Sunday, May 31, 2020

31/5/20: S&P500 Shares Buybacks: Retained Earnings and Risk Hedging

Shares buybacks can have a severely destabilizing impact on longer term companies' valuations, as noted in numerous posts on this blog. In the COVID19 pandemic, legacy shares buybacks are associated with reduced cash reserves cushions and thiner equity floats for the companies that aggressively pursued this share price support strategy in recent years. Hence, logic suggests that companies more aggressively engaging in shares buybacks should exhibit greater downside volatility - de facto acting as de-hedging instrument for risk management.

Here is the evidence:

Note how dramatically poorer S&P500 Shares Buybacks index performance has been compared to the overall S&P500 in recent weeks. Since the start of March 2020, S&P500 Shares Buybacks index average daily performance measured in y/y returns has been -15.04%, against the S&P500 index overall performance of -0.89%. Cumulatively, at the end of this week, S&P500 Shares Buybacks index total return is down 10.18 percent against S&P500 total return of -0.967 percent.

While in good times companies have strong incentives to redistribute their returns to shareholders either through dividends or through share price supports or both, during the bad times having spare cash on balancesheet in the form of retained earnings makes all the difference. Or, as any sane person knows, insurance is a cost during the times of the normal, but a salvation during the times of shocks.

Saturday, May 30, 2020

30/5/20: The Cost of Not Shutting Down

Sweden is the case study for the COVID19 impact absent an aggressive shutdown of social interactions. And it is not a great one:

29/5/20: COVID19: US vs EU27 comparatives

Ok, here are the latest comparatives for the U.S. of A and EU27 in terms of COVID19 statistics. As always, comments in the charts:

The U.S. vs G7 and EU27 statistics are:

29/5/20: COVID19: Worldwide Cases and Deaths

There is still no signs of slowdown in the number of daily reported infections in the worldwide data for COVID19. In fact, 29/5/2020 marks the new all-time peak in the rate of new cases additions:

Aptly, with a lag, trends in daily reported deaths are starting to show signs of potential reversal from the recent lows:

Huge caveats worth keeping in mind in the above data interpretation, including the facts that:

  1. More recent vintages of cases has been shifting to countries and regions with weaker public health systems, resulting in potential decline in testing rates, accuracy and reporting; and
  2. Data for COVID19 is severely VUCA in its nature, as discussed here:

Friday, May 29, 2020

29/5/20: COVID19 Data: One Hell of a Mess

I haver compiled a summary of all COVID19 data for top 50 countries (all countries with more than 10,000 recorded cases as of May 29, 2020). Here are thee tables. Alphabetically, in 2 tables:

So, here are interesting observations:

  • Out of 50 countries only 11 countries are statistically 'average' or statistically 'normal'. All other 39 countries are statistically distinct from the average. Note: I am using 95 percent confidence level, adjusting for non-normal distribution.
  • Of these 39 countries, 21 countries are performing significantly better than average in terms of pandemic severity (in official numbers terms), and 9 are performing significantly worse.
  • 9 countries present an ambiguous case, when compared to the average.
Key takeaway from this: there is, basically, no point of talking about 'normal' experience with  COVID19 numbers. The system of this pandemic is extremely VUCA - high volatility, uncertainty, complexity and ambiguity of data and data dynamics imply that countries comparatives are at best handled with extreme care and on a case-by-case basis, as opposed to by referencing global averages.

Non-normality of data is severe and should steer analysis toward the median as a more valid (but still poor) central tendency measure, rather than the average.

Incidentally, as an aside, this calls into question all and any linear models that are being fitted to the COVID19 data, as, for example, in the case of the infamously bizarre research from JP Morgan claiming no changes in R0 rates during- and post-lockdowns.

Here is an illustrative case: Russia. Russian stats on COVID19 have been throughly washed through the Western media with usual scepticism and allegations that Kremlin is manipulating the data. Statistically, however, Russia is an outlier that is close to some semblance of a norm (especially considering the median).

Here is a summary:

In other words, Russia is somewhat 'normal' in the number of cases detected per 1 million population, and in death rates per 1 million of population, but 'abnormal' in having low reported death rates per case identified. There are 7 countries amongst top 50 case countries that have lower death rates per 1,000 cases, but statistically, there are 20 countries that are indistinguishable from Russia in terms of deaths per 1,000 cases reported. 

Go figure... the data is a fine mess.

Update: for the sake of explanation, the above 'exercise' using Russia is not to imply that all is 'normal' in Russian stats in some ethical or policy-based sense. It is simply to show that even outliers cases of data, like Russia, can be understood to be 'normal' based on simplistic use of statistics. COVID19 pandemic data across a range of countries is of deeply questionable value due to the lack of standardised methodologies in collecting, identifying and reporting data, due to endogeneity problem in terms of reported cases and tests deployed as well as the quality of tests deployed, due to weaker reporting systems across a wide range of economies, and potentially due to political manipulation of methodologies and reported statistics in a number of countries and sub-national jurisdictions. 

Thursday, May 28, 2020

28/5/20: America's Scariest Charts Updated

It is Thursday, so time to update U.S. initial unemployment claims counts and labor markets charts for the data through the end of last week:

A summary table first:

Per latest, initial unemployment claims increased in the week through May 23rd by 1,914,958, marking a major slowdown on the previous weeks' increase, but still running new unemployment claims additions at a rate in excess of 1 million per week, for the 10th consecutive week.

This means that from the start of March 2020 through the week ending May 23rd, total number of initial unemployment claims filed in the U.S. stands at 37,198,539. For comparison, cumulative jobs losses in all recessions since 1945 and through the recession of 2009-2010 amount to 31,664,000.

Adjusting for timings of new unemployment claims and for the most current data on actual non-farm employment, the chart below provides an estimate for current non-farm employment in the U.S.:

Current estimated non-farm employment is at 121,021,000, down from 152,442,000 in February 2020. Current employment, therefore is estimated at around the levels last seen in October 1997.

The chart below plots the history of the initial unemployment claims, using 26 weeks (half-year) cumulative:

In the entire history of the data series for initial unemployment claims, prior to COVID19, there is only one week in which total claims exceeded 1 million mark, the second week of January 1982, when the new claims hit 1,073,500. During the Great Recession, the worst week for initial unemployment claims saw claims rising 956,791. Over the last 10 weeks, the average weekly initial claims filings stood at 3,719,854, which is roughly equivalent to five worst weeks of the Great Recession combined (weeks of 27/12/2008 - 24/01/2009).

Here is a chart showing U.S. employment index across past recessions and post-recession recoveries:

Wednesday, May 27, 2020

27/5/20: Falling Velocity of Money

Despite massive money printing by the Fed in the years post-GFC and again since the start of the COVID19 pandemic, velocity of money in the U.S. is actually shrinking.

The latest bout of falling velocity of money started with what appears to be a new wave of precautionary savings by the households:

However, as the chart above also indicates, propensity to trade financial and real assets has been declining in recent years, from the start of the Global Financial Crisis on.

You can see a massive spike in precautionary savings in March 2020 in the following graph:

These charts indicate that the Fed's ability to support demand side of the economy is declining, as consumers have been drastically reducing their willingness to spend. They also suggest that investment markets liquidity has declined over time. All together, the above charts show the declining effectiveness of monetary policy in the age of ultra low interest rates.

27/5/20: Germany: Employment and Business Activity Show Gentle Uptick in May

Germany employment conditions improved slightly in May, based on ifo Institute survey:

The gains are in line with the Business Activity survey results:

However, both business expectations (major driver of improvement) and current conditions (remaining deeply under water and actually still deteriorating in May) are well below 2009 crisis reading:

Tuesday, May 26, 2020

26/5/20: Franco-German Eurobonds: A First Step on the Road to Federalism

26/5/20: COVID19 Impact on Travel and Consumer Demand

Some dire numbers from Factset on changes in consumer preferences / sentiment through March-April 2020:

Consumer Confidence by Age

  • "According to The Conference Board, consumer confidence has weakened significantly with the overall index falling from 118.8 in March to 86.9 in April, the lowest reading since June 2014." 
  • "... older Americans (aged 55 and over) are much less optimistic than survey respondents under 55. This poses a problem as we look to economic recovery... [as] households in which the head of household is 65 years old or older represent 22% of total household expenditures in the U.S. In addition, this age group dominates spending at full-service restaurants and travel and lodging."
Things are getting worse in travel and transport sectors:

Global Air Travel

  • "According to the International Air Transport Association, global air travel was down 52.9% in March compared to a year earlier, hitting its lowest level since the Global Financial Crisis."
  • "In the U.S., jobs in air transportation fell by 27.4% in April."
  • "The four major U.S. airlines—American, Delta, United, and Southwest—are prohibited from laying off or furloughing workers until after September 30 as a condition of receiving billions in payroll assistance as part of the CARES Act. But these carriers have been asking employees to take voluntary unpaid or lower-paying leaves, reduced hours, and early retirement."
On travel sector:

Vacation Plans

  • "The April consumer confidence survey shows that just 31.9% of respondents intend to take a vacation within the next six months. This down from 54.9% in February and is the lowest reading ever in the 42-year history of this survey question."
  • "We only have monthly personal consumption data through March... In March, consumption on accommodations was down 43.3% compared to February while air transportation had dipped by 53.5%." 

26/5/20: BRICS Growth Forecasts

BRICS and other major emerging economies: growth impact of COVID19

Note: Arrows indicate the change in Bloomberg consensus forecasts for growth and inflation from 2019 to 2020
Source: Bloomberg, Macrobond Financial, Danske Bank

Monday, May 25, 2020

25/5/20: Russia COVID Data Update

Updating Russia COVID19 charts:

Key takeaways:

  1. Death rates remain very low by comparatives with other countries, but rising, albeit slowly.
  2. Even with one day ahead for Russian data compared to Brazil data, Brazil has now overtaken Russia in total number of cases (363,211 in Brazil vs 353,427 in Russia, and that does not account for higher rates of testing in Russia) and deaths (22,103 in Brazil against 3,633 in Russia). Even adjusting Russian cases for alleged under-reporting, Russian deaths stand at around 5.450, well below those in Brazil. 
There have been numerous theories advanced by different sources as to the Russian deaths being so low. Some are conspiracy-based, e.g. 'Putin is forcing suppression of real numbers', some are methodological, e.g. Russia is reportedly using much higher rates of autopsies in the case of suspected COVID-linked deaths, allowing them to detect better primary causes of deaths. I do not have any information to confirm or deny any specific source, so no speculating from my end. Hence, I report both adjusted and unadjusted/reported numbers in the second chart above.

Here are the BRIICS comparatives:

And for those interested, comparatives to G7+:

For political reasons - re: lack of civilised discourse being feasible on the topic - I do not run comparatives between Russia and other ex-USSR states. 

25/5/20: U.S. vs EU27 COVID Data Update

Updating key charts comparing case counts and deaths relating to COVID19 in Europe vs U.S. Comments in the charts:

Key takeaways:

  1. U.S. is leading EU27 in deaths per capita
  2. U.S. new cases continue to grow faster than those in the EU27
  3. U.S. new cases continue to run at above 20,000 per day for 5 days in a row through May 24th
  4. Local peak of 25,434 new cases was registered on 21/05/2020 which marked the highest number of new cases since 14/05/2020.

25/5/20: World COVID Data Update

Here are the key charts - with comments in the charts - reflecting the latest world-wide data on COVID19 cases and deaths:

There are two key takeaways from the above:

  1. There is no peaking of new cases arrivals in daily case counts terms. There is an ongoing shift in new cases from advanced economies to the emerging economies.
  2. Earlier and more effective detection on new cases, coupled with time lags between deaths and cases recorded means that we cannot, for now, conclude that the death rate from COVID19 has peaked worldwide.

Sunday, May 24, 2020

24/5/2020: Trumpassery of Coronavirus

Nero, Rome, burning, all the sort of historical stuff... so, behold the Trumpassery amidst Covid19... (click on the cart to read details):

25/5/20: Irish Employment: COVID19 Effects

Irish data on employment and labour force reported by CSO now comes in two streams: one is COVID pandemic-ignoring, and one accounting for potential effects of the pandemic. Here is the latest release snapshot, covering 1Q 2020:

Not to challenge CSO on their methodology that is based on a cautious interpretation of the COVID19-related new unemployment assistance claims as not being fully reflective of traditional unemployment. However, it is worth doing a simple exercise: taking data reported in the labour force survey for the period of January-March (1Q) 2020, and combining this with April 2020 monthly unemployment claims data. Here is what we get:

  • Officially, per 1Q data, there were 2,353,500 people in employment in Ireland at the of March 2020. 
  • COVID-19 adjusted, the above number was down to 2,070,371.
  • In April 2020, Number of persons out of work, estimated to include COVID-19 claim was 694,683, up 312,372 on March figure.
  • Adding April unemployment estimate to 1Q 2020 COVID-19 adjusted estimate of those in employment, estimated April 2020 employment levels in Ireland should be at around 1,758,000.
As illustrated in the chart:

Friday, May 22, 2020

21/5/20: How Pitchforks See the Greatest Economy in the World

Folks with pitchforks don't care for nuance of financial wizardry. Or for econophysics of data-rich markets. They like simple, somewhat stylized facts. So here is how the world of the last 12 years looks to them:

Nothing to add.

Thursday, May 21, 2020

21/5/20: Weekly Unemployment Claims: Updated

In the previous post, I have updated one of the charts relating to the U.S. labor market, namely the chart on employment The data used is a mixture of monthly employment numbers and within-month weekly unemployment claims.

For consistency, here is the chart plotting weekly unemployment claims based on half-year cumulative numbers:

21/5/20: The Horror Show of COVID19 Unemployment

New initial claims data is out for last week, and so time to update one of my scary charts:

Here is a summary table:

At 2,174,329 new claims filed in the week ending May 16th, the lowest number in weekly new claims since the start of the COVID19 pandemic, it's quite tempting to say that things are improving in the labor markets. Alas, last week's print was greater than the entire recession period combined prints of four past recessions.

Cumulative first claims filed in the last 9 weeks now stand at 35,276,270, which amounts to 23.2 percent of the entire non-farm labor force in the U.S. at December 2019. 

Wednesday, May 20, 2020

20/5/20: Post-Covid Workplace: More of the Old or Less of the New?

A couple of neat snapshots for the post-COVID world came out of the two recent surveys by the Irish CSO, as summarized in the following two charts:

Let me explain. We have been bombarded by 'the future will be vastly different' messages from all the consultancy firms striving to grab a piece of the post-COVID recovery action. One of the key messages in this chorus of cash hungry voices has been the idea that the future workforce will be employed in radically different ways to the pre-COVID status quo ante.

Now, what the above charts show is:

  1. Businesses have indeed migrated to the remote work platforms with COVID19 shutdown measures. However, remarkably, only 30.5% of all Irish employers have moved majority of their staff to work remotely, and 23.4% of them did not alter working arrangements for the majority of their employees. The gap is just 7.1 percentage points. Significant, but not very large, given the strictness of Irish restrictions. Only 31.1% of all enterprises have adapted new methods of providing products and services (production capacity), while 52% have adapted new means of communications. In other words, there has been a sizeable, but not a dominant shift in actual business activity.
  2. Employees, in contrast, have no desire to continue working remotely. only 6.6% of male employees and 6.9% of female employees would want to continue working from home. 60.9% of male and 43.9% of female employees would like to have a hybrid choice of sometimes working from home and sometimes being deployed in their place of work. 
So the future does not seem to be dominated by employees willing to accept work from home arrangements. Meanwhile, there is no evidence that non-traditional or new methods of works are taking root in businesses, especially if one controls for the severity of Irish social distancing restrictions.

May be, we are not going to the status quo ante of the pre-COVID world when it comes to workplace arrangements. Yet, may be, the new normal won't be all that radically distinct from the status quo ante either. Middle of the road future?

20/5/20: BRIICS and G7: COVID19 Stats Summary

Given the amount of politicised vitriol surrounding the U.S., European, Russian, and now also Brazil data reporting, here is a snapshot of reported cases and deaths numbers for a range of countries:

Note: for G7, the '0.3' number reported in the last cell should read 258.7 instead.