March 10, 2020

"It’s only when the tide goes out that you learn who’s been swimming naked."

Said Warren Buffet, quoted in "It’s a ‘Swimming Naked’ Moment: The Financial System Has a Real Test/The coronavirus spread and its economic effects are stressing the U.S. system for the first time since the 2008 financial crisis" by James B. Stewart (in the NYT).

79 comments:

Temujin said...

Damn paywall. I won't pay NYT for their articles. I would like to read what James B. Stewart has to say about it. But...I'll have to find it elsewhere. (If I can)

Ralph L said...

All it takes is a shark fin.

Kai Akker said...

Isn't this what rainy-day funds were for?

Fernandistein said...

"It’s only when the tide goes out that you learn who’s been swimming naked."

Good click-bait, dumb expression.

rhhardin said...

Tides are actually waves, just very long ones. Longer water waves travel faster, and long-enough ones travel at the speed of the earth's rotation.

Just to show how little it has to do with the stock market.

I'd go with wind gusts and who's wearing underwear.

stevew said...

Algorithms my boy, algorithms. Time to lock in those unrealized losses.

Algorithmic Trading

Time in the market beats timing the market. Few if any are good at timing.

stevew said...

Meanwhile, MIL is freaking out. She is on a fixed income and depends on distributions from her investments to pay the bills. Telling her this is likely a short term thing is not comforting to her. I think we will change the strategy and just listen to the fretting and make supportive sounds.

Kai Akker said...

Hard to believe Warren Buffett exposes himself as a nudistist.

Amadeus 48 said...

Interesting fact (a coincidence for sure): March 9, 2009 was the lowest closing price of the S&P 500 in the financial crisis of 2008-2009. Things had been on downward beats from October 2007 onward, but March 9 marked the low spot.

Will history repeat? Naah. There's a Trump to beat!

Amadeus 48 said...

Peter Lynch famously said that at least twice and probably three or four times in your life as an investor you will suffer through market declines of 40% or more. Be prepared to wait them out, and don't sell.

Right now, the market is down a little less than 20% from its highs--so it's not yet a bear market. Maybe today...

Amadeus 48 said...

You should have a cash or T-bill account with three years' minimum expenses to carry you over any rough spots with room to spare.

Don't sell. If you can, buy. Don't give up your cash reserve, though.

Bill, Republic of Texas said...

Leave it to the NYT to miss the real story. At this point the WuFlu doesn't present a systemic threat to the financial system. Sure earnings will go down and the market will reflect that.

The Saudi/Russian gas war could get bad.if prices stay low you'll see unemployment, bankruptcies and loan defaults in the oil and gas area. Those loans are mostly high yield bonds and the junk bond market is sky high now because everyone is reaching for yields.

Todd said...

Joe Biden?

Michael The Magnificent said...

The corona virus will eventually meet it's match, be it warm moist weather, improved cultural practices, a vaccine, or a nation-wide quarantine.

Likewise the Saudi-Soviet spat over oil prices. Eventually, the Saudi's will run out of oil, or the Soviets will agree to a deal.

Both of these events will eventually pass, and the stock market will return to it's former glory, until another reason to panic comes along.

Ignorance is Bliss said...

It’s only when the tide goes out that you learn who’s been swimming naked.

This is the moment Joe Biden has been preparing for his entire adult life...

Bill, Republic of Texas said...

SteveW

Tell MiL to relax. Her stock and bond dividends will be dividends will be paid in March, just like always. These drops are why she's in fixed income and not stocks.

traditionalguy said...

Buffett expresses the risk of investing very well. The idea of investing is leverage that uses other people’s money by borrowing it or simply renting it with promises to re-pay or keep paying. When assets stay valuable or go up in value the result is wealth. But when assets fall in value the result is losing everything. And when no one buys assets at all, the result is the sharks who planned the collapse and have been holding cash buy up the assets for 10 cents on the dollar resulting in wealth for them.

Jeff Brokaw said...

Dow futures up 1000 points right now.

Related: I cannot believe the degree to which coronavirus isbeing overhyped. Something smells funny here.

Yesterday the Illinois governor declared a “disaster”. Total cases: 11.

WTF?!

Kai Akker said...

Since stocks have only twice before reached this level of valuation -- which becomes more clearly overvaluation once they begin to decline -- and since those other two cases, 1929 and 2000, each resulted in at least one major index falling 80%, it is wrong to say it is "likely" to be a short, shallow correction. What history says, even though only two prior cases, is that it is actually more likely to produce a deep bear market. History doesn't always repeat. But that is what history tells us is the likelihood here.

JAORE said...

Buy when there is blood on the floor. It's good advice if you can.

Can the market go lower? Sure. And if you buy now, the (temporary) value of that stock goes down. But when the market recovers to even past levels you'll be 20 percent ahead.

If you can really time market tops and bottoms you have enough to fund Bernie's fevered dreams.

I have cash and G-bonds enough to buy. But that would cut into my emergency fund. This just ain't an economic emergency right now.

So hold 'em it is.

stevew said...

Thanks Bill, will give that a shot. Part of me thinks she just wants to worry.

rhhardin said...

Coronavirus overhype has one good effect - reducing the infection rate. If it can be gotten below one, the disease will die out.

Danno said...

This market stampede is now more related to the Saudi-Russian oil price feud and their price and supply antics than it is to the Coronavirus panic.

Danno said...

Look at the value destruction yesterday in the oil drilling and production sector and any companies that service oil production or finance it. Sure there is some coronavirus effect, but the majority of the sell-off is related to the Saudi-Russia feud.

tcrosse said...

One hopes that this panic will sort itself out before we oldsters have to take our Required Minimum Distributions from our IRA/401k, especially because their values were so high on Dec 31, 2019.

Bill, Republic of Texas said...

Overvaluation of stocks does not lead to prolonged bear markets. Overvaluation can lead to reduced future returns and sharp corrections.

Bear markets are caused by contracting economy and reduced future corporate earnings.

Kate said...

Americans shorten honey to "hon", but Brits use "hun". Or, so I've noticed. I'm gonna say it's Winnie the Pooh's fault.

gilbar said...

Ignorance is Bliss said...
It’s only when the tide goes out that you learn who’s been swimming naked.
This is the moment Joe Biden has been preparing for his entire adult life...


So true! On SO MANY levels!

bagoh20 said...

When was the last time a clearly predicted disaster actually materialized?

A: Never.

When do clearly predicted disasters materialize?

A: Never.

When do people panic about them?

A: Every. Single. Time.

TreeJoe said...

"You should have a cash or T-bill account with three years' minimum expenses to carry you over any rough spots with room to spare.

Don't sell. If you can, buy. Don't give up your cash reserve, though."

So your advice is to keep 3 years expenses in a negative yielding asset class (cash or T-bills based upon current rates) to carry you over. But don't use it to fund investment purchases for God's sake!?

If the average Joe has $30k a year in expenses and $500k portfolio, they are keeping $90k in cash/T-Bills? I'll just round up and say you advocate a 20% cash/t-bill portfolio for your average 50 year old?

"One hopes that this panic will sort itself out before we oldsters have to take our Required Minimum Distributions from our IRA/401k, especially because their values were so high on Dec 31, 2019."

If you are in RMD age range, you should be heavily weighted to conservative asset classes in your IRA/401k. If, for example, you've got 50% of your fund sitting in vanguard total bond market index or similar you'd see a net gain of ~8-10% over the past year on that asset class. That might be a good area to sell now to meet RMD guidelines.

bagoh20 said...

What happened to that Biden bounce we had? The market should be soaring as Bernie's campaign turns into a socialist super market shelf.

Jersey Fled said...

Paul Krugman is at it again


"Mr. Market is basically saying that we're headed for permanent recession"

HaHaHaHa ....

Phidippus said...

I think that Warren Buffet is right: He is likely referring to over-leveraged companies that may be facing a cash-flow crisis soon. (While he's only human like the rest of us, history shows that betting against Warren Buffet is a risky business over the long run.) Such companies may find themselves in real trouble before long.

For ordinary diversified buy and hold investors like the rest of us, the important thing to keep in mind is that you still own the assets-- the trucks, factories, R&D labs, infrastructure, etc., of all those companies in your portfolio. They didn't suddenly become less valuable because a bunch of professional traders want to (or have to, because of margin calls) bail out.

Human psychology is what it is, though. I haven't looked at my IRA balance since the current shitstorm started. No good would come of that.

Jersey Fled said...

Many years ago, I advised my elderly parents to put their money in a mutual fund that maintains a standard mix of 60% stocks and 40% bonds, and never look at the financial news again.

It was good advice.

Gusty Winds said...

People who are rooting for and economic collapse to hurt Trump:

1) Bill Mahar
2) All Democrats
3) The Media
4) The Chinese (who may have released the virus...on purpose?)
5) The women on The View
6) Hollywood
7) The EU

The only people you can trust at the moment regarding COVID-19 are people in the Trump administration. Everyone else has something to GAIN.

cf said...

A big correction is in order for so many reasons related to this event.

The biggest challenge I see -- beyond surviving the wave of infestation predicted to flow through us -- is a long-term one of getting industrial/technological know-how back home from China. That is some difficult climbing to do.

I am wondering if the lack of testing availability is because we simply do not have the mechanics and people in place to produce plentiful test kits. Is our know-how and capability so flaccid and unattended here? I have not seen any reason for the lack of test kits or test technologies being readily produced. Are all our medical tech capabilities anchored in Asia?!

This would be worth markets going further down.

Narayanan said...

Can someone explain tide metaphor for economy?

What sub(con)stitutes for ocean water

rhhardin said...

Take RMD's in January so that it's always close to the evaluation at the end of December.

Leland said...

Yesterday the Illinois governor declared a “disaster”.

That's not such a bad idea. With so many over-reacting, events all over the place are cancelling. Organizers are left with a lot of sunk cost and an insurer that won't cover their cost because their is no real event that lead to the cancellation. There is an event, and it is well-known and good organizers purchased insurance for this reason. Declaring a "disaster" support these claims.

That said, I do agree this is all over-hyped. Who the hell overbuys toilet paper because of respiratory illness? Idiots, that's who!

Jersey Fled said...

Yesterday the Illinois governor declared a “disaster”

Illinois has been pretty much a disaster for quite a while now.

The Cracker Emcee Refulgent said...

“Blogger bagoh20 said...
When was the last time a clearly predicted disaster actually materialized?

A: Never.

When do clearly predicted disasters materialize?

A: Never.

When do people panic about them?

A: Every. Single. Time.”

Sure, but the panic can be the corrective that stymies the clearly predicted disaster. So, not a panic at all, but a rational response to an identifiable threat. My natural sang-froid makes me look askance at all the toilet-paper-hoarders, any-excuse-to-work-from-homers, and heaps-o’-corpses-NeverTrumpers, but I recognize the inoculative effects, however grossly inefficient and overblown, of the hype that drives them.

narciso said...

more often the ones who pointed out the shortfalls in subprime, were not paid attention to, the ones who signaled the terror attacks,

stevew said...

A rising tide lifts all boats is literally true and a good metaphor for the effect a strengthening economy has on most (all) participants in the economy. The receding tide exposing naked swimmers metaphor fails because swimmers will go out with the tide to stay in the water so as not to expose their nakedness.

If anyone but Buffet said it they would be ridiculed.

Dust Bunny Queen said...

Stock market....swimming naked.....margin trading....no cash to cover losses.

BleachBit-and-Hammers said...

Purell and TP stock. Buy now.

Francisco D said...

Yesterday the Illinois governor WAS declared a “disaster”

I know the family. He is the dumbest one of the bunch.

mandrewa said...

cf said, "I am wondering if the lack of testing availability is because we simply do not have the mechanics and people in place to produce plentiful test kits. Is our know-how and capability so flaccid and unattended here? I have not seen any reason for the lack of test kits or test technologies being readily produced. Are all our medical tech capabilities anchored in Asia?!"

One side effect of the heavy hand of FDA regulation has been to transfer drug production to China. There was no necessity that it be that way. But somehow that is how it has worked out. Effectively the FDA has one standard for the US and a completely different one for China. I don't know whether there is an actual bias in favor of China within the FDA, or this is a side-effect of FDA inspectors not being able to speak Chinese and an assumption, on the part of Americans, of a basic honesty in people that may be appropriate for Americans but really isn't for China. Anyway the allegation I've heard is that China sets up fake drug factories for FDA inspectors to inspect.

The other allegation I've read, at MIT Technology Review, no less, is that the Obama administration made it illegal for entities other than the CDC to do virus testing, or the combination of new Obama era regulations and the FDA and CDC amounts to the same thing.

If that is the case, surely we can learn from the current testing disaster, and repeal all of the authoritarian Obama era regulations.

To quote from the MIT Technology Review article:

“The great strength the US has always had, not just in virology, is that we’ve
always had a wide variety of people and groups working on any given problem,”
says Jerome. “When we decided all coronavirus testing had to be done by a single
entity, even one as outstanding as CDC, we basically gave away our greatest
strength.”

robother said...

Given Ann's thing about men in shorts, hard to say where she stands on the wisdom of Buffet's quote. I read him as suggesting that everyone in an aging bull market should be covering their long positions with shorts. As with Chauncey Gardiner, though, these gnomic types are hard to parse.

Jersey Fled said...

Quest and LabCorp can test for corona virus now.

bagoh20 said...

If shorts could cover my long position, they wouldn't be called "shorts".

John henry said...

Now is the time for tariffs on imported oil & gas.

Set a variable tariff til keep the price in the USA at about $40

Fracking is a serious threat to some countries and I think they just declared serious war on our us producers. Tariffs would be a way to fight back.

All income from the tariffs to be used to retire federal debt.

John Henry

rehajm said...

I walked around the paywall to report back. To their credit theres a reference to the leverage used by the oil production chain and the risk that imposes, but not any analysis. The rest is the usual whinging devoid of much fact or explanation. No attempt at a valuation of equities. Quotes of worry from a relatively unknown Harvard prof. The requisite dig at Trump.

Typical James Stewart stuff, except he didn't bother to invent some villains by name like he usually does...

bagoh20 said...

In the U.S. the damage from the panic will far outstrip the damage from the virus. In other words, the real threat is the panic. Ideally, we would only know what we know as fact, and that would be enough for us to take reasonable and effective precaution.

Then again, we could use a rumor that the virus has been found on new rolls of toilet paper.

John henry said...

Francisco,

Isn't the governor a member of the Pritzker family? A famous family of Chicago grifters.

One of them, transexual himself, is largely responsible for all the attention these loonies have gotten in recent years. He's spent huge sums of Pritzker money on this.

John Henry

rehajm said...

When you swim naked and the tide goes out you dry off quicker, reducing the risk of chafing, fungus, urinary tract and yeast infections.

Darkisland said...

Francisco,

Isn't the governor a member of the Pritzker family? A famous family of Chicago grifters.

One of them, transexual himself, is largely responsible for all the attention these loonies have gotten in recent years. He's spent huge sums of Pritzker money on this.

John Henry

Darkisland said...

In Japan the fear of radiation after fukishima caused infinitely more deaths than radiation.

About 100 deaths from fear. Zero from radiation.

John Henry

bagoh20 said...

It's only when the tide goes out that you learn why most people should not go naked.

n.n said...

Subprime, excessive leverage, social justice adventures (e.g. saved and expanded elective wars), and democratic gerrymandering have been a progressive stress since 2008. NOW, ironically, it's Planned Parent, Gaia's Choice.

tim in vermont said...

On the plus side, I just bought 21+ gallons of gas in North Carolina for under $40.

tim in vermont said...

I agree that there should be a tariff on imported oil, as this is an act of war on our energy production sector, maybe on Russia’s too, or maybe they want to defeat Trump so that they can get an anti-domestic energy Democrat elected. It’s hard to say what people are really thinking.

Of course the Democrats will insist it goes to “climate” and it will never go away.

tcrosse said...

The only thing we have to fear is fear itself, to coin a phrase.

mandrewa said...

John Henry said, "Set a variable tariff...keep the price in the USA at about $40."

I like that idea. It's pretty simple.

As usual, the details are important. We don't want it to be permanent. If oil prices are really going under $40 per barrel long-term, then we have to accept that and do the same thing here. But forty dollars per barrel still seems means much cheaper gasoline.

Most likely this is just Russia trying to put the US frackers out of business. And that will be a temporary thing. And therefore it makes sense to set a lower bound of $40 per barrel in the US, with tariffs, for say one year or two.

Francisco D said...

Isn't the governor a member of the Pritzker family? A famous family of Chicago grifters. One of them, transexual himself, is largely responsible for all the attention these loonies have gotten in recent years. He's spent huge sums of Pritzker money on this.

I am mostly familiar with one of the two branches of the Pritzker family. The Hyatt Corp side are the ones who get into politics. Bob"s kids (Marmon Group) fly under the radar and do their own thing. Jimmy was a really weird kid when I knew him over 50 years ago. I later suspected autism. From that perspective, the sex change was his idea of therapy. It is sort of scary when you realize his career was as a USAF officer.

From what I knew of Bob Pritzker (I can't go into too much detail) he was a hard working and honest businessman. People who worked for him respected him. Bob and his kids (none of whom followed him into the business) were never grifters.

I wouldn't worry about Pritzkers spending huge sums of money. All three of Bob's kids are billionaires through inheritance.

tim in vermont said...

This is twice in the past month we have seen naked power on display. Clearing out the opposition for Biden, while leaving in Warren just long enough to kneecap Sanders on Super Tuesday, and solid shot at US fracking, which, as we heard the the impeachment hearings, Putin has declared to be inimicable to Russian national interest.

Our strong economy is built in a lot of ways on fracking. Which party do you think that Putin would rather see in power, rather than taking this hit of uncounted billions against his economy? The one that has promised to end fracking.

tim in vermont said...

The money collected from a tariff on imported oil should go as damages to the soldiers who were sent abroad to secure our foreign supply.

tim in vermont said...

The money collected from a tariff on imported oil should go as damages to the soldiers who were wounded when sent abroad to secure our foreign supply.

Yancey Ward said...

I allocated about 5% of my retirement accounts yesterday to some beaten down energy stocks. I had put it all into BIV when I rolled it over from my old company's 401K in the first week of February, but I sold that yesterday morning so that I could start buying selected stocks. I don't know that I will get to allocate all of it in a true market collapse, but I am ready to do so if the panic deepens. I likely won't ever need the money the retirement accounts- I will have both a pension and SS, plus a lot of non-retirement funds available in very low tax investments, I can wait out a downturn regardless.

Michael K said...

One side effect of the heavy hand of FDA regulation has been to transfer drug production to China. There was no necessity that it be that way. But somehow that is how it has worked out. Effectively the FDA has one standard for the US and a completely different one for China.

There was a good article around last week about how the Chinese were wildly cheating the FDA inspectors who could not read Chinese records. They apparently even had a Potemkin factory to show them.

Fortunately, the biologicals, like remdesivir and the Xolair my wife relies, on are made in USA.

Left Bank of the Charles said...

It's the stockholder's job to take the loss in situations like this. Why would anyone want to take that job? It pays well in good times. But the illusion that you can bank the big gains and avoid the losses does lead some people to take the job who aren't willing to do the job. As the old saying goes, "In bear markets, stocks return to their rightful owners."

Skeptical Voter said...

The Dow has a ways to go yet before it hits 18,000 (the level at the start of Trump's administration). If it gets there that's about a 40% drop from its peak in December 2019 or January 2020. That'll make Paul Krugman feel good. I suspect it won't but if you are looking at your retirement portfolio (as I do in my mid late 70s ) you can get dizzy on a daily basis worrying about unrealized losses.

OTOH swimming naked or not, in the long run we are all dead. And in the longer run the market will go back up.

MikeR said...

That is one weird metaphor.

BleachBit-and-Hammers said...

Dr. Drew On Coronavirus: Media ‘Hurting People,’ ‘Need To Be Held Accountable’ For Causing Panic

His points are valid.
The new hygiene performed in our gross public transit is a good thing. Airlines should be on the hook for cleaning their commercial aircraft. but the media are causing panic - and it's all mostly political.

tim in vermont said...

You know who’s swimming naked? The frackers. I never thought of this before but it seems so obvious now. This is aimed at the people who are financing the frackers. Go ahead and keep financing them every time the price rises, and we will keep bankrupting you until you finally learn. This is in both Russia’s and Saudi Arabia’s interest to ride this out, no matter the short term pain.

Danno said...

Blogger Darkisland said...In Japan the fear of radiation after fukishima caused infinitely more deaths than radiation. About 100 deaths from fear. Zero from radiation. John Henry

Even worse, the stupid Germans under Merkel (who profess to be green) shut down their nuclear reactors in short order based on Fukishima and now rely more than ever on coal and anthracite to fuel their power needs. Dummkopfs much?

Rosalyn C. said...

"CDC estimates that so far this season there have been at least 34 million flu illnesses, 350,000 hospitalizations and 20,000 deaths from flu." https://www.cdc.gov/flu/weekly/index.htm But no one is panicking about that. Why not?

I just heard an editorial at CNN criticizing Trump for not panicking.

Ralph L said...

Germany is switching to solar and wind power because it's so sunny up there and France sucks.

Milwaukie guy said...

Late to the party as always....

Jabba the Hut Pritzker may be the dumbest but there was a lady Pritzker who lived in the old family mansion across from Wicker Park in the Liz Phair days. She was a famous local eccentric who was very rich. She was sort of young at the time. She may still be alive and stashed somewhere.

Amadeus 48 said...

Two random thoughts:

The sad story of the emerald ash borer and America's ash trees is a precursor of this viral fiasco. Borders should mean something, and rules should be enforced. The ash borer came ashore when Chinese shippers ignored rules on treating packing crates.

The coronavirus cultural cross-currents here are interesting. Does panic promotion help make the populace docile?