Generational Dynamics World View

[John J. Xenakis]

** 12-Mar-2020 World View: Fantasy untethered stock prices

Higgenbotham Wrote:> The only reason companies are going to be looking for capital is
> to cover negative cash flow and the market is not going to look
> kindly on that.

> Yesterday I opened my stock account and looked at the list of
> stocks I was trading over a year ago. At that time and previous,
> I was buying individual stocks on a short term basis and "smashing
> the bots", reporting the results here.

> Yesterday every stock on my list (about 50 stocks) was down and
> the typical loss on the stocks on my list for just yesterday was 7
> to 9 percent (more than the averages, in other words). I wondered
> why that was. The huge stocks that comprise the largest
> percentage of the indices like Apple have held up relatively well.
> I looked at the individual S&P 500 components and all but about 5
> were down yesterday.

> Back to the point of this post. During the downturn in the 4th
> quarter of 2018, with the S&P down 20% that quarter, I was still
> able to selectively buy stocks and "smash the bots". I looked at
> the intraday charts of several stocks I used to trade and focused
> on the area since the downtrend started last month. It would have
> been literally impossible to make any money trading these stocks.
> And many of the stocks were down 30 to 50 percent. This speaks to
> concepts John has mentioned many times - Generational Panic and
> Maximum Ruin. That is what I feel is happening now. Stock
> portfolios that people have spent decades amassing for retirement
> or whatever have been substantially ruined in one month.

Higgenbotham Wrote:> Tonight the situation is even worse. The typical stock I'm
> looking at on my list is down 10 to 14 percent.

> FedEx down 12.62% IBM down 12.85%

> These are typical. Any person with a 401K who is in buy and hold
> for retirement mode "for the long run" and owns "great American
> companies" like FedEx and IBM lost about 1/8 of their life savings
> just today. And this is typical, some are up a bit more and some
> down a bit more.

> What I'm saying is the stock averages are masking how bad this
> really is under the surface.

This is truly a remarkable time. I heard an analyst complain that
stock prices have become "completely untethered" from earnings,
because the only thing affecting stock prices now is the latest news
headline.

I would argue that stock prices have been "untethered" from earnings
for a long time. As you know, I focus on price/earnings ratio, to
keep things simple. Prior to the 1990s, the core value of a stock was
considered to be "tethered" to the P/E ratio, what today we would call
P/E based on "trailing earnings."

Starting with the 1990s tech bubble, that P/E ratio was producing
results that stock salesmen disliked, so they started using "forward
earnings" or "operating earnings." But unlike trailing earnings,
which are solid values backed up by audited financial statements,
forward and operating earnings are fantasy earnings, not backed by
financial statements, but backed by wishful thinking from public
relations departments.

An example of the fantasy is something that I hear frequently.
Someone will say that stock X has a p/e ratio of 80, and stock Y has a
p/e ratio of 40, and therefore stock Y is better. This is about as
meaningless as you can get.

This has given rise to complete doublespeak. Analysts will talk about
a historic average p/e ratio of 14, and say that if a stock's p/e
ratio is less than 20, then it's close to the historic average.
Actually, 14 is the historic average p/e ratio with trailing earnings.
I've estimated that the historic average p/e ratio with forward
earnings is around 8. So a stock with a p/e ratio of 20 is
astronomically overpriced.

So stock prices have been untethered to trailing earnings since the
1990s, and in the last few weeks they've even become untethered to
fantasy forward earnings. We might also say that they've become
untethered to sanity, and now, as prices fall, investors are literally
paying the price for have depended on fantasy forward earnings.

By the way, Vince, I just have to suggest that you be very careful
about the gold price. Nothing has changed from the past. Gold is
still in a huge bubble, with a trend value of around $500, and when
there's a crash, it will overshoot to $300-400. Just beware.

[pbrower2a]

The real news for any stock is its financial position. Were I to try to beat the market I would buy in the wake of bad news that causes people to panic and sell during exuberant times. COVID-19 is only a pretext... for exposing the really-bad news of inadequate savings, capital devoured in speculative activities, and nobody having a clue about how to meet the economic reality of an end to scarcity for most manufactured goods. Thus such an event as the collapse of either the Republic of Vietnam to the Commies or the overthrow of Reza Shah Pahlavi a few years later would be good times to buy.

Elections? If people respond badly to one, then buy in. If people respond with delight, then sell.

What is the real news in finances? Over-leveraged entities about to have their life-blood (capital lent to them to keep them alive) dying. Hidden misconduct that people get away with in long bull markets (such as large-scale embezzlement) until it gets exposed. Governments subsidizing bad behavior and presenting themselves as geniuses for such until they get exposed as the ninnies that they are.

[John J. Xenakis]

*** 14-Mar-20 World View -- Iran's army to monitor entire population for Wuhan Coronavirus

This morning's key headlines from GenerationalDynamics.com

• Wuhan Coronavirus spreads rapidly through Iran, with Qom as epicenter
  
• Iran's army to clear the streets, and monitor the population
  
• Iran and China call Wuhan Coronavirus a US Army bioweapon
  

****
**** Wuhan Coronavirus spreads rapidly through Iran, with Qom as epicenter
****


New large burial trenches in Qom visible from space. Inset photo shows a man carrying a coffin to burial trench (Vox)

We're now halfway through March and the most pessimistic of the
predictions that I've posting since the beginning of February, in
articles and in daily reports on the Generational Dynamics forum, are
coming to pass. America has declared a national emergency. Europe is
now the epicenter of the Wuhan Coronavirus epidemic according to the
World Health Organization. European countries are closing their
borders to each other, locking down the worst hit cities, and
restricting travel to and from their countries. Many countries
outside Europe, including America and countries in Africa and Asia,
are restricting travel from European countries.

As of Thursday, Iran had confirmed about 10,000 cases of coronavirus,
with widespread suspicions that there were a lot more. Then, on
Friday, Iran reported over 1,000 new cases in the preceding 24 hours,
bringing the total number of infections to 11,364, with 85 more
deaths, bringing the total to 514.

The suspicions have been buttressed by satellite photos of the city of
Qom that show that long trenches have been dug apparently to serve as
mass graves for hundreds of bodies, coronavirus victims.

Qom is Iran's religious capital, about two hours from Tehran, with
several Shia seminaries run by leading Shia Muslim clerics. Within
Iran, Qom became the epicenter of the epidemic because pilgrims from
so many other Muslim countries visited Qom to pray and to study.
According to some reports, the virus was spread in Qom by a merchant
who travelled back and forth between Qom and Wuhan, the city in China
where Wuhan Coronavirus originated.

The Qom clerics did not want to restrict travel to or from Qom, but
instead entered a delusional state of total denial of what was going
on. The result was a major outbreak of coronavirus in Qom that
visitors spread to many other countries, including Azerbaijan,
Afghanistan, Bahrain, Canada, Georgia, Iraq, Kuwait, Lebanon, Oman,
Pakistan, and the United Arab Emirates.

****
**** Iran's army to clear the streets, and monitor the population
****

One Iranian MP, Fatemeh Rahbar, a close advisor to the supreme leader
Khamenei, has already died of coronavirus, and several others have
been infected. Iranians have been asked to voluntarily remain at
home as much as possible, but they are ignoring these requests.
The streets and stores have been filled with shoppers, especially
in preparation for the Persian New Year, or Nowruz, that falls
on Friday, March 20.

On Thursday evening Khameini sent a letter to the head of Iran's
army, major general Mohammad Bagheri, instructing him to take
control of the situation.

On Friday, Bagheri announced that, within 24 hours, he will begin
using the military to limit crowds, and to clear people off the
streets, and out of shopping centers, shopping malls, grocery stores
and bazaars.

Furthermore, he announced that all citizens will be monitored and
checked coronavirus. According to Bagheri, "During the next 10 days,
the entire Iranian nation will be monitored once through cyberspace,
by phone and, if necessary, in person, and those suspected of being
ill will be fully identified."

You know, this is very serious stuff, but you can't help but laugh at
this delusional nonsense. Iran has a population of 81 million, and it
would take many months to perform this task. In the meantime, the
virus will continue spreading exponentially while this "monitoring" is
going on.

So we'll have to watch this unfold during the next couple of weeks.
It should be interesting.

****
**** Iran and China call Wuhan Coronavirus a US Army bioweapon
****

Government media in Iran, Russia and China have been publishing
accusations that the Wuhan Coronavirus was actually developed and
launched by the United States, specifically by the US Army, as a
bioweapon.

There have been numerous accusations of that type in China's social
media. On Thursday, Zhao Lijian, a foreign ministry spokesman, posted
the following on Twitter:

<QUOTE>"CDC was caught on the spot. When did patient zero
begin in US? How many people are infected? What are the names of
the hospitals? It might be US army who brought the epidemic to
Wuhan. Be transparent! Make public your data! US owe us an
explanation!"<END QUOTE>

This is completely ridiculous on many levels, but deliciously
delusional because Zhao is accusing China's army of total
incompetence.

If the US Army brought the virus to Wuhan, then they completely fooled
the Chinese army (PLA). If what Zhao said is true, then Chinese army
soldiers were too busy screwing their mistresses and shooting up drugs
to notice that some US Army soldiers waltzed into Wuhan and deposited
the coronavirus bioweapon in the raw meat market where it spread to
the population. That's what totally incompetent losers China's army
would have to be, if you believe Zhao.

But it's worse than that. Zhao's accusations are so ridiculous that
no one outside of China takes them seriously. But apparently the
Chinese Communist Party (CCP) thugs are so delusional that they take
the accusations seriously. That means that the CCP thugs have no idea
what's going on in PLA. They apparently believe that the PLA is so
completely incompetent that US soldiers, if they wanted to, could make
fools of the Chinese soldiers by planting a bioweapon right under
their noses.

Based on Zhao's delusional accusations of the incompetence of China's
army, it's no wonder that the Chinese army was clobbered by the
Japanese army in World War II, and had to be saved by the American
army. The Japanese army will probably do it again in the next war,
and if they don't, then the Taiwanese army will clobber the Chinese
army. The Chinese army soldiers, shooting up drugs with their
mistresses, won't even know what's going on.

Sources:

• Satellite images show Iran has built mass graves amid coronavirus outbreak (Guardian, London, 13-Mar-2020)
  
• Iran’s growing coronavirus crisis, in 3 stunning photos (Vox, 12-Mar-2020)
  
• Phony Figures? Iran's Coronavirus Outbreak Believed To Be Far More Serious Than Reported (RFERL, 13-Mar-2020)
  
• Satellite images show Iran building burial pits for coronavirus victims (CNN, 13-Mar-2020)
  
• A cleric's cure for coronavirus becomes butt of jokes in Iran (Al-Monitor, 10-Mar-2020)
  
• Coronavirus: Iran sees its biggest one-day jump in deaths (Middle East Eye, 13-Mar-2020)
  
• Iran fails to take timely measures for COVID-19: Expert (Anadolu, Ankara, 12-Mar-2020)
  
• Iran's coronavirus death toll 514 on over 1,000 new cases: state TV (Reuters, 13-Mar-2020)
  
• Mohammad Bagheri / Iran Security Forces to Clear Streets to Check All Citizens for Virus (AFP, 13-Mar-2020)
  
• Prayer services scrapped in Mideast over coronavirus fears (Middle East Online, 13-Mar-2020)
  
• Qom / How Iran Became a New Epicenter of the Coronavirus Outbreak (NewYorker, 28-Feb-2020)
  
• Fatemeh Rahbar / Iranian MP dies from coronavirus: Tasnim news agency (Reuters, 7-Mar-2020)
  
• Iran / China / Russia Isn’t the Only Country Pushing Coronavirus Disinformation (Mother Jones, 13-Mar-2020)
  
• Chinese official Zhao Lijian echoes conspiracy theory that US is to blame for coronavirus outbreak (AFP, 13-Mar-2020)

Related Articles:

• Coronavirus updates -- infections spread across the world (02-Mar-2020)
  
  
• Planning for Wuhan Coronavirus (Covid-19) (21-Feb-2020)
  
  
• Wuhan coronavirus hits China's economy hard, threatens world economy (02-Feb-2020)
  
  
• China's coronavirus threatens Xi Jinping's Mandate from Heaven (25-Jan-2020)
  

KEYS: Generational Dynamics, Iran, Qom, Wuhan Coronavirus, Covid-19,
China, Wuhan, Fatemeh Rahbar, Seyed Ali Hosseini Khamenei,
Mohammad Bagheri, Zhao Lijian

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John J. Xenakis
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[pbrower2a]

Qom is... the Shiite Rome, so to speak. Religious pilgrims often include some horribly-unhealthy people, people intending to get as close to God as possible just like everyone else. Visit one of the holiest shrines sick and you put others close to something that can hasten fellow pilgrims' progress to God. Sickness and death can hasten that progress.

In a way, CORVID 19 is far more hazardous than the infamous HIV/AIDS. HIV/AIDS could not be spread through coughs and sneezes. We know how HIV/AIDS got spread, such as tissue grafts, needle pricks, blood transfusions, sex, and IV drug use. Tissue grafts and blood got tested. Health professionals took care to treat used needles as weapons to be disposed of with due care. Sex? People started using condoms. Today the most likely source of new HIV/AIDS in the First World is IV drug use... this said, addicts are infamously reckless. (There is one particularly-disgusting way to spread AIDS, much more common where superstitions flourish, and I have no desire to discuss it).

CORVID-19 can be spread by the usual ways by which the common cold is spread. If one survives it one there could be lasting consequences.

[John J. Xenakis]

** 14-Mar-2020 World View: Herd immunity: Get coronavirus infection to get it over with

Navigator Wrote:> It may actually be a blessing to get infected by it early on,
> before the masses are infected, so that you can get top notch
> treatment. When the masses get it, the sick will be put on cots in
> gymnasiums and tent cities, and either your body will fight it and
> you get better (along with gained immunity) or you die.

Should anyone be purposely infected with Wuhan Coronavirus (Covid-19)
in order to get it over with and return to normal life?

This strategy would seem to have a great deal of appeal, especially to
young people who typically do not become seriously sick. Once you're
over it, you can stop worrying about touching your face and washing
your hands, and just get on with life. Even for old people like
myself, it's tempting to get it over with one way or the other.

There are officials in the UK who are proposing exactly this strategy
on a mass basis for the entire population. It's called "herd
immunity." Let the entire population of a town become infected, and
then the town is immune.

According to psychologist Dr David Halpern, this herd immunity
strategy may become necessary, as more and more people become
infected:

Quote: "There’s going to be a point, assuming the epidemic
flows and grows, as we think it probably will do, where you’ll
want to cocoon, you’ll want to protect those at-risk groups so
that they basically don’t catch the disease and by the time they
come out of their cocooning, herd immunity’s been achieved in the
rest of the population."

In other words, isolate the old people somewhere, then infect all the
young people, and after they recover, let all the old people out.
Interesting strategy.

It seems likely that, sooner or later, every person in the world will
be exposed, and the spread of the virus will only be stopped when a
vaccine becomes available and widely deployed, most likely some time
late in 2021. So when coronavirus starts spreading through a town,
the herd immunity strategy -- lock up the old people and let the young
people get sick -- might be the only possible strategy.

All of this is based on one huge assumption: If you get sick from
coronavirus and recover, then you'll be immune from reinfection.

This assumption has not been proven, and it's being debated. It seems
likely that a patient is immune from reinfection immediately after
recovery. But how long does that immunity last? It might be years,
but it might be only months or weeks. Also, even if you remain
immune, then there might be new strains. According to Anthony
Costello, a pediatrician and former World Health Organization
director:

Quote: Does coronavirus cause strong herd immunity or is it
like [ordinary seasonal] flu where new strains emerge each year
needing repeat vaccines? We have much to learn about Co-V immune
response."

So the "herd immunity" debate is interesting and ongoing, and as
Covid-19 continues to spread exponentially, a lot of places will have
to use the herd immunity strategy whether they want to or not.

P.S.: Some speculation: This isn't mentioned in any of the sources,
but there's good reason to believe that this strategy is being used
all across China. We know that coronavirus cases in rural areas are
not being reported, so it seems possible that the Chinese are letting
everyone get infected, and then see who survives.

---- Sources:

-- Herd immunity: will the UK's coronavirus strategy work?
https://www.theguardian.com/world/2020/m...ategy-work
(Guardian, London, 13-Mar-2020)

-- Can you get coronavirus twice?
https://thehill.com/changing-america/wel...irus-twice
(The Hill, 13-Mar-2020)

-- Coronavirus symptoms: Can you get coronavirus twice?
https://www.express.co.uk/life-style/hea...eak-latest
(Daily Express, London, 14-Mar-2020)

[John J. Xenakis]

** 13-Mar-2020 World View: Top 20 S&P 500 plunges in history

Jim Bianco
@biancoresearch

The S&P 500 began in 1926, 94 years of history. Today was the fifth
biggest one day plunge all-time. Monday was #20

• Top 20 S&P 500 plunges since 1926

https://mobile.twitter.com/biancoresearc...7652957196

[John J. Xenakis]

** 13-Mar-2020 World View: South Korea bans short selling

South Korea on Friday announced a temporary ban on stock short selling
for six months.

South Korea's benchmark stock index, the KOSPI, dipped to a near
five-year low Thursday after tumbling 3.87%.

On Thursday, stock short selling reached a yearly high of 1.09
trillion won ($893 million).

The KOSPI again closed sharply lower Friday at 1,771.44, down 3.4%
from the previous session's close, but recovered from a more than 8%
plunge earlier in the day.

The Bank of Korea said it will take "active steps" to help
stabilize the local stock market and foreign exchange market.

-- S. Korea temporarily bans stock short selling for 6 months
http://www.koreaherald.com/view.php?ud=20200313000701
(Yonhap, 13-Mar-2020)

[John J. Xenakis]

** 15-Mar-2020 World View: The Real Economy

In analyzing how the crisis will unfold in the next few months, there
are three related issues that everyone is conflating, but which are
really quite separate:

• The spread of the virus
  
• The stock market
  
• The real economy

What I'm particularly interested in is the real economy. The spread
of the virus is a potential disaster, and the stock market is a
potential disaster, but I believe that, although it will be hurt, the
real economy will do better than many people expect.

To show what I mean, here's what happened between 1929-33:

• the stock market fell 90%
  
• but the GNP (gross national product) fell only 35%.

The GNP represents what I'm calling the "real economy." These are
ordinary businesses, often private businesses completely unaffected by
the stock market, that are scrambling to do everything possible to
stay in business.

If a restaurant or bar wants to stay open, then the owner will
separate the tables and place screens between them to create
compartments, and then sanitize each compartment after the people
leave.

If a factory wants to stay open, and it depends on supply chains
originating from one country whose factories can't supply them, then
the owner will look for new suppliers in other countries.

Here are some examples of businesses that are likely to do well in the
next few months:

• Suppliers of bathroom and medical supplies.
  
• Beds, furniture, and various "self-isolation" products
  
• Online education services
  
• Telemedicine / telehealth services
  
• Online entertainment and gaming
  
• Electric scooter rentals (so you won't have to take the bus)
  
• Adaptive clothing of all kinds (protection from virus)
  
• Air filtration systems
  

Even in the worst case scenario, we can imagine a world that's as busy
and bustling as it was until recently, but now people are protected by
special clothing or compartmentalization or special safe modes of
transportation. These are all technically within reach -- and in fact
are really quite simple to implement -- but they just haven't been
necessary until now.

I believe that the real economy is going to do a lot better than most
people think, and possibly a lot better than the stock market, as it
did during the Great Depression.

So does anyone have any thoughts about businesses that will do well,
and possible surprises, during the next few months?

[John J. Xenakis]

** 15-Mar-2020 World View: Federal Reserve press conference

I listened to the Federal Reserve press conference this evening
which, in tune with the times, was held over the phone rather
than in a meeting room.

Lowering the interest rate to 0-0.25% certainly did not achieve the
desired result of calming the markets. To the contrary, US stock
market futures are limit down and stopped trading, and Asian stocks
have been in free fall. The Bank of Japan will hold an emergency
meeting today (Monday) to decide what to do next.

I've been watching the CNBC commentary. The fact that CNBC is still
running live programming on the stock market rout, rather than the
usual Sunday night fare which I gather is usually reruns of old Shark
Tank shows, is by itself proof of high anxiety and chaos in the
financial world.

Steve Liesman made an interesting remark during his commentary. The
subject was follow-on fiscal policy. Powell said that Washington
should implement some fiscal policies to supplement the monetary
policies.

Liesman said that government medical policy is in conflict with
economic policy. Economic policy -- monetary and fiscal -- has the
goal of putting money in people's pockets so that they'll spend it and
the economy will grow. But medical policy is that people shouldn't be
out shopping or attending events, but should be staying quietly at
home to limit spreading of Covid-19. That's an angle I hadn't heard
before.

We're still waiting for an event that hasn't occurred yet but must
occur, as predicted by Generational Dynamics: A full-scale
generational panic leading to a global financial crisis. It might
occur on Monday, or it might not occur for weeks or months.

-- Federal Reserve cuts rates to zero and launches massive $700
billion quantitative easing program
https://www.cnbc.com/2020/03/15/federal-...ogram.html
(CNBC, 15-Mar-2020)

[John J. Xenakis]

** 16-Mar-2020 World View: Global debt

richard5za Wrote:> I am not clear where you included global debt in the 3 points
> above, John. I suspect that debt is the biggest issue we are
> facing. Corporate debt alone is around $ 75 trillion and
> unpayable. Total global debt you posted as $ 260 trillion and I
> agree with your figure.

> Some market analysts have suggested that eventually we will reach
> a point called "the Great Reset". A fellow called John Mauldin has
> long been a proponent of this theory. The theory basically says
> that there will be a grand debt jubilee, where all debt is written
> off and the slate wiped clean. I have no idea how this works in
> practice, but what I have always thought is that we will only get
> to that point when there has been a credit crisis of epic
> proportions and no other way out. It will be a last resort plan
> and way out of the mess. Could take a long time to get there
> too. By that stage most of us will be living in poverty

There's no way that the global debt crisis will be resolved
without a world war.

As World War II was ending, the World Bank and International Monetary
Fund were set up to settle up accounts from before the war, and to
guarantee that a new global debt crisis would never occur again, just
as they set up the United Nations to guarantee that there would never
be another world war. With the rise of Generation-X and contempt for
the Silent Generation that set up those institutions, those
institutions are all failing now.

So in the last 20 years, global debt has gotten out of control, and
has overwhelmed the World Bank and IMF, and Russia has sabotaged and
destroyed the United Nations.

[John J. Xenakis]

** 16-Mar-2020 World View: Wuhan Coronavirus Covid-19: Flattening the curve

Almost every news report these days contains the phrase "Flattening
the curve." This refers to postponing Covid-19 infections for as long
as possible, using such techniques as closing schools and stores,
locking down cities and making everyone stay at home.

The idea is that if everyone gets sick at once, then hospitals will
be overwhelmed. But if the infection rate can be slowed down,
then hospitals will be able to keep up.

Medium.com has collected together some "Flattening the curve" graphs.

• Static flattening graph

The above graph illustrates the concept. If everyone gets sick at
once, then the "Healthcare system capacity" will be exceeded. But if
the same number of cases is spread over time, and the curve is
flattened, then according to this graph, the healthcare system will be
able to handle them.

Here's another one:

• Dynamic flattening graph

The article does some calculations, and concludes that this won't
work unless the length of the flattened curve is a decade.

-- Graphics: Flattening the curve
https://medium.com/@joschabach/flattenin...a324fe9727
(Medium, 16-Mar-2020)

[Warren Dew]

Thanks, John. I've been wondering about that.

To me this feels like a regeneracy, but I couldn't see a way for it to stretch more than months. But ten years would be enough. I'm not sure I can see us maintaining the restrictions for years, though.

[pbrower2a]

(03-16-2020, 02:17 PM)Warren Dew Wrote: Thanks, John.  I've been wondering about that.

To me this feels like a regeneracy, but I couldn't see a way for it to stretch more than months.  But ten years would be enough.  I'm not sure I can see us maintaining the restrictions for years, though.

American business has been pushing workers to the limit, expecting people to go to work even if sick. This virus forces a change in that pattern. If one has low-touch intellectual work one might still participate 'virtually' on-line.

[JDG 66]

(03-12-2020, 11:23 PM)pbrower2a Wrote: ...Were I to try to beat the market I would buy in the wake of bad news that causes people to panic and sell during exuberant times.  COVID-19 is only a pretext... for exposing the really-bad news of inadequate savings, capital devoured in speculative activities, and nobody having a clue about how to meet the economic reality of an end to scarcity for most manufactured goods...

-FWIW, I thought stocks were overvalued in December, so I took a little out of a stock fund and put it in a money market fund. Last week, I took a little out of a my IRA money market fund and shifted it to stocks. If the Cornonahysteria hasn't ended, I might have to do a little more rebalancing later this week. We shall see.

[John J. Xenakis]

*** 17-Mar-20 World View -- Stock market plunges 13% on Monday, as investors begin to accept reality

This morning's key headlines from GenerationalDynamics.com

• Stock market plunges 13% on Monday, as investors begin to accept reality
  
• Price/Earnings ratios - Trailing and Forward earnings
  
• Why experts care calling for 'Flattening the Curve'
  
• The 'Herd Immunity' strategy
  
• Can you be reinfected with Wuhan Coronavirus?
  
• Containment and mitigation strategies
  
• The China enigma
  
• Some possible good news: The Real Economy
  

****
**** Stock market plunges 13% on Monday, as investors begin to accept reality
****


DJIA falls 2997 points on Monday

The Dow Jones Industrial Average (DJIA) fell 12.9% or 2,997 points,
which was one of the sharpest declines in history.

The index had already fallen around 2000 when president Donald Trump
gave his coronavirus press conference on Monday afternoon. As usual,
he was trying to be realistic while, at the same time, being as
optimistic as possible, when he made a remark that he expected the
coronavirus crisis to "wash out" in July or August. He added that "it
could be August, could be July, could be longer than that."

The background is that earlier in the day, I was watching one analyst
after another on tv talk about the virus crisis ending in April or
May, after which there would be a "V-shaped recovery." As I watched
these so-called "experts," I could get over the feeling that I was
watching a Donald Duck cartoon show, with each "expert" quacking the
same nonsense.

So when Trump made his remark, investors began to freak out because
their April-May assumption was apparently wrong, and a July-August
assumption meant that their V-shaped hopes were dashed. By the way,
as I've said several times in the past, I don't expect the crisis to
be over until a vaccine can be deployed, sometime in 2021. I'll
discuss this more below.

As long-time Generational Dynamics readers are very well aware, the
stock market is in a huge bubble that will have to implode at some
point, and that could occur at any time.

The Federal Reserve made several major moves to pour money liquidity
into banks on Sunday and Monday. Many commentators are complaining
that it didn't help the stock market, but that wasn't the intention
anyway. The problem being addressed was a "broken" bond market, with
a "credit crunch" similar to the one in 2007-08. The Federal Reserve
move helped the bond market, but not the stock market.

There's a conflict between governmental economic policy versus
coronavirus policy. Economic policy -- monetary and fiscal -- has the
goal of putting money in people's pockets so that they'll spend it and
the economy will grow. But coronavirus policy is that people
shouldn't be out shopping or attending events or traveling, but should
be staying quietly at home to limit spreading of Covid-19. This is a
conflict that shows how complicated the situation is.

The most pessimistic of the predictions that I've been posting since
the beginning of February, in articles and in daily reports on the
Generational Dynamics forum, are continuing to occur. We're still
waiting for an event that hasn't occurred yet but must occur, as
predicted by Generational Dynamics: A full-scale generational panic
leading to a global financial crisis. It might occur soon, or it
might not occur for weeks or months. But it will occur. ( "2-Mar-20 World View -- Coronavirus updates -- infections spread across the world"
)

****
**** Price/Earnings ratios - Trailing and Forward earnings
****

This is truly a remarkable time. I heard an analyst complain that
stock prices have become "completely untethered" from earnings,
because the only thing affecting stock prices now is the latest news
headline.

In fact, stock prices have been "untethered" from earnings for a long
time. As readers know, I focus on price/earnings ratio, to keep
things simple. Prior to the 1990s, the core value of a stock was
considered to be "tethered" to the P/E ratio, what today we would call
P/E based on "trailing earnings." This means that the "earnings" are
actual reported earnings for the previous year, also called "one year
trailing earnings."

Starting with the 1990s tech bubble, that P/E ratio was producing
results that stock salesmen disliked, so they started using "forward
earnings" or "operating earnings." But unlike trailing earnings,
which are solid values backed up by audited financial statements,
forward and operating earnings are fantasy earnings, not backed by
financial statements, but backed by wishful thinking from public
relations departments.

An example of the fantasy is something that I hear frequently.
Someone will say that stock X has a P/E ratio of 80, and stock Y has a
P/E ratio of 40, and therefore stock Y is better. This is total
nonsense, since both the 40 and 80 numbers are totally meaningless.

This has given rise to complete doublespeak. Analysts will talk about
a historic average P/E ratio of 14, and say that if a stock's P/E
ratio is less than 20, then it's close to the historic average.
Actually, 14 is the historic average P/E ratio with trailing earnings.
I've estimated that the historic average P/E ratio with forward
earnings is around 8. So a stock with a P/E ratio of 20 is
astronomically overpriced.

So stock prices have been untethered to trailing earnings since the
1990s, since analysts never talked about anything but their fantasy
forward earnings, and ignored trailing earnings. Under the forward
earning doublespeak, the stock market bubble has been growing to a
huge size.

So the analyst complaint that stock prices have become "completely
untethered" from earnings is particularly ironic, since they've been
untethered from trailing earnings for years. What's ironic is that,
in the last few months, stock prices have even become untethered to
fantasy forward earnings. We might also say that they've become
untethered to sanity.

****
**** Why experts care calling for 'Flattening the Curve'
****

Almost every news report these days contains the phrase "Flattening
the curve." This refers to postponing Covid-19 infections for as long
as possible, using such techniques as closing schools and stores,
locking down cities and making everyone stay at home.

The idea is that if everyone gets sick at once, then hospitals will be
overwhelmed. But if the infection rate can be slowed down, then
hospitals will be able to keep up.

Here's a graph that illustrates the concept:


The first curve shows what happens if everyone gets sick at once. The flattened curve shows how infections can be spread out over time (medium.com)

The above graph illustrates the concept. If everyone gets sick at
once, then the "Healthcare system capacity" will be exceeded, and
hospitals will be overwhelmed. But if the same number of cases is
spread over time, and the curve is flattened, then according to this
graph, the healthcare system will be able to handle them.

It's worth mentioning that the entire concept is fantasy. There's no
way to flatten the curve except through unacceptable draconian
measures (as in China), and even then, the flattened curve will have
to be years long.

****
**** The 'Herd Immunity' strategy
****

The two different curves in the chart above actually represent two
different strategies that a government might use to deal with the
Covid-19 crisis.

The first curve is associated with a strategy known as "Herd
Immunity."

This strategy is being proposed by some officials in the UK: Let the
entire population of a town become infected, and then the town is
immune.

This strategy would seem to have a great deal of appeal, especially to
young people who typically do not become seriously sick. Once you're
over it, you can stop worrying about touching your face and washing
your hands, and just get on with life. Even for old people like
myself, it's tempting to get it over with one way or the other.

According to psychologist Dr David Halpern, this herd immunity
strategy may become necessary, as more and more people become
infected:

<QUOTE>"There’s going to be a point, assuming the epidemic
flows and grows, as we think it probably will do, where you’ll
want to cocoon, you’ll want to protect those at-risk groups so
that they basically don’t catch the disease and by the time they
come out of their cocooning, herd immunity’s been achieved in the
rest of the population."<END QUOTE>

So according to Halpern, the Herd Immunity strategy works as follows:
Isolate the old people somewhere, let all the young people get
infected, and after they recover, let all the old people out.

****
**** Can you be reinfected with Wuhan Coronavirus?
****

The herd immunity strategy is based on one huge assumption: If you get
sick from coronavirus and recover, then you'll be immune from
reinfection.

This assumption has not been proven, and it's being debated. It seems
likely that a patient is immune from reinfection immediately after
recovery. But how long does that immunity last? It might be years,
but it might be only months or weeks or just days. Also, even if you
remain immune, then there might be new strains to which you aren't
immune. According to Anthony Costello, a pediatrician and former
World Health Organization director:

<QUOTE>Does coronavirus cause strong herd immunity or is it
like [ordinary seasonal] flu where new strains emerge each year
needing repeat vaccines? We have much to learn about Co-V immune
response."<END QUOTE>

So the "herd immunity" debate is interesting and ongoing, and as
Covid-19 continues to spread exponentially, a lot of places will have
to use the herd immunity strategy whether they want to or not.

****
**** Containment and mitigation strategies
****

Referring to the graph above, the "politically correct" strategy is
represented by the second curve, the flattened curve. The curve is
flattened by means of containment and mitigation strategies, as I've
described in a previous article. In the containment strategy, the
country tracks and tests people and uses contact tracing, to identify
infected people, and isolate them. When that fails, the mitigation
strategy is used, where schools and stores are closed, and large
gatherings are illegal, in order to reduce the number of infections.
( "2-Mar-20 World View -- Coronavirus updates -- infections spread across the world"
)

Both of those strategies should be quite familiar to almost everyone
at this time. They're being implemented throughout Europe and the
United States, as well as in many other countries. Cities, towns and
provinces are being locked down, stores and schools are being closed,
and borders are being closed.

Just to take one of many possible examples, France on Monday made it
against the law for many people to leave their homes. In Africa, 20
countries now have coronavirus infections, but most people are too
poor to be able to stop working and self-isolate, so mitigation will
fail and the virus will continue to spread exponentially.

Here's the problem with the containment and mitigation strategies:
They require stores and schools to be closed, and people to be
isolated, for many months until the crisis ends. As long as people
believe that the crisis will end in April or May, the restrictions may
be tolerable. But when it becomes clear that the crisis will continue
for many more months, then people will no longer tolerate the
restrictions.

That's why, in my opinion, until a vaccine is deployed some time in
2021, the virus is going to continue to spread, until everyone is
exposed to it sooner or later.

****
**** The China enigma
****

To my knowledge, there's only one country where the leaders claim that
the mitigation strategy has been successful: China.

China is claiming that they've conquered the Wuhan coronavirus by
means of extremely severe harsh mandatory mitigation measures. (They
also claim that Wuhan coronavirus was a bioweapon installed in Wuhan
by the US Army under the noses of the incompetent Chinese army, which
is typical of the crap that comes from the CCP.)

Since the Chinese Communist Party (CCP) lies about everything,
including enslaving Muslim Uighurs and annexing the South China Sea,
there is no reason to believe any of their claims. Furthermore, the
CCP is harshly censoring media, and punishing anyone who dares to
describe what's actually going on. So if an outbreak of caronavirus
breaks out in a rural area, a regional manager who reported the
outbreak to Beijing could be harshly punished, so has no motivation to
report it. So it seems quite likely that infections and outbreaks are
being hidden, or reported as other kinds of illnesses.

Here's one analysis from Thailand:

<QUOTE>"Doctors in provinces like Helionjang, Xinjiang, Henan
and Shanxi are telling a different story. According to a
stringer,there is an ever increasing amount of patients coming in
with respiratory symptoms but doctors have been given guidelines
as to what medications to prescribe and to admit them if serious
but not to conduct any diagnostic tests directly involved with
Covid-19! A check with hospitals in 4 provinces also showed that
Covid-19 test kits are not available in any of these hospitals.

Health authorities and medical entities have been given strict
warnings not to talk to the media and foreign entities while local
media have been prohibited from reporting on any local health
issues except official releases sent out to them." (Thailand
Medical News)<END QUOTE>

So this means that the mitigation strategy isn't working in China
either, and that many outbreaks are being covered up. Any one of
these outbreaks could explode at any time.

****
**** Some possible good news: The Real Economy
****

There might be some good news. In analyzing how the crisis will
unfold in the next few months, there are three related issues that
everyone is conflating, but which are really quite separate:

• The spread of the virus
  
• The stock market
  
• The real economy

Let's focus on the real economy. These are ordinary businesses, often
private businesses completely unaffected by the stock market, that are
scrambling to do everything possible to stay in business.

To show what I mean, here's what happened between 1929-33:

• the stock market fell 90%
  
• but the GNP (gross national product) fell only 35%.

The GNP represents what I'm calling the "real economy." Owners of the
businesses in the real economy take whatever steps are necessary to
stay in business, irrespective of virus or stock market disasters.

If a restaurant or bar wants to stay open, then the owner will
separate the tables and place screens between them to create
compartments, and then sanitize each compartment after the people
leave.

If a factory wants to stay open, and it depends on supply chains
originating from one country whose factories can't supply them, then
the owner will look for new suppliers in other countries.

Here are some examples of businesses that are likely to do well in the
next few months:

• Suppliers of bathroom and medical supplies.
  
• Beds, furniture, and various "self-isolation" products
  
• Online education services
  
• Telemedicine / telehealth services
  
• Online entertainment and gaming
  
• Electric scooter rentals (so you won't have to take the bus)
  
• Adaptive clothing of all kinds (protection from virus)
  
• Air filtration systems (for boats and planes)
  

Even in the worst case scenario, we can imagine a world that's as busy
and bustling as it was until recently, but now people are protected by
special clothing or compartmentalization or special safe modes of
transportation. These are all technically within reach -- and in fact
are really quite simple to implement -- but they just haven't been
necessary until now.

I believe that the real economy is going to do a lot better than most
people think, and possibly a lot better than the stock market, as it
did during the Great Depression. In fact, there may actually be a
"V-shaped recovery" in the real economy long before there's a recovery
in the stock market.

Sources:

• Dow Jones Dives 3,000 Points To New Session Lows As Coronavirus Crash Continues (InvestorsBusDaily, 16-Mar-2020)
  
• Federal Reserve cuts rates to zero and launches massive $700 billion quantitative easing program (CNBC, 15-Mar-2020)
  
• Graphics: Flattening the curve (Medium, 16-Mar-2020)
  
• Herd immunity: will the UK's coronavirus strategy work? (Guardian, London, 13-Mar-2020)
  
• Can you get coronavirus twice? (The Hill, 13-Mar-2020)
  
• Coronavirus symptoms: Can you get coronavirus twice? (Daily Express, London, 14-Mar-2020)
  
• China Continues To Lie? China Says No New Coronavirus Cases Nationwide Outside Of Hubei! ::xwla-03/1 (ThailandMedicalNews, 10-Mar-2020)
  
• Chinese official Zhao Lijian echoes conspiracy theory that US is to blame for coronavirus outbreak (AFP, 13-Mar-2020)

Related Articles:

• Iran's army to monitor entire population for Wuhan Coronavirus (14-Mar-2020)
  
  
• Coronavirus updates -- infections spread across the world (02-Mar-2020)
  
  
• Planning for Wuhan Coronavirus (Covid-19) (21-Feb-2020)
  
  
• Wuhan coronavirus hits China's economy hard, threatens world economy (02-Feb-2020)
  
  
• China's coronavirus threatens Xi Jinping's Mandate from Heaven (25-Jan-2020)
  

KEYS: Generational Dynamics, China, Wuhan Coronavirus, Covid-19,
Herd Immunity, Flattening the Curve,
trailing earnings, forward earnings

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John J. Xenakis
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[John J. Xenakis]

** 17-Mar-2020 Virus Lie thread

I just read through your "A Virus Lie?" thread. Wow! Is that
bizarre, even more bizarre than the "Let's make fun of Trump thread,"
which is disassociated from reality.

What I particularly LOVED in the Virus thread was the logical
circularity. "I believe in the Virus. But Trump says there's a
Virus. Anything Trump says is a lie. So the Virus must be a lie. So
how can I believe in something that's a lie?"

Hilarious. In college I majored in math and specialized in
Mathematical Logic, so I LOVE that kind of stuff. This sentence is
false.

So anyway, if you want to know what to believe, I've posted over 6,000
articles on my web site in the last 17 years, and many of the recent
ones are cross-posted here in this thread, and there isn't an iota of
"fake news" in any of them. So you can start there.

[David Horn]

(03-17-2020, 10:59 PM)John J. Xenakis Wrote: ... I've posted over 6,000
articles on my web site in the last 17 years, and many of the recent ones are cross-posted here in this thread, and there isn't an iota of "fake news" in any of them.  So you can start there.

Others are a bit less sure of that than you.  

[John J. Xenakis]

** 18-Mar-2020 Fake News

(03-17-2020, 10:59 PM)John J. Xenakis Wrote: > ... I've posted over 6,000 articles on
> my web site in the last 17 years, and many of the recent ones are
> cross-posted here in this thread, and there isn't an iota of "fake
> news" in any of them. So you can start there.

(03-18-2020, 12:38 PM)David Horn Wrote: > Others are a bit less sure of that than you.

If you have an actual example where I've posted fake news, I'd like to
know where it is. If I've made a mistake, I'll post a correction and
apologize.

I'll add that over the years I've dealt with hundreds (thousands?) of
commenters, many of them hostile, on the left, on the right, Russian
trolls, Syrian trolls, Iranian trolls, Chinese trolls, Burundi trolls,
Zimbabwe trolls, etc., etc., and except for occasionally getting a
name or date wrong, no one has ever found any "fake news." And by the
way, this isn't a left-right thing. People on the far right are just
as idiotic as people on the far left. Almost all people today are
incredibly ignorant -- many of them can't even read a map or
understand percentages -- and so they depend on their favorite
ideologue crazy to tell them what to believe.

[David Horn]

(03-18-2020, 01:44 PM)John J. Xenakis Wrote: ** 18-Mar-2020 Fake News

(03-17-2020, 10:59 PM)John J. Xenakis Wrote: >   ... I've posted over 6,000 articles on
>   my web site in the last 17 years, and many of the recent ones are
>   cross-posted here in this thread, and there isn't an iota of "fake
>   news" in any of them.  So you can start there.  

(03-18-2020, 12:38 PM)David Horn Wrote: >   Others are a bit less sure of that than you.  

If you have an actual example where I've posted fake news, I'd like to
know where it is.  If I've made a mistake, I'll post a correction and
apologize...

That was humor John.  Consider it a birthday gift, 9 days early.

[John J. Xenakis]

** 18-Mar-2020 World View: Today

(03-18-2020, 03:59 PM)David Horn Wrote: > That was humor John. Consider it a birthday gift, 9 days early.

OK, thanks for the humor, and sorry to be so thin-skinned.

Also, thanks for remembering my birthday, though I was actually
planning to forget it myself.

I hope you're doing well, and that you're enjoying National
Biodiesel Day.