Category: Wealth

UFOs, Tiger King, Oil Prices, and Bulgarian Models

“But you have to tell her before the show is scheduled to be on.  There is this guy, and he is always requesting shows that are already played.  Yes . . . no.  You have to tell her before.  He couldn’t quite grasp the idea that the charge nurse couldn’t make it be yesterday.  She couldn’t turn back time, thank you Einstein!  Now he . . . he was nuts!  He was a fruitcake, Jim!” – 12 Monkeys

AOC

When I woke up from surgery the doctor came in, “John, you brain was thrown outside of your body.  Thankfully, I was able to put it back in.”  I said, “Doc, thanks for reminding me.” 

“World turned upside down” is probably an overused phrase – most times it’s used by people when there is a fairly normal surprise, like getting to work late because of a traffic jam in the hallway between the bedroom and the stairs to the basement.  On Tuesday, however, the world really did turn upside down if you owned any oil.  Not baby oil, my probation officer told me that baby oil really isn’t made from actual babies.  Crude oil, that is.  Black gold.  Texas tea.  The contract for crude oil turned sharply negative.  How negative?  Holders of some contracts would be paid $40 a barrel to take that bubbling crude.

Yes.  You read that right.  People were being paid to take crude oil.  How can the industry make up for a negative price?

Volume?

If you bought gasoline around the year 1999, you might have seen $0.79 per gallon of gasoline to fill up your Ford® Probe™.  The Probe© had the bad fortune of being named probe right before the X-Files© came on the air and gave probe a whole different meaning.  You UFO abductees know what I mean.

CARTM

Yup, politicians and aliens have one thing in common.

If you bought gasoline around July, 2008, you might have paid nearly $5 per gallon while you and Walter White were the only two people who ever actually bought a Pontiac© Aztek™.  But in no case did 7-11® ever pay you to fill your tank.  Buy you could drive over to Saul’s place.

That won’t happen today, either, so you can forget your dream of filling your swimming pool full of gasoline for fun and profit.  Although, come to think of it, it would be humorous to watch the Olympics® if the swimming was done in a pool of gasoline.  Since gasoline is so much less dense than water, Michael Phelps couldn’t float and would sink straight to the bottom.  Since my swimming looks more like drowning anyway, swimming in gasoline might be just the thing to even the odds so I can finally win that gold medal.

PHELPS

Well, I guess everybody won at least one swimming race.

Though, there is some part of me that would love to take barrel after barrel at $40 each and dump it in a metal aboveground pool and just burn it.  You’d be able to see the black cloud for miles.  I’d take pictures and send them to Greta Thunberg so that she would know I’m doing my part to put valuable CO2 back into the atmosphere.  After all, she did dare me to do it.

I think that some of my readers might have read back over the past dozen or so posts about economics and thought, “Oh, John Wilder, he’s gone full doomer.”  No, I really haven’t.  I still have a very positive outlook about the future.  But one think I don’t have is illusions.  For instance, I have no illusions that the future will look much like the past.  I’m not going to be 18 again, and the world won’t party like it’s 1999 again.  Besides, who would want to?  You’d have to actually remember phone numbers again and talk to people during dinner again.

The price of oil is a big deal to the economy of the world, and the economy of individual nations, too.  I read today that over 10,000,000 jobs in the United States are tied directly or indirectly to the oil industry.  Those are jobs that typically pay well, too.  At least those jobs used to exist before Tuesday.  Next week, I imagine many of those people will be home being introduced to the hypnotic train wreck that is Tiger King™ on Netflix©, and wondering if there is a hair-crime against humanity (crimes against hairmanity?) law in Oklahoma.

TIGERKING

When the most normal person in a documentary is the guy whose life might have been used as the basis for Tony Montana in Scarface?  It’s a cat-astrophe.

Your life changes.  It’s not a static thing.  A lot of the people being laid off will either blame themselves, or be bitter about losing their job.  That’s natural, but being mad about losing your job is like being mad at the wind, or mad at Joe Biden.  You can jump and yell, but it doesn’t matter because neither of them will remember what you’re saying, anyway.

When I was a kid, I remember being bothered by a particular idea.  Pugsley brought it to mind when he showed me a piece of Plexiglas® from his computer case, scratched from his handling it over several years.  “How do we fix it?”

“We don’t.  Learn to live with it,” was my answer.  I could see the disappointment in his face.

It was then I recalled breaking a glass in the kitchen when I was a kid.  Sure, Ma Wilder didn’t like it when that happened, but what bothered me the most is that I couldn’t make it better.  No amount of effort would reassemble that glass from the hundreds of shards on the linoleum floor back into the original.

That idea followed me through life:  seeing a scratch in a car door, watching the tread wear down on my shoes.  These were one-way events.  The future seemed to be a one way street.  People got older.  Paint on the house faded.  Keanu Reeves . . . well, I guess not everything ages.

Physicists have a description of this:  entropy.  Entropy means that things age and wear down.  It never happens in the opposite direction.

The reason that this bothered me is that my hobbies were based on the opposite – most things in my life I could fix.  When I built a model of an airplane, or a car, or a tank, in that moment it was new I felt that I had made a small piece of perfection.  For me, I could look at it and see that moment in time where it would never be better.  It was very satisfying to see that model take its final form because I had made the world just a little bit better.  I recall holding a finished model in my hands, not wanting to paint it because it looked so perfect.  Then after I’d painted it, being pleased because it looked even better.

BULG

I hate Bulgarians when they use profanity.  Bulgarity is something I just can’t stand.

As I grew older, woodworking as a hobby filled made me feel those same emotions:  the smooth feel of freshly sanded wood and then the sight of the grain soaking up the stain for the first time.  It would never be more perfect than that moment in time.  The second that I finished, it would start aging.  Dust and time would take their toll.  They’d be dropped.  Or things would drop on them.  Regardless, without effort, they’d never be the same as that moment.

But at that moment of creation, it was perfect, or at least as perfect as I could make it.  Yes, the physicists are right about entropy – everything becomes more disordered over time.  But the one thing they don’t mention is that entropy only increases when there’s no energy flowing into the system.

If you look outside, there’s a huge thermonuclear reactor that powers the Earth every day, sending in a really ludicrous number of watts of power.  But watts is a silly metric unit, so I changed it to horsepower.  It turns out, if you were to measure the Sun’s output hitting Earth in divisions of the Ford™ Shelby® 350’s 526 horsepower engine, it would take 18,377,411,500 (yes, I did the math) of them running for 24 hours straight at 7,500 RPM to equal the Sun’s output for a single day.  For those of you doing the math, that’s 2.42 Shelby© engines for each person on Earth.

I think we have figured out the real reason for Global Warming®.  The Sun.  Or 18.4 billion Shelby’s® running at the red line every day.

GRETA

If we have another ice age, we could heat the Earth with these babies.  In the process, we’d solve the oil glut crisis, and hit full employment just at the Ford® plants alone.  Plus I heard their exhaust kills Coronavirus.  That’s my green new deal!

As I’ve grown older, I’ve learned to accept change.  A lot of changes that have happened, I didn’t get to choose.  Like my back hair, they just happened.  That doesn’t make me a victim, though.  I get to choose how I feel, how I react to those changes.  Sometimes, changes just are.  I get to choose, each and every time, how I react to them.  For instance, braiding might be a solution.

Sometimes they are shattered glass type changes are like the first bra a young man runs into:  it can never be undone.  Sometimes, the changes are a block of wood to be smoothed, something that can be made into a temporary little bit of perfection that will enter my life.  But I’ll never know what kind of change that it is until I work at it, and see what it is.

Not long after I saw Pugsley’s face after telling him to live with his scratched computer case, I looked it up.  There are lots of ways to get at least some of the scratches out of the Plexiglas®.  We’ll give it a shot, to see if we can’t make it better.

Spoiler, it might not be perfect, but it will be better.  And it will be ours.  We’ll own it.

Change is coming.

Deal with it.

Inflation? Sure. But not right now. (Special Edition Includes Greta Thunberg Joke)

“In 1899, my grandfather, Henry ‘by God’ Ford, was walking home from Edison Illumination after working a double shift.  He was ruminating.  That morning, he had himself an idea that changed the world.  Sixty-five years, and 47 million automobiles later, what shall be his legacy?  Getting it in the tail pipe from a Chevy Impala?” – Ford vs. Ferrari

KINGDATE

If Stephen King were at the Fed:  “All the interest rates float down here, Georgie.”

The government is getting ready to blast enough paper money into the economy that even Zoomers get the joke.  The Boy has said, on multiple occasions, “Money printer go brrrr.”  By that he means that it’s visible to anyone who is looking that government is willing to just add a zero to every piece of currency coming off the press just to toss money everywhere like Charlie Sheen on a night out with Johnny Depp when one of them is dressed like a Muppet® and the other one gets to be the hand.

But the point is, even teenagers anticipate immediate inflation.

But I can be better than Shoeless Joe:  I can say it ain’t so.

brrr

See, even the kids get it.  Not my meme, probably the work of a 12 year old Anon on 4chan.

In fact, I’ve said before and will say again, I expect that many items will not go up in price, but down.  Here’s an example:  Pugsley is a young man, at that tender age after puberty begins its hormonal onslaught, but before he has a driver’s license.  Generally, that means that the thing he thinks the second-most about is:  cars.  You can probably figure out what first is.  He says it’s the Bible, but I’m not sure he owns one, and that surely wouldn’t explain the Internet data rates I’m seeing.

He’s had me price some beautiful cars, some that do amazing things like go from zero to sixty in a short enough time that I’d worry that I’d look like Shrek® got caught under a steam roller if I put the hammer down.  One of them is the Ford Shelby GT350®.  This particular car can be purchased used, a year or two old, with less than 10,000 miles on it for about $50,000.  Just for grins, I thought I’d check out what they were going for last week.  $45,000.  That’s a 10% drop, in two weeks.

Why?

Because absolutely no one older than 18 is looking to buy one right now, and everybody under 18 has, ahem, the Internet.  Potential buyers are also anticipating further price drops.  Why buy that Shelby™ at $45,000 when you can have it for $40,000 next month?

Anticipation of cheaper cars is one factor that leads to deflation.

SHELBY

But who will be able to a-Ford® it?  I’ll admit it, I’ve even priced insurance.

There’s another powerful force pushing towards deflation:  people just don’t have money.  I’ve mentioned before that something like 80% of Americans can’t afford an emergency spend of $1,000.  Now, people are losing jobs faster than Hillary Clinton’s witness list is shrinking, and it doesn’t take long for rent, phone, and food to add up to $1000.  There won’t be inflation if nobody is buying, and you can’t buy if you don’t have money.

I was slightly concerned during the first few weeks of the COVID-19 lockdown because of empty shelves.  Not a lot, because the way the food system works ensures that there is some slack in the system:  grain isn’t grown and then immediately shipped to the pizza factory as flour.  There are silos.  There are cows in the field.  There are vats of wine fermenting, and barrels of whiskey aging, and the porthole to the alternate dimension where marshmallows come from is holding up fine.  A lot of our food is in the process of being made at any given time.

But this week the shelves were full.  In Modern Mayberry, we had full shelves of everything except toilet paper.  There was sugar, meat, eggs, milk.  Okay, there wasn’t any chicken, but isn’t chicken really just poultry Jell-O®?  But there was plenty of nearly everything else.  How much of those full shelves wasn’t because of the distribution system, but because people were out of money?

That scares me.  People need food.

Finally, there’s a third force.  People who do have money are hanging on to it.  In a very rational fashion, they’ve decided that they have no idea what’s coming next, so best to keep all the spare change in the candy dish available, so to speak.  And spare change in the candy dish doesn’t move in the economy.  It just sits there.

In part, our financial system is built around a concept called money velocity.  In simple terms, after I spend a dollar, how fast does that dollar get spent on something else?  When it moves around quickly, it can account for a lot of transactions in a short period, it seems like there is more money than there really is because it keeps being spent, again and again.  It sounds like a hot check, but it’s not.

VELOC

I actually liked economics classes in college.  It was like a nap, but with a grade at the end.

If you consider that this money came from a checking account, in general according to the statistics a dollar in a checking account bounced around over five times in 90 days at the end of 2019.  That means:

  • I got paid and,
  • I bought some toilet paper from Wal-Mart™ and,
  • Wal-Mart® paid their cashier with my dollar and,
  • The cashier bought my old bicycle and,
  • And I bought some more toilet paper from Wal-Mart©.

It’s simple.  But what if there’s no toilet paper?  Well, then the second half of the transaction never happens.  I just sit on my dollar.  It’s not moving around in the economy.  That means, even if the Fed prints trillions of these dollars, it’s not enough to offset the fact that there’s no toilet paper to buy and that no one is going out to eat for the last month.

Those transactions just never happened.

And people like me that sit on a chunk of their pay?  That drops the velocity on that stack of money to zero until I use it.  Right now, people are in general sitting on every dollar they can, unless they have a good source for bargain toilet paper, and I guess they’re sitting on that, too.

Because of those conditions, a lot of things will cost less instead of more, at least in the near-term future.  Does that apply to everything?

No.

Things that are in demand, and are in genuinely short supply, will increase in price.  Take gold and silver, for instance.  The price of silver today is $15 an ounce, according to Kitco™.  To buy a silver coin?  That’s $24 a coin.  The $9 difference?  That’s the price to get a coin by the United States Mint or from the Canadian Mint.  Silver bars, which have a generally smaller premium?  Forget it.  Kitco© doesn’t have a single one in stock.

So not everything will deflate like my ego after losing that fistfight to William Shatner at Fight Club.  Oops.  Wasn’t supposed to mention that.  Shhh.

inflate

Pugsley tried to Photoshop® something for me, but I told him that teenagers can only do minor editing, at least until they turn 18.

But houses will deflate like a bouncy castle after being jumped on by a dozen toddlers covered with hypodermic needles – but enough about New York City.  How many people are buying and selling houses now?  No one is.  How many people are moving for a new job?

No one is.

Let’s take another example, the New Zealand dollar.  The New Zealand dollar is a currency I’ve followed for several years, just for grins.  I like to imagine buying a New Zealand winery and retiring there to be a funeral director.  I just found out where New Zealanders bury lopsided people – asymmetry.  Trust, me it’s funnier if you read the last word in a New Zealand accent.

In the last 15 years, the very best the New Zealand dollar has ever done against the United States dollar was a little shy of $0.90.  Right now, you can get a New Zealand dollar for about $0.60.  If you look at history, as long as people think of the United States dollar as “safe,” you get people jumping out of currencies like the New Zealand dollar into the United States dollar whenever they get skittish.

DIVERS

Here’s hoping the sheep don’t figure out they outnumber humans in New Zealand.

The United States having a zillion nuclear warheads probably makes people think it’s safe, so they take their money from all over the world.  Instead of buying New Zealand dollars, they buy United States dollars, which makes United States dollars increase in value.

The New Zealand dollar has deflated.

I would have bet that would happen, and it has.  Imagine all the sheep and, um . . . more sheep you could buy with your new expensive United States dollars?

Can I predict what assets are going to drop in price, by how much, and for how long?

No, I can’t.

But be aware that the rules that you are used to aren’t going to apply.

Will there be inflation?

I think so, after a while, and depending upon where and when the Federal Reserve tosses all those scads of money from the printer that goes brrrr.  But if you had just lost your job, and got a check for $10,000 would you spend it on PEZ®, pantyhose, and elephant rides right now?  Of course not.  But it may be farther off into the future than you anticipate.  Houses won’t inflate until people have enough money to buy one.  Unless the Fed fills people’s pockets with money and forces them to buy a house, they won’t.  Would I buy one in San Francisco for $2 million right now?  Would you?

No.

calcutta

Hmmm, makes those Oklahoma double-wide jokes seem a little, umm, self-serving?

Those assets are frozen, harder than a two-year-old’s grubby grip on a Gummy Worm©.  And good luck borrowing money on a house for what it was “worth” yesterday.  In the last bust, I went from bankers offering me more money than I could pay back on my signature before the housing bust to having to having to find a receipt to prove I hadn’t stolen that Spice Girls™ CD I listed as one of my assets.  Banks always seem to close the barn door in a timely fashion, at least one month after the horse ran away.

Inflation?  Sure.  But before then that Shelby GT 350™ will be down another 20%, I bet.

Money printer go brrrrr.

Shelby GT   350® go Rawarrrrr?  But on a budget, right?

Submarines, Star Trek, and Economic Collapse

“But on the submarine, Boris wasn’t as cheerful as he could have been.” – The Bullwinkle Show

CRASH

If it’s a missile sub, you could say, “Okay, Boomer.”

In most submarine movies, there is a scene where the submarine is hit.  One of the forward compartments is being flooded, but the submarine can’t surface because the enemy destroyer is lurking on the surface like Nancy Pelosi lurking at the clinic where they reinject her with blood from the young.  The captain must make the fateful decision:  do I try to save the team in the forward cabin and perhaps lose the ship?  Or do I close the bulkhead door and assure the safety of the ship and the remaining crew?

Time is always of the essence.  When the movie is particularly well made, one of the people on the other side of the door is someone you know the captain cares about.  It’s often a nephew, or a new, innocent crew member that is doomed to death.  You can tell you’re supposed to like him, because he actually has a name; something like Ensign Timmy McFarmboy instead of Dead Crewman #3.

One memorable variant of this theme was in Star Trek II:  The Wrath of Khan™.  In that particular scene, Captain, Kirk doesn’t order Spock to go in the reactor room, Spock just does it to save the ship and crew from Ricardo Montalbán’s massive pectoral muscles.  “Logic clearly dictates that the needs of the many outweigh the needs of the few,” are among his last words to Kirk.  Thankfully, Spock has as many lives as a cat, and kept returning to Star Trek® movies because his agent couldn’t get him the lead role in Die Hard.

SPOCK

Spock said my mother was so fat, that she outweighed the needs of the many.

Presidents don’t generally have the luxury of behaving like captains of submarines or starships in the movies, especially in 2020.  The world of politics won’t allow it.  Political enemies keep attempting to frame both sides of the equation so that whatever happens, the president loses.

If he acts too soon in closing the bulkhead?  He’s being irresponsible – overreacting.  If he acts too late and loses the submarine?  He was fiddling while America burned.  Regardless of his decisions, each one will be held up to the scrutiny of the perfect knowledge that only the future will bring.

That’s the burden of the mantle of command:  you own the decisions.  I won’t second guess President Trump – I wasn’t in those rooms when the decisions were made.  I don’t have the facts that he does.  And I don’t have to take responsibility.

He does.

However, to continue to use the submarine analogy, the front compartment is flooding.  In many ways, the political opposition on the Left is thrilled:  they feel that they have a winning issue against Trump, even if it took a crisis that will either kill Americans or wreck the economy to do it.  Either is fine with them, which is a function of how polarized the country is now.

The crisis, however, is huge.  And it’s far more than Corona.

SHEEP

Easter sheep:  ready to wool the world.

I would bet that the reason that Trump said that he wanted the country to reopen for business at Easter was that he was given information about how the COVID-19 measures are wrecking the economy.  But I think the information he was given was overly optimistic.  I don’t think anyone told him we’d see 3.3 million initial jobless claims – no one expected that we’d see the largest numbers in history.  The expectation is that we’ll see another 6.0 million next week.  In a labor market of 160-some million Americans, that’s a 6%* unemployment increase.   (*edited for an incorrect figure and updated unemployment with 4/2/20 numbers)

In two weeks.

No, his advisers didn’t tell him that.

PAPER2

“We’re the first nation to go to the poorhouse in an automobile.” – Will Rogers

The personal pain and tragedy that level of unemployment represents is astonishing.  In previous posts, I told you the economic fallout would be Great Depression bad, but this is worse.  The Federal Reserve Bank is projecting 32% unemployment at the high end.  25% was the highest unemployment rate during the Great Depression.

At the height of the Great Recession in 2009, the unemployment rate hit 10%.  Total.  Not 10% additional two weeks.  The Great Recession is the biggest economic emergency that many people remember, and this is projected to dwarf it.

The jobs we’re already losing aren’t all low-paying jobs, either.  Oil has dropped in price to $20 and I don’t think it’s done dropping.  Oil production companies, the folks that drill the wells for the sweet, sweet oil?  They’ll be shedding jobs nearly immediately.  The average oilfield job pays $100,000 per year, but $20 per barrel won’t pay for $100,000 per year jobs.  Or pickup trucks.  Or houses.

The economy is crashing faster than at any point in recorded history.  Daily.  Based on JP Morgan’s™ recent estimates, it will be $4 trillion smaller (a drop of nearly 20% overall) this year.  That’s assuming that the economy returns to astonishing levels of growth in the last half of 2020.

I hope I’m wrong, but I consider an immediate rebound highly unlikely.

Why?

PLANE

Dear Diary, Today the stock market didn’t crash.

This is far worse than 2008 – at this point, it’s projected to be eight times worse.  At the maximum rate of growth the economy has seen in the last fifty years, it will take a decade to get back to where we are today.  That’s a decade of lower employment.  A decade of people having to do with less, not more.

I’ve heard it said that all of the economy is still there, waiting to be re-occupied.  But it’s not.  The stock market has dropped by a third.  How much of that was in the average person’s 401k?  Spending habits will change.  And the people who have been fired – will they come back to work for a company that fired them nearly immediately?  Will businesses start as usual the instant the stay-at-home orders are lifted?  Will oil zoom back up in price to $60 a barrel?

No.  Spending isn’t being deferred – in many cases spending is being cancelled right now.  If this goes on until May, that will be at least six weeks without the usual wages for millions of people, perhaps as many as 20 million people.  For the majority of households not capable of handling a $1000 emergency, what will happen to their spending profile?

And the people won’t be the same, either.

JOBS

Most of my jokes about unemployment don’t work.  Oh, except for the one about the unemployed classical musician.  He’s baroque. 

Think about that for a second.  Are people going to emerge like cave dwellers from the basement, and start consuming like they used to?  No.  They won’t have the money, having spent it all on toilet paper.  They’ve had bills.  Food.  Electricity.  Rent.  Sure, they’re not getting kicked out of their house or apartment during the crisis, but someone has to pay the rent at some point.

Corona has also hit economies all around the entire world.  As we speak, the world stock markets have lost trillions of dollars as well.  Sure, that impacted all of the Greek shipping tycoons who wanted to buy a yacht, but it also impact all of the people who were thinking of buying a new car this year.  Not only will demand be down in the United States, demand will be down globally.

For a decade.

If we’re lucky.

We sit at the crossroads of a country experiencing increasing polarity, year after year, and have just had the greatest financial catastrophe anyone living has seen.  The submarine is still taking on water, and the hatch isn’t yet closed.

Expect even more surprises.

Soon.

Eight Phases of Crisis: COVID-19 Edition

“You had a dishwasher box to sleep in?  I didn’t even know sleep.  It was pretty much twenty-four seven ball gags, brownie mix and clown porn.” – Deadpool

BATSLAP

One girl I dated in High School asked if she used too much makeup.  I replied, “Dunno, depends on if you are trying to kill Batman®”

“Great, now it’s the end of the world and we can’t get a new dishwasher,” The Mrs. actually said, after I finally relented that it would probably cost more to fix the dodgy old dishwasher than a new one would cost.  Plus, the old dishwasher is stainless steel, so if it were a hundred yards away, it would make quite a nice practice target.  I call that a win-win.  Besides, Amazon® actually has them in stock, so I could theoretically have one by next week.

See?  You can get quality appliances during the end of the world.

I started working from home yesterday, which was nice.  When it was lunchtime, I wasn’t hungry, but I was nice and warm so I took a nap right in my home office which is also known as the couch.  Good times.  I do have a concern – The Mrs. slapped my heinie as I walked by and said, “nice butt” so I’m thinking of bringing this up with HR.  I want to be treated as more than a sexual object.  I mean, not much more, but more.

As much as you might be interested in my derrière, I really do want to talk about COVID-19 and get to the bottom of how the issue will progress in the coming months.  While each crisis is different, they are all sort-of-predictable because in the end, people don’t change all that much, even though circumstances do.  Certainly we want to get this all behind us, in the rear view, so to speak.

Okay, I’ll stop.  Seven synonyms for the posterior in two paragraphs are quite enough.  I don’t want you to think I’m a bum.

But what is this pattern I mentioned?  Here are, as near as I can determine, Eight Stages of a Crisis™, a level at which each crisis can be evaluated compared to the other – this is my modification of work originally done by Zunin and Myers.  This is like the Kübler-Ross five stages of grief, but with the apocalypse in mind.  Why settle for one death, when you can have millions or billions on your mind?  It’s so nice and cheery.  The nice part of using this model is that you can gauge where we are in the current COVID-19 mess.

FRANZ

Who would he assassinate for a Klondike® bar?  Apparently Archduke Franz Ferdinand. 

The Warning

This is the opening stage of a crisis.  It may be short, as in 9/11, or it may be a slow-motion collapse like the gradually increasing troop buildups and mobilizations that led to World War I.  Everyone wanted to stop it, but no one was sane enough to say “no.”  The Warning before the first Civil War was literally decades in length.

In the current COVID crisis, The Warning came during and just after the December impeachment.  With the focus of the country elsewhere, who cared about the flu?  We don’t trust the media very much.  Why?  They don’t seem trustworthy.  Example:  when Trump shuts down air transport to China, CNN® says it’s racist.  When China shuts down air transport from the United States, CNN™ says it’s a wise and prudent move by China’s benevolent leadership.

In a world where CNN™ and the Chinese government have similar levels of credibility we tend to forget the ending to the story of the boy who cried wolf:  in the end, wolves really attacked.

DINOS

How did they not see this coming?

The Event

The Event is generally not long, but it can be.  It’s the Shot Heard Round the World at Lexington and Concord in the Revolutionary War.  The Event is when the rules change forever, and nothing can ever make the world go back to the way it was.  It’s the spark that lights the fire.  When people look back, everyone can see The Event.

Nothing is ever the same afterwards – The Event changes everyone that it touches, and often ends up changing systems permanently.  It is disruptive.  It may not be the reason that everything fails, it might just be a small event toppling an already unstable system.  In a crisis like 9/11, the event is obvious and instant.  COVID-19 has led to a slow-rolling avalanche across the economy.  Was it poised for a fall anyway?  Possibly.

As a longer cascade, what will be The Event that history will use to remember COVID-19?

In one of my more frightening thoughts:  what if we haven’t seen The Event yet?

DISB

I’m not sure he’s koalafied to make that decision.

Disbelief

When things have changed, and changed drastically, people refuse to believe it.  When the power is out because a tree fell on the power lines, I will walk into a room an automatically flip the light switch.  Why?  Habit, partially.  But there’s a part of my mind that is existing in Disbelief, perhaps, that doesn’t believe that the power could ever be gone.

Disbelief isn’t a coping strategy, and it’s not an attempt of the mind to protect itself, at least in a healthy person.  It’s more inertia.  You’re used to the world being a certain way, and when it isn’t, part of your mind isn’t quite ready to process it.

This might be an overreaction – COVID-19 might be no worse than the flu.  But that isn’t explained by the reactions we’ve seen so far from places that got it earlier than the United States.  Italy is locked down.  In two weeks, we will know more.  In a month, I think, we will have certainty.

PANIC

In order to calm panicked customers, Wal-Mart opened up a second register.

Panic

At some point, the mind is confronted with the new reality and forced to accept it.  But the rules are new, and unknown.  What to do?  One could take a deep breath, and review the situation and think logically or?  One could Panic.  Panic is easier, and doesn’t require a lot of thought.

Panic is the natural reaction when your brain realizes that it has done zero to prepare for the new reality.  So, what to do? Buy staples as required to build up the stockpile you’ve accumulated over time?  Or buy 550 cans of Diet Mountain Dew®?  Or just buy toilet paper, because everyone else is and you don’t know what to do or have any independent thought?   Toilet paper purchasing is Panic.

HERO

Not all heroes are able to walk.  I mean, some gained 400 lbs on the couch.

Heroism

While the Panic is ongoing, the first glimmer of Heroism starts to show.  Brave men and women working in the medical field are the first signs of Heroism.  Donald Trump talking with Al Sharpton to address the problems he sees is Heroism – realizing that there is a greater good, and that sacrifice is required.  Heroism is embodied throughout the response to the crises where a few have an opportunity to save many, and where enemies put aside squabbles for a time because it’s the right thing to do.

There was a family story – Grandma Wilder went during World War II to weld Liberty ships at the Alameda Ship Yard.  She would regularly get things sent to her from her mother who lived in the country in the middle of Flyover.  Needles were rationed in San Francisco, but not in Flyover.  Sugar was rationed in San Francisco, but not in Flyover.  Why ration needles and sugar?  To build common purpose, so even people not piloting P-51s or jumping out of landing craft at Iwo Jima could feel like they were doing their part.  To be fair, rationing was necessary in wide segments of the economy, it wasn’t a fake, but it did help bring everyone together.

Right now Heroism is going on, and we aren’t even asked to do anything more than to sit down and watch Netflix® unless we’re keeping vital industries going.  Here’s a link to Aesop’s place that shows the quiet heroism going on out there (LINK).  Read it all.

CLIFF

I read the other day that coyotes are about 10 miles an hour faster than road runners.  My entire childhood was a lie.

The Cliff

Keeping order requires energy.  Some part of the energy of the system is put into keeping order.  In a time of significant social cohesion, like World War II, the United States didn’t face The Cliff, even though virtually every other developed nation did.  Instead, the energy that the crisis took was replaced by people working together.

Most of the time in a real crisis, however, there’s The Cliff.  I wrote about it here: Seneca’s Cliff and You.

We have not fallen off The Cliff.  Is it certain that there is one?  No.  But every single leader, elected or appointed, is acting like it’s there.  I believe we will see it.  The new normal will be grow from events moving quickly.  Already at Wilder Redoubt, we’ve had nothing but home cooked meals for the last week, with a couple of store-bought sandwiches being the exception.

Will home cooked food, family dinners, and homeschooling be the legacy of COVID-19?

I expect that we’ll see The Cliff soon enough.  How deep will it go?  As I’ve mentioned before, no one knows.  The worst case is that the economy crashes through levels to Great Depression era lockup in two weeks or so.  Only 40% of Americans are able to absorb an unexpected $1,000 expense.  80% are living paycheck to paycheck, and those paychecks just stopped.

Dead.

Going first will be car payments.  The average monthly car payment is $800.  Me?  I’d sell you my daily driver for just two months of that, so expect car finance companies to seize up like an ungreased stripper pole.  But the businesses that employ those people aren’t much better off.  The best restaurant in Modern Mayberry came pretty close to closing down shop six years ago, but pulled through.  The second best restaurant didn’t survive.  There will be cascading failures as the debts owed from one business to the next go unpaid, and this won’t just be for small businesses.  I feel confident saying that several businesses with 10,000 or more employees will go bankrupt.  Overall loss to the economy?  40% of the GDP this year?

Is there a better case?  Sure.  We contain COVID-19 in a month or so, and then call it good.  We only lose 10% to 20% of our GDP this year, and government pumps five or six trillion dollars into the economy to juice it back up.  That’s the best case.  And that’s just in the United States.

I’m not kidding, that’s how deep The Cliff is.  If we’re lucky.

EMPEROR

Something, something, Dark Side®.

Disillusionment

After the fall, things suck.  We had heroes, but the time for Heroism is over.  Disillusionment sets in when things don’t snap back to normal.  Things will seem rosy, only for failure to crush hope.  The more government “helps” during this phase, the worse recovery will be.  Roosevelt “helped” so much during the Great Depression that he extended it for years.

But politicians will take drastic steps, because they can’t help themselves.  The length of time Disillusionment lasts?  Months to years.

FIX

Some re-assembly required.

Rebuilding

This is the other side of The Cliff.  Whereas, as Seneca said you go down a cliff pretty quickly, you only build up slowly.  Rebuilding the economy will take years.  If we do it right, we’ll build a stronger economy, less dependent upon foreign supply lines, that guarantees freedom while preserving the traditional values that built the wealth in the first place.

If done poorly?  The system is controlled, oppressive, and coercive.  Leaders matter, but the quality of the citizenry to fight back against the system is even more important.  Rebuilding takes years, and by my best case scenario, four to eight years.

DISHWASH

So, I guess I’ll get a jump start on rebuilding.  Dishwashers on the Internet.  Amazing.  My only problem is that there’s this lady at work who keeps making suggestive comments and touching me all the time.  Just a few minutes ago, she told me that she expects me to share a bed with her!  They always told me not to get my honey where I got my money, but what happens when you work at home?

If . . . Then . . . The Two Words That Allow You To See The Future

“And so, Arthur, we learned that gambling is bad and yet in a certain sense, isn’t life itself a gamble?  You can never be sure of anything.  Like who would have thought that dolphins could go bad and that fish were magnetic?  Not me, no sir, not me.” – The Tick (Animated)

coyote

But you were expecting the Spanish Inquisition?

Nassim Nicholas Taleb is most famous for his 2007 book The Black Swan:  The Impact of the Highly Improbable.  It’s a great book – I wish as many people read the book as bought it.  Then they might have at least understood why home prices plummeted faster than California’s self-respect in 2008-09.  Heck, if people would just retain a little bit of this book after they read it, they’d be better off than most MBAs.  The title of the book comes from Taleb describing Europeans touching down in Australia, and seeing something that they never thought possible:  a black swan.  All European swans are white.  Therefore?  All swans are white.

Until you see a black one.

Taleb defined his “Black Swan” events as having some important characteristics:

  • Black Swans are extremely rare. Standard techniques (like normal probability distributions) will never predict them.
  • Black Swans have huge consequences.
  • Everybody looks at the Black Swan event (after having gone through it) and concluded it was obviously going to happen.

I’ll throw out one other idea to mix with Taleb’s Black Swan concept – this one was from James P. Hogan’s wonderful 1982 book (that Hogan says helped topple the Soviet Union, and he might be right – LINK) Voyage from Yesteryear.  In this book, Hogan has a character talk about the difference between a phase change and a chemical reaction.  When you freeze water or melt ice, it’s just undergoing a phase change.  Warm the ice up, and you get water.  Make the water cold enough, and it’ll change back.

Phase changes are simple and reversible.  It’s only a matter of energy.  But burn a piece of paper, and like the girl you had a crush on your freshman year in high school?  It’s never coming back.  Burning the paper is a one way trip.  It’s a chemical reaction that you can’t reverse.  Or a restraining order in the case of the girl.  It turns out they don’t like you standing outside of their house holding a boom box over your head in real life.

CUSACK

In real life, John Cusack blocked me on Twitter®.  I probably deserved it.  I just wanted my two dollars.

Changing the guard from Republican to Democrat and back to Republican is a phase change.  Same stuff, different day.  But the American Revolution?  That was a chemical reaction – after the war we could never go back to being British subjects – the ideas of independence, freedom, and self-governance were too firmly rooted.  9/11 was another phase change.  Despite W’s desire that we “go on as normal” we never have been normal again and conventional ideas of privacy, freedom, independence, and self-governance are dead.

Oops.

All Black Swans are chemical reactions – they are irreversible, even though people expect a return to the “way things were” it never happens – you can’t unburn the paper.  The change is a one-way event.  In one (for me) particularly striking story in The Black Swan, Taleb wrote that his relatives from Lebanon were still waiting for things to return to normal, even though it had been thirty years since the war had ripped Lebanon apart.  No, they weren’t crack dealers, and they weren’t alone.  Even as late as 2012, 76,000 people were displaced within Lebanon, waiting for things to get back to normal.

Wuhan Flu, COVID-19, is a Black Swan.  It’s not quick and immediate like Pearl Harbor or 9/11 or the Great PEZ® famine of 1986.   This Black Swan is unfolding in slow motion across the economy and the world.  When this is studied in classes in fifty years, the students will think it happened all at once, rather than unfolding, day-by-day over the course of a year.  In a week, we’ve gone from business as usual to shutting down restaurants.  It’s the new normal.  And yes, I said a year.  We’ll be lucky if it doesn’t last a decade.

waterloo

A woman born at the beginning of the French Revolution would have already had kids by the time Napoleon was booted off stage permanently after Waterloo.  But history teaches it like it happened during the two minute warning at a football game.

As I’ve written about before, the economy is facing a crisis that’s at least twice as big as the 2008 Great Recession.  The stage was set beforehand for a phase change – from functioning economy to recession and then back again.  Trump had really juiced the economy in an unusual way:  clearing out regulations.  Sure, he pumped money back via tax cuts, but those tax cuts were targeted toward non-millionaire types and businesses.  This was, perhaps, the most wholesome way to grow the economy – by people making money rather than by government choosing who got to win.  Bernie, I’m talking about you.

In due time, we would have had a recession anyway.  Probably a big one, since the economic expansion has been going so long.  But just like Wuhan isn’t really the flu, this economic upset really isn’t a recession – it’s far worse.  Dow® 8,000 or less isn’t out of the question on the downside.  Really.

It’s that bad.

The government is going to take unusual actions.  I mean, more unusual than usual.  Today, it was floated to just start writing checks to most people.  “Millionaires” were excluded.  Free health care will come on the table soon enough.  We haven’t even scratched the surface of what’s going to happen.  And we will never go back to the way things were.  This isn’t a phase change.  Like a board game that you let a toddler open, things just won’t go back in the box the same way, ever, and all of the pieces are covered in cookie/saliva mix.

TODDLER

Honestly, I don’t miss toddlers, what with them trying to poison you or cut your brake lines or eating all the Cheeze-Its®.

Once upon a time, I got paid to think about disasters as a short time gig at a company I was working for.  It was a lot of fun.  I researched probabilities of things like civil wars and floods and tornadoes and visits from my ex-wife demonic manifestations.  My life for those months included a LOT of surfing of doomer porn sites and thinking about how the world could go to hell.  So, I guess that makes me sort-of a retired professional doomer.

And my thinking pattern developed a rhythm . . . If (generic disaster) happened, Then (outcome).

It was thinking about the outcome that was the most fun.  If a tornado hit the headquarters, Then what?  Well, based upon the statistics that I could find, it was an average wait of 500 years for a tornado to hit any given spot in the geographic region of the HQ.  Even for someone as old as Ruth Buzzi Ginsburg, that’s not very often.  I tracked down and tried to figure out how much money the company would lose if it got hit by a tornado, volcano, hurricane and earthquake all on the same day – a Torcano Hurriquake™.  After researching with every department, it was concluded that we might not be able to collect on a few hundred thousand dollars’ worth of payments that people owed us.  As this company was a multi-billion dollar company where the executives had BMWs® that were designed to stop an RPG strike, that was less than the company spent on Featureless Grey Wallpaper® in a year.

BONUS

Hey, everybody who thinks exactly alike gets a bonus, right?

They didn’t think it was funny when I told them that a Civil War was 10 times as likely as a natural disaster shutting down operations.  When I showed them the math, they couldn’t argue, but they weren’t happy.  They didn’t like it even more when I pointed out that they could afford to spend about $100 a year in disaster prep – most of their systems already had offsite backups.  And no one was even slightly interested in shooting RPGs at the executives.

What the executives were interested in was things that they were used to, floods.  Torcanos. Hurriquakes.  Civil War?  I’m not sure I even brought up a pandemic, but they would probably have looked at me like I had six eyes.  “Just not credible.”

No Black Swan event is credible when you try to describe it to someone who is stuck in thinking normally.  Just like Taleb’s relatives looking for stability in Lebanon or me wondering when TSA will stop fondling my man parts, it’s not going to happen.  But describe trying to get on a flight in 2020 to an American in 1995?  They’d think it was a silly science fiction story.  If only we could convince the TSA to fondle Lebonese?

Which brings us back to COVID-19.  How do you discuss it with someone who is stuck thinking normally?  It’s difficult.  Their minds aren’t even playing in the zip code as people who prepare.  But even to them, it is undeniable that things have changed.  They just don’t realize it’s like herpes:  forever.

When I went to school, school lunches were something to be avoided.  The Lunch Ladies did their best with the USDA Approved sources of, I guess I’ll call it protein.  Now, school food is deemed to be a requirement even when school is out of service.  And they say that there isn’t a hell.

Yes, it was just Spring Break, and the school kitchens were closed.  And they close during summer, last I checked – every summer.  But now?  School food is a must.  Here in Modern Mayberry, they’re offering the school lunches for free to anyone who comes to pick them up.  I think it’s because at least someone in Washington pulled their head away from the bacon-wrapped-shrimp trough long enough to realize that we’re in trouble.  One of the brighter ones probably had the following thought:

If (Lunches are Free) Then (How Long Until They Become Free Community Lunches)?

If (Free Community Lunches Exist) Then (How Many People Remember Typhoid Mary Was A Lunch Lady Cook who spent 30 years in prison isolation because she wouldn’t stop killing people by infecting them with typhus cooking?).

Oops.

typhoid

If you cook them too long, they get all crunchy.

Schools are being closed.  This, in my opinion is good.  But If (Schools Close) Then (Are Daycares Any Safer?)  Your takeaway should be this question:  how long until daycares are closed?  If they can close the NBA, Then they can close daycares.  But I repeat myself.

What can you do?  The best time to prepare was last month.  The next best time to prepare is now.  I can’t tell you if you have enough cans of corn in your pantry.  And, no, that’s not a creepy metaphor referring to some orifice you may or may not have.  I mean actual corn.  Or tuna.  Still not a metaphor.  Or mayonnaise.  Whatever you normally eat, you have some extra, right?

As of now, the supermarkets are functioning.

If (Supermarkets Close) Then (what)?  The average supermarket used to have inventory for three days.  The average house, food enough for three days.   Add that up, and American is pretty close to being hungry.  What happens Then?  Martial law?  Food distributions?

If (Your Job Ceases to Exist) Then (what)?

That’s the key to preparing yourself, not only physically like those people building blanket forts with a semi-load of toilet paper in their basement as structural wall material, but also mentally.  To understand what’s going on, to be one step ahead, you have to imagine what could happen.  You have to let your mind make it real and run it to a logical conclusion.

Then you have to see if it makes sense.

TOM

Okay, not everything bad can happen.  I mean, cats with thumbs?  Silly.

When an idea makes sense, follow it through.  If so, Then what’s the consequence?  Don’t limit your thinking.  It’s a fun game.  Sure, sometimes it ends up in global thermonuclear war, but so did The Terminator™, and look how much fun that was.  But when you really think about it, you’ll look to see what happened in the past.  While the future won’t look exactly like the past, it will rhyme.  The cause and effect of many things doesn’t change.

If we’re quarantining, Then we won’t drive as much.  If we don’t drive as much, Then we won’t use as much of that sweet, sweet gasoline.  If we don’t use as much of that sweet, sweet, gasoline, Then the price of oil, refineries, and oil producing companies will drop and some will go out of business and lots of people will lose their jobs.  That’s exactly what happened last week, and will happen in the next month.

If.

Then.

COVID-19 wasn’t in my projections – I was expecting cake.  It wasn’t in the mindset of the people of the world.  Then it was.  So what happens next?  What chains will snap, further unraveling our civilization?  What changes will be permanent?

  • If you want to keep your doctors alive, Then how will you protect them from COVID-19?
  • If you want to save the people with the most future, Then how many over 40 will get one of the 60,000 ventilators? Besides me, I mean.
  • If your customers are being impacted, Then will they fail?
  • If your customers fail, Then who will pay you?
  • If government wants to control people and how they move, Then they’ll start using the tracking information from cell phones.
  • If the government tracks cell phones, Then why would they ever stop? About the time they stop touching your no-no areas so you can go to Cleveland?
  • If the clerk at Wal-Mart® tells you that “they” have been telling her to have a minimum of two weeks of food, Then will you listen?
  • If you hear from another Wal-Mart© employee that they are setting up special hours for employees to shop after the store is closed, Then will you pay attention?
  • If the government starts paying people just to breath, Then will they ever stop?
  • If I tell you that hope is not a plan, Then will you . . . plan?

We are in a Black Swan event, probably the biggest of your life, and 9/11 was no slouch.  Neither I, nor anyone else can tell you exactly what the future will bring.  But as I mentioned in my last post, the universe is a harsh grader.  The final exam is pass/fail.  And passing means you live.

Until the next exam.

If.

Then.

COVID-19: A Brave New World

“Because if just one of those things gets down here then that will be all!  Then all this – this bulls**t that you think is so important?  You can just kiss all that goodbye!” – Aliens

NEWT

I can’t stand people who are xenophobic.

Corona.  COVID-19.  There’s a catastrophe always lurking, but it’s never what you think.  But it’s always something.  Beer Flu.  Kung Flu.

Do you understand the magnitude?  Most people don’t.  I’m not even sure I do.

The last few nights here at Stately Wilder Mansion Redoubt have been especially enjoyable.  I took off some time last week, and plan on taking some time off this week, as well.  It’s a great time, especially if you’ve never read Poe’s Masque of the Red Death (LINK).

Rarely do things change so quickly:  we Wilders were preparing to go to a state-level event where Pugsley was going to compete.  Competing was an honor – it means that he was one of the very best in the state at competitive freestyle dramatic baking rhythmic knife combat.

The championship was cancelled – 6,000 people in the same place probably doesn’t make sense.  Why?  Mathematically I’m betting that at least one of the competitors or spectators would have been COVID-communicable.  6,000 would have been a wonderful place for one person to donate billions of virus fragments to thousands of others, just like one South Korean was responsible for over 1,000 cases.

batstew

Ahhh, panda.  So very tasty.  I like it with a side of bald eagle.

One of my friends and I were talking before the event was canceled and said to me, “John, it’s cancelled.  There is no way that’s going to happen.”  There was no uncertainty in his voice – it was clear he was 100% certain.  In my mind, I thought that somehow this event would sneak under the radar.  It did not.  And in retrospect, I found myself guilty of one of the chief sins of the universe:  thinking that normal can win in abnormal circumstances.  Thankfully, the penalty here wasn’t the usual penalty for such a sin:  death.  Okay, that was dramatic.  Mainly it’s feeling stupid.

Pugsley was disappointed since he had his katana sharp, his Hamlet memorized, and his recipe book tattooed on his left thigh, but cancelling the event was the right call.

The Boy was back in town for spring break, so the four of us Wilders are hunkered down in the basement as I write this.  The other three idiots have been taking turns invading my writing space playing a video game.  Thankfully, we like each other and have a reasonable supply of deodorant and soap.  If the soap runs low, I volunteer to try to make some out our fire pit ashes and the cat.

SOAP

But is it made from cat?

The Boy and Pugsley have been out into the world since COVID-19™ hit more than The Mrs. and I.  The Boy went back to his college on Saturday.  They say that the college will open at some unspecified time in the future, but sent a note out that maybe you should think about coming to get your stuff.  The Boy and Pugsley took a road trip for just that purpose.  While The Mrs. hasn’t had her job officially cancelled for the foreseeable future, I expect that will be the case.  I don’t expect either of the three of them to be required to be outside of the house in the month of March except for runs to Wal-Mart®.

TRIPS

Okay, it wasn’t that bad.  They didn’t even ask me for gas money.  Hey, have you guys seen my credit card?

My job?  It’s probably not directly required for the United States to keep going on a daily basis, so I could see myself being restricted to working from home unless I absolutely had to be somewhere to defuse a bomb or perform a circumcision an alien.  As it is, if I have symptoms of Corona, I can’t come back to work unless I’ve been cleared via a doctor’s note.  Assuming I can find one of the six doctors in the county, but, hey, I can sign a signature that might look like a doctor?  It looks just like an Ebola© virus, right?

I’ve really enjoyed the time at home.  It’s surreal, since as I listen to the Internet radio, I can hear everything crumbling as the news gets weirder by the day.  I dumped my 401k (the part that was in stocks) into the money market fund this morning on Sunday.  That means they’re supposed to dispose of it tomorrow.  But as the market is lock-limit down already, what does that even mean?  Can my money even find an exit point?

I’m betting the Fed dumps a trillion dollars, or maybe even two trillion into the market.

Tomorrow.

It’s that bad.  I hope I’m wrong, but I think it’s going to be October in 1929 bad.

COLLAPSE

Maybe this will work.  Seems stable, right?

It’s obvious that the world around us has already changed.  As we drove to Wal-Mart© on Friday for a scouting expedition, I looked at a parade of businesses that would soon be closed as I drove by them one by one on the street.

  • Move theater? Who’s going to go, especially since the movies are crap?
  • Diner frequented mainly by old people?   Old couples are going to be self-quarantined watching the Price is Right® until they welcome COVID-19 to escape each other.
  • Car dealerships?   I’d like to buy that new Jeep® Coronaâ„¢ Wagon.
  • Scented candle places? Okay, I’m not sure how they stay in business anyway in 2020, unless they launder meth money.
  • Insurance companies?
  • Laundromats?
  • Thrift shops?
  • The VFW?
  • Churches?
  • Bars?
  • Liquor stores?   Let’s not get crazy here.

People don’t really need those things.  Except for liquor stores.  From start to finish, what do people need in a modern society?  I left off Law Enforcement because they keep people I don’t like away from me.  Yeah, some of them are tools, but for the most part we really do want them around for a modern society.  Or, if we don’t have Law Enforcement, a lot more ammo.

HILLARY

But the FBI seems reluctant to stop them.  Even for speeding. 

And need is not for the basics of life, it is for the basics of life for a modern society.

  • Water
  • Transport
  • Grocery Stores
  • Electricity
  • Their Bank
  • Pharmacies
  • Internet
  • Gasoline/Fuels
  • Natural Gas

But each of these requires people going to work to make things happen.  The people who run the water system have to purify the water.  The farmers have to farm, ranchers have to ranch, and dairy owners have to, um, dairy?  The systems that provide water, milk, eggs, meat and corn are fundamental.  They keep us in Doritos® and salsa and Monterrey Jack™ cheese.

What will keep the system going?  The city water department needs chemicals, so we need a chemical plant to make chlorine.  But will we open the potato chip factory, or expect people can figure out how to cook potatoes?  Will we open the frozen food factory, or assume people can make their own pizza?  We move from a market economy to one where “shortages” are created based upon allocations – what’s the best way to minimize the number of people that congregate while minimizing the spread of CoronaChan?

I don’t know.   But I do know that some foods will be considered so frivolous or interpersonal contact intensive that good sense won’t let them be made.  Eating at a restaurant?  That involves additional people, from cooks to servers that are potential additional viral vectors.

BEAN

And as far as the tip, wash your hands.

What else don’t we need?  That’s a tough question.  Do we need the latest spring fashions shipped in from China?  Do we need the latest iPhone®?  Do we need Stephen Colbert?  Definitely not.  Heck, I’m not sure we need most of those things on any given day at all, let alone during a catastrophe.

And that’s just consumer products and a lame late night host.  How much gasoline do we need if we’re not travelling to and from work?  Not very much.  Lots of diesel is needed to move products in semi-trucks and on trains.  In the United States, about 9 million barrels (42 gallons per barrel) are used each day as motor fuel.  After Corona?

Three quarters of that?  Half?

This weekend I would have probably used 30 gallons.  Instead?  None.  Multiply that by millions of people, and gasoline demand is sunk.  Get ready for the lowest gasoline prices you’ll ever see in your life.  And, since we’ll not be transporting a lot of “stuff”?  The lowest diesel prices, too, and unlike the hoarded toilet paper, they’ll hit bottom.

ESSENT

Maybe there will be new markets???

I look at this from a standpoint that I’ve got some food in my house that I’ve bought for times just such as this.  I don’t owe much to anyone.  As I’ve indicated before, if you have money (and if money is still good, which may not be a given) you’re in for the buying opportunity of a lifetime.  Want an oil well?  You’ll never have a better chance at getting a good one, if you have money.  Especially the baby oil wells.  Contrary to popular opinion baby oil isn’t made from babies, but from toddlers.

But it’s the people who don’t have money that I’m concerned about.  The theater owner can’t keep the theater going if there are no butts in seats.  The diner waitress can’t make the payments on their car if they can’t bring plates filled with eggs and bacon with a side of biscuits and gravy to Grandpa Verne.  She depends on the tips that pay the bank for that car, since Virgil can’t hold a job now that he’s in the county lockup for fighting Clem again.

Most people depend on this week’s income to pay this month’s bills.  I’ve been there.  I lived several years of my life one month and one lost job away from bankruptcy.  Thankfully, now I can live without a month of income.  Most people can’t.

How does that end up?  It’s simple enough to say, “Well, let the banks take a hit on a month of payments.  They’re greedy and don’t need that money.”

But . . . it’s my money you’re talking about.  My money is in the bank.  How does Hells Wargo® pay me back if my money isn’t collected from the waitress and the theater owner?  For every transaction, there’s another party.  And if you have more money than zero, you’re impacted.  That money of yours that your bank has?  You loaned it to them.  And if the loans that they made don’t pay back?  What happens then?

Another system failure.  I’m expecting that the Federal government will just pony up several trillion to make it all go away.  They have a printing press, ink, and paper.  Why not?

INFLATE

It worked out okay for Zimbabwe and Venezuela, right?

From the best available information I’ve seen slowing down the WuFlu® isn’t enough.  It has to be stopped.  COVID-19® isn’t the flu.  All available data indicates that it is far more deadly, and far more contagious.

At the high end of mortality, it would kill up to 7,500,000 Americans, assuming half of the people in the US get it.  What else is a factor?  How quickly we get it.  If you want to live, having a ventilator will be an issue for some percentage, say, 5% of people who get it.  No ventilator for that 5%?  They die.  Mortality rate skyrockets without care – it’s the difference between as low as 0.5% (as observed in South Korea) to as high as 5% in overwhelmed countries.

My trigger for “not the flu” is 30,000.  That seems like a big number, but when you divide it by the number of people in America, it’s really not.  The flu (as near as we can see today) is a LOT less fatal.  And, unless I missed a day in kindergarten, 30,000 is a lot less than 7,500,000.

heaven

Okay, not me.  I have to write.  And I have HBO®.

But until we see how it pans out, I guess I get the big prize:  spending time with Wilders.  And I’ll enjoy spending time with each of them.

Except the cat.

Buy Gold? Is There a Downside?

“Calm down, Doctor.  Now’s not the time for fear.  That comes later.” – The Dark Knight Rises

gold

When I retire, I’ve discussed with The Mrs. that I just might become a gold prospector.  She doesn’t think that will pan out.

What’s happening right now in the financial markets is panic.  Panic comes from uncertainty.  This sort of thing was seen back all the way to the Japanese financial crisis starting in the late 1980’s.  Their banking industry was a mess.  Origami Bank folded; First Sumo Bank went belly up.  Even Bonsai Bank had to cut some of its branches.

We’re in a different place in the United States in 2020.  If I’m right, the world markets are just beginning their trip down.  I’m not sure that anything saves them at this point except for raw panic causing markets to plunge enough that Wall Street hedge fund managers have to consider the idea of flying commercial.

Different sectors will be impacted differently by the Coronavirus.  Bonus points if you understand that insurance companies make money by investing in stocks and such, and the insurance is just a way to get your money to invest to make profit, until you have a claim.  What do you think will happen when insurance companies start taking losses?  Extra credit:  what do you think health insurance companies will do when faced with huge numbers of patients that weren’t in their projections when they set their rates? There will be several pop quizzes as events unfold.  Eventually, though, the class is pass/fail.

CORONA

I’d like to self-quarantine for, oh, 20 years or so?

We’re experiencing the economic dislocation brought on by the Coronavirus, it seems like a good time to talk about some basic principles.  As I’ve noted in previous posts, my expectation is that if we see a panic, that’s the time to buy assets.  Crude oil dropped to $30, and if that price stays for six months, oil rig hands will be begging to offload their Ford Shelby GT350® at bargain prices.  If it stays that low for a year?  Texas oil execs will be offering to sell you their $281,000 Lambo Hürącán Pérförmånté™ for a handful of magic beans.

Which brings us to gold.

I regularly correspond with several folks who are commenters here or fellow bloggers.  Feel free to drop me a line:  movingnorth@gmail.com.  While I look forward to being so big that I say, “I don’t respond to every e-mail but I read them all” and then whipping an unpaid intern while yelling “be funnier!” while I lay in a hammock in the shade not reading your email on the marble patio complaining that the pool’s too hot, well, that hasn’t happened yet.

But a man can dream.

time

The best thing about the future?  No more Bon Jovi.

Anyway, folks that write get responses, and some of them lead to lengthy conversations.  One of people is Frequent Commenter Ricky.  Ricky sent me a piece he was working on, and I thought it was brilliant.  With his permission, I’m using it as a jumping off point to make a few points about our current economy.  To the extent it’s not as good as his original, well, that’s on me.  I’ll give the intern “motivation” to be better with a few nights in The Box if you guys don’t like it.

Ricky used a metaphor of Back to the Future to explain how currency has moved relative to gold, but I’m going to mangle it right from the start, which is on me, not Ricky.  Let’s say that you were going to use the DeLorean® from Back to the Future to go back to the year 2000.  That’s a nice, round number.  Why 2000?  Well, you only wear underwear from Montgomery Wards®, and they went out of business in 2000.  So, if your tighty-whities are looking more like exclusive Swiss underwear since they are holier than St. Peter’s Basilica, it’s time for a new pair, and you should probably stock up.

So, off to Wards™, and let’s say you took $300 with you.  I mean, it’s not like there’s a Wards® in every timeline, right?

When you get to the mall, you find that there’s a nice coin shop right next to Wards©.  You stop in.  You see that you can buy, for $300, an ounce of gold.

wards

I hear these were featured in the 1983 Victor’s Secret® catalog, back when men used to just walk around the house proudly in their Wards™ underwear.

What?  Why would you do that, man!  You were after the gold standard of underwear, why settle for gold?

Because, with that same $300, you could buy an ounce of gold that in March of 2020 is worth $1675.  You could buy a LOT of underwear in 2020.  So, given the choice, what would you send back from the past?  An ounce of gold, or $300 in cash, or $300 in Montgomery Ward© underwear?

Of course, the underwear.  But if you’re like me, the number two choice would be the ounce of gold from the year 2000.

Ricky then asks the question:

If you could use that time machine to send yourself a gift in 2030, what would it be?

  • $1 million in cash?
  • Or $1 million in 2020 gold?
  • Or $1 million in underwear. Ricky is sane, he didn’t ask this question.

I can certainly come across a time when, if I bought gold, it would have been a bad investment.  On an inflation-adjusted basis, had I bought gold in 1980, I’d be at about a breakeven today – and a breakeven, even including inflation, isn’t a great investment.  But at least money wasn’t lost.  But that doesn’t mean that gold can’t be a losing investment:  had I sold that 1980 ounce in 2000, I would have lost about $1500 in today’s dollars.

Ouch.

80s

If these two married, it would be a constant fight over the hair products.

But why did gold peak in 1980?

The United States was a mess.  The market was a mess.  The Soviets looked unstoppable, as did inflation.  Air Supply was on the radio, until it was declared a terrorist organization in one of the best moves the Reagan administration ever made.  Gold looked like a good investment while the world looked like it was falling apart.

Would I buy gold today at these prices of $1600+ an ounce?  Probably not.  Would I buy gold in six months after the market had crashed and gold was around $1200?  Probably then.  When (if) gold hits $1000?  Certainly.  And platinum?  Hmmm.  That looks interesting.

The long-term trend is clear:  countries are attempting to devalue their currencies to make them more competitive, and this will increase as economic tensions increase.  The Fed will actively seek to lower the value of the dollar.  What does that imply?  That the dollar will continue to inflate away until it becomes worth much less.

japan

Ah, the good old days, when Japan was going to take over the world . . . . 

But an ounce of gold will still be an ounce of gold, even if we run into problems like Japan had, where Samurai Savings and Loan faced sharp cutbacks, and investigators found that Bank of Sushi was up to something fishy, and in the end customers got a raw deal.

Warning:  I’m an internet humorist, not an investment adviser.  Most mornings I’m wrong six times before I’ve even had my first cup of coffee.  I don’t plan to change any investment position in any listed commodity in the next three days, and haven’t made any changes in the last three days, mainly because I’m lazy. 

Uncertainty, Retirement, and Immortal Lawyers

“This is your life, and it’s ending one minute at a time.” – Fight Club

juicebox

The 13th Rule of Fight Club:  If your mom is going to drive you home after Fight Club, make sure she signs you out first.

With everything in the news right now, it’s probably a good time to talk about money and life.  There are significant uncertainties right now, and here are a few examples in no particular order:

  • Corona Virus – A big deal? It might be.  I just saw that Corona® beer had changed their name to Bubonic Plague™.
  • Nuclear Iran And Nuclear North Korea – The plus side of nuclear war is no more pop-up ads.
  • Impending Market Meltdowns – Escalators were down, while Pencils lost a few points. Paper was stationary and Diapers remained unchanged, while Toilet Paper reached a new bottom.
  • A Left Wing That Has Bad Intentions When It Gains Power – The upside is that when a Leftist walks into a bar after the Revolution, he’ll order shots all around.
  • Jack’s Raging Bile Duct – Wait, hold up?

Okay, it’s not really a bile duct.  And the guy’s name wasn’t Jack.

I was reading about a guy who just retired at about age 60.  He had saved and invested his whole life, making sure that he would have enough money to last until he was 90.  Since he had been a high-powered Wall Street guy, he did really well.  He had saved millions, so he intended to live a pretty nice retirement with lots of travel around the world.  Oh, he wanted to live in a pretty expensive town.  And, even though money isn’t everything, it kept him in touch with his children.

Then?

mario

Mario had to retire from plumbing because the Yelp® reviews all mentioned him raiding the fridge for mushrooms and stomping on any pet turtles he saw.

He was diagnosed with cancer – but a type that’s incurable.  And it’s a fairly tough type:  it’s got a 50% survival rate to make it for 5 years.  Amazingly, he was writing about what people in their fifties might do in the current investment climate.  He wasn’t writing about the fact that the remainder of his life was maybe reduced by 83% from his plans.

Me?  If I were him, I’d be spending at least some of the money that I’d saved to last me for twenty-five years of life until 90 on a very, very nice bottle of scotch.  And perhaps a cigar made from angel wings.  For dinner? Nothing special.  Maybe some surf and turf:  yeti with Loch Ness monster filets grilled over lava pulled from the center of the Earth.  I’d make sure that I used every second that I had left to me.

hannibal

No clowns though.  They taste funny.

But what if our lives were infinite, would that change anything?

I was driving down the street with The Boy and Pugsley several years ago.  We were driving home from a camping trip, and were going through a small town on a sleepy Sunday morning.  It was early enough that people hadn’t even gotten up for church yet.  As we drove I saw a sign that said, “Jim McGill, Insurance and Real Estate” and decided to make a joke, because we’re a fun family.

I pulled out my best booming operatic voice, so deep and resonant it makes Brian Blessed sound like he hasn’t yet hit puberty:

blessed

Don’t hate him because he’s beardiful.

“Jim McGill is here to help you with all of your insurance and real estate needs, as he has for a thousand years here in Cedar Ridge.

“No one has more experience than McGill, who has studied the intricacies of umbrella insurance policies for decades of the countless years of his nigh-immortal life.  McGill can also use his communion with the deep and ancient dark spirits of the Earth to find the very best property for you.  Since the dawn of single-celled life on this puny planet, there is no insurance agent or realtor who will ever get you a better deal.”

The Boy piped in: “Brought to you by the power of the Necronomicon™.”

See, I told you we’re a fun family.

immortal

Oh, I thought you said immoral.  My bad.

I was making a joke, but stumbled upon a truth.  The joke was supposed to funny because here was an immortal being, selling insurance in a small town in the Midwest.  But as I drove on, I realized a different truth:  if an immortal can’t afford to spend his life doing trivial things, why do we?

Not that there’s a problem selling insurance, or a problem with selling real estate.  I have a friend who dreams about selling real estate.  She’s going to get her license.  I think she’ll have a lot of fun with it – she likes working with people, and it’s something that’s important to her – finding the right person to sell the right house to will probably be fun and she probably won’t have to summon demons and other Satanic spirits to find a nice three bedroom on a cul-de-sac for a married couple with a baby on the way.  Probably.

For me, personally, selling real estate would be one of the punishments that would be reserved for a deep level of Hell:  lower than people who mow lawns at 8am on Saturday morning but not quite as low as Congressmen.  But I think it will really make my friend happy.

jake

He has a very special set of skills . . . .

And that’s a good reason to be a realtor – being happy by helping other people.  It’s also a good reason to sell insurance.  But never forget, doing a job is just that, doing a job.

We may not like everything we have to do at work, and we’re certainly not special snowflakes who deserve the job of our dreams just because we got a Master of Fine Arts in Paranormal Entity Identification and Eradication.  We get paid to go to work because it’s not a hobby.  Lots of times we’ll do things we’d only do if you were getting paid, like when I polished Grandma’s corns for a shiny new nickel.

It may be that the gentleman with cancer is writing for a reason – because that’s how he’s wired.  I get it – I’m writing this sentence at 4am.  But he has a choice.

There comes a time to realize that, if the basics are covered, you really do have a choice.  Money only buys a certain amount of happiness.  A new car isn’t necessary if you have one that works – no matter how old it is.  You are trading your life for money, and even if you die with a lot of money, you’re still dead.

Make sure the trade is worth it, because you’re literally trading your life for it.

Meanwhile . . . somebody go pluck an angel’s wings.

The Coming Recession, Explained Using Six and a Half Bikinis.

“Well, just find yourself a man with a spotless genetic makeup and a really high tolerance for being second guessed and start pumping out the little uber Scullys.” – The X-Files

FIRST

After the next recession, most people will be on their feet in no time, after the bank repossesses the cars.

This wasn’t my originally planned topic. My originally planned topic was a discussion of PEZ® seed pricing mechanisms in 1850’s Great Britain, complete with discussion on how many orphans could be traded per bushel of finished PEZ™. Alas, I’ll have to return to that exciting topic some other time, since the world financial system seems to be imploding.

Okay, imploding isn’t the right word. And it really may not be as bad as it looks.

But today? It looks bad. Maybe not implosion bad, but I heard that some bankers had been discouraged. I guess they lost interest.

How bad could it be?

If it just stays at a financial level, the worst I would expect would be a W.I.L.D.E.R.™ Level 4 (Great Depression) in the United States, though it might hit a W.I.L.D.E.R.™ Level 5 (National Collapse) in China. You can read all about the W.I.L.D.E.R.™ Levels here (The Lighter Side of the Apocalypse) in an article praised by critics as “one of the best things ever written by a man with such questionable levels of personal hygiene, fashion sense, and grooming.”

In order to understand and guess at the future, let’s take a look at the past. The most recent past economic downturn was the Great Recession. What happened then?

sp500

As you can see from this chart, the S&P 500 experienced a big downturn right around the calf and knee area. Feel free to enlarge – just explain that the study of economics is really interesting.

Several things: first, lowered interest rates and the idea that anyone could and should get a mortgage led to a massive mis-investment in housing. Part of the cause were things called stealing and looting mortgage-backed securities and collateralized debt obligations. I won’t go into technical details, but it was a way that Harvard® educated MBAs convinced themselves that a strawberry picker making $14,000 a year could afford a $720,000 mortgage (LINK). And, yes, this really happened.

Second, the world was awash in money after the Fed flooded the fields with money after the Dotcom Bubble. Where did that money go? Everywhere. Houses. And . . . oil. Oil prices skyrocketed during that time. Companies rented oil tankers and kept them full, sitting at sea, continually selling futures on the oil in the tanker. They made fortunes by pretending to sell oil. I know that sounds like I’m making an obscure joke, but no, that really happened.

The price of housing hit the financial system like a mousetrap on a cat’s tail. Or a cat with a mousetrap on its tail? Or . . . nevermind. People kept borrowing more on their houses as their houses appreciated. They spent that money on pickups and boats and child care and food and vacations. The people weren’t evil, but they thought that the value of their house could never go down, so the risk was small. Rational people, like bankers, were telling them this. Heck, some even invested in more houses so they could double or triple their magic ATM.

30year

This view of 30 year mortgage rates explains that there have been mortgage rates. Look closely, and you can see them.

Finally, one day the music stopped on the housing prices. Was there a cause in particular? Not really. But the market lost the one thing required to keep it afloat – belief. Every market rises as the beliefs of the participants overcomes the worry of loss. Wow, that sounded poetic and cool. But it’s also true.

In many ways, the stock market is a barometer not only of the actual underlying economic performance, but how people feel about the future. It keeps going up as long as people keep being optimistic and has proven to be a much better barometer of economic activity than the amount of leg hair I grow before each winter and then form into a nice, soft nest to sleep in when it gets cold.

crude

Crude oil prices had Exxon® jumping for joy in 2008!

One thing that brought the mood of people down in 2008 was the price of oil. In the midst of the recession that came from the housing bubble, the secondary oil bubble inflated. Prices increased more than double in a single year – from $70 per barrel to over $140 per barrel at the peak. Oil acts as a tax on everything to do with physical goods. To move a Tom Brady’s booty dinghy from where it’s made in by incontinent baboons in Romania to his rump mechanic in Massachusetts requires energy – energy from oil.

So that’s the “why” for 2008. How does that relate to today?

The Great Recession was brought about by an actual recession – things slowed down in the country because there were only so many houses that could be made. That’s different than today’s trouble. The stock market is tanking not because of a recession, but because the worry about Corona-Chan locking up the flow of physical goods from China. I wrote about that last week (Corona Virus, with a Slice of Recession?).

What have we seen so far?

stand

This was a pretty good miniseries documentary.

The stock market has decreased in value. In general, a stock price has two components – the first is the value of the factories and land and machinery that the company owns. This is boring, it’s like saying a Stradivarius violin worth less than a piece of firewood because the firewood weighs more – in the hands of a genius, the violin can make masterful music, though in the hands of my kids it just made me contemplate the positives of being deaf.

The second and often biggest component of value to a stock is the assumed growth of that stock. This is why older, boring stocks like Ford® are priced closer to the value of the assets they own – no one thinks that Ford™ will end up tripling in size in the next three years. There’s an ex-wife “tripling size in three years” joke, but I’m bigger than that.

But people do think that Tesla© can triple in size in three years. Therefore, people value Tesla™ more than Ford® even though it sells about six million cars a year and Tesla© sold only 370,000 cars in the last year. You’d think that Ford™ would be worth about 10 times what Tesla® is. But in reality, Ford© is valued at $28 billion, while Tesla™ is valued at $147 billion. Is Tesla™ really worth that much? That’s up to Tesla®. But give me $147 billion and I bet I could sell 380,000 cars a year, too. And they would be pretty neat ones and they wouldn’t look like they were designed by a third grader with limited imagination.

cyber

Elon took a lot of heat for the Cyber Truck design, primarily because it looks like something that no human would buy. Thankfully, Elon’s next advance will be robotic customers.

Tesla© has convinced people it is almost six times more valuable than Ford©. That’s what I call optimism. Or a con, but at least a con for a good cause (Elon Musk: The Man Who Sold Mars).

Since the stock market is based on optimism, this latest decline in February of 2020 shows that investors are shaken. The world hasn’t (yet) changed but the implications are now becoming concerning enough to cause the market to drop. Is this going to be a big drop, like in 2008, or another head fake?

I can’t be sure. But I do know that this seems like a good time to trot out what I learned the last time the economy went south.

Lesson One:

Market bubbles aren’t rational. Companies rise faster and farther in a bubble without regard to, well, anything. Uber®, which is basically “Taxi App” is worth $61 billion dollars, which is more than Elon Musk spends in a typical year on hair plugs. Uber© lost $8.5 billion dollars last year while generating tons of bad publicity because its founder is a douche and it treats drivers worse than Mongolian bull milkers. There are tons of companies just like Uber™, and all with an idea that they’ll “disrupt” segments of society. Essentially, disrupting involves an app, a smart phone, and booting someone out of a job. Some are, I assume, legitimate ideas that will be profitable in the future. Others are like GoPro™, which is (in Karl Denninger’s words) just “camera on a stick.”

I heard someone call this the Disruption Bubble, and it’s as good a name as any to describe the distortions and irrational money flows as everyone tries to find the next Amazon™, Facebook© or Google®. In a real panic, stupidly valued things like Uber® deflate, and deflate quickly. But companies that are really worth something will fall in value, too.

The best time to buy a company is when it is cheap. It will never be cheaper than when people are panicking like Godzilla® is hungry for Japanese take-out and orders Tokyo. Finding quality companies that are selling at a 90% discount is possible during a real panic.

Lesson Two:

When the market falls, investors have less money. But they still have bills. So what will they do? If this is like 2008, they’ll sell other things. What kinds of things? Cool cars will be cheap, but not everyone is in the market for a Lambo. But gold dropped, too. During 2008, gold went from $1000 per ounce to as low as $720.

gold

You can see the price of gold really drop around the shoulder area, and take off afterwards.

I can’t guarantee that gold will drop, but I’d be watching if you want to buy some – there might be a great opportunity to buy gold at a lower price than the current $1655 per ounce.

Lesson Three:

In past recessions, the interest rate that is charged for the 10 Year T-Bill generally dropped. Why? People wanted to get to a safer asset. That asset has generally been the dollar. The most likely candidates to replace the dollar were the Chinese whatever-they-call-it and the Euro. As China is now in the grip of Corona, it’s not a flight to safety. Every European country with a beach is thinking about dumping the Euro and exiting the EU so they can print wrapping paper and call it money, the Euro isn’t a great one, either. The Swiss Franc is kinda awesome, but they only make so many of those.

10year

Look closely and you can see that the Fed doesn’t have a lot of room to lower rates.

Nope. It’s the dollar. In times of economic uncertainty, the dollar will increase in value relative to other currencies. Does it make sense? Maybe? It seems that the world notices the Navy, Army, Marines, and all of those nuclear weapons and those make the banks in New York seem a bit more secure.

Expect that if this goes like 2008 for a while you can buy foreign stuff like a king. For grins I track the New Zealand dollar – it’s right now at its lowest value in five years. I bet it goes even lower soon, so sheep should be quite a bargain. Remember New Zealand’s national motto: “We’re not Australia.”

Don’t expect to find a great place to get a good yield anytime soon if Uncle Sam is paying less than a 1%, you’re not going to get even that good of a deal. Negative interest rates have already hit Europe, and there’s no reason they won’t hit the rest of the world. Investing in cash in mason jars buried in the backyard might be a good idea. Send me your map, and I’ll keep it safe.

Lesson Four:

No financial collapse looks the same. Each one of them is unique, and this one has been a long time in coming so, if it’s hitting right now, it could be really bad. Each of the above lessons might be wrong, so look for opportunities where you see them, not where an Internet humorist thinks they might be, no matter how charming and freshly showered he might be. Oh, if you have cash, it does no good if it’s in a bank that collapses. Just sayin’.

A friend of mine made the joke in 2008 that “when the tide goes out, you see who isn’t wearing a swimsuit.” There are vulnerabilities that very few people know about right now that will (in hindsight) become obvious in the days or years ahead. Just nod sagely and pretend like you expected it would happen all along. That’s what I’ll be doing.

Wildcards:

Desperate people sometimes do desperate things. As the Soviet Union collapsed, there was some small risk that an official decided he was better dead than not red, and pushed the button. That didn’t happen – in large part because by the time the Soviet Union collapsed, nobody believed in it anymore: it was as tired as Joe Biden’s campaign.

mankini

Okay, I’m sorry.

sorry

If China were to teeter near collapse, would they decide to launch a regional war to keep the people together so the nation didn’t collapse or fall into civil war? Hopefully not, but the chances of it happening are greater than zero. As you prepare for a world where there is a financial dislocation, don’t forget to prepare for a cultural dislocation as well. Buying food now when it’s cheap and easy to get doesn’t make you a hoarder – it makes you one less person who is drawing on system resources if things go bad. Preparing for bad times when times are good is a profoundly moral thing to do. But don’t forget to complain like everyone else.

Nobody likes a smug prepper.

Disclaimer:

Keep in mind, this is NOT INVESTMENT ADVICE. I make fun of Johnny Depp and PEZ® and post pictures of girls in bikinis over economic graphs and am even writing this sober. Consult someone who has those credentials and maybe drinks martinis at lunch since that seems pretty swanky. Also, I don’t own any direct positions in any of the stocks discussed, and don’t plan on taking any positions in them (maybe ever), though I do own a Ford™ truck. I’m betting that maybe some of my 401k money is investing in, well, something and might include these stocks, but I don’t know. Maybe it’s just invested in magic beans?

Corona Virus, with a Slice of Recession?

“Global? Oh, great. I’ve doomed humanity.” – Ash Versus Evil Dead

china

I hear it can only be caught from crowds.  Introverts everywhere smiled as they stared at your shoes.

The other day I was emailing back and forth with James M. Dakin, proprietor of the Bison Prepper (LINK).  I mentioned that I’d bring up an old essay we’d both read back when Jim and I went to different high schools together.  That essay was I, Pencil.

I, Pencil was written by Leonard Read and published in 1958.  The essay is available here (LINK).  I, Pencil is a fairly short essay with a fairly long introduction.  Spoiler alert:  Leonard felt that no single person on planet Earth can make something as simple as a boring old yellow No. 2 pencil.  And, he’s right.  A pencil, even a 1958 version, uses components that are sourced all over the globe.  Mr. Read makes a great point – the free market takes components from all around the world to make even the simplest and most mundane object.

pencil

I cut myself with a pencil – I drew blood.

Likewise, the knowledge required to make that pencil is distributed across the globe.  No single person can make the pigments for the paint by milking the Tanganyikan paint turtles, and pick the aluminum from the Australian aluminum trees to make ferrule that holds the eraser on.  And that eraser?  It’s made of rubber from the Congo.  I’d make fun of the Congo, but, really.  It’s the Congo and they have enough problems (LINK to a really fascinating story of crossing the Congo).  Plus the wood is made from sustainably farmed free-range vegan trees in California.  Don’t forget the graphite – it’s from the Sri Lankan graphite glaciers.

The humble pencil is a creature of Globalization.

How much Globalization?  Sadly, it looks like Dixon Ticonderoga used to make most of its pencils in the United States, but now apparently makes only enough pencils here to claim that it actually makes pencils in the United States (LINK).  There were a few pencil jokes I was going to make here, but they’re pointless.

While we talk about globalization as being a new phenomenon, Globalization has been a thing since the days of the American Revolution – the tea that Sam Adams threw in the harbor during the Boston Tea Party came from halfway across the planet.  Even back to the days of Rome, there is evidence of far flung trade – shipwrecks found in the Mediterranean are often found filled with wine or olive oil being shipped across the Empire.  Sadly, the Romans abandoned those cargos after they broke the V second rule of being on the bottom of the ocean.   

ROME

X/X

Globalization provides a huge advantage.  Some things aren’t available around the world – resources come from other places for a reason – corn is imported to the South Pole because corn grows rather poorly in ice.  Shockingly, wood comes from places with trees, and having Saudi Arabia export timber is probably not a great business strategy.  But having Saudi Arabia export oil is.  And having the United States export food also makes sense – we grow more than we can eat.

When done right, Globalization provides the benefits of bringing together resources and knowledge from far-flung corners of the world to meet the needs of people that most of them will never meet.  But Globalization doesn’t consist only of benefits.  With Globalization, Ticonderoga® can decide to make pencils in China.  Hundreds of jobs are then lost in the United States.  A typical journalist would indicate that the people who lost pencil-making jobs should, “learn to code.”  When those same journalists lost their jobs due to Globalization, they cried on Twitter® when told that perhaps it was their turn to #learntocode.  The journalists even got people banned for suggesting they take their own advice (LINK).  Still missing:  journalists who became coders.  Also missing:  journalists with a sense of humor and irony.

Although the United States spends hundreds of millions of dollars a year on yellow No. 2 pencils made in China, should pencils stop showing up from China, there won’t be chaos and anarchy in the streets except around SAT® test taking time.  I mean, we all remember the No. 2 pencil riots of 1989, right?

But that is just a humble pencil.  What other things are imported from China (LINK – warning – quite an addictive set of graphs)?

crust2

You can tell that toothpaste was invented in New York City.  Otherwise they would have called it teethpaste.

A lot of the things the United States imports from China are trivial, or convenience items that we could live without:

  • Lots of toys are manufactured in China, including trikes and video game consoles, virtually all Christmas decorations, and (the census has a category for this) practical jokes. Yes, the Corona Virus could directly cause a shortage of fake dog poo.
  • Strollers and toasters are almost all made in China. Why did I combine these items?  No reason.  None at all.
  • Millions of wet heads could result.
  • Artificial flowers. Now here the Chinese are particularly cunning – they’ve cornered the production of not only plastic artificial flowers, but also artificial flowers not made from plastic.  This is a true strategic threat.
  • Nearly every thermos. The United States could bankrupt itself in additional ice costs.  Also, cold soup?
  • 100% of lawn edgers are made in China. 100% of my lawn edger hasn’t left the garage in five years.

Okay.  There is a lot of stuff that comes from China we live without.  Unless you work at Wal-Mart®.  Without those imports to be sold, the impact should be minimal.  Very few people have ever had a life or death situation that could be solved by fake dog poo.  I’m pretty sure this is the first time that last sentence was ever written in the English language.

polystat

Had much super fun time inserting receptacle into hand.

But . . .

  • Nearly every “portable digital automatic data processing machine not weighing more than 10 kilograms” comes from China – all $37 billion worth.
  • 65% of cell phones – $72 billion.
  • 80% of “other radio telephones” $44 billion.
  • And, oops, it seems that 80% of pharmaceuticals and 97% of antibiotics in the United States are imported from China ().

Amazingly, everything that China exports to the United States only amounts to (about) 3% or of the United States economy.  Stopping Chinese imports to the United States would have an immediate impact because of lowered sales regardless of what we import.  But as the bullet points above show, slowdown of imports from China could also have an immediate effect because of what we import.

The third impact would come from what we make out of the things that China sends us.  Things like . . . cars and pickups.  Where does the housing for the alternator in the Ford® pickup come from?  Touch screens?  How many are made in China?  How many days until Chevy™ can’t build a car because it’s missing a switch that runs an air conditioner?  Last time I checked, most cars need nearly 100% of the parts to be called a car.  At least until I work on the engine – then I always seem to have a few bolts left over.

headlight

Not one of my repairs.  But I have used zip ties as a structural material.

The third impact of reducing manufacturing in the United States would be large.  I don’t have precise figures but I can guess – it might be as much as a 10% drop in the economy in the year it happened.  For reference, the Great Recession of 2008 had a 4% drop in economic activity.

I’m probably not the guy to talk about how the Wuhan Flu is going to spread.  I’m certainly not the guy to tell you how to treat it if you get it.  But I do know that something like the shutting down of factories in China can spill over to the United States and cause recessions or worse, even if the Corona virus never became an epidemic here.

Stock up on pencils while you can . . . .