200320 Lessons learned from past traumatic events:
I’m a fan of the writings of Nassim Talib, particularly the books Anti Fragile and Black Swan. A good explanation of the concept of a Black Swan is here: https://www.investopedia.com/articles/trading/11/black-swan-events-investing.asp
9/11 was an example of a small tail black swan. It was rare, unexpected and in hindsight seemingly an obvious event. It had a small tail because the damage done that day had economic impact, but it was constrained. Within eight hours, the US Air Force has full control over our airspace and all the weapons (jets) of that day had been grounded. Even thought there was uncertainty for several days how many had died- it was possible to expect between 1000 and 50,000. In all, limited.
Fat tailed black swan examples are 2008 and the Coronavirus. These are long term events where the mathematical deviance between the Best Case and the Worst Case scenario is both huge & impossible to predict. The outcome depends on many variables and the worst case is awful.
The US is 12 years past the 2008 crisis. About 1/3 of the US adult population (now) were under age 18, twelve years ago- so they have only brief memories of something they didn’t really learn about later in school. Nobody is alive today that experienced the terror of the 1918 Spanish Flu epidemic where cities ran out of coffins and the dead were buried in secret w/ their locations later disclosed to their families. That’s why so many people initially took this lightly. Too much faith that all was gonna be fine with no sacrifice or disruption.
Now, before you read the rest… know that I fully recognize that I’m a paranoid person. Paranoia has served me rather well over the years. Rarely have I regretted the energy expended or money spent preparing for situations that never arose. The few times they did, my guys and I were ok. In the DMZ in Korea in ’86, my soldiers started off being very resistant to me because I was making them do stuff nobody else did. A month later they were talking trash to other platoons about how smart & awesome they were. That pattern repeated in my various commands after that. I learned to ignore the initial petty resistance they presented. Just feeding the kids their veggies, it was.
The fact is that if the average American that only has $400 saved for a rainy day. That’s because the average American has been accustomed to wasting every penny they earn or get given. They have been spoiled by 2 generations of plenty. They are utterly unprepared for a day when things go sideways. Imagine an Average Joe who never saved a penny and suddenly gets desperate to find food for his family Multiply that by about 40% of the US population! Things may get violent very fast. Just Google up what happened to the stay- behind natives in New Orleans during Hurricane Katrina. After 3 days of no food, water, electricity and police, the civilization collapsed. That city, known for its hospitality became a warzone where normal folks formed gangs and attacked those that had not yet formed a gang. It was madness!
THESIS: I believe that the effort to contain the virus has failed. It will sweep the nation. It will kill a lot of people, but for the vast majority of us the impact will be severely constrained resources. Significant unemployment. Poverty. How bad this gets is anyone’s guess. Best we can do is plan for the worst.
- If you have a veggie garden, double its size. If you don’t have one, make one. Buy seeds now before Home Depot or Amazon runs out. I wish I had more than a 12×8 townhouse patch with no sun- I envy those that have a yard now!
- Have some cash in the house. The financial system is making groaning noises and its time to ensure you got money if the banks shutdown the ATMs. You can always put the money back in the bank! Maybe ATMs will be fine…but its great peace of mind insurance.
- Fill your freezer with 50/50 veggies and protein. Unless you are Sue or Marc with protein wandering around the backyard! Where I live, aside from cleaning supplies people have not changed many habits. Still lots of regular stuff to buy, as of 3/24/20.
- Assume the essentials will be available: bread, milk, eggs. But, not always.
- Assume energy will be available- but its always smart to have 5-10 gallons of gas at home. Either rotate it through you car every three months or buy fuel stabilizer.
- CRIME STUFF ( This is if things get really awful)
- Plan your scenarios assuming Police are not present & will not come for a long time: They do get sick. They are in NYC and other cities not arresting petty criminals anymore for fear the criminal has COVID. Assume criminals will soon figure out it’s a good day to be a criminal.
- Home Invasion
- Yard Invasion
- Car invasion (parked, not occupied)
- Mobile invasions
- Parking lots: Always park facing out. NEVER back out of a parking spot. Take the time to back in when you arrive. Ever watch what cops and soldiers do… 99% of the time they are positioned so all they gotta do is put the vehicle in “D” and get the hell out of Dodge. That’s what the “D” stands for.
- Motorcycles: Movies where people are in cars afraid of motorcycles make me laugh. Hit them! Run them off the road. Let them get behind you and mash the brakes. A motorcycle against a car is like Pee Wee Herman against Rocky Balboa.
- Traffic lights- leave space in front of you so you can bolt around a problem. Try not to get stuck in the Sandwich Meat lane (middle) on a highway in a traffic jam. In normal times, the SML is the safest. Near a decent breakdown lane is always best when times are not normal.
- Victim Pecking Order: Criminals go after these groups first so be aware of the risk factor:
- Senior Citizens
- Women with children
- Women in general
- Men over 40
- Young guys.
- Keep weapons in arms reach in your car. I have a tire wrench. I don’t plan on using it, but if dragged into some bad situation, my arm is now a foot longer than it was a minute before!
- Never put a purse on the passenger seat. Tuck it under your legs. Motorcycle riding purse snatching is a problem when Police are not present.
- If you get in a fight with your tire wrench or whatever- don’t waste time. Go to work bashing arms and legs. Its non-lethal, hurts a lot and may buy you the time you need to escape.
- If you are unfortunate enough to get into a scrape with two-three guys- realize the first one to come at you is probably the leader of the pack. Put that person down hard and the buddies usually retreat for a moment. Realize they gotta save face with the leader so while they pause- get out of there because they will regain courage and come back.
- Assume that a RUSE will be used to get you to open the door and thus surrender your ‘castle gate’. As long as your gate is closed the bad guys don’t know if your holding a shotgun or a baloney sandwich. They will fear the worst and probably leave. Keep your house doors closed & locked! Get a RING device for the doorbell so you can engage from a distance and watch them on your phone.
- Crime Mitigation Ideas: Your neighbors are a fantastic resource if asked for help. The emotional gratification people get from being asked for help, providing it, and then getting a thank you has been studied by scientists. In fact, you are far more likely to get a loyal friend by asking for help, than by offering to help. People subconsciously enjoy feeling someone is indebted to them and quickly forget debts they owe. Makes gratitude the weakest of human emotions. Even if all you ask is to keep an eye on the house for a few hours, it’s a great first step towards creating an alliance.
- Assume some bad folks may wander into your area scavenging. Counter intuitively, the best way to protect yourself from a rogue neighbor is to be that great neighbor. Be nice and ask for small assistance’s you genuinely need. Appreciate fully whatever help is lent.
- Neighbors defend those that they feel an emotional connection with and ignore the issues the ones that are reclusive.
- An FBI study has shown that neighbors that dislike each other tend to give misleading / incomplete statements to law enforcement about what they know about crimes that happened to the person they dislike. To include falsifying their eyewitness account of murder.
- How do you plan your scenarios? Well assume the worst case- 2-3 bad guys, maybe with guns. Figure out what you will do in the event a couple bad asses walk into your yard. Where do you draw the line? The answer for everyone is different. The answer in Virginia law is “Perpetual Retreat until cornered” which means in my State, you cannot attack an intruder unless all avenues of escape are closed. Not that they enforce the law in the case of home invasion… but it’s actually a reasonable place to start in terms of planning your reactions to possible event scenarios.
- Every Army officer I ever knew that answered hard questions about what they would do if their FOB or their convoy was attacked that answered with some “We will figure it out then” crap failed to inspire anyone’s confidence and always seemed to panic when time came.
- Hopeful thoughts and denial isn’t your friend, planning is.
- So, think these thru. Then rehearse them. Not just in your mind, but physically. Think, “If I am in my bedroom and someone kicks in the front door, I will grab ____________ as a weapon.” Make sure its close to bed and between you and the bedroom door (your body will tend to move towards the noise that startled you instinctively.) Plan that for every room you spend time in. Then plan your trip to the car in the morning. And then how you get into the house from the car at night. Practice your plan.
- Failing to plan is planning to fail!
Is that enough crazy for one day?
200319 Closed Shorts
The money has been made in shorting Cruise ships, casinos and hotels. Well, maybe not hotels. But staying short in an industry that the US President has a personal interest in saving seems to be the definition of swimming against the Bail Out tide.
200316 Moved to Blog
When I started this page in early Feb, I suspected but didn’t totally believe that COVID-19 was about to become the global economy home- wrecker that it clearly is. I am moving my comments about this virus and its impacts on the market to the blog since Crypto has been under-performing and is therefore, boring.
200310 Airline Update- Continue to avoid:
Two conversations today prompted this update. Both were excellent, forward looking assumptions that the airline stocks will have to recover, eventually. True. One person questioned my remaining short on SouthWest Air (LUV) based on rapidly falling fuel costs (the enemy of airlines).
I remain short airlines. Yes, today they recovered part of the value lost on Monday, but that’s natural given the extremes of the sell off. There is more selling to come. Airlines are a sell in my opinion because the worst of COVID-19 news has yet to come. There are two diseases at work here. One if a flu and the other is panic. The panic is just beginning with Italy self- quarantining itself is a decent indicator. The virus and the panic are not going away soon- its a multi month issue and cannot be solved by actions taken by the Federales (See #1)
Today’s rally is based on a belief that Trump and Congress are about to hand out some tax relief. Well, that did little after 9/11 when Bush#2 did it- aside from adding to the national debt.
There will be a great time to buy airline stocks, but now is not it. Its probably months from now when they are running transcontinental sales for $10 from LA to NYC. Several weeks after you say to friends, “I’m gonna buy airline stocks!” and they recommend you find a therapist. We are no where close to ‘blood in the street’ or absolute disgust.
LUV chart below is a great example of airline stocks reactions to short and longer term problems. #1: Sept 11,2001. Aggressive moves to enhance security led to a bounce back from a -28% loss as travelers quickly forgot the fear of flying and replaced it with angst at TSA.
The long period of sideways movement from 2003-2008 coincided with the invasion of Iraq and ever increasing fuel costs. #3 was the financial panic. Fuel collapsed in price- but travelers evaporated -63%. Will traveling down, earnings fell off a cliff.
EARNINGS based on sales & not the Cost of Good Sold drive stock prices. We are just now seeing the collapse of air travel passengers. It will steepen and take months to recover. #4 was a financial panic associated with the PIIGs (another time). #5 is COVID. It is a long term multi month problem that cannot be solved by more guys with guns at the airport & the price has not even fallen (%basis) lower than the 9/11 reaction.
In my view, the earliest one could consider buying LUV at is @ the 100 week moving average (currently around 36.50). Even that is probably too aggressive. I believe LUV can easily fall to $20 by the summer. In a previous post I’ve discussed why LUV is currently the strongest carrier in terms of stock price resilience. For all these reasons and several more, I am short selling airlines and not buying them.
200305 Sell Short Southwest Air (LUV)
LUV has held up better than the ETF I use to monitor airline stocks (JETS). At the bottom of the chart you will see its down “only” -22% while JETS has lost 1/3 of its value in just a few weeks. The relative strength of LUV is probably due to its US centric presence. Investors I assume are holding to hope that the it will not suffer the same cancellations of service on its domestic lines that international carriers have already announced.
I suspect that is a hope in vain. The Coronavirus is going to have a lifestyle and business impact. Volitional travel, non- critical business and tourism events are going to become limited. That will roll into the domestic market and soon LUV stock will probably catch up to the JETS overall decline. Note that JETS RSI is so low, its screaming for a rebound. Any rebound will be short lived.
Due to the outbreak of what might be a global pandemic, its best to avoid any tourism, travel or large forum type investment vehicles. It would also be prudent to check the holdings of the ETFs or mutual funds you own (from their web sites) to ensure you are not heavily invested in these areas. This is a partial list:
Stadiums: Madison Square Garden (MSG)
Cruise Ships: Long criticized for being unhealthy venues, the recent misfortune of the passengers of Diamond Princess (among others) should make stating avoiding cruise ships a dumb thing to even have to say. Avoid them now, avoid them forever. https://www.ibtimes.com/floating-petri-dishes-coronavirus-puts-cruise-industry-dock-2927346
Casinos: COVID-19 is particularly vicious to the elderly, and many of that population that enjoy casino’s may tend to avoid them.
- CZR: Ceasars Palace
- LVS: Las Vegas Sands
- CHDN: Chinese based casino
- MGM: MGM Grand
Hotels by rank of most exposure to damage:
- Intercontenatal Hotels
- Best Western
Chinese based companies: