Saturday, May 23, 2020

Covid-19 Fault Lines and Consequences

Is this the Big One as they say for Economic, Finance and Society.

Since 1998 was working in Wall Street. A lot of my work involved Risk in billion dollar portfolios. Most people, look at the upside, but because of my work started looking at the downside and its effects.  By 2003 or so there was some focus on what is called fat tail risk, a higher than normal probability of the downside.  By about 2005 or the chatter was about a collapse of the housing market, i.e. Mortgage Backed Securities (MBS).  Then 2008 Financial collapse happened.  However, the underlying economic structural issues were not fixed. The Too Big to Fail Bankers (TBTF) and oligarchs were bailed out and the average joe hung out to dry.  Those who predicted the 2008 Financial crash, once again warned of a knock on on Finance/Economy would make the dominoes fall and much bigger financial crash.    The Covid-19 Pandemic is a sledge hammer.

As seen financial collapse was expected and predicted. Even the pandemic was not unexpected.  These are not Black Swans, i.e. unexpected events.

To quote from 2011 article by Matt Stoller
And while this may not be hitting the elite segments of the economy right now, there will be no escape from a flu pandemic or significant food shortage. The re-engineering of our global supply chain needs to happen—and it will happen, either through good leadership or through collapse.

Couple of Points/Factors to think About

The Virus War: Make no mistake, this is the real war on Terror. The enemy is invisible, insidious and within.  Normally wars have some breathing space, bombs fall and then a few days of respite.  This war is like water torture a continuous drip drip of sickness and death.  Eventually fatigue sets in, and many become immune to the daily numbers of sickness and death. The Stalinist "A single death is a tragedy, a million deaths is a statistic" becomes the reality, with the death of humanity.

Nation State:  Democracy, mature or not is not a panacea in this kind of crisis. The nation state with the population vested in sacrifices for their common good and destiny is the most well placed to ride out this crisis (eg Korea, Taiwan).  Unhappily, globalization has eroded the common purpose of a nation state.  At the upper end of society, the educated and high wealth are vested in the nation coming together.  The fault lines are at the lower end of society.  Semi-skilled and unskilled are pitted against immigrants.  The poor are divided by racial lines.  This part of society has no vested interest in a democracy or a nation state.
eg. Singapore Fault Lines: The unskilled immigrant low paid labor (1.1 million, 20% of the population) were out of sight, and out of mind. Singapore seemed to have stopped the spread as of March 23, 509 cases and 2 death. The numbers started then exploding, April 23 a single day, the new cases were 1,037. 55 Singaporeans and 982 low skilled immigrants.

Supply Lines: As the unskilled and semi-skilled, low wage workers start to fall sick, expect supply line disruption.  That is food and essentials delivery from warehouse to the local grocery store or supermarket. Maybe an essential pin to fix your motor is no longer available.  Workers in distant Banana Republics, working for multinationals like Dole are going to fall sick and no longer work.

City vs Rural: Cities are dependent on food supply lines, power and water to name the least. Resources are dependent on City/Local govt.  Sense of community, is questionable.  Rural communities on the other hand for the most part can be self sufficient assuming they have one critical resource, water available locally.  Obviously, suburban are intermediate, once again the critical factor being locally available water.

Now to look at a few countries, and their strengths or vulnerabilities based on the above four factors. 
NOTE: These are NOT PREDICTIONS.  Factors and issues to think about,

Start with my Home country, Sri Lanka.
Positives:
80% Rural with most rural having locally available water. Even meat, i.e. hunting (against the law) is becoming quite common  (supply lines).  Older generation (over 60's) has been thru this in 70-77 i.e. Economy collapsed, and we had to be self reliant.

Middle
Nation State: A 30 year separatist war ended in 2009 with a nationalistic govt. After loosing elections in 2015, the nationalistic govt is back in power in Nov 2009. I think they will ensure Nation State, by jack boot if necessary.

Negative:
City dwellers, specially in the high rises (6 -10 floors I think) for former slum dwellers.  Will there be power to supply water to the overhead tanks.  Will this part of society fracture.

To me the biggest threat is nearby India.  not as in the Govt sponsored invasion.  What is to prevent a couple of hundreds of fishing boat making a concerted rush to Sri Lanka.  This not without historical precedent, in the 50's to 70's there were many illegal immigrants from India.
UK
Positives
An economy and reserves, with right policies can mitigate the economic downsides
Suburban towns that border large estates. i.e sheep and other food sources.

Negatives
The cities with immigrants and non English citizens not buying into the nation state
New Zealand
The perfect place to wait out the Pandemic
Positives
Far away from the rest of the world. Self sufficient in food. More sheep and cattle than people.

Negatives
The Maori (15% of population) + Pacific Islanders (5% ?). The Hakka is the cool dance of NZ/Maori and the All Blacks.  But many forget that Maori are warlike, and the Hakka is a war dance.
If things go bad, are the Maori going to buy into a Nation state run by the Pakeah. (The cracks are there)

Hedging Your Risk
Since 2005 I have advised friend and family specially in the US not to rely on house value, 401K, but to go for gold and rural property with own water source.

It is still not too late for gold as a hedge.  That is even with the price of USD 1,800/oz (May 23 2020).   Not much can be done with house, unless you are able to get a home equity loan.  The same with a 401K, take out a loan.  Buy gold, maybe if nothing really happens, sell the gold and pay back loans.  At worst, a small loss.  If the economy collapses, declare bankruptcy and hang onto/sell the gold.

Tried to keep this short as possible.  Once again much is what I have been reading since 2005.  Most or all predicted the 2008 Financial Crisis.  Post 2008 they have been warning of a much larger financial crisis, possibly caused by pandemics or break in global supply lines.  To name most Nouriel Roubini, Raguram Ranjan, Satyajit Das,  Matt Stoller, Matt Tabibi,   The blogs, CalculatedRisk (pre 2008 with Tanta. From Tanta's posts learnt more about MBS than from text books), NakedCapitalism and ZeroHedge often highlighted these authors/finance analysts giving an alternate view of finance and economy.  Much of their predictions are in play now.

To conclude, as I started.
Is this the Big One as they say for Economic, Finance and Society

Too many references.  So just two.
The Big Cycles Over The Last 500 Years, Ray Dalio May 21, 2020
The Collapse of Complex Societies: Joseph Tainter 1988
Tainter lays out his theory of decline: as societies become more complex, the costs of meeting new challenges increase, until there comes a point where extra resources devoted to meeting new challenges produce diminishing and then negative returns. At this point, societies become less complex (they collapse into smaller societies). For Tainter, social problems are always (ultimately) a problem of recruiting enough energy to "fuel" the increasing social complexity which is necessary to solve ever-newer problems.

Sereno Barr-Kumarakulasinghe
May 2020, WilpattuHouse.com









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Sunday, April 12, 2020

Billionare Chamath Palihapitiya CNBC Interview

The U.S. shouldn’t bail out billionaires and hedge funds during the coronavirus pandemic, Social Capital Billionare CEO Chamath Palihapitiya says. “Who cares? Let them get wiped out.

"Just be clear, like, who are we talking about, a hedge fund that serves a bunch of billionaire family offices?" Palihapitiya replies. "Who cares? Let them get wiped out, who cares! They don’t get to summer in the Hamptons? Who cares!”

"On Main Street today, people are getting wiped out, and right now rich CEOs are not, boards that had horrible governance are not, hedge funds are not — people are,"

Palihapitiya says. "Six million people just this week alone saying, 'Holy mackerel, I don't know how I'm going to make my own expenses for the next few weeks, days, months.'

Billionaire Sri Lankan socialist. You can take the Sri Lankan out of Sri Lanka, but you cant take the socialist out of (most) a Sri Lankan.



Tuesday, March 17, 2020

US Stock market, plus Boeing

I thought it would be a War in the mid-east that would get the dominoes falling. Turned out a real black swan. However much many think that the US stock market was on solid foundation, false premise. The underlying instabilities that caused 2008 crash never went away.

Injection of trillions, low Fed Interest rates almost free (now zero rates, i.e free)  helped the stock market soar and insiders to take their money of the table. Middle class Tax payers, Pension funds, the small retail stock buyers are left holding the bag.

I expected a probable drop to 20K and a somewhat probable to 15K. The collapse and drop even surprises me, and other skeptics. Now even 15K seems highly probable. Thats why I say read alternative media, like ZeroHedge, RT and Unz (aka Fake news) to see the other side of the spin.
Boeing:
When Boeing management said it was the fault of foreign pilots (in other words non white) spelt their own doom.  I said Boeing should drop below 100, I did not expect this fast.  Hedge fund operated Boeing, cutting corners to maximize profits. Stock buybacks, were the norm to push up stock price. Investment in safety measures, research and development, was not part of management decisions.
Maybe Trump will inject money into Boeing to get the stock price up. The insiders will sell. Retail idiots who believe Boeing is a great American Company will buy, not knowing Hedge Funds, Bezos and the like are not real Americans, i.e. those who care about the deplorables and others.
Now Trump, like the Boeing guys wants to deflect his responsibility, saying racist Chinese Virus. I think going to end much like the Boeing management.

Unhappily for the US, the alternatives in leadership are equally horrible. Biden another Trump probably worse, in the stages of Dementia and will be a puppet. If Sanders is able to get the nomination (anyone opposing Trump will win), he will be blocked by his own party the Democrats.

Update 1:
Matt Stoller, The Nation. From 2011 (!), still germane:
There’s a good amount of grumbling about the state of American infrastructure—collapsing bridges, high-speed rail, etc. But American infrastructure is not just about public goods, it’s about how the corporations that enforce, inform and organize economic activity are themselves organized. Are they doing productive research? Are they spreading knowledge and know-how to people who will use it responsibly? Are they creating prosperity or extracting wealth using raw power? And most importantly, are they contributing to the robustness of our society, such that we can survive and thrive in the normal course of emergencies?
The answer to all of these questions right now is “no.” And while this may not be hitting the elite segments of the economy right now, there will be no escape from a flu pandemic or significant food shortage. The re-engineering of our global supply chain needs to happen—and it will happen, either through good leadership or through collapse.
Note, again, the date. Stoller: “This stuff was obvious, except to economists.”

https://www.thenation.com/article/archive/how-america-could-collapse/

Dow Jones (DJI)
No photo description available.
No photo description available.

Tuesday, March 10, 2020

US Presidential Elections 2020


Not necessary to go out on a Limb, Trump will  most likely loose the 2020 Elections.

Why,
a) because I think the Covid19 is going to be bigger in the US than in China (even if half bad enough).
b) Trump has not had a plan to combat the virus and partly because of the US health care system, mainly private insured. The stock market collapse will be a consequence.

I predicted Trump winning and holding his own with women, black and latino for 2016. Held his own with women, got better than Romney, Black and Latino votes.

The replacement possibilities are pretty bad too
Biden:  Another Trump, possibly more corrupt and with dementia.  He will be just a puppet to do the Wall Street and MIC's instructions.
Bernie: May have some ideas (nice in my view; socialist in others).  However, he will be ineffectual.  Even the Democratic Party does not support him, so any reform will be dead on arrival.



See update in March 17th, Stock Market + Boeing

https://www.theatlantic.com/health/archive/2020/03/how-many-americans-have-been-tested-coronavirus/607597/

https://www.nakedcapitalism.com/2020/03/according-to-the-who-coronavirus-is-worse-than-the-spanish-flu-which-killed-tens-of-millions-of-people.html

Rock and Roll of Sri Lanka; Papare

Rock and Roll of Sri Lanka; Papare

I would assume some here who watch Cricket have heard the Sri Lankan music at the Cricket matches. The Rock and Roll of Sri Lanka; Papare a mix of kavadi (old indigenous beats), African beats and the adoption of trumpets with gusto.

Kavadi is age old music/tribal drums for dance that was a catharsis of the psyche of frustration and repression.

Do discos and drugs play a similar role in modern society. Holy water, Holy ash, Talking in tongues, Possessed by the Spirit all the same sides of a coin.

In Europe, Christianity  almost able eradicate and replace the ancient Gods, Woden, Thor.
Unhappily, the agnostic philosophy of the Buddha never eradicated or replaced the ancient gods.
People need God/Gods, be it the rock and roll, or some theoretician like Marx or Adam Smith or variations of those.

Below is the Western Christian version of being possessed by the Spirit.


A quote from the Video above
The power of Gods sometimes moves them to dance before the Lord .. (They get drunk in the spirit).
Replace above with Kali
The power of Kali sometimes moves them to dance before the Goddess .. (They get drunk in the spirit (of Kali).






Many who do these “dances for gods/s” in style, i.e family, extended family are probably doing the rituals to atone for “sins”. Plus a big donation to the temple/priests.
In a mainstream Christian context, like donating a wing for a Church or University.  Evangelical church context, like singing and dancing and making a big donation for the pastors Jet-stream plane.
Many think the world has become more rational. Maybe, I think that for a  minute, even then I doubt it.
===
This is a secular Papare band



The ancient and the modern music meet at one of the oldest cricket matches in the world.  The Royal–Thomian played since 1879.



Tuesday, October 22, 2019

You can never be China’s friend’: Spengler: Asia Times

Do the Chinese have the same concept of friendship that we have?
The Chinese, as individuals, have no friends. China, as a country, all the less so.

I think the Chinese are not curious about how the barbarians govern themselves as long as they’re subordinate to China, economically and technologically. The Chinese are the least ideological people in the world and the most pragmatic.

If China loses its edge in technology, if they fall behind the West, if the Communist Party is seen to have failed in competing with the West, I think that will be a significant threat to its power.
You can’t effect that by complaining about human rights in China. China’s violation of human rights is repugnant to us. Of course, we will complain. But that doesn’t really do anything. The Chinese only respect power, and our power is in innovation. If we show that we can out-innovate the Chinese and leave them behind in critical sectors of technology, I think that will undermine the credibility of the present government.

A lot of my American friends say the problem is the wicked Chinese Communist Party which is oppressing the good Chinese people. I think that’s complete nonsense. I see the Communist Party as simply another manifestation of the Mandarin administrative cast which has ruled China since it was unified in the third century BC.

Certainly no Augustinian sense of common love to hold a country together. What holds the country together is ambition. Therefore, it’s critical that the meritocracy be fair.
Xi Jinping’s daughter goes to Harvard, but no Chinese president can get his child into Peking University unless she gets the right score on the gaokao, the university entrance exam.

Of course, we need to worry about the Chinese. If the Chinese dominate the next wave of major industrial applications, we’ll be poor, and we’ll be less secure. We’ll be dependent on them, and I don’t like that.
I don’t think the Chinese plan to invade us or establish an American Communist Party on the model of the Chinese Communist Party.

https://www.asiatimes.com/2019/10/article/you-can-never-be-chinas-friend-spengler/

Monday, September 30, 2019

Lanka Land Reform and Productivity

This blog post is long reply to a good friends questions (in bold italics).

First: Productivity, Growth.  That is a concept that is used by the rentier classes to maximize profits.  Pay the least and and get the most.  How, does that benefit the avg joe.  Standard answer is cheaper goods, and you know that does not happen.  Maybe the Chinese.(See Box Below)


"in 1973 number of vehicles in Yala were less than 100,trackers were more respected, poaching was minimal, buffer zones had no settlements"

Sri Lanka population was 13.5 million. The country was poor and could not pay its debts. 
Because the price of rubber had collapsed (synthetic rubber production). Almost the whole country (including our family, I was 14) had to stay in long lines to get bread, rice.  Long means long. 4am to 6am to get 2 loaves moldy bread.  Sisters and I took turn to stay on the lines.

Who could afford to go to Yala in the 70's, the 1%.  Even in S Thomas, one of the schools of the 1%. Very few classmates went to Yala in the 70's.  Not my family for sure.  They did pre 1960.

After 2010, population is 21 million. There is peace and many people (including rural/small town) have disposable income and can do affordable trips, specially in large groups.  Yes, they will throw garbage out of the jeep, drinking and Yala and in in other vacation areas.  Sounds familiar, right, you get the same complaints about behavior of low income people in the US national parks, Beaches etc.


Yala 1950: Rippon Gall Teachers trip.
My mother Peace BeeBee, white dress on left

"land in areas not the best for successful cultivation and their usage was no better than slash & burn"
I have no idea where they do slash and burn these days.  This area where I live was one of the poorest because it was border country during the war.  People here had no option but to hunt in Wilpattu to have food on the table.  The Army and LTTE to hunted to have food.   However, when I came in 2012 there was no slash and burn.

"When Mrs, B broke up the estates down to 50 acres,how come these newly acquired land not used for land reform, productive agricultural areas?"

There was no way the hill country estates were going to be given en masse to the Estate Tamils. Racism and Political suicide. So the hill country Tea estates became  Govt/State owned, and run by either the Govt entity, Janawasama or leased to Private companies like Mackwoods.  The land is still owned by the state.

There were exceptions.  An estate in Katul Oya/Gomara, near Knuckles Range .  1/2 acre was given to the workers in lieu of pay.  Beautiful area, a small plain adjoing the Knuckles Reserve. I tried to buy 4 adjoining plots, too expensive for me. 

In the south (Deniyaya, Hiniduma etc)  many of the Tea Estates were broken up and 2 acres was given to villagers.  I personally know two families.  They make about 1-2 lakhs/month.  However, they have to do all the work themselves.  No hired labor on avg or the gains are gone.

70% of our tea comes from small holdings.

To quote from   https://www.ilo.org/wcmsp5/groups/public/---asia/---ro-bangkok/---ilo-colombo/documents/publication/wcms_654641.pdf
"Of this, smallholders, often following a multi-crop model on landholdings of less than ten acres, cultivate about 60 per cent of the total tea land and account for more than 70 per cent of  the  total  production. "
"The smallholder subsector is better off than the corporate plantation sector in terms of productivity. "



"All that happen was a land grab by the competing elites, old money to new money."

Thats the the old money elite version.

Old money:  Most made their money because they had patronage of the Brits. I hope you have read "Nobodies to Somebodies",  Big money from selling alchol, legal monopoly of a drug, including the Senanayakes . Thats a story in itself.  Old money is also Land given by the Brits for brown nosing. 

Some of the old money has changed with the times and jumped on the band wagon. One thing for sure, the new money has to spread the money more to all.

"State run enterprises by politicians who lacked business acumen had no business taking over profitable enterprises!

Ha, this comes to productivity.  State run businesses are not profitable because they are over staffed.  But the pay goes to Sri Lankans, may be backside warmers. welfare in another way.  Can privatize and sell and the profits go overseas. Offshoring of US manufactiring ring a bell. (see box again)

Land Ownership and Land Reform
In the US, there are almost no small family farms left. All taken over by big agri business.  The people have moved to large cities to work in Factories.  Now that manufacturing has been offshored, the mid west rust belt has become one large meth and fentanyl fest.

In the UK, there were the Inclosure/Enclosure acts that drove the rural working class out of the countryside.  It was cheap labor for the factories of the biggest richest empire at that time.  However. Life for those in the factory cities was horrible. Read Dickens etc.
See http://www.thelandmagazine.org.uk/articles/short-history-enclosure-britain

Even today half of England is owned by less than 1% of the population.  Average Joe in the UK less than 10%. (https://www.theguardian.com/money/2019/apr/17/who-owns-england-thousand-secret-landowners-author)

Thank goodness in Sri Lanka we had land reform and ceilings on land ownership.  So no large migrations to cities and slums.


Arrack/Tavern renting
Legalized drug dealing monopoly enforced by the Jack boot.  Prior to the English the Sri Lankan Tamil and Sinhalese tapped their toddy drank it, shared it or sold some. Never was big or even small scale business.  Too much work for lotus eaters.

The English, passed laws that a family could keep only two bottles of tapped toddy.  The rest had to be given to the Toddy Tavern (and later distilleries) at a fixed price set by the English.  They had special police, called Excise police to enforce the laws.  The taverns were rented off to Sinhalese families, prominent among them the Senanayskes, de Soysas for example.
http://www.sundaytimes.lk/181111/plus/don-spater-senanayake-and-the-temperance-movement-319728.html


Productivity and Growth
How per Capita Income, Productivity and Growth hides rise in Inequalityand Poverty
Consider country which has only one Farm and Village of 10 people.

In the first year all 10 people work on the farm
Out per year is 10kg.  So productivity is 1kg/person.
Wages are $10/year per person. 
So per capita income is 10/year.

Next year they push people to work harder, less vacation and lay off 3 people.
Output increases to 11kg/year.  Now productivity is 1.57kg/person. (11kg/7)
Eureka, 57% Growth in Productivity

For the 7 remaining Wages are also increased to $14.5
Total wage are now $101.5 (14.5x7). 
Per capita Income is now $10.15
Eureka Per Capita Income Has gone up by 1.5%

Productivity and Growth has gone up 57%. , Wages have gone up and Per Capita income has gone up by 1.5%.
How do these upbeat stats help the three people laid off


Now lets have look at how Govt or Land owner gains
Let the price/kg be $10 and no change between years

Then in the first year
Gross income = $100 (10kg x 10)
Wages=$100 ($10x10)
Net Income=Gross Income-Wages
0= $100-$100
So, first year it is a break even

The second year
Gross Income = $110 (11kg x $11)
Wages=$101.5 (14.5x7).
Net Income=$8.5 ($110-$101.5)

Eureka the Govt/Land owner is making a Profit


As you can see Productivity, Growth, Increase in per Capita Income hide the fact the poor become poorer and the rich become richer.  This is the rise in inequality and wealth transfer from poor to the rich.