or NIRP. Works for me.

CP said...

Stay out of equities, except for carefully selected special situations. Don't be net long, don't buy the index
We have little to fear from rising interest rates. And they seem to have beautiful cycles you can play, based on sentiment and also based on relative yields. With treasuries still an underweight and a analyst consensus for rising interest rates, they should still be a good buy.
Commodities will almost certainly follow equities lower. Commodity producers have been huge net issuers of stock and debt for their expansion projects over the past several years. The market will be flooded and the stupid buyer (China) would have to increase its rate of boondoggles to maintain price.
If you want to be aggressive, two great trades are probably super-long UST duration and "donut bets" on mining, E&P, and vendors to the extractive industries.