Archive for May 2020


Why are stocks doing well?

This post is not about forecasting the stock market, something I doubt that anyone can do with a high level of consistency. Rather I’d like to consider some possible reasons why stocks have rallied to relatively high levels by historical standards, despite an economy that appears headed for 20% unemployment.

1.Perhaps the economy will recover quickly, as Lars Christensen predicts. I certainly think this is possible, but note that TIPS spreads remain quite depressed:

Overall, I’m a bit skeptical of the claim that the unemployment rate will fall below 6% by October. I hope I’m wrong.

2. Another possibility is that we’ll see a shift of national income from labor to capital. The NASDAQ index is especially strong, reflecting the profitability of (capital intensive) internet companies that benefit from social distancing. But how long with the pandemic last?

3. Another possibility is that the now almost 40-year downward trend in real interest rates is still underway, with no sign of a reversal. Look at 30-year real interest rates on Treasury debt:

If future cash flows are being discounted at a much lower real interest rate, then you’d expect stocks to be doing better than what one would expect during a period of high unemployment. The counterargument is that real interest rates often fall during slumps.

Bloomberg has a new article on the bull case for stocks:

The Really Big Stock Bull Case Says Fed Stimulus Doesn’t Go Away

You and I know that monetary policy is not currently stimulative, indeed it’s disinflationary. But recall that average people ascertain the stance of monetary policy by looking at interest rates. If the markets are signaling near-zero rates for as far as the eye can see, most people (including Bloomberg reporters) would consider that “easy money”.

Thus Bloomberg is saying that the “bull case” for stocks is due to easy money, which I translate as the bull case is due to a relatively permanent fall in the equilibrium real interest rate.

I’d put at least a little bit of weight on all three of the factors above. But in my view the fall in real interest rates is the biggest factor.

If the S&P500 can reach 3000 at a time of 15% (more likely 20%) unemployment, then it seems increasingly likely that the Robert Shiller model of the stock market is simply wrong. It’s dead as that parrot in the Monty Python sketch.

Was it ever true? Probably not, at least not in the sense of being useful. But hey, he’s got a Nobel Prize and I don’t, so what do I know?

Heaven is high and the emperor is far away

A long time ago, there were two great kingdoms. The Kingdom of the East was ruled by a cruel emperor. One day, wise men in the center of his great country noticed a threat to the kingdom. They tried to warn the emperor of evil spirits, but local officials stopped them. The threat was not addressed in time and caused great destruction.

The Eastern emperor was unhappy about not receiving the warning, but in reality he was to blame for his misfortune. He had allowed local officials to silence the speech of wise men, and this is why he failed to receive the warning in time to stop the threat.

The Kingdom of the West was ruled by a silly emperor. One day, wise men noticed a threat from afar. Evil spirits were spreading in the Eastern Kingdom, and threatening to invade the West. They tried to warn the emperor, but officials in the emperor’s court and their pet Fox blocked their way. The threat was not addressed in time, and caused even greater damage than in the East.

The Western emperor was unhappy about not receiving the warning, but in reality he was to blame for his misfortune. He had told his officials that he did not like to receive bad news, as he was convinced that he was a great ruler who presided over a happy kingdom.

PS.  Good article on Japan:

The other big lesson from Japan is that masks work. Face coverings have been universal there for months, in large part because “Japanese people [already] feel comfortable wearing masks on a daily basis,” as Shigeru Omi, vice chairman of the Japanese government’s expert coronavirus panel, recently explained.

Also the Japanese wash hands often, and don’t hug or shake hands.

And this made me laugh:

But like everything else in the U.S., mask wearing is already becoming politicized and polarized. According to the latest Yahoo News/YouGov poll, a full 87 percent of Americans who voted for Hillary Clinton in 2016 say they will continue to wear a cloth mask in public after lockdown ends; fewer than half as many Trump voters (42 percent) say the same.

Mask wearing is now a political issue?  Yup, we’re a banana republic.

Manned space exploration–the comments

I asked for some reasons why we might want to send men into space. I’ve read the comment section and am a bit disappointed. Surely there must be better arguments out there?

Even the most plausible argument was extremely dubious. Perhaps the strongest was the idea of catastrophe insurance. What if something horrible happened to Earth? But there’s a much cheaper way of providing insurance. Put a few dozen humans (who rotate to avoid boredom) into deep underground bunkers spaced far apart on Earth. That would insure that at least some humans survived even a massive asteroid strike. (Actually, even some humans on the surface would have survived the 65 million year BCE asteroid without bunkers, as some mammals, birds and reptiles did survive that dinosaur killer.) The cost of those bunkers would be trivial compared to the cost of a sustainable Moon base with an ability to bring enough men and women back to Earth to repopulate the planet after a catastrophe.

People spoke of “experiments” in space that only humans can do, without providing any plausible examples. And why haven’t they already been done?

People suggested that manned space flights are still inspiring in 2020, without explaining why.

Mars colonies were mentioned, even though the idea is a pipe dream. If you really want to go to Mars, then manned space flight is the very last thing you should be proposing. Rather you should encourage NASA to divert manned space flight funds to research on technologies that would make a Mars colony feasible. Until we have such technology there is no realistic prospect of a Mars colony. And that research must be done on Earth. Don’t confuse sci-fi with reality.

Perhaps the funniest is the fellow who compared manned space flight to the ocean explorers of the 1400s, as if Neil Armstrong had “discovered” the Moon. Voyager did “discover” some neat stuff, but of course it was unmanned.

The comment section was a master class in motivated reasoning. I suspect that some commenters were guys who like sci-fi movies and were desperately looking for any excuse, no matter how far-fetched, to justify sending people into space. I doubt whether manned space flight will play an important role in the 21st or 22nd centuries. There’s no point in mucking around in space until we invent propulsion systems that are orders of magnitude better than chemical rockets. There’s also no point in continually sending lots of people down 10,000 meters deep in the ocean, once we’ve shown it can be done.

I suspect that Elon Musk is just a rich guy playing with toys. (Nothing against Musk, I like Tesla cars and Paypal.)

PS. If you are a conservative that is generally opposed to big government, then you really should oppose manned space flight. If you make an exception for manned space flight because you find it “inspiring”, or that it promotes “national greatness”, then you need to look long and hard in the mirror. Why don’t you find progressive programs aimed at helping the poor to be inspiring? You don’t see any hard evidence that they are effective? Fine, but where’s your “hard evidence” that manned space flight is more effective than unmanned flights? Maybe you need to re-evaluate your values.

PS. Both Iceland and NZ are down to one active case. Predict who gets to zero first.

PPS. Please don’t bore me with your comments that there’s nothing surprising about the following data, because of blah blah blah. I know all of the reasons. But a nearly 200 to 1 ratio is still pretty mind-boggling:

Off topic (unrelated to the data above), both sides of the “Sweden debate” miss the point. Sweden blew it, but not because of its failure to institute lockdowns.

PPPS: New York was obviously hit extremely hard, but now they are doing much better:

What has caused the number of deaths to drop so significantly, according to physicians, health-care executives, epidemiologists and state officials, are two well-known measures: social-distancing and the use of face coverings.

I wonder if even a modest amount of herd immunity is also helping NYC. California is not seeing a drop in either new cases or deaths. We have almost no herd immunity.

PPPPS: The following is just part of the deep Chinese conspiracy. There are playing 4 dimensional chess:

Initially, authorities in Wuhan, China — where the first cases were reported— thought that jump happened at a local wet market.

Now, the Chinese CDC has ruled out the market as a possible origin site for the outbreak. Instead, it may have been the site of an early super-spreader event.

Update: I see that Trump caved into the CCP on Hong Kong in order to boost the US stock market. He should have punished the CCP by allowing free immigration from China to the US, thus stealing much of their intellectual talent.

Revisiting the islands

On April 19, I did a post discussing the progress of various islands and quasi-islands. Let’s revisit what I said about those places:

1. Greenland had 11 cases, and now has zero. It was the first island to exterminate the virus.

2. Faeroe Islands had 185 cases. There are only 11 active cases today, and no new infections since April 6. No deaths, and no one is in serious or critical condition. They will likely eliminate the disease within a few weeks.

Greenland is still Covid-19 free, and Faeroe Island has now eliminated the disease as well.

3. Iceland has had 1771 cases and gets about 10 new ones each day, with the number steadily declining.  They will probably no longer be getting new cases after a few more weeks, and then in another 6 weeks or so will be virus free.  They’ve had 9 deaths.  Iceland is important because unlike Greenland and Faeroe Islands it’s a statistically significant sample.  Within a month or so we’ll have a good idea as to how many Icelanders will eventually die of the disease (I’d guess about 15), and this will begin to pin down the actual fatality rate.  

Today Iceland has only 10 deaths (fewer than I expected) and it will likely stay there as they have only 3 active cases (vs. 471 on April 19th.) I am no longer confident that these islands will get precisely to zero, due to inbound cases. But I do expect zero active cases excluding inbound passengers in quarantine.

4.  New Zealand has had 1431 cases and gets about 10 new ones a day, with the number steadily declining.  In other words, very much like Iceland.  As in Iceland, active cases are also falling very fast.  They’ve had 12 deaths, a modestly higher rate than Iceland.  This makes sense given that they’ve tested less comprehensively than Iceland, and thus missed a few more cases.  The NZ government intends to drive the case total to zero, at which time normal life can resume.

New Zealand had 507 active cases on April 19, and now they have 8. They’ve had no new cases for six days, and hence they’ll soon have no cases at all, except perhaps quarantined inbound passengers.

You see a similar pattern in other islands.  Taiwan had a spike of new cases today from a ship in their navy, but otherwise has almost stopped community transmission. Hawaii has bent the curve more than other American states. 

Taiwan’s active caseload has fallen from 225 to 14, and is still falling. Hawaii’s active caseloads is down to 27, and is falling fast. Both places will soon be virus free, except quarantined inbound passengers.

I’d also like to point to some quasi-islands:

1.  Australia looks a lot like New Zealand and nothing at all like Canada (which it closely resembled during the early weeks of the crisis.)  Its active caseload is falling fast, as is community transmission.  The mortality rate so far is a bit over 1%.  That will rise modestly, but of course they missed some cases.

2.  South Korea’s hard border with the North makes it a quasi-island.  Active cases are falling very fast, with rapidly declining community transmission.  The reported mortality rate is over 2%, but of course they missed some cases.

3.  Hong Kong has only 4 deaths in 1026 cases, and only 8 are in serious or critical condition.  Community transmission has almost stopped and active caseloads are falling fast.  Macao had only 45 cases, no deaths, and community transmission has stopped.

Australia has gone from 2311 to 467 active cases (about where NZ was in mid-April.) South Korea has gone from 2385 to 735 active cases, despite a recent second wave. Hong Kong has gone from 420 to 28 active cases. Macao has gone from 28 to zero.

In other words, I was mostly correct in assuming that island cases would continue to fall rapidly. There are many other success stories that I failed to mention in the April 19 post, also continuing to do very well—trending toward zero.

The next step will be to try to get tourism going again with other countries having virtually zero community transmission. Safe spaces.

Thank God for Chinese tourists!

PS. New Zealand uses a quite expansive definition when calculating coronavirus deaths.

Men in space bleg

Occasionally I see news stories that I’m too lazy to investigate. I’d rather have my commenters fill me in. I see that Elon Musk’s SpaceX is going to send a couple of men up into space. Why?

More generally, why does NASA still wish to send people into space? What’s the point? Here are some possible answers, none of which makes any sense. You tell me what I am missing.

1. Men and women can do useful things in space. Yes, but can’t unmanned space probes do those things much more cheaply (in terms of money and risk to human life?)

2. You never know what we’ll discover. Yes, but we can discover things much more cheaply with unmanned probes.

3. Mankind needs an inspiring goal. Yes, but we sent men into space 59 years ago, and to the moon 51 years ago. It would have looked pretty silly in 1962 (by which time people were routinely flying in 707s) to recreate the inspiring Kitty Hawk flight of 1903.

I get that sending men into space is an inspiring idea, and ditto for the Moon landing. I just can’t get inspired by doing it over and over again.

So what am I missing?

PS. In my view, the (unmanned) Voyager program was one of humanity’s most inspiring achievements, so I’m not immune to the allure of space. I just don’t see the point of our recent manned activities in space, much less returning to the Moon (which some have proposed.)

PPS. Here’s why I think people are silly when they lament the slowdown in (measured) technological progress after 1973. Does anyone seriously think that we could have had just as much progress in the first 59 years of manned space flight as in the first 59 years of civil aviation, if we’d just tried harder. Sorry folks, but the laws of physics cannot be brushed aside.

Perhaps unmeasured technological progress is higher than we think, but that’s an entirely different question.