Coronavirus economic stimulus may lead to high inflation

This time central banks have responded to the Coronavirus by injecting trillions of dollars into their economies, which could generate Demand-Pull Inflation because “too many dollars will be chasing too few goods.”

Source: Desperate Actions Can Lead to Desperate Consequences, Including a Debt Spiral | Nasdaq

This is my concern too – the problem right now is that goods are not being manufactured and services are not being delivered as much of the economy is shut down by government mandate.

Throwing more money into this encourages people to purchase goods that are now in scarce or limited supply, thereby driving up their prices.

Plus, where is the cash coming from? I have not looked into that. But if we are just printing money (or the electronic equivalent of printing money), we are devaluing the dollar – which is the same thing as inflation.

If this is the case, then you want to own real things as cash will go down in value. A $100 thingie now will sell for $110 after 10% inflation. But $100 of cash now will be worth the equivalent of about $90 after 10% inflation.

Why a shortage of toilet paper?

Toilet paper, like all paper, is made using a chemical engineering process. That means manufacturing is a continuous process that runs 24 hours per day, 7 days per week. Raw materials go in one end of the manufacturing pipeline and paper comes out the other. In between there is pulp, liquids, hot slurries and hot paper before rolls of paper come out the other end.

When I was a volunteer firefighter, we had a tour of a local paper mill so that we’d have some familiarity with their facility, in case an emergency occurred. At one end of the building, they took in materials such as recycled cardboard and paper, plus wood pulp.

Paper products went through a de-inking process and another process to break up the fibers. Wood pulp went through another process.

These materials were bleached (to make white paper) through vast vats of chemical processing. Eventually the materials were formed into a wet slurry that was gradually compressed into thin sheets and dried, then rolled on to giant spools.

The huge rolls of paper were then removed and went through a slicer to cut to the required lengths.

This process ran 24 hours per day, 7 days per week and was only stopped, rarely, in case of break downs or required maintenance. Unlike manufacturing of widgets with discrete parts, paper is a chemical process where the liquid parts flow continuously through the system.

To accommodate changes in market demand for their paper products, the entire system would be sped up or slowed down – but never stopped.

From my reading, toilet paper manufacturing is pretty much the same process. Since toilet paper consumption does not vary much, industry has built paper factories designed to meet the normal, on going demand. There is little buffer in the system except for toilet paper stored in warehouses, distribution centers and on store shelves. There does not need to be a lot of buffer because ordinarily, demand is near constant. And we’ve built factories to optimally meet ordinary demand.

The Covid-19 epidemic caught many people off guard. Undoubtedly, those who may have bought TP weekly or twice a month now bought larger packages. Very quickly, the entire distribution buffer was drained – inventory moved from the distribution network to homes.

Additionally, the government’s messaging on “Stocking up” was very confused, inconsistent, contradictory, unclear and generally ineffective. Initially, the government said no one should stock up.

But by the 3rd week of March, the CDC’s official recommendation was that older people and those with underlying conditions (which is 40% of the population, combined) should stock up on supplies and avoid contact with all people. Thus, in fact, much of the population absolutely should have stocked up. Consequently, blaming consumers for stocking up is wrong – many may have figured this out well before the government – those at higher risk did indeed have to stock up and many likely did stock up in advance.

TP continues to be made at the same speed it has always been made – in fact, one maker says they’ve been able to ramp up their factory to about 20% more per day. But with TP in short supply, many consumers will launch a second round of buying, purchasing any available toilet paper.

With a limited ability to ramp up production, it may take a considerable time to refill the buffer – warehouses, distribution centers and store shelves.

I can see this lasting another month or two, unfortunately.

Health: Who is at risk for novel coronavirus?

The above comes from the Asthma and Allergy Foundation of America, and is sourced to WHO.

Update: On March 12th, the CDC – finally – updated its health conditions list with more detail, albeit, buried in an item about the situation in Santa Clara County, California.

https://www.cdc.gov/coronavirus/2019-ncov/downloads/Santa-Clara_Community_Mitigation.pdf

Appendix A: Underlying medical conditions that may increase the risk of serious COVID-19 for individuals of any age.

•Blood disorders (e.g., sickle cell disease or on blood thinners)

•Chronic kidney disease as defined by your doctor. Patient has been told to avoid or reduce the dose of medications because kidney disease, or is under treatment for kidney disease, including receiving dialysis

•Chronic liver disease as defined by your doctor. (e.g., cirrhosis, chronic hepatitis) Patient has been told to avoid or reduce the dose of medications because liver disease or is under treatment for liver disease.

Compromised immune system (immunosuppression) (e.g., seeing a doctor for cancer and treatment such as chemotherapy or radiation, received an organ or bone marrow transplant, taking high doses of corticosteroids or other immunosuppressant medications, HIV or AIDS)

Current or recent pregnancy in the last two weeks

•Endocrine disorders (e.g., diabetes mellitus)

•Metabolic disorders (such as inherited metabolic disorders and mitochondrial disorders)

•Heart disease (such as congenital heart disease, congestive heart failure and coronary artery disease)

Lung disease including asthma or chronic obstructive pulmonary disease (chronic bronchitis or emphysema) or other chronic conditions associated with impaired lung function or that require home oxygen

•Neurological and neurologic and neurodevelopment conditions [including disorders of the brain, spinal cord, peripheral nerve, and muscle such as cerebral palsy, epilepsy (seizure disorders),stroke, intellectual disability, moderate to severe developmental delay, muscular dystrophy, or spinal cord injury].

Coronavirus: What does “elderly” or “Older” mean?

CDC has, on various pages, defined older as “60+” based on the sharp increase in mortality of SARS-CoV-2 infections that occur at age 60 and up. For those age 50 and up, the curve is also several times higher than below 40,

Unfortunately, there is no clarity on what is meant by officials when they warn us about risks to “older” people or the “elderly”.

CDC seems to imply that with regards to novel coronavirus, “older” is age 60 while some public health districts in California use age 50. Although regarding the warning against traveling on cruise ships, the LA Times says this applies those age 70 or older.

Similarly, there are references to “the elderly” – what does that mean?

  • Social Security says age 65.
  • The U.S. Housing and Urban Development Administration says age 62.
  • This page says the term “senior citizen” applies to those at age 60 or 65.
  • Officially, if you are past “middle age”, you may be considered “older” or “elderly”.
  • Interesting items here suggest it has become associated with “feeble” but the root word is actually “elder”, which describes someone to be respected.

There does not seem to be a precise definition – but it seems to fall somewhere in the 60-65 age range and occasionally in the 65-70 range.

The lack of any definition does not help the CDC’s communication. How do individuals know if they are the target audience for the recommendation when vague terms like “older” or “elderly” are given, but not defined?

Telecom: There’s no killer app for 5G

5G, where it exists, increases network capacity and might deliver a few things faster but other than that, the “killer app” is missing for now:

there’s no “killer app” for 5G right now. And I don’t know what it’s going to be

Source: Is 5G really that fast?

More likely, what 5G delivers is a new competitor for home-based fast Internet service. There will also be some applications involving “Internet of Things” sensors that are logging data.

And for sure, there will be many applications that involve increased surveillance of your life, your neighbors, and so on.

Health: Mixed messages on coronavirus covid-19

F5 today, closed their skyscraper in downtown Seattle to disinfect the entire building because one worker had been in contact with someone that later tested positive for COVID-19.

France canceled an outdoor half marathon and closed all indoor activities having more than 5,000 attendees.

Many tech conferences have been canceled, postponed or moved to online presentations. Amazon canceled warehouse tours. Nvidia just canceled a tech conference. The EU has closed its headquarters to visitors.

In King County, Washington, 11 schools are closed because an associate of a staff member or student has become ill (not even diagnosed with COVID-19). The schools are in process of being sanitized. The entire North Shore School District will close on Tuesday to provide staff training on conducting remote education/telelearning …

Nike’s headquarters in Oregon was closed this past weekend for deep sanitization – even though they said they had no reports of any exposure by anyone.

The Washington State Department of Health urges those with unspecified pre-existing medical conditions or over the age of 60 [1] to avoid public gatherings:

“Persons who are older or who have underlying health conditions are at higher risk to develop complications from this virus. Your health and the health of those you care about are important to us and it may be recommended that you stay at home and away from other people during this time. “

In 24 hours, deaths went from 2 to 4, confirmed cases in Washington increased, and there is community transmission in Oregon, now including Eastern Oregon.

Meanwhile, ReedPop Entertainment announces its Emerald City Comic Con, with 100,000 people confined in close quarters in the Washington State Convention Center, with many visitors from other countries, will go on as planned – in Seattle, which is apparently ground zero in the U.S. for the spread of the COVID-19. They assure us that the health of their guests is their highest priority and they are following government guidelines (except those of the Washington State Department of Health but what ever).

So who do we believe?

There is a lack of leadership and clarity as to what steps the public should take. This leads to companies, like Nike, closing for cleaning – without exposure – while ReedPop plans a 100,000 person event in confined quarters at ground zero of the disease spreading in the U.S. and saying it will be safe for all.

Footnotes

[1] We assume the DoH is referring to people over age 50 or 60 but the State lacks clarity in its communications. They say, for example, that people with “underlying health conditions” should avoid contact with other people – but then provides no explanation of “underlying health conditions”.

Transportation: You can’t start a Gig Car Share rental car unless you have cell phone service

A tourist who rented an app-powered car says she was stranded on a rural road along the Northern California coast after she lost cell phone service.

Source: Weekend trip turns into ordeal after app-rental car loses cell service – SFGate

This is what happens when city-based entrepreneurs have never ventured outside big metro areas. They incorrectly assume cellular service is available everywhere. And design a car rental service whose cars won’t re-start if stopped in a place lacking cell service. Face palm moment. (Technically, you can order a separate “GigCard” which will be delivered in up to two weeks and use it to start your car with cell phone service. Hmmmm.)

This is a problem of relying on automation for everything – something Boeing has perhaps discovered with their automated MCAS control system failure.

The FAA, of course, has learned nothing. The FAA has proposed that all drones have a mandatory connection to cell service – and that they be unable to take off if there is no GPS signal (and for many, an Internet connection). This effectively bans flying model aircraft in buildings, homes, exhibit halls, businesses, warehouses, movie sets. It also de facto shuts down flight in numerous parts of the country.

Far too many tech people believe in fantasies that are not ready yet – while automation can do much, it also has failure points that have not been accounted for, leading to killing people (Boeing, Uber’s self driving car experiments).

Finance: “Coronavirus fallout could be worse than the financial crisis”

Central banks are likely planning to cut interest rates or provide stimulus.

Source: Coronavirus fallout could be worse than the financial crisis

It’s a supply side issue, not a demand side issue (mostly). With businesses, manufacturing, transport and distribution systems closing, its a supply side problem, not so much a demand side problem. Lowering interest rates can spur some demand but if the supply cannot be increased, economic activity will remain subdued.

Also, travel is getting pummeled due to event cancellations and closure of public events and venues. Lower interest rates will not solve this.

Finance: Candidates propose housing tax credits

Housing hasn’t traditionally been a hot topic in presidential elections, but with homeownership financially out of reach for many Americans, the candidates vying for the Democratic nomination have been eager to discuss the issue.

Source: Joe Biden wants a first-time homeowner tax credit, Amy Klobuchar would clear public-housing backlog — where the Democratic candidates stand on affordable housing – MarketWatch

A perennial, permanent complaint is that housing costs too much – unlike the good-old-days when housing was far more affordable. Of course.

When we first bought a house, a 30 year mortgage interest rate was 16.8%. Today, the 30 year mortgage interest rate is 3.73%.

We bought a junked home – literally – because that is what we could afford. We had to come up with a 20% down payment and assume loans with a combined interest rate of 11%.

The home had been a rental for 8 years and owned by 8 out of state landlords. The property had been vacant for 9 months. The yard was overgrown – about 8 feet thick of plant growth. It was not possible to walk from the front yard to the back yard along the side yards as they were solidly filled with overgrowth. The fence was falling down due to the weight of plants growing over it. To buy this, we assumed the two existing loans on the property, a 1st and a 2nd mortgage. The combined mortgage rate was 11%, and the 2nd loan was a huge interest-only balloon payment loan. That meant within 5 years we had to refinance to pay off the entire 2nd loan. Our eventual refinance bought us an 8% 30 year fixed rate loan. Yeah, 8%.

We spent 3 years working weekends and nights, after our day jobs, repairing and fixing the place and then hired a contractor to add 2 rooms.

As you can see, back in the good-old-days, buying a first home was really easy and interest rates were super low. Right.

Health: “Swiss government bans all events over 1,000 people”

Source: Swiss government bans all events over 1,000 people – MarketWatch

Numerous tech industry conferences have been canceled in the U.S. already. Flights to and from Asia have been slashed or eliminated.

The modern world has no effective way to deal with a spreading virus except to shut down the entire economy – potentially destroying entire economic systems and causing additional harm to populations.

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