In case you weren’t clear on the answer to the question “Has America gone nuts?” Allow me to lay the answer on you as a simple visual:
As you c an see, we did a major decline from the all-time high of February 19th and we have been doing what in Elliott Wave terms is a great BIG Wave 2.
Funny thing about Wave Two’s: People tend to be as bullish about outlooks at the tops of two’s as they were at the all-time highs. Optimism is back, and you can almost feel it in the air.
Still,, the cold-hearted view is less splendiferous. Indeed, it’s downright depressing.
My son, the firefighter/EMT up in Washington state called last night and yes, the “runs” of the aid buggies are just about on track to my forecasts. He was more thrilled, though, with getting his third heart attack “save” in a row. “It’s so rewarding to get that pulse back…” Beating the Devil is what first-responding is all about.
Then we got into the outlook. And it’s not particularly good, except that the rate of increase of cases (and deaths) has been slowing somewhat over the past several days. You can see it in our tracking chart here:
Unfortunately, though, the laws of compounding numbers still apply, just not at such usurious rates. Just for example, how this compounding stuff works, we had 5.31% more cases Monday than we had Sunday.
On the surface, that sounds pretty good. Problem, though, is when you compound that rate for a week, it’s a 43.54% weekly rate of rise. So, as of this morning, with the U.S. reporting 368,449 cases. a reasonable casino bet for a week from now would be 529,240 cases.
Given that the mortality rate is somewhere between 4% and 20%, this means on the low side 21,169 people will be passing on from CV-19 in following weeks. Or, if the present (Cured + dead divided into dead) mortality rate holds (22.4%) then as many as 118,549 Americans could be dead. In the coming two or three weeks.
The death rate is catching up, even now. The 6.99% one-day increase (Sunday to Monday) leads us to project 60.4% more dead next week.
Wave Two’s are when denial runs strongest. Of course, everyone who studies investing hears about the Santa Claus Rally going into Christmas, except for that Disaster of the Elves in 2018.
So we’re wondering with Passover starting tomorrow night at sundown, Markets closed for Good Friday and then Easter Sunday whether what’s really at play here is something as simple as “Everyone loves a holiday.”
What Do the Numbers Say?
That’s a harder question. Around here, we look at some pretty basic economic indicators, one of which is the Association of American Railroads, which has a very useful view of how our underlying economy is fairing through all this: This part from their April 1 report was especially useful:
“Combined U.S. carload and intermodal originations in March 2020 were 1,835,053, down 9.3 percent, or 187,609 carloads and intermodal units from March 2019.
“In March 2020, 10 of the 20 carload commodity categories tracked by the AAR each month saw carload gains compared with March 2019. These included: chemicals, up 5,881 carloads or 4.6 percent; all other carloads, up 2,108 carloads or 9.5 percent; and petroleum & petroleum products, up 1,688 carloads or 3.5 percent. Commodities that saw declines in March 2020 from March 2019 included: coal, down 43,611 carloads or 15.9 percent; motor vehicles & parts, down 11,053 carloads or 15.9 percent; and crushed stone, sand & gravel, down 10,482 carloads or 12 percent.
“Rail traffic numbers confirm that the coronavirus is taking a toll on the economy,” said AAR Senior Vice President John T. Gray. “For example, U.S. carloads of autos and auto parts last week were down 70% from the same week last year as auto production declined to zero and consumer spending has begun to shrink demand. While intermodal volume last week was down year-over-year 14% overall, total movements for the five railroads serving the West Coast ports remained steady for a fifth consecutive week, reinforcing the expectation that we may have seen the bottoming of the Asia-North America trade. However, this week also reminded us that the recent collapse in oil prices is hurting rail shipments of petroleum products, frac sand, and steel products.
“While there remain more unknowns than knowns about the next few months, there are tidbits of encouraging news. For example, year-over-year carloads of grain were up in March for the first time in a year and March was the best month for rail chemical carloads in two years.”
We think this is a good, solid, well-collected data set. It’s also troubling,. though, at the same time.
Trouble Ahead for P&L’s
The reason has to do with how P&Ls *(profit and loss statements) work. And here’s the hard reality. If the sales (pull-though at retail) is down 10%, profits can easily drop to zero and roll over into losses.
(Pardon me while I roll in the whiteboard and huff a couple of hits off the marker pen….. (huffs)……Wow! All better now!
I’m going to draw a large T on the board. On the left side of the T we line up what are called variable costs. Say each of the widgets we’re making has $1.57 worth of hardware in em. When sales drop 10%, that expense drops 10%, too…since we’re making fewer widgets…buy less hardware…you get the drift.
On the other side of this “T” we’re going to plug in what are essentially fixed costs. These don’t change, often for years at a time. An example of a fixed cost is “the rent” for our widget company. We have 8,500 square feel and the Landlord doesn’t care if we make one widget here, or a zillion…the rent is due when it’s due.
My humongous salary is a semi-fixed cost: As long as I’m working, I get paid. (I’m funny this way…) Only way to cut these expense is fire George and move the office to a public park. Key’s in lieu of foreclosure time?
Obviously, there’s a lot more to it: Because even seemingly variable costs hide land mines. For example, that $1.57 worth of hardware cost is based on our company (Wiggie International) buying 35,000 units of it per year. What the CEO type has to ask is “Where are those cost break points when orders scale back?”
For the example here, we can easily see how.below 30,000 units per year, the cost might jump to $2.12 per unit. Drop under 20,000 units, and it could pop to $2.96 a copy. Below 10,000 units the price jumps might be $3.98.
Since we know there’s a 2.3-3.5 times markup to retail, the quantity breaks can really kill sales. I mean, seriously, who wants to be raising prices right now? (Well, except the toilet paper companies, lol.)
Seeing how this works? Just like the rich get richer, the big companies get bigger. They can throw off cash left and right when times are good and grow market share when times are bad.
As long as a decline in the economy is sensed as “manageable” there’s a huge sense of optimism seen in Wave Two rallies like this. Free money from Washington!!! Whee!
Where it gets dicey is when we see how the supply chain holds up, the this part of railroader Gray’s remarks will, I think, eventually dawn on Wall St. “…auto parts last week were down 70% from the same week last year as auto production declined to zero and consumer spending has begun to shrink demand. ...”
Can we change the paradigm? (Tears of laughter, roll down my face. “We can’t even agree on what’s good on TV…or what gender we are…(gasping for air now)…If we can’t even figure out our own factory plumbing, are you shitting me??? Join our Outback Paradigm…???”
After passing out briefly and then recovering from all this jocularity, still doubling over now and again in further fits of tear-strreaming laughter, Ure host continues trying his dxead-level best to look serious:
Deeper Thinking Section
Sadly, there is no National COVID Prediction Center. But if there were, this email from a reader would be worthy of at least honorable mention:
“I am a long term subscriber of Peoplenomics and share many of your views. My wife and I live on a farm in rural Tennessee.
I found some interesting reading in the form of a paper titled Regression Approach for Modeling COVID-19 Spread and Its Impact On Stock Market by Bohdan M. Pavlyshenko:
Abstract: The paper studies different regression approaches for modeling COVID-19 spread and its impact on the stock market. The logistic curve model was used with Bayesian regression for predictive analytics of the coronavirus spread. The impact of COVID-19 was studied using regression approach and compared to other crises influence. In practical analytics, it is important to find the maximum of coronavirus cases per day, this point means the estimated half time of coronavirus spread in the region under investigation. The obtained results show that different crises with different reasons have different impact on the same stocks. It is important to analyze their impact separately. Bayesian inference makes it possible to analyze the uncertainty of crisis impacts.”
Click that link and go read the paper for the Conclusions part.
Or, we can just tell you when the “running out of people” comes globally…and we can then mid-point off that:
Obviously, since there are only 7.6 billion, we never get to the 12-billion in July, but here’s the math of it: If we are going to July 6, then from January 30 that would be how many days? 157 so half that is 79 and that added to January 30 brings us to the Sunday after Easter. April 19th. Deaths will peak about 10-days later, around end of the month.
Oh, people won’t stop dying…but the tide won’t be coming in as fast.
Today being April 7, we ought to compound perhaps around the current daily change rate (which points to 86 percent more cases in a week than now, so using today’s cases, by then could be today 368,449 times 1.86 = 685,315 cases at mid-point. Aporil 19th-ish.
We don’t know if viruses can read, because obviously can’t: I can’t find anywhere it says “disease spread and decline is symetrical. We hope they read is somewhere, though.
If we get a mirror on the decline, that would lead to 1.37-million cases and 274-thousand dead.
Just as a dart, toss, mind you. We’re starting to watch the downtick in daily change rates with some interest. But is this sufficient for an EPR? (Easter-Passover Rally)?
But markets – and those who play them – are irrational. Like you didn’t know…
Lying Politicians & Lying Media Dept.
The left-wing media is still trying to pin something on Donald Trump. Take for example CNN‘s piece (masquerading, we think as) “Analysis: Trump lashes out when confronted with critiques. Jesus-lord. Give it a frickin rest. We’re going into a Depression and they want to hang Hoover. Worry about whether Cuomo reprises Roosevelt…that’ll keep you up nights.
Sadly, we know why Derangement Harangues will continue, though because (look surprised here) ad revenue is falling. Everything is a Business Model, right? Search Engine Land was reporting a month ago that “Coronavirus disrupts search, digital ad budgets.” It’s heere.;…
What we therefore expect is ever-more shrill attacks on Trump (or anything else pressing a yellow journalism/emotional hot button) in order to hold onto revenue in hopes some other network will die first. (Another fit of laughter at the absurdity of it all possesses Ure host…)
Even the “wire services” like Reuters are going backwards to mid January to second-guess and slam the Trump administration in stories like “As Trump administration debated travel restrictions, thousands streamed in from China.” In a way, it keeps TDS (Trump Derangement Syndrome) alive. But in wasting time even clicking on such stories, TDS victims are doing a “Bernie” – getting it wrong not once, but twice.
Like I said, give it a rest. Two-day old story made it to Drudge today, which is disappointing, as well. OK, maybe suspect, then.
Of course, the politicians are pandering to the weak of mind, talking about a second round of aid that could top a trillion dollars. Not that you need any further proof of the corporate-government merger in America, did you happen to notice how private equity firms are lobbying for a piece of the stimulus measures? Fine example of “Pricks over Peons” – or, another Bernie-fication.
This will be the stuff driving us into Zimbabwe Lite (or Weimar Lite, if you prefer) when the chickens come home to roost. Hopeflully (sic) without Bird Flu, lol.
Have to admit, though, I woke up from a terrible nightmare this morning: m Nancy Pelosi being sworn-in. Awful nightmare.
Inspection Stations are coming back: Texas sets up state border checkpoints to control coronavirus cases.
Around the Ranch
We are not the only ones cutting up cardboard to grow some of our own “food insurance!” A reader sent in a picture of his handiwork and it looks great!
Gun safe boxes!!! I love it. Here’s the backstory:
“You mentioned the cardboard garden a few weeks ago. I latched on to the idea, but was working on a raised cedar bed, so I was giving thought to how I was going to get the cardboard. My son is in boxing, he still has cardio workouts outside with no equipment where they keep distance of 6 feet. Its in an industrial park.
This last Friday I made him go even though it was 40 degrees outside. I walk as he does the cardio, and I was walking up by other buildings and I saw people in the trash cans. I was curious what they were looking for/getting, but keep with my walking routine. After my sons workout, I drove by it and I saw huge cardboard boxes.. that were from gun safes. I pulled three out of the trash and put them in my truck. I also found PVC pipe and grabbed that as well. Next day, I laid the cardboard on the side of the house and was going to get dirt sacs, but one of my friends suggested looking at the nursery’s. Sure enough they were open. So I grabbed a yard of dirt and put that down. The two attached pictures is all for corn/watermelon/cantaloupe.
The neat thing about this is this is one of the few times I am doing something without constraints. I am ALWAYS the guy that believes in prepping for the project… meaning till the soil, get good soil (like squarefoot garden book) , get fertilizer, get this… etc. I literally read your idea, did some Google foo, put thought into that I wanted to make it happen, universe provided easily and I just had to do the work….”
Yep…move as you “are called” and everything works out great – just as the Great Engineer designed it.
Last night I made one of the best pot roasts of my life. Gluten free (oat flour) gravy and it was totally delish. Wish they all came out so good.
Speaking of which, it’s time to meander off to the kitchen and see what management has on tap for the day… Dow futures are up 808 – hand me the crack pipe on the way by, would’ja?
Write when you get
rich solven t,.