The Dreamtime Phoney War

On the June 1st episode of the podcast, TRIGGERnometry, Peter Hitchens made an interesting observation on the the current attitude of many people in the UK (but it applies equally to any other country undergoing government Kung Flu largesse):

He describes many people as living in a happy dreamtime where most, if not all, of their wages are being paid for by government relief schemes, the weather is pleasant and the consequences of incurring the biggest peacetime national debt have not yet been felt.

His opinion is this cannot continue and, when the plug is pulled on these various furlough schemes, there will be a difficult and tragic reckoning to be had.

The likely timeline for this mean reversion differs by jurisdiction but the 3rd and 4th quarters of 2020 is generally when these government cash drops are due to either finish or begin to taper off.

I say this without any hint of glee, but there are individuals and entire industries that are going to experience the financial equivalent of cold turkey.

What’s cold turkey feel like? Let’s ask a professional:

I can’t imagine what other people think cold turkey is like. It is fucking awful. On the scale of things, it’s better than having your leg blown off in the trenches. It’s better than starving to death.

But you don’t want to go there. The whole body just sort of turns itself inside out and rejects itself for three days. You know in three days it’s going to calm down. It’s going to be the longest three days you’ve spent in your life, and you wonder why you’re doing this to yourself when you could be living a perfectly normal fucking rich rock star life.

And there you are puking and climbing walls. Why do you do that to yourself? I don’t know. I still don’t know. Your skin crawling, your guts churning, you can’t stop your limbs from jerking and moving about, and you’re throwing up and shitting at the same time, and shit’s coming out your nose and your eyes, and the first time that happens for real, that’s when a reasonable man says, “I’m hooked.” But even that doesn’t stop a reasonable man from going back on it.

Keith Richards

Bill’s Opinion

Governments and central banks are about to discover restarting an economy is a significantly different prospect to stopping one.

I have no doubt our money, our children’s money and our grandchildren’s money will be generously thrown at the problem.

Some of it may even stick.

In fact, the Australian Government is mooting plans to throw figures like $20,000 at new home builds or to renovate existing homes. Obviously, this will have the effect of increasing the price of everything by a leveraged ratio of $20,000.

I understand the Keynsian theory is it doesn’t matter what the money is spent on but, now we’ve just run the biggest experiment to prove most people don’t need to live 8km from the CBD to be productive, why are we installing granite kitchen worktops in Mosman rather than building high speed rail links to an open plain in the middle of nowhere for developers to build around?

In the meantime, this organ has been sadly missing a previous regular commentator from Brisbane who frequented this place with gleeful tales of his investing prowess and acumen.

If he were to return, we might ask him to review this updated chart and answer the question, “what happens next?“.

Don’t ya know that it Hertz so good

… to paraphrase Susan Cadogan.

One of the first corporate dominoes fell this week as the car rental company, Hertz, commenced the bankruptcy process in the USA.

That a car rental company might file for Chapter 11 after 6 weeks of almost total cessation of global and domestic travel might not be so surprising, perhaps.

There’s an analogy to be had here though, which can be summarised by one question.

Before I pose that question, I will explain that this is the second time I posed it. The first was last night when we finally managed to visit friends for dinner. One of the couple was very much of the “one death is too many, regardless of the economic and long term social costs” attitude, so prevalent in all of the media class and nearly every national government.

She was also absolutely certain the published figures for fatalities from around the world were 100% accurate, despite also conceding the data collection methodologies varied by country and local jurisdiction.

Her reaction when I asked the following question was visceral; she physically moved and paused in her conversation. Depending on which psychology source you read, this can sometimes be an indication of a moment of cognitive dissonance. The question was this:

“Over recent years, Hertz has taken on $19bn of debt, so do you think Hertz died of the virus or simply with it?”.

Bill’s Opinion

The virus might have hurried Hertz and Virgin along to an early grave, but the debt level both companies had taken on was unsustainable by any objective measure.

What do we think will the Receiver will write as the cause of death on their death certificates?

Freedom ‘20

1993

Many lifetimes ago, a young worker in the City of London watched as, in response to a large IRA bomb attack, armed police officers were deployed to patrol the streets and the road entrances to the area had permanent checkpoints installed and manned around the clock.

That young worker watched in horror as his fellow citizens happily accepted this radical change to the method of policing in response to a single event which, arguably, was a result of a multiple failures of policing and intelligence-gathering (for example; how did a purchase of 1 tonne of ammonia nitrate go unrecorded?).

2001, 2005, 2006

Eight years later, further radical changes were made to anti-terror legislation following the 911 terror attacks in New York and Washington DC. A further increase in powers was implemented in 2005 and yet again the following year as a reaction to the London attacks in 2005, including the ability to hold suspects without charge for 28 days and impose house arrest without a conviction.

Similar legislation was passed in other countries throughout this period.

Australia, for example, has passed 82 anti-terrorism laws since 2001. It might be argued that, given the comparative low level of attacks since 2001 (12 deaths, including the perpetrators) in Australia, this legislation has been incredibly successful. An alternate opinion might be that there’s been significant overreach relative to the low level of domestic threat.

2018

A decade following the financial crisis of 2008, Australia passed the Financial Sector Legislation Amendment (Crisis Resolution Powers and Other Measures) Act 2018 creating further powers to handle future financial crises.

The media scrutiny of this legislation was woefully shallow, otherwise you might have read somewhere, anywhere, that the legislation allows for “bail-ins”. That is, the funds in your bank account can be accessed by the Reserve Bank of Australia to bail out the retail banks.

2020

In response to the unclear threat of the China virus, legislative and policing precedents were overturned in a matter of days by governments around the world. In the largest abuse of Eminent Domain since 1066, businesses were ordered to cease trading, police were given powers to fine and arrest those who were not complying with highly dubious and contradictory guidelines for social distancing.

Social and tradition media has plenty of examples of police overreach as a consequence, from police drones buzzing hikers in the Derbyshire Peak District, to Yorkshire police threatening, “to make something up, who they gonna believe, me or you?”, and a lone swimmer manhandled and arrested in Bondi for the crime of exercising alone.

The Australian Prime Minister expressed a desire for a social tracking app to be made compulsory for all citizens (and then changed his mind after some horror was expressed by anyone with the IQ above a gnat).

Many of these emergency measures will eventually be challenged in the courts and will be overturned or reduced in severity. The precedent suggested by the chronology described above is the legislation will then be amended to a form less likely to fail in the courts. i.e. the powers will remain, just with tighter legal wording.

Bill’s Opinion

As far as I’m aware, none of this legislation has ever been wound back. For example, the UK’s prevention of terrorism acts were initially designed to be temporary and had to be frequently renewed by Parliament. These measures are now permanent.

Similarly, financial and taxation legislation has only moved in one direction since, well, since the creation of the concept of income tax to pay for the Napoleonic Wars.

It is looking increasingly likely the fatality rate of this virus is nowhere near that predicted by the experts (who’d have thought that multi-variable computer models might not give accurate results?). Potentially, the final fatality rate is going to fall within the range of 0.1 – 0.6%, or about as bad as strong version of the seasonal ‘flu.

In which case, the global governmental response is disproportionate and should be wound back immediately.

But that’s not the point. Even if this virus was as dangerous or worse than, say, the Spanish Flu (2.5% fatality rate), there’s a bigger question you need to ask yourself:

“Am I OK with all of this?”.

Well punk, are ya?

The death of Princess Diana, 2020 reboot

Initial results are in from a programme of antibody testing.

The first large-scale community test of 3,300 people in Santa Clara County found that 2.5 to 4.2% of those tested were positive for antibodies — a number suggesting a far higher past infection rate than the official count.

Based on the initial data, researchers estimate that the range of people who may have had the virus to be between 48,000 and 81,000 in the county of 2 million — as opposed to the approximately 1,000 in the county’s official tally at the time the samples were taken.

Early days, first proper study, risk of confirmation bias in terms of selection, etc. BUT…..

This takes us closer to learning at least the order of magnitude of the critically important denominator; how widespread is this virus already?

Extrapolating the mid-range of the estimated scale (50-80 times greater than originally thought), the UK’s infection rate might be 7 million (65 x 108,000).

With an idea of the denominator, we can apply the numerator – the official statistics suggest 14,000 COVID19 deaths. Assume it’s more than that due to a lag in reporting, let’s say 20,000.

20,000 / 7,000,000 x 100 = 0.3%

A “regular” ‘flu has a fatality rate of around 0.1%.

Bill’s Opinion

The probability of COVID19 killing millions in a short period of time is looking increasingly unlikely.

The probability of increased deaths, long term harm and hardship due to shutting the global economy is absolutely certain.

Which is more likely to be worse? Last week, we might have said the effects of the virus. This week, that’s not such a compelling argument.

The reasons given for the suspension of economic activity and personal freedoms were twofold; this is highly contagious and highly fatal and due to this, our health systems will be overwhelmed.

It’s starting to look like the “fatal” part of that argument was incorrect. Excess hospital capacity isn’t even close to being used in most locations. Our numerator/denominator question is starting to be answered.

In a moment of collective madness based on mendacious Chinese statistics and by listening to an Imperial College academic with a dubious track record, we’ve created The Great Depression 2020/21.

The antibody testing must continue in other locations and rapidly so we can make informed decisions about rebuilding what is left of the spark of the miracle that has saved more lives than any other invention; a freely moving economy.

In the meantime, reopen and keep a close watch on hotspots of infection as they arise.

There is a war….

There is a war between the rich and poor,

A war between the man and the woman.

There is a war between the ones who say there is a war

And the ones who say there isn’t.

Why don’t you come on back to the war, that’s right, get in it,

Why don’t you come on back to the war, it’s just beginning.

Leonard Cohen 1974

Modern wars are funny beasts; they happen all the time but very rarely does anyone ever bother to formally declare it.

In the USA, Congress has the Constitutional duty/sole prerogative to declare war. Did you know that? How many times do you think they’ve done so since, say, 1942?

That part of the USA Constitution was broken once intercontinental ballistic missiles were capable of delivering nuclear warheads and a 3 minute warning was not long enough to hold a vote.

To Marxists, the real war used to be between the workers and the owners of capital. Since the Soviets lost the argument, many Marxists pivoted to looking for wars between ethnicities and gender, resulting in much of the lunacy in which this organ finds hilarity.

In the meantime, a massive war is playing out, hiding in plain sight, as illustrated by our Hierarchy of Kung Flu:

Where do you sit on this scale? Have you been Instagramming pictures of inedible home-baked sourdough and stodgy cakes?

Chances are you’re currently on the winning side of the war.

Now flip all of those statements upside down and put yourself in the shoes of that person. Obviously, the lower levels regarding health are universal, they could happen to all of us.

The real point of bifurcation between the combatants is the level 3rd from top; “I am a keyboard warrior; my income is unaffected“.

Depending on whether this is true for you is the difference between this period being a relaxing skive on your sofa, consisting of lazy mornings, online yoga, perfecting your barista technique on your Gaggia, chatting with your colleagues on Zoom, baking sourdough like an 18th century crofter, some online shopping, an early start on the Briar Ridge rosé and a pleasant evening with the significant other binge watching a streaming series OR absolute desperation as you deplete your sparse savings and watch your livelihood destroyed in just a few days by the stroke of a ministerial pen.

At its bluntest level, this is war between white-collar and blue-collar workers. Sure, it’s a fuzzy line; there are previously well-paid office workers who are now unemployed and wondering why they took out such large mortgages and there are blue collar workers who are still building and billing for their time.

In general though, the metropolitan types are having a lovely war, the people in the ‘burbs are staring down the barrel of destitution.

Magnify that out from your comfortable 1st world reality and look at the less developed countries.

India has hit “CTRL C/V” on the western world’s approach to COVID19 and enforced a 21 day lock down. Millions of the lowest paid workers have been told to somehow travel back to their home villages and have no additional source of income.

The human cost to this, in terms of malnutrition, riots, suicides, murders, etc. will clearly not be zero. Quite the opposite, in fact, it is probable there will be an appalling increase in harm to the population.

It puts the current 1st world problems into context but they are versions of the same issue.

Bill’s Opinion

The modern global economy has a complexity that is beyond the reach of current human understanding. Dismantling it at the stroke of a government pen has unintended consequences. It is not yet obvious from the available data which is worse; the effects of the virus or the consequences of the lockdowns.

It’s possibly a false dichotomy anyway. The choice isn’t and shouldn’t be framed as binary. Shutting down India as if it had an economy and society that operates like Switzerland seems like a regrettably poor choice.

Similarly, shutting down an economy in a consistent way across an entire national geography without reference to the multiple differentiating factors between regions isn’t logical.

The result is highly likely to be a continuation of the decades-old wealth transfer from the poorest to the richest. If you think you’re in the second category, I would warn against complacency; this trend is coming for you and yours.

Have a look at your luxury car, 2nd home, children’s private school, photos from expensive overseas holidays, etc. and take a moment to appreciate what might prove to be a view of the past during the “Roaring 2,000s“.

Orange Spaceman Bad

Donald Trump signed an order authorising future mining activities in space.

This is a very bad thing, apparently, because something something colonisation.

Imagine suffering from Trump Derangement Syndrome so severely that you’re upset about space exploration.

Worse, imagine being concerned that the space exploration might upset other countries and this prompts them to do something hostile.

Really?

What other acts of human endeavour and exploration should we avoid due to the possible and imagined sensitivities of third parties?

Should we stop seeking a cure for cancer, investigating fusion energy, fixing the connectivity issues with Microsoft Teams, etc.?

Bill’s Opinion

The term terra nullis has a bit of a chequered past in places such as Australia, but it’s fairly safe to use it wth regards to the Moon, Mars and passing asteroids.

The idea that President Trump is being a warmongering meanie for suggesting the USA might go into space and mine some useful minerals is bordering on delusional.

Not least because the USA is the only country with a realist chance of actually being capable of doing it on a sustainable basis.

I look forward to hearing about the Peruvian, Nigerian or Cambodian space programmes in the comments.

We went to the moon, and you know what we got?

Bored.

Left a car up there with the keys still in it. Why? ‘Cos we’re the only ones going back there.

Bird? Plane? No, Superhubris!

Pension funds in Australia (or “Super”, in the vernacular) are, obviously, a big deal.

To a large degree, they are a captured market as legislation requires all employers to contribute 9.5% of salary into an employee’s chosen fund.

Typically, there isn’t much movement between funds, you are offered one when you start work and many people don’t pay attention to which is good, bad or mediocre.

Similarly, and like passive investors the world over, people don’t tend to pay much attention to what investment choices their Super fund is making on their behalf. One occasionally hears horror stories about people close to retirement in 2008 suddenly discovering they were all in on USA CDOs.

One such Super fund is Hostplus, the “industry” fund for people working in hospitality. Obviously, one doesn’t have to sign up to Hostplus, but I assume it’s one of the main options offered when you start a job.

Hostplus’ members are worst hit by this virus-induced recession and presumably most likely to want to take advantage of the changed rules allowing early access to $20,000 of their money.

Hostplus have a problem though;

They’ve slipped a clause into their product disclosure statement preventing members from withdrawing funds. It’s not clear whether this is even allowed under legislation such as the Corporations Act, but regardless, it’s a bad precedent and one that won’t give people much comfort in the security of their pensions.

There is a some mild amusement to be had at the directors’ expense (well, ultimately the members’ expense, poor bastards);

This from those heady days of January 2020;

Bill’s Opinion

What follows is not financial advice, and you should never seek financial advice from pseudonymous bloggers on the internet.

However if you are young enough for this current crisis to not completely destroy your imminent retirement plans, may I suggest taking a far more active interest in the following elements of your finances;

  1. Is a single managed fund really the best option for you, or should you consider diversifying across funds (e.g. via a self-managed fund)?
  2. If you are staying in a managed fund, are you really invested in diverse (asset class and geography) assets?
  3. Are the management fees fair value?
  4. How quickly can you pivot your investments if required?
  5. How is your financial advisor paid and by whom?

Feed the birds, tuppence a bag“.

Awkward silences by the barbecue

There are some axioms of Australian life that are best observed from an outsider’s aspect.

They can be witnessed in action at suburban social gatherings, such as barbecues or kids’ sport.

The rule is, when a group of middle aged Australian parents (and this is particularly true for Sydney and Melbourne) gather socially, there must be sufficient time allocated for conversations on the following subjects:

  1. Which high schools will little Atticus and Chlamydia be attending? The sub-rule to this is that the discussion must be started by the parent who believes they have the best bragging rights in this regard. As in, “So, we’re sending Tarquinus to Shore, where are you sending Shane? Oh, local public school? I’m so sorry.”.
  2. How many foreign holidays will you be taking this year? To European readers, this might seem strange but bear in mind a return overseas flight from Australian in cattle class is about a thousand dollars, the total cost of even a budget holiday soon racks up. One annual trip is good, two is impressive, three is multi-millionaire status.
  3. How much has your house risen in value and how many additional investment properties do you own? Everyone wants to open the conversation with this but allow the previous two discussions to play out first to avoid appearing gauche.

However, we’re not in Kansas anymore, Toto….

Our chart has been updated with the last data points before the China Flu lockdowns commenced.

Some context might be useful; the RBA has been publishing the lending data since the 1970s and, from that time until 2017, the monthly increase in lending for domestic property has fallen to 0.3% or lower only three times.

Bill’s Opinion

The chart is already suggesting a further leg down was on its way in the winter of 2020, before the impact of the pandemic hit the data.

What happens from here is anyone’s guess; there will be competing factors of bank forbearance, historically low interest rates, removal of lender’s insurance, a sharp increase in unemployment, economic slowdown due to isolation policies, etc.

My view is there will be a sharp and relatively deep fall in property values, realised only by those unfortunate enough to be forced to sell (by the three Ds; death, divorce or dole).

Let’s say about 30% from the peak. Perhaps that’s wrong by a large factor, but if you agree there will be further falls, there is only one question left to answer;

What will the people talk about at barbecues when they don’t want to talk about property prices and the major sports leagues haven’t restarted?

There’s going to be some awkward silences…..

On numerators and denominators

Have you had the Coronavirus yet?

How do you know? Have you been tested and, if so, do you believe the test results?

The reason I ask is because I have a theory.

It’s not a passionately-held theory, so don’t read this as a call to reverse public policies and send everyone back to work, school and mass public entertainment events.

But it’s a theory for which I am increasingly open to exploring further. It is this:

COVID19 is far more widespread and, on a per capita basis, far less deadly than the current public estimates.

What would we need to know to be able to disprove or confirm this theory?

The following data points for a suitably large population:

  1. The population size,
  2. The number of people who have had or who currently have it, and
  3. The number of deaths attributable to COVID19.

Simple, right?

Not so fast. (1) is easy enough, we have a good handle on how many people live where,

Collecting (2), though, has three significant problems.

Firstly, it currently relies on the results of a test that has not been universal or even widespread in its use – many people displaying symptoms have been turned away when requesting tests for not “fitting the criteria”.

Second, the test is “real time”. i.e. it tests whether you currently have the virus, not whether you have had it and fully recovered.

Thirdly, the ratio of false negatives is not known. How many people have been sent away with “just the ‘flu” when they’ve actually had the Wuhan version? We don’t know.

Finally, we can’t be certain of the death rate from COVID19. Different countries are counting it in unique ways. The death of someone with stage four cancer in one country may or may not be attributable to COVID19 depending on the methodology.

These complaints about data may sound like nitpicking but they make a significant difference to how we might respond at a national level. Or at least they should.

At the risk of stating the blindingly obvious, the problem is the lack of a quick and accurate antibody test, one that would tell us who has been infected and recovered (and presumably, has immunity).

There’s good news though, it would seem one has been developed in the USA and is hopefully on its way to your local population.

I wonder what it will tell us?

Bill’s Opinion

I’m very sceptical of multi-variable predictive models. Minor inaccuracies on the estimate of one or more variables result in wild ranges of outcomes.

I’m not denying COVID19 is a massive public health problem though; even if it isn’t as deadly as the models are suggesting, the contagion rate is rapid enough to swamp our health systems when it hits people with vulnerable immune systems concurrently.

I do wonder though whether many of us have already had it in early January and shrugged it off as a bad cold. If that describes you and you’ve since lost your job, I’m doubly sorry for you.

Once this test has been distributed widely to a sample population, perhaps we’ll know whether the models were accurate or not.

Lastly, I’m in good company.

UPDATE; This is an excellent analysis of the statistics.

Covid-19 proves the government is not your Mum or Dad

Judging by the comments on here, regular readers have a solid independent mindset and don’t tend to be victims of lazy thinking.

This is a useful character trait at the best of times but more so during a crisis.

Why?

Because the government is not your Mum or Dad.

A million Mums on Facebook are reading this and saying, “well, duh“.

(actually, they’re not, because only about 3 of us read this blog, but for the sake of keeping me motivated, let’s pretend).

At the risk of building a strawMum argument, these are often the same people who write long posts about how the government should tackle climate change but happily post family holiday snaps from Aspen or Hakuba each year.

The growing panic around the spread of Kung Flu is likely to rapidly challenge many people’s internally-held instincts that the government is concerned for their well-being at a personal level.

Breaking News; the government doesn’t have an opinion about you. In fact, as we’ve explained previously, the government doesn’t have an opinion. Period.

It’s an easy misconception to make though, one might see how someone could fall for it. From cradle to grave, the government is smoothing the path for us all, every single hour of the day:

When you wake up in your house built to government-defined specifications, you use government-provided water and plumbing services in the bathroom, make breakfast using government-regulated (or even owned) power, read the post delivered by the government-provided mail services, drive your government-approved vehicle on the government-built road to your child’s government school and then to your heavily government regulated place of work, probably whilst listening to your government provided radio station.

It must be quite a shock, therefore to find even a single crack in the facade that all this isn’t for you individually but us collectively. Sure, the two concepts don’t clash for 99.9% of the time but they are about to.

Let me offer some pertinent examples;

The use of masks to prevent catching Covid-19

The government message is that they are not effective.

Ok, so why do medical professionals and other key workers wear them?

The reality the government is grappling with is more likely that masks are somewhat effective but there is a finite supply which the government needs to secure for medical professionals.

There is not yet a requirement to close schools

Ok, but at some point a critical mass of schools will have an infection and pupils at those first schools to be infected will be at a greater risk than the ones closed before infection.

The reality the government is facing is that, by closing the schools too soon, they reduce the number of available medical professionals as a large percentage will stay home to care for their children.

There is no need to stockpile.

Ok, but we’ve now run out of toilet paper and don’t have any paracetamol in the house and our three nearest supermarkets are empty.

It turns out that early stockpiling makes absolute rational sense if you believe everyone else is about to start doing the same tomorrow.

Bill’s Opinion

As we’ve pointed out many times here, the government is a non-sentient being that responds to stimuli. Projecting an ability to feel empathy, guilt, or a sense of duty onto a mass of thousands of individuals just because they have a group noun is a massive personal misjudgment.

The government, at best, act in your interest as a member of a collective. It can never act in your individual best interest when that is in conflict or even at slight variance to the collective.

Therefore, it’s very rational for you to think seriously about wearing masks in public, better still staying home from work, keeping your children at home, buying enough supplies for two or three weeks at home and preparing to sit things out.

Think positively; Netflix, YouTube, Skype, FaceTime are all available and, hopefully, your broadband stays up.

In the meantime, here’s a YouTube video to get you started. While watching it, consider quite how unprepared the world is for a crisis after we’ve accepted two generations of 100% career politicians as being appropriate leaders for our nations.

Seriously, there isn’t a single person in either the government or the opposition who has any experience even remotely appropriate to qualify them to lead a crisis response; they’ve gone from a PPE or Law degree, into a union position or legal firm, parachuted into a safe seat, to a cabinet position to being the leader of a major nation.

We would have done better by selecting the PM by jury service, lottery or Rock Paper Scissors.

Take it away Prime Minister Morrison, tell us all about the economic response, because that’s what everyone is really worried about isn’t it? We all care more about what’s going to happen to house prices rather than whether or not granny will end her life lying on a gurney in a hospital car park:

Scott Morrison’s blood sweat and tears speech.