What a difference a year makes

While the Fed continues its stimulus through low rates and bond buying, optimistic news continues as reflected in the following (and practically everywhere) which raises questions about the path forward:

Kelly, D. (2021, April 19). Economic Update. J.P. Morgan Asset Management. https://am.jpmorgan.com/us/en/asset-management/adv/insights/market-insights/market-updates/economic-update/ 
Khan, K. (2021, April 23). Goldman Sachs says U.S. economic growth is peaking. SeekingAlpha. https://seekingalpha.com/news/3685126-goldman-sachs-says-us-economic-growth-is-peaking
Cox, J. (2021, April 23). The Fed is unlikely to hint at policy changes next week, even with a stronger economy. CNBC. https://www.cnbc.com/2021/04/23/the-fed-is-unlikely-to-hint-at-policy-change-despite-stronger-economy.html
Tepper, T., & Curry, B. (2021, April 16). 2021 April FOMC Meeting Preview: The Fed Remains On Guard. Forbes Advisor. https://www.forbes.com/advisor/investing/fomc-meeting-federal-reserve/

Of course those articles that were suggesting no action yesterday were right per the concensus. But the question remains for economists and investors: how much good news (and at what rate of recovery) is too much? As quoted in Reuters, “we do feel that a higher inflation reading this year and in 2022 will prove to be not transitory, that the Fed will hit that 2% threshold and above, if not even higher, on a more sustained basis. So that’s where I think we would be on the side of disagreeing with Chairman Powell, that we think inflation is going to gain a toehold.”

Fed Chair Transcript: No Changes for Now

As somewhat expected, the transcript from the Fed Chair today indicated no expected change to rates or bond buying activity in the immediate future. This prompts questions from economists regarding how long this can last given the good news that continues to emerge. For instance:

Economists think a decision to taper is months away although a minority think the Fed might start discussing the issue in June. Fed officials have said they want to see “substantial further progress” in meeting their goals of full employment and 2% inflation before tapering.

The post goes one to cite the recurring themes of optimism, inflation and pandemic risks as potential drivers for a change in policy.

Chair Powell reiterated that, “the FOMC and I kept interest rates near zero and maintained our sizable asset purchases. These measures, along with our strong guidance on interest rates and on our balance sheet, will ensure that monetary policy will continue to deliver powerful support to the economy until the recovery is complete.” Again, no surprise, but he continues, “while the recovery has progressed more quickly than generally expected, it remains uneven and far from complete.” 

But one brief comment also describes some of the most felt implications of Federal and local policy decisions (and recovery):

The economic downturn has not fallen equally on all Americans, and those least able to shoulder the burden have been the hardest hit. In particular, the high level of joblessness has been especially severe for lower-wage workers in the service sector.

In conclusion, the Fed will:

Continue to increase our holdings of Treasury securities by at least $80 billion per month and of agency mortgage-backed securities by at least $40 billion per month until substantial further progress has been made toward our maximum-employment and price-stability goals.

Which will in turn extend the trend of low interest rates, housing prices and asset inflation of all kinds.

Updated CDC Mask Guidelines

The CDC has updated its official guidelines (for April 27, 2021) on masks for those fully vaccinated (as well as a few for those who are not). The following are noted in the update:

  • Clarification that fully vaccinated workers no longer need to be restricted from work following an exposure as long as they are asymptomatic.
  • Fully vaccinated residents of non-healthcare congregate settings no longer need to quarantine following a known exposure.
  • Fully vaccinated asymptomatic people without an exposure may be exempted from routine screening testing, if feasible.

The good, better, best scenarios are shown in the partial infographic:

This is great news, but it was just four weeks prior that we read CDC Director Fears ‘Impending Doom’ and the CDC was still recommending the vaccinated to wear masks in public. I think most would not question the sincerity of such concerns or the excellent news of current progress – but what many have questioned for over a year: accuracy of what appear to be contradictory guidelines. Consider the following on the same page. A fully vaccinated people can:

  • Visit with other fully vaccinated people indoors without wearing masks or physical distancing
  • Visit with unvaccinated people (including children) from a single household who are at low risk for severe COVID-19 disease indoors without wearing masks or physical distancing
  • Refrain from testing following a known exposure, if asymptomatic, with some exceptions for specific settings
  • Refrain from quarantine following a known exposure if asymptomatic
  • Refrain from routine screening testing if asymptomatic and feasible

The Future of Self-Driving Cars – Designed Around People (132 years later)

Although the deployment of a number of technologies may have been delayed due to the pandemic, others may accelerate as a result of it. Just as the pandemic and lockdown removed the barrier (now 20 years into the 21st Century!) for paperless workflow in the office, remote meetings, remote work, education disruption, etc., others may be demanded and accepted for a number of reasons and preferences in a post-pandemic world as noted in the Wall Street Journal:

“Over the last 100 years you can’t really say the car was designed around the people; they got what space was left over”…

…As the auto industry contemplates the impact of technology—from electric cars, internet connectivity, and ultimately vehicles that drive themselves—designers are reinventing the interior of the automobile and how its passengers experience the ride. One doesn’t have to imagine some fantastic future with Jetsons-like inventions zipping around on the ground and in the air because the future is already on the drawing boards of car makers today.

What is most striking in these automobile innovations (and very consistent with the unfolding of the whole pandemic response) is the great reversal that cars now represent as a “safe space.” This of course is it due to both the inherent risk of traveling as well as the potential inconvenience of protracted wait times (or potentially getting stranded). So traveling within a large state such as California, people may simply choose to use their cars. The “oasis” concept revolves around the eventual full engagement of self-driving vehicles, technology with “head up” screens and embeded within the window, space utilization for sleeping, and ride-hailing/self-parking, all designed to prividing to create a viable and formitable competitor to air travel.

Again, what is most interesting is that these concepts are not new, but the demand may entirely shift due to the realities of a post-pandemic world. See the full WSJ post here.

First 100 days after shelter-in-place – where are we now?

Today markes the 100th day since the shelter-in-place in the northern California Bay Area, with some interesting reflections in The San Francisico Chronicle on what happened – and going forward:

Wednesday will mark 100 days since shelter-in-place orders were issued on March 17. Experts believe the move prevented thousands of deaths and tens of thousands of infections. It kept hospitals from being overrun and gave cities and counties precious time to learn about this new virus and mount a defense against it.

But more than 500 Bay Area residents died of COVID-19 in that time. More than 18,000 tested positive. And the coronavirus that drove millions of people into isolation remains as sinister and unpredictable now as it was 100 days ago. What’s changed over the past three months is not the virus, but the way the Bay Area lives with it.

…No one in public health really expected [three weeks] would be enough time to suppress the virus and let life resume as normal — but few predicted that 14 weeks later there would be no end in sight to this pandemic.

What is most remarkable is that many experts believe “the world is going to be cozy with this virus for a long while…coronavirus is still here…it’s probably far more widespread now than it was in March,”  which certainly gives pause to the last three and a half months. It is further interesting to note that the shelter orders were self described as a “draconian strike,” with profound consequences:

But understanding that their decision would have profound repercussions was not the same as watching those effects play out, said Louise Rogers, chief of San Mateo County Health.

…I didn’t really have a full understanding of how deeply impacted so many people would be, and how much it would reveal some of the deep systemic issues that already exist in society – the inequalities and the disproportionate effects.

See the full post here.

WSJ: A question of purpose as many go back to work

Purpose, satisfaction, and relevance have been ongoing topics of discussion in a workplace that has changed over the last several decades but is especially felt in our present time as the Wall Street Journal points out:

Companies may have to address the angst some workers feel about their relevance and the purpose behind their jobs. Decades of research show people crave a sense of purpose to feel motivated at work. Without the coffee dates, meetings and camaraderie of time with colleagues, “you’re left with the work itself,” and if the work starts to feel wanting, it can lead to painful reckonings.

It is probably not a stretch to say that everyone has had extended, contemplative stretches of time as many (if not most) of us have had more time on our hands (even those working) than in our entire adult lives, and it would appear rotating back into the workplace is more abrupt than expected:

“Purpose” has been invoked in recent years by business leaders and employees, who say they want their careers to have meaning broader than the bottom line. Companies have embraced the term as they recruit young employees, casting their work and mission as solving important problems.

In addition to several suggestions, I would add don’t miss this unique opportunity, while it is still fresh in our minds, to contemplate why and how we are not meant to be isolated. See the full post here.

COVID-19: Ioannidis vs. Taleb (International Institute of Forecasters)

The International Institute of Forecasters facilitated a very interesting discussion in the form of two scholarly blog posts – COVID-19: Ioannidis vs. Taleb, Learning from the positions of Nassim N. Taleb and John P. Ioannidis in the COVID-19 debate. The idea of this match up of differing views from such profound thinkers is literally brilliant. The setting is what may be the closest thing we have seen of an old fashioned discourse. Pardon me for being old fashioned but actual, respectful dialogue and discourse is what is desperately needed in our present time and has been missing for decades. How much more do we need such a thing in an age where many of our national and international challenges have taken on a complexity due to the natural order of progress, technology and globalization. From the introduction page:

“Two…voices have been highly visible in the public debate, with seemingly diverging opinions. I am thinking here of John P. Ioannidis and Nassim N. Taleb (arguably two of the greatest living thinkers) holding opposing views about how to deal with the present pandemic and its potentially destructive consequences.

…Nassim N. Taleb believes that all efforts and resources should be directed to halt its spread and reduce the number of infected and deaths without any concern about forecasting its future course as the uncertainty of doing so cannot be measured and the risks involved are highly asymmetric. John P. Ioannidis, on the other hand, claims that more reliable information is needed to make multiple billion-dollar decisions and that forecasting has failed us by being too pessimistic about the future growth of the pandemic and by exaggerating its negative effects.

…This debate will not only allow us to better understand the points of view of the two great thinkers but be also left as a guide for how to deal with future pandemics.”

I would only take issue with the comment, billion-dollar decisions, since we are already well north of multi-trillion dollar decisions. Of the two positions, Taleb remains consistent with his central theme for more than a decade, namely, the profound consequences of risk versus upside benefits, and this is only amplified in pandemics, where he states they “represent existential risk.” In other words, survive now:

“Science is a procedure to update knowledge; it can be wrong provided it produces interesting discussions that lead to more discoveries…for matters that have systemic effects and/or entail survival, the asymmetry is even more pronounced.”

Ioannidis, on the other hand, has been one of the few critics of our nation and the world being put on “horror-alert,” with models that he states have:

“Failed when they used more speculation and theoretical assumptions and tried to predict long-term outcomes, e.g. using early SIR-based models to predict what would happen in the entire season.”

One note that I frequently see as both a criticism and straw man argument against Ioannidis that is worth mentioning: he is clearly not saying to do nothing, or that COVID-19 is trivial. He opens his post with the following, “COVID-19 is a major acute crisis with unpredictable consequences.” Later he and his colleagues state, “a doomsday forecast may come handy to protect civilization, when and if calamity hits. However, even then, we have little evidence that aggressive measures which focus only on few dimensions of impact actually reduce death toll and do more good than harm.” See introductory post here, Taleb here, Ioannidis here.

Epidemic Forecasting Challenge: Human Behavior

It is interesting to search and review older articles (looking for pre-COVID perspective) and realize how long we have been discussing these topics that have monopolized our current discussions in the last six months. In The Journal of Infectious Diseases, a study from 2016, Epidemic Forecasting is Messier Than Weather Forecasting: The Role of Human Behavior and Internet Data Streams in Epidemic Forecast, the authors explore the challenges of forecasting the spread of epidemics and compare and contrast with the progress of weather modeling.

The authors note in the abstract:

In the past 3 decades, the weather forecasting community has made significant advances in data collection, assimilating heterogeneous data steams into models and communicating the uncertainty of their predictions to the general public. Epidemic modelers are struggling with these same issues in forecasting the spread of emerging diseases.

Sound familiar? Here’s why, “epidemic models rely on human interactions, multiple data sources such as clinical surveillance and Internet data, and environmental or biological factors that can change the pathogen dynamics.” This reminds me of the hasty rush to a positive affirmation of test and trace (which I would not argue against) but could prove fraught with problems associated with the many and variegated variables of human behavior, requisite cooperation, and potentially unknown interactions (such as if asymptomatic superspreaders prove as accurate as is being posited). On this side point, I am not arguing against the activity of test and trace as it may be the best option we have, but the declaration of its success, given the myriad of unknowns.

The authors make a very interesting observation given what we, the entire world have experienced in the last six months, with some profound policy decisions that have been ostensibly driven by data:

Epidemic forecasting is still in its infancy and is a growing field with great potential. The challenges for accurate epidemic forecasting include data availability and emergent changes in human behavior and pathogens.

They conclude with this hopeful note which could prove prescient from four years ago, as phones and data have only increased, “there will be a parallel world, similar to that for weather forecasting, where billions of sensors will be uploading real-time information to obtain personalized disease forecasts.” Full study found here.

Census: More Centenarians – New Challenges as Well

More Centenarians Than Ever

Last year, a post at the Pew Research Center included some very interesting trends in population shift and aging. In a mind-boggling projection, the total number of centenarians is expected to continue to accelerate to seven times the current number of one-half million:

Centenarian Growth Rate

The full study is found in a U.S. Census Bureau report on aging, where a subset of that report states the following regarding centenarians:

Centenarians, people 100 years or older, made up a very small portion of the total population in the 2007–2011 ACS, accounting for 55,000 people (0.02 percent). By comparison, the 65 years and over population accounted for 40 million people or 13 percent of the total population. The majority of centenarians were female (81 percent). Women were also the majority of the 65 years and over population (57 percent). This disproportionately female representation in both the 65 years and over and centenarian populations was expected, since sex differences in mortality over time contribute to higher percentages of females than males at older ages.

Want to live to 100? Then get married??

From the same report, some very interesting statistics emerge regarding marital status:

100 Marital Status

U.S. Leading the Total Count, But Fewer Per Capita

U.S. has the most centenarians overall in 2015, but fewer per capita than other top countries

What Could Possibly Go Wrong?

Aside from a number of questions for social scientists, what could possibly go wrong with living longer? (Which seems to correspond with fulfillment in life.) Life insurance caps. According to the Wall Street Journal, Happy 100th Birthday! There Goes Your Life Insurance, life insurance policies carry “a standard feature that…calls for the termination of the death benefit and payout of all of the built-up savings when the policyholder reaches the specified age.” This is an interesting challenge as it was simply not an issue in the fairly recent past, “the limits weren’t an issue in the many decades when very few people lived beyond 100. But they increasingly are a problem for the U.S. life-insurance industry as more people become centenarians.”

See the study in brief here and the full study here a the U.S. Census Bureau.

Purchasing Power Parity GDP Per Capita – Geo-FRED Interactive Map

As with a number of measures that have recently called our traditional models into question and the way we understand economic activity, the FRED Blog suggests there may be limitations to some of the mechanisms we have used for more than seventy years:

GDP has been used as a measure of economic well-being since the 1940s: It measures the total economic output by individuals, businesses, and the government and is a tangible way to quantify the state of the economy. However, some economists have questioned how well GDP measures well-being: For example, GDP fails to account for the quality of goods and services, the depletion of natural resources, and unpaid jobs that are nevertheless important (e.g., household chores). Although this criticism may be well founded, GDP is highly correlated with other measures of well-being, such as life expectancy at birth and the infant mortality rate, both of which capture some aspects of quality of life.

It’s a self-obviating point that developed nations would have much “higher levels of per capita GDP have, on average, higher levels of income and consumption,” or purchasing power. But other factors weigh into the question of how well off we are in terms of quality of life. Measures such as life expectancy and general health add to the discussion of well-being.

See the interactive map below for a “correlation between GDP and other measures of well-being” where GDP is “still a reasonable proxy of the overall well-being” for any given economy:

See the full FRED post here.

Fog of Business War Turns to the Skills Sets of Generals as Leaders

With so much emphasis on how to reach millennials and the superiority of sitting around cross-legged on the floor of an open office design, it might seem odd that high-level military experience is sought after for leadership, but should it? From the Wall Street Journal, Generals Bring Battlefield Expertise to the Business World:

In the fog of war, and in peacetime, generals are trained to anticipate unknown risks, build high-functioning teams and make quick, strategic decisions in high-pressure situations. “They are the same traits necessary in the fog of business,” says Henry Stoever, a captain in the Marine Corps who is now chief marketing officer of the National Association of Corporate Directors.

…Companies, especially those in crisis, covet the reputational boost that comes from seeking the counsel of a former military leader, says Wendy Monsen, president of executive recruiter Korn/Ferry ’s federal-government practice. Whereas more than three-quarters of Americans trust the military to act in the public’s interest, according to a 2016 Pew Research Center survey, only 41% feel the same way about business leaders.

What is surprising to learn is that the leadership styles do not reflect the command and control caricature that we might think, “Rather than barking orders and enforcing hierarchy, military leaders who succeed in the corporate world know how to coax different groups into collaborating, says retired Army Maj. Gen. Michael J. Diamond, an organizational leadership consultant.”

In other words, these backgrounds not only bring the strength of strategic vision and experience but character and leadership traits that are associated with the most effective and successful leaders, such as emotional intelligence, the ability to collaborate and getting others to cooperate. Not to mention a keen understanding of risk assessment. See the full article here.

CEPR: Dodd-Frank’s Seventh Birthday – Will It Be Around to Celebrate Its Eighth?

CEPR economist Eileen Appelbaum gives a concise overview of some of the implications of the Dodd-Frank Act, which may not see its 8th year:

As memories of the great recession and financial crisis fade, the landmark financial reform law passed seven years ago today, in the aftermath of that economic disaster, is on the chopping block. A Republican Congress and the Republican President are intent on rolling back the provisions of the Dodd-Frank Wall Street Reform and Consumer Protection Act that have increased transparency and limited risk in our financial system. The Financial Choice Act, first introduced in Congress in 2016 by Texas Representative Jeb Hensarling, is poised for a comeback.

…Key provisions slated to be rolled back are those that kept private equity funds and hedge funds out of the shadows. In the first 30-plus years of their existence as major financial actors, private funds were able to structure themselves in ways that exempted them from the many laws designed to protect investors and enabled them to avoid regulatory scrutiny by the Securities and Exchange Commission (SEC). Dodd-Frank introduced oversight and regulation that has been a boon to investors in private equity. Now, Section 858 of the CHOICE Act proposes once again exempting private equity fund advisors from registration and reporting requirements. It states, “no investment adviser shall be subject to the registration or reporting requirements of this title with respect to the provision of investment advice relating to a private equity fund.”

See the full post here with links to peer reviewed articles and helpful background information including SEC actions.