I Have Nothing To Add

Warren Buffett Charlie Munger I have nothing to add

Charlie Munger can be extremely loquacious as he is one who loves to pontificate and definitely has something to say. He also knows when to stay quiet. When he and Warren Buffett hold court at Berkshire Hathaway’s annual meeting and a question is asked of Buffett and after answering it he turns to Charlie and asks him if he has anything to add. Munger often responds by saying “I have nothing to add.” It always gets a chuckle. It’s good to know when you think you can add value and when you can’t. When it’s the former, say something, and when it’s the latter, remain quiet.

Last week was one for the history books in terms of the cataclysmic economic reports that came out showing the utter decimation the U.S. economy is experiencing in the aftermath of COVID-19 and the associated responses to it. Since I’m such a Munger fan I will follow his advice and let the charts do all of the talking as I have nothing to add (ok, maybe a few comments here and there).

I’m sure I will look back on this blog many years down the road as one of the more important historical markers in my business career.

Philly Fed Collapses-Housing Starts Collapse April 16, 2020

Philadelphia Fed Manufacturing Index April 16, 2020

Housing Starts Total New Privately Owned Housing Units Started 1985-2020

All of the jobs created since the end of the Great Recession have now been lost.

Weekly initial unemployment claims in 2020 Jan Feb March April

Not surprisingly, the outlook is pretty grim economically.

U.S. leading economic indicators post record 6.7 plunge in March as COVID19 pandemic broke out

We’re approaching Great Depression levels in terms of unemployment, although the government response has been much more swift now as compared to then so the situation is not as dire since trillions of dollars are flowing back to individuals and businesses to create a bridge to what hopefully is a more “normal” future. My concern is that we are now in the “New Abnormal.”

Unemployment Rate, Age 18-64 Jan Feb March April 2020

Small business confidence has understandably collapsed.

Gauge of small-business sentiment dropped to a record low April 2020

I can unequivocally state that Twitter is now my best source of information and catalyst for insights. I’m hooked. I thought this tweet is a powerful representation of the collapse in the circulation of people.

Banks are preparing for a big increase in loan defaults and losses.

Pandemic Spike - Provisions at major U.S. banks rise on fears of bad debt April 16, 2020

The economic carnage has pushed interest rates to record low levels.

US 5yr Government Bond Yield 2008 2011 2014 2017 2020

Global deficits are exploding, similar to 2008-2009.

Deeper Deficits Contribution to change in global fiscal surplus or deficit 2008 - 2020

Despite this, the demand for Treasuries is expected to exceed the supply due to Federal Reserve purchases.

Demand and supply in Treasury Markets 2000 - 2020

On the international front, China has experienced its first drop in GDP in decades.

China GDP YoY 2002 - 2020

The one bright spot, similar to the United States, particularly when it comes to Amazon, is e-commerce. It’s already been gaining market share very rapidly and will only do so more now that people have been forced to rely on it more than ever as a result of sheltering in place. This has introduced more people to shopping online and I have no doubt that most of them will remain online customers for life.

Chinese E-commerce as of Total Retail Sales 2015 - 2020

The collapse in economic activity, particularly in China, has led to a dramatic reduction in the consumption of hydrocarbons and resulted in a significant drop in carbon dioxide emissions.

Crisis lead to largest Decline in CO2 Emissions

The next couple of charts show how demand has collapsed for oil and supply to the market has dropped commensurately.

Global oil demand will drop by a record 9.3 million bd in 2020
Total Product Supplied (Demand Proxy) MinMax 2004 - 2019

With the collapse in economic activity, particularly in China, commodity prices have gotten crushed.

With the collapse in economic activity, particularly in China, commodity prices have gotten crushed

Finally, here are a couple of charts showing how cheap gold is relative to oil (or expensive gold is relative to oil) as well as the S&P 500 relative to 10-year Treasury yields.

Gold Oil Ratio 1984 - 2020

Long Way Down S&P 500 Tumbles to lowest level vs. 10-yer Treasuries since 1983

Stay safe.

One comment on “I Have Nothing To Add
  1. David A Helman says:

    Very intelligent response.

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