Saturday, May 30, 2020

Average US daily deaths

COVID-19 has dropped into 3rd place in average US daily deaths. There are still 20,000+ new cases a day which should translate to roughly 100 new deaths in the future, not counting those already sick. Deaths might slip into the background of the news cycle if they drop down to near the accident level, but it's a long way to get down to accidents.

Friday, May 29, 2020

Wayback machine confirms Fed revisionist horseshit

I've been following the St. Louis Federal Reserve Bank series called "Smoothed U.S. Recession Probabilities (RECPROUSM156N)" because I thought it was dubious. Back on March 19, I noted that it was completely ignoring the economic realities of the pandemic and blissfully reported an almost non-existent chance of recession.

If it was an infrequently updated chart that used a 3-month rolling average of data, I could understand how it would only slowly reflect economic changes. The Chicago Fed National Activity Index works like that. I mused back on March 19:
In other words, why publish a useless, untimely chart? Maybe so they can update it after the fact to show this model was somehow predictive. Fail.
So I checked the Wayback machine, a site that captures snapshots of other web sites over time to prove this series was revised after the fact. Revisionist lies are not a way to prove a model is useful. All it proves is that the model is useless and that the Fed makes up data to somehow show it is relevant. It's worse than a broken model, it's just made up.

Actual recession chances on 2/17/2020: 2.06% Revisionist recession chances: 32.55%

Actual recession chances on 3/17/2020: 2.02% Revisionist recession chances: 100%

Actual recession chances on 4/19/2020: 0.66% (Wow, things got much better from March to April) Revisionist recession chances: 100%

The next snapshot the wayback machine had was on 5/2/2020 when all the revisions had been done so I can't pinpoint the exact day someone hastily edited the data to produce an obvious economic storm on the way. If you look now, it appears the model saw this coming back in December, while the wayback machine proves it was predicting a 0.66% chance of recession as late as 4/19/2020.

Thursday, May 28, 2020

Fed recession probabilty complete revisionist horseshit

The Fed smoothed recession probabilities chart underwent a dramatic time travel revision, now showing that it forecasted the coming COVID-19 recession well in advance. On March 19, I posted about the model showing a 2% chance of recession. As late as early May, it was still showing a 2% chance of recession. Now, it has been updated to show a growing chance of recession as early as December, 2019. WTF? It now shows:

Dec: 9.43%
Jan: 17.9%
Feb: 32.5%
Mar: 100%

This is completely fabricated, made up, rear view mirror broken model horseshit.

Thursday, March 26, 2020

Shortages are just a mind trick

After several weeks of admonitions from great governor of California and Los Angeles mayor that there are no shortages of food or supplies at grocery stores, that supply chains are in tact and working, that there is no need to hoard anything, my mind continues to play tricks on me. When I visited Albertson's yesterday, there was no TP, no kleenex, no wipes, no hand sanitizer, no soup (except mushroom), few canned meats, and no spaghetti. Since there aren't any shortages, it must all have been a hallucination. Well, let's get a few things from world's biggest store, Amazon...

More mind tricks! I add stuff to my cart, then Amazon empties the cart for me due to something called "unavailability". Oh well, emptying the cart automatically saved me a few clicks.

Monday, March 23, 2020

Individual bonds vs bond funds

"(Bloomberg) -- A crisis in credit markets deepened on Sunday as a cluster of funds that own mortgage bonds sought to sell billions in assets to meet investor redemptions, sparking pleas for government intervention."

A lot of smart people argue that bond funds are as safe or safer than owning individual bonds. This is why I disagree. In extreme financial distress, everything not nailed down gets sold. Liquidity dries up in the bond market, but redemptions continue forcing the fund to sell at fire sale prices. If you own individual bonds, you suffer the same liquidity problems, but panic sales from other people don't lock in losses for you. As long as you can ride out the storm and the issuer doesn't go bankrupt, you come out OK. My high quality, curated bond ladder is holding up for now. There are low or no bids for many of them, but since I always planned to hold to maturity, that's not an issue.

Thursday, March 19, 2020

Fed projects 2% chance of recession

The ever vigilant Fed has their chart of recession chances, updated March 2, pegged at 2%. From the FRED web site, "Smoothed recession probabilities for the United States are obtained from a dynamic-factor markov-switching model applied to four monthly coincident variables: non-farm payroll employment, the index of industrial production, real personal income excluding transfer payments, and real manufacturing and trade sales." Now, a lot has happened since March 2, including a widespread epidemic of SARS-CoV-2, although the first case was detected back in January. The Fed has initiated dozens of rescue vehicles and two emergency rate cuts to set short term rates back to 0%. If you argue that the chart is not up to date, then why only update it once a month when clearly conditions can go from 52 week highs to 52 week lows in less than that time? In other words, why publish a useless, untimely chart? Maybe so they can update it after the fact to show this model was somehow predictive. Fail.

Wednesday, March 18, 2020

Huge spreads in AA rated bonds

High quality corporate bonds acted as a safe haven when equities started to crash. With a hard economic stop being forced by government, bonds are getting hit now as well. Questions about the ability to service huge corporate debt loads and general liquidity concerns have blown out bid/ask spreads to margins not seen since 2008. Margins might even be higher in some cases. For example, the current bid for BNP Paribas 5% bonds is 92.996 (a yield to worst of 14.43%, while the ask price is 101.037 with a yield to worst of 3.69%. My guess is these are garbage bids to scoop up distressed positions due to low liquidity more than concerns that BNP Paribas will be unable to pay, but who knows. It's a sign of distress in the bond market.

Thursday, March 12, 2020

Ken Moraif of RPOA predicts DOW 31,000 at end of year

Ken Moraif is a radio personality that also runs the Retirement Planners of America, a financial advisory firm. In January, he made a fearless prediction for 2020 of DOW 31,000. In the interview, he stated there will be a recession and bear market some day, but not this year.

I'm pointing this out because as part of his radio pitch for new customers, he brags about having warned all his clients in 2007 to get out of the stock market, then to buy in 2009. I don't know if he did or didn't, but if he did, it was clearly luck. He claims their models can see recessions coming and he can protect your nest egg by letting you know when to sell. Just another example of hubris. I am chuckling at how he is going to spin this on his show. More likely, he'll ignore it and just talk about great recession like the current meltdown never happened. Good luck, Ken!