7/5/20: Visualizing COVID19 Impact: U.S. Unemployment Claims

We though the Great Recession was bad... until we got COVID19:

The most intensive, in terms of unemployment claims, six months of the Great Recession peaked in new unemployment claims in the week of May 16, 2009 when cumulative 6 months worth of new unemployment claims filings reached - until then unprecedented - 16,815,050. At the end of the week of May 02, 2020, the same number stood at 35,569,978 or more than double the prior historical peak.

7/5/20: No Value in Them, Stonks

No, folks, the markets are still not in line with fundamentals:

And that applies to all three sets of fundamentals: pre-COVID19 conditions in the underlying economy (secular stagnation), during-COVID19 collapse of the economy, and post-COVID19 expectations for the economy.

Which, of course, explains why Buffett sees no opportunities for buying, given the above chart is one of his favourite indicators of value.

7/5/20: BRIC Composite PMIs: Global Economy in a Free Fall

With Russia and China data finally in, here are the full updated BRIC PMIs for April (note: manufacturing has been covered in more details here: https://trueeconomics.blogspot.com/2020/05/4520-eurozone-manufacturing-pmis-crater.html).

Sharp drop in Manufacturing PMIs in April, compared to 1Q 2020, were accompanied by even more spectacular declines in Services PMIs:

Across the BRICs, Services PMI fell from 44.9 in 1Q 2020 to 30.6 in April. The two readings represent the lowest and the second lowest readings in quarterly PMIs in history of the series (since 1Q 2006).

Brazil Services PMI sunk from already-contractionary 45.9 in 1Q 2020 to 27.4 in April. Russia saw its Services PMI falling from 47.7 in 1Q 2020 to 12.2 in April, with the swing of -35.5 points in one go. India, however, went into an even worse collapse, with its Services PMI falling from 54.1 to 5.4. Indian economy should be contracting at more than 15.5 percentage points if these numbers are true.

China was a 'relative' out-performer in Services PMIs, with its index increasing from a strongly recessionary 40.4 in 1Q 2020 to 44.4 in April, signalling a moderate reduction in the rate of economic activity contraction.

In comparison, Global Services PMI stood at 24.8 in April, down from 45.5 in 1Q 2020. This means that two of the BRIC economies, Russia and India, are both underperforming Global PMI in the services sector.

As the result of the extreme changes in the Manufacturing and Services PMIs, BRICS composite PMIs have fallen sharply off their 1Q 2020 levels:

Global Composite PMI fell from 45.8 in 1Q 2020 to 26.5 in April, signalling worsening of the global recession. India matched Global Composite PMI reading in April, showing a fall from 46.9 in 1Q 2020 to 26.5 in April. China outperformed the Global Composite, with its Composite PMI rising from 42.0 to 47.6, even though April reading remains recessionary. Russian Composite PMI fell through the floor, declining from the recessionary 47.7 in 1Q 2020 to a depression-level 13.9 in April. India performed even worse, with its Composite PMI falling from growth-supportive 54.8 in 1Q 2020 to an unprecedented 7.2 in April.

Overall, movements in PMIs in March-April 2020 have been extreme. So extreme, I had to re-scale the charts and double-check the numbers, especially in the case of Russia and India.

6/5/20: Trump, Irish Pharma and Amazeballs Economics Stats

The Mondo Bizarro of Irish Economics:

Industrial production activity:

And yet, 

• Irish Manufacturing PMI plummeted to 36.0 in April, from 45.1 in March, the lowest since March 2009
• Irish Services PMI "continued its historic descent in April to 13.9, indicating the fastest decline in Irish service sector output in the 20-year survey history. The month-on-month decrease in the Index, at 18.6 points, was smaller than March’s 27.4-point plunge, but still far exceeded anything else in the series to date."

So actual industrial indices are showing booming Manufacturing across both turnover and volumes of production in March, yet PMI surveys showing collapsing activities. You really can't make this up. But, wait, worse: energy-generation is down, apparently, in volume by 0.2% y/y, yet 'modern sectors' activity is up 35.4%. Which points to the heroic efforts of the Irish economy to be the most energy-efficient in the Universe. 

Of course, the entire circus of Irish economic statistics is driven by the 'dotted-out' sectors in the industrial activity tables - the CSO's way of saying "you, peasants, don't need to know what multinationals are up to".

Amazeballs! Just in time for Mr President to muse about taking US pharma out of Ireland's tax [non] haven... https://www.rte.ie/news/business/2020/0504/1136374-pharma-trump-ireland-coronavirus-vaccine/. 

6/5/20: H1B Visas and Local Wages: Undercutting Human Capital Returns

The Economic Policy Institute published an interesting piece of research on the links between H1B visas and lower wages paid by the U.S. employers for key skills: https://www.epi.org/publication/h-1b-visas-and-prevailing-wage-levels/. As far as I can see, the report does not cover academic faculty employment, but it does cover data from universities and other non-profits.

The report is worth reading.

6/5/20: S&P500 and Fundamentals: What should matter, doesn't

S&P500 and earnings per share: what should matter, doesn't

We are now in extreme territory of the markets ignoring basic corporate fundamentals.

6/5/20: The Glut of Oil: Strategic Reserves

The Giant Glut of Oil continues (see my analysis of oil markets fundamentals here: https://trueeconomics.blogspot.com/2020/04/23420-what-oil-price-dynamics-signal.html)

China strategic oil reserves have also surged. U.S. oil reserves are now nearing total capacity of 630 million barrels, and China's reserves are estimated to be about 90% of the total capacity of 550 million barrels. Japan's reserves similar (capacity of ca 500 million barrels). Australia is using leased U.S. strategic reserves capacity to pump its own stockpiles, with its domestic storage capacity already full. 

6/5/20: 1Q 2020 US GDP:

From Factset: "The decrease in first-quarter real GDP was largely driven by the 7.6% decline in consumer spending, which subtracted 5.3% from the total GDP number. Investment was also a drag on growth, while an improvement in the trade deficit partially offset these negatives. We may see downward revisions to these numbers with the next two data revisions, and second-quarter growth is expected to be far worse. Analysts surveyed by FactSet are currently expecting a 29.9% contraction in Q2."

Yeeks!

6/5/20: S&P500 Earnings and Revenues Growth 1Q 2020

With early effects of COVID19 pandemic in:

Both charts via Factset.

6/5/20: Eurozone Composite PMI: Covid Horror Show

Final Eurozone Composite Output Index came in at 13.6 (Flash: 13.5, against March Final: 29.7). March was bad. April is worse. Final Eurozone Services Business Activity Index was at 12.0 (Flash: 11.7, March Final: 26.4), final Manufacturing PMI covered here: https://trueeconomics.blogspot.com/2020/05/4520-eurozone-manufacturing-pmis-crater.html.

1Q 2020 implied decline in Euro area GDP is at around 3.5%. 2Q 2020 start is now worse than 1Q 2020.

5/5/20: Sweden v Denmark: Covid19 experiences and outruns

For those interested, there's an ongoing debate about the benefits and costs of two different approaches to dealing with the Covid19 pandemic that are being contrasted in the case of Sweden (low level of restrictions) and Denmark (high level of restrictions). The two countries offer a decent 'natural experiment' data, due to their physical, cultural, historical and socio-economic proximities.

Peter Turchin dissects the evidence on the outcomes here: http://peterturchin.com/cliodynamica/a-tale-of-two-countries/ in a very readable and, yet, empirically rigorous analysis.

The chart above is the key, although not the only source of the insights. Lines represent a fitted model, while points represent actual data.

What is notable in the above (some of it is in Peter's post, some is not) are the following features of the data:

1. Death rates models in Denmark trail below those in Sweden, albeit the two converge into late April and reverse in early May. We do not know why, though Peter identifies one specific potential cause: slower and lower rate of testing in Sweden. Another potential cause can be the duration of treatment differences between the two countries. A third potential one, differences in vintage/strand of the virus. Etc...
2. Actual death rates uptick in Denmark around May 1 seem to be relative outliers to the Denmark data (we do not know why, nor do we know if these are going to become a 'new normal' or a 'new trend'). These outliers are certainly responsible for the trend lines reversals.
3. Actual death rates in Sweden are massively more volatile than those in Denmark. This volatility is most evident in April. This should imply serious differences in the accuracy/precision of both models, with Swedish model potentially down-weighing these upward outliers (this depends on the model used, of course).

The rest of conclusions are down to you, folks.

5/5/20: A simple view of Globalization: some thoughts

Globalization in  retreat chart via PIIE: https://www.piie.com/blogs/realtime-economic-issues-watch/pandemic-adds-momentum-deglobalization-trend

A neat visual summary of the extent of economic openness and globalization, via trade dimension alone. The caveats here are that this only captures trade in goods & services flows (see https://fredblog.stlouisfed.org/2017/05/are-you-open/), but ignores capital flows and the extent of globalization-induced complexity within modern economic systems.

We tend to think about globalization as a mass-type measurement, where the volume or the value of flows is what matters. Alas, things are more complex. Mass measurements should be properly adjusted for risks inherent in the flows and stocks, including geopolitical risks. Imagine a flow of goods from China to the U.S. as opposed to the same volume flow of the same goods from China to Ecuador. Geopolitical risks and uncertainties, as well as non-monetary costs/values involved in the two flows are distinct. Similarly, consider a set stock of capital from the U.S. domiciled in, say, the Netherlands as opposed to, say, in Russia. Once again, even when nominal values are identical, risk-adjusted values are distinct.

In simple terms, as neat as the above chart might be, it does not even begin to reflect the VUCA/risk-indicative nature and volumes of globalization-related flows and stocks.