Weekend reading: Get ready for the drop

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• 1 Gentleman's Family Finances May 8, 2020, 9:10 pm

  It might not be a popular idea but this corona virus could help slay some of the zombie companies out there and shake things up.
  Hopefully it also leads to better lives for us overall – lower GDP notwithstanding
• 2 Vanguardfan May 8, 2020, 9:49 pm

  Sorry, another comment on misleading comparisons leading to incorrect conclusions.
  I looked at the country comparisons link, which you said showed Wales doing worst.
  The rates given on the website are for diagnosed cases, not deaths.
  Wales has 1090 deaths and c.11,000 cases, so a case fatality rate of nearly 10%. England has 27967 deaths and 133,000 cases, a case fatality rate of 20%. This suggests that case rates per capita reflect testing rates, rather than the underlying infection rates.
  On the same site, case rates by region show London with a lower rate than the North East, which is clearly nonsense and again reflects testing rates not infections.
  It would have been much more useful if the website had presented mortality rates per capita – for Wales its c 35 per 100,000, for England 50 per 100,000.
• 3 Max May 8, 2020, 10:09 pm

  I do expect the economy to recover, but not as much as that sharp “V”. I can definitely see the bounceback being much more gradual as people will have learned from this and be more cautious with their spending, traveling, etc.

  I’m not offended by the rally as much as others either. Sure, I’m not happy about the bailouts. But I’ve been fortunate that not me nor any of my friends or family have had any medical problems from the pandemic. I also held my shares instead of selling. And I’ve been fortunate to keep my job
• 4 The Investor May 8, 2020, 10:21 pm

  @Vanguardfan — I’ve had a couple of Zoom drinks so I am be missing something, but I don’t follow you. 🙂

  I am looking at the data on the front of the linked page. It says Wales “rate” 350.6 and England “rate” of 238.7. Below it says rates per 100,000 of population. In addition the blue is darker on Wales on the map, showing it’s the worst affected region.

  It was on those two pieces of data that I am saying Wales is the worst affected region.
• 5 Vanguardfan May 8, 2020, 10:44 pm

  Mmm, not sure I can explain it without repeating what I’ve just said?
  The rate they refer to is diagnosed cases per 100,000 population. You can only diagnose a case if you are testing. There are lots, and lots, of undiagnosed cases (in fact you think there are more undiagnosed cases than most people believe). Testing rates vary. Wales is only ‘worst’ if you believe diagnosed cases actually tell you anything meaningful, in a context where only a small proportion of infections are diagnosed (the tip of the iceberg) and where that proportion varies by region (the icebergs are more submerged in some areas than others). Testing rates vary by region, so in Wales, which has tested a higher proportion of their population, more infections have been detected than in England, where a lower proportion of the population has been tested.
  A more robust measure of how badly a region is affected is to look at covid deaths. If you calculate the death rate, using the number of deaths given and the population figures (I used 1.36m for Wales and 56m for England) then you can calculate that the death rate in
  England is higher than in Wales.
  Hence, I would say that England is more badly affected by covid than Wales, but Wales is testing more people and therefore has a (spuriously) higher rate of diagnosed cases.
  Does that work better?
• 6 The Investor May 8, 2020, 10:53 pm

  @Vanguardfan — Ah, yes, I see exactly what you’re saying now. Ironically I was having the same discussion today with somebody asking why the UK lockdown hadn’t worked (because cases weren’t coming down) and I pointed out that was because daily testing had massively gone up.

  I think you’re right; I’ll delete the comment about Wales.
• 7 Learner May 9, 2020, 4:02 am

  I’m curious to see if there is indeed a “second wave” of unemployment as the initial demand void ripples into service businesses which depend on those retailers. I lost my job at such a b2b company on the last day of April, 3 weeks after local stay-at-home orders began and a week before they were due to be relaxed.
• 8 JimJim May 9, 2020, 7:51 am

  Thanks for the Glassdoor article, I have been using them as part of my company research fro about four years now, so at last some evidence to back what I presumed. It does make you wonder though if it is just a sensitive weather vane, if a company is doing great, it can be a great place to work. I don’t know if the reverse could be as true that if it treats it’s employees well it will be more profitable. Either way, interesting. As for the most infected place, (not country) I’m within 12 miles of it… https://www.nwemail.co.uk/news/18436226.barrow-highest-coronavirus-infection-rate-country-new-figures-show/
  So nice to see in Which and the Guardian that people are considering moving to the country 🙂
  JimJim
• 9 FI Warrior May 9, 2020, 8:39 am

  Between radical incoming tech changes, brexit and now lockdowns, the economy has taken too many punches to the head, think coma vs dizzy spell. Hopefully all zombie companies will bite the dust, but I suspect those who made it over the too-big-to-fail line will have the lobby-power to get a free bailout lunch. Since this govt. is ideologically opposed to UBI and looks to be unshakably in power for the forseeable future, it will try to return things to the status quo asap. But with most people forced to at least run down their savings, possibly also run up debt, lose their homes and incomes, where will the growth come from? The 1% only use all luxuries ordinary people weren’t using anyway, like yachts, helicopters, mansions, so the real economy will bump along the bottom while people just get by, for a generation at least.

  We’re facing a reset of jobs to reflect changing needs as well as tech replacing people, wants will be less affordable and resources as a whole will be more rationed on a finite planet straining with overpopulation combined with an economy structured for maximum profit at the expense of unsustainable waste. There is a massive shift in mentality required to adjust to lifestyles reflecting the new ways we’ll be forced to live. Usable energy drives civilization level and the exhaustion of the easily accessible options in oil/gas will be the fundamental driver forcing this change.

  The focus on this current viral situation has fast-forwarded the inevitable changes by precipitating a crisis, but we were due a period of chaos because too many problems were incubating for too long. Economic, social, demographic, cultural, medical, political.
• 10 Vanguardfan May 9, 2020, 8:52 am

  No Jim, not the highest infected place, the place with the highest rate of detected infections…

  Geographical (and other) comparisons should stick to deaths, given that detection rates are so dependent on testing rates:
  https://www.ons.gov.uk/peoplepopulationandcommunity/birthsdeathsandmarriages/deaths/bulletins/deathsinvolvingcovid19bylocalareasanddeprivation/deathsoccurringbetween1marchand17april

  There is a hot-ish spot in South Cumbria (to 17 April) on this basis, but it’s nowhere near as bad as parts of London.
• 11 Jim McG May 9, 2020, 8:56 am

  I can’t understand why anyone currently visiting a retail park doesn’t feel a shiver of fear running up their spine. All those businesses closed, possibly forever. Goodbye, Debenhams you were rubbish anyway. And Pizza Hut, RIP. But don’t worry, all their workers can go and get a job with Amazon, or Microsoft, or when that nice wee bijou coffee shop reopens that sells the Fair Trade beans and makes their own sourdough. Honestly. They used to say go and buy shares of companies you physically see and experience doing well. How’s that working these days then? Outside of tech? If only you could buy shares in the mental health sector of the NHS. I feel they are going to be coming into a boom period in the near future.
• 12 JimJim May 9, 2020, 9:34 am

  @Vanguardfan
  I take your point, Our local press has never had a good reputation for accuracy, and, from anecdotal evidence within the people I have daily communications in these parts, testing is taking place, but it is by no means universal. Our death rate, as you mention is pretty high, as is the deprivation rates in several wards of the area affected. Correlation and causation are separate things but I would argue the link seems plausible in our case.
  JimJim
• 13 xxd09 May 9, 2020, 9:56 am

  Many situations seem to be being driven and resolved from the ground up rather than top down-people voting with their feet
  The lack of leadership abilities from our politicians and managers becomes more and more obvious every day-anyone can governing good times
  Reality was always going to hit at some time with our current debt burdens
  Covid just provided the straw that broke the camels back
  The self employed have to return to work or starve and will
  The nature of the self employed is to take a chance-Covid is just another problem to cope with
  Civil servants and council operatives on secure wages whether they work or not can afford to take a high moral tone -moral narcissism is the order of the day
  Inflexion point approaching between “death” from disease or from “starvation “
  Cool heads required and keep a reasonable amount of cash on hand-2 years living expenses ideally plus a tin hat
  xxd09
• 14 ermine May 9, 2020, 10:07 am

  > The lack of leadership abilities from our politicians and managers becomes more and more obvious every day

  ^This. Although there is at least one example of clear leadership, though I fear it’s headed the wrong direction and fear for its consequences. Somebody had to try out the ‘in general, it’s no big deal’ hypothesis I suppose, let’s hope that it’s correct. We’ll know by the end of the year.
• 15 Grislybear May 9, 2020, 10:30 am

  @ TI I agree mostly with your post. I am liking the recovery in stocks another improvement and I will be back to January levels. In my opinion the gloom is way over the top, I see a sharp recovery on the horizon and if necessary more money can be printed. The one problem I can see ahead is Brexit next Dec.
• 16 Sam May 9, 2020, 10:40 am

  For me, the current situation has reinforced in me the belief that I no longer want to be involved in stock market investments. How can the divide between “Wall Street” and “Main Street” be so great? I also don’t understand the argument that this crisis is different, that the unemployment and closed shops and defaulted mortgages are only temporary because we made the decisions to lockdown the economy ourselves, so therefore all will be rosy in a year or so. What was so special about the 2007-8 crash then? Did complex financial instruments which only 3 people in the world actually understand have more of a basis in reality than the shuttered shops and lost jobs now?

  Also, now there is less leeway for the central banks. There is only so much QE that can be done and only so low that interest rates can be cut. The “decade of austerity” we get told about didn’t actually happen. We barely made a chip in the deficit, let alone the national debt. “The curious task of Economics is to teach to men how little they know about what they imagine they can design” – Friedrich Hayek. I think some of our current economic planners will be surprised when they realise that they cannot predict or control every effect and side effect of their interventions.

  I realise that my henceforth abstention from stock market investing is most likely irrational and will be probably result in significantly less returns for me. However, my goal is only to accumulate a sufficient amount in the next few years to be able to afford real anti fragility (ie. Smallholding which produces real assets, etc) so that is a consequence I’m prepared to accept.

  Thanks as always for the links and hope everyone stays healthy.
• 17 Tony Edgecombe May 9, 2020, 10:46 am

  Has there ever been an incidence of a quick recovery after such a big economic hit? My guess is this is going to unfold just like coming out of every other recession.
• 18 FI Warrior May 9, 2020, 11:03 am

  @xxd09, you point out an inconvenient truth, or dirty not-so-secret. While old etonians instruct us that we’re all in this together, locking down for the cannon-fodder classes is a very different sacrifice to holidaying prematurely in a private villa on the Amalfi coast. At different ends of the resource spectrum, the two are incomparable and we might as well be in different worlds albeit superficially living side by side on the same planet. So in the spirit of Orwell’s animal farm then, some of us are more all in this together than others.
• 19 The Investor May 9, 2020, 11:11 am

  @Sam — I think a lot of people share this sort of sentiment you express here:

  How can the divide between “Wall Street” and “Main Street” be so great?

  However I would argue the divide is not so great. As I say in my post, there are two things pulling up global indices.

  One is large cap tech / growth stocks. There’s no divide here! We’re all on Facebook or Instagram. We’re all Googling. We’ll all shopping via Amazon. We’re all in the cloud. Even where we’re not (e.g. Tesla) in many cases those companies were based on earnings expected to be made many years in the future, so a slow period now doesn’t matter (provided they have the resources to get through it.)

  The other is really terrible — from a market perspective — downsides being taken off the table, such as a seizing up of all money markets (very possible around mid-March, in the mad scramble for cash) and all those people losing their jobs but getting no fiscal support.

  As my graphic this week shows, the fiscal support — the money to Main Street, if you like — has been so great in America it will actually offset lost earnings. Ben Carlson on his Animal Spirts podcast has been saying that if you do the sums the average furloughed American worker will be earning more *not* at work then in work (because they don’t get paid huge amounts to begin with, for one thing. 🙁 ) Of course this doesn’t apply to the unemployed, but still, important not to underestimate the stimulus into the real economy.

  Even after all that, shares exposed to the real pain of lockdown (and it’s potential ramifications) have not bounced much.

  E.g. Delta Airlines is down by c.60% YTD. Lloyds is down more than 50% YTD. Even Coca-Cola, the staplest of staples, is down by 25% since US lockdown was imposed.

  On top of all that, remember the companies most affected — the ones I’m most concerned for, from an ongoing full lockdown — are small business — restaurants, little cafes, hairdressers etc. Those aren’t reflected by the markets because they obviously aren’t listed in the markets. However to give an illustration, Franca Manca pizza restaurant owner Fulham Shore is down about 60%.

  I don’t really see a massive disconnect. 🙂

  Again, this isn’t to say things can’t get *far* worse in the markets and they will do in the economy. Everything is uncertain, as always. I’m just cautioning against the knee jerk “markets are mad” narrative.
• 20 xxd09 May 9, 2020, 12:06 pm

  Disasters are “normal “ -they are part of the human condition if not of the world/universe
  The fact that since the Second World War there have been no actual major crises has lulled us into the belief that these relatively stable times are the normal state of affairs-au contraire-Major Disasters every so often is the normal
  Then presuming one accepts this philosophy which our forebears did (or had to) then you can opt out and become a hermit (which I find increasingly attractive as I get older) or continue to play the game
  There are rules that help-get and stay married, have a family that works, have an emergency fund, do a job that has a use to society(including bankers!) ,do your job well etc etc
  The state can help but at the end of the day it is unfortunately/fortunately down to each individual to cope-with this current mess and the next one when it comes along
  We must get our ducks in a row and stay the course-we will see this like again!
  Nothing like a good platitude-unfortunately the speck of truth in each one is often a nugget of truth!
  That’s enough from me!
  xxd09
• 21 ZXSpectrum48k May 9, 2020, 12:17 pm

  Back to the basics. The price of all financial assets, the present value, is simply the forward values from the projection curve, discounted by the forward values of the risk-free curve. When the projection curve goes up/down, the price of the asset goes up/down. When the discount curve goes down/up, the price of the asset goes up/down.

  The projection curve represents the growth rate of the instrument. This can be deterministic/risk-free as the coupon/principal of a govt bond, or as stochastic/risky as the coupon/principal on a corp bond, the dividend of a stock or earnings growth. The discount curve represents the risk-free rate you need to discount those future income or capital changes by, and is derived from the break-even forward rates of govt bonds or OIS swaps.

  Now, the projection curve of many risky assets has clearly fallen. Default/recovery rates on corporate bonds are expected to rise, increasing principal losses. Equity dividends are being cut. Earning’s growth is expected to fall hugely. Note, however, most of these losses are relatively short-term. Say 1-2 years of cut dividends, lower earnings, higher default rates. Not 5, 10 or 30 years. Nonetheless, it’s clear the lower projection curve should lower asset prices.

  Against that, however, look at the discount curve from USTs or OIS swaps. The 2-year discount rate is 3% lower, 5-year discount rate is 7% lower, the 10-year discount rate 13% lower, the 30-year discount rate is 35% lower. Lower discount rates means higher risky asset prices. Now, the 2-year discount rate has fallen just 3%; this is easily overwhelmed by the fall in the 2-year projection rates which could be down easily 10%+, perhaps 25%+ in many cases.

  That’s, however, isn’t the case for the 5-30 year rates. Here, the discount rates have fallen by far more than the fall in projection rates – which may not have fallen much at all. In these parts of the curve, the larger fall in discount rates vs. projection rates is actually creating pressure for asset prices to rise.

  Essentially, this event has caused the projection curve for risky assets to steepen dramatically, whilst causing the risk-free discount curve to flatten. Now, quite rightly, the short term gets a much higher weighting than the long term. But it’s not clear that asset prices have to go down substantially even if the economy tanks and/or company dividends/earnings fall. The fall in the long-dated discount curve is absorbing the impact of much of that loss.
• 22 Neverland May 9, 2020, 12:30 pm

  @ZXspectrum

  “The price of all financial assets, the present value, is simply the forward values from the projection curve, discounted by the forward values of the risk-free curve.”

  No its not its a market just the same as Smithfield meat market.

  What has happened is the central banks walked into the market with a lot of money they just printed and bought all the meat from prime steak to offal.

  “In the short run, the market is a voting machine but in the long run it is a weighing machine” Ben Graham
• 23 TahiPanas2 May 9, 2020, 1:07 pm

  ZXspectrum,

  Gulp! I don’t think I understood half of what you said. I am the problem not you. Feels like I should give up this investing game.
  I don’t think I will though. Its too much fun and a bit addictive. Ever onwards in blissful ignorance.

  TP2.
• 24 Keith May 9, 2020, 1:13 pm

  @Neverland. I don’t think you’re really contradicting @ZX, but you’ve given a good narrative explanation of why @ZX’s curves are now pointing as they are.
• 25 Neverland May 9, 2020, 2:05 pm

  @Keith

  “if you can’t explain it simply you don’t understand it well enough.” Albert Einstein
• 26 Jonathan May 9, 2020, 2:18 pm

  How does the stock market function when a problem is universal? It may be a weighing machine, but it doesn’t use an absolute measure of weight, its measures are relative. If one company suffers a 30% loss of income and will spend the next couple of years recovering from that, the markets will downgrade its share value relative to other companies accordingly. But if all companies are going through the same trauma, might there be a possibility share prices don’t fully reflect the scale of the downturn and the market just adjusts to reflect companies’ different potentials for recovery?

  Similarly, if one country’s approach to a crisis was to lend itself money it had no intention of repaying in a hurry, that would quickly be reflected in exchange rates and bond yields. But if all countries are having to take similar measures, is there the same hit to the individual economy?

  And one for @TI – did you see the story on the BBC today quoting a Scottish professor who suggested the lower R for Covid-19 in London is due to partial herd immunity kicking in? https://www.bbc.co.uk/news/uk-scotland-52578939. Maybe he has been reading your blog.
• 27 MrOptimistic May 9, 2020, 2:50 pm

  I always wondered about the need for a stock market, what real role it plays in an economy, people selling shares to each other based on concepts of value and fair price. If a stock pays no dividend and reinvests all its earnings ( excluding executive bonuses natch), do we assume it’s price should rise if the model continues to hold and future buyers and sellers retain faith in this model? Why is, say, a P/E of 14 considered fair value? Why not 30, 100 or 10?
  The only anchor I can see capable of absorbing liquidity ( ie not gold) are bonds, and share values should be referenced against those. Otherwise bootstraps and Dutch tulips spring to mind.
  Providing no- one discovers a new continent, or a modern equivalent of the railway, money has to go somewhere and will find a rational for doing so.
• 28 Neverland May 9, 2020, 2:52 pm

  “But if all countries are having to take similar measures, is there the same hit to the individual economy”

  Depends where you started off from doesn’t it?

  E.g. Germany started off with a balanced budget and a low debt/GDP ratio.

  Britain started off with a big budget deficit planned, now c. 100% government debt to GDP and an untested plan to leave the EU.

  Sure the BoE will always lend to the treasury, but if you were a foreigner and had plenty of wanting debtors to pick from, why bother.
• 29 Sam May 9, 2020, 3:02 pm

  @TI All you say is correct of course 🙂 I think the issue is that I have only ever invested passively before, and therefore probably subconsciously understand “S&P500 up 20% from its lows” as all companies in that index having equally gone up, when of course the index just reflects the average, and individual companies may do better or worse.

  I also probably sub-consciously compare the performance of various indexes with what I see when I cycle past shops or what I read about in the local news, when of course many of these small businesses are not even represented in an index.

  Due to these and other similar mental mistakes that I’m making, I’m trying to stop myself from making any big investment decisions whilst we are right in the middle of the storm (and when the lockdown has probably started to cloud my judgement!). This is hard however. Maybe I am more of an active investor than I thought!
• 30 billy ray May 9, 2020, 3:41 pm

  Wow, how fortuitous to bail out in Feb through a tip off & keep it quite! Unlike sharing the recommendation to buy UK property REITS a couple of months ago. Indulge the ego all the way. Good work regarding tracker efficacy but that drum can only be banged so often. Anti democrats shouldn’t use the current imperilling predicament to try and thwart Brexit.
• 31 Learner May 9, 2020, 3:54 pm

  A little anecdata from a region where lock-down was recently relaxed by a degree: went to my local cafe yesterday and the difference between 1 week ago and now is mask wearing has gone from ~90% to around 40%, 6ft is now 3ft. I’m not going back there again for a long time. Anyone got a good kouign-amann recipe?
• 32 The Investor May 9, 2020, 4:05 pm

  @billy ray — Thanks for reminding me why I don’t talk about my active ideas on this site anymore, and instead try to leave the focus on the passive stuff. I don’t brag about things and have made and admitted many mistakes over the years.

  Here’s a reminder I posted in the start of February — not particularly motivated by the virus — that I was seeing ever more signs that people were getting too giddy and frothy:

  https://monevator.com/remembering-bear-markets/

  Here’s my article from late February where I note my largest ever move to cash in early February, but then point out (because I don’t make stuff up, and only mentioned it in today’s post above to illustrate that we often need to see something in front of us to act) that unfortunately I’d moved about half of it back due to suspecting I might be over-pessimistic:

  https://monevator.com/weekend-reading-bring-me-sunshine/

  I have no idea what you’re thinking about re: REITs. I wrote about them 2-3 years ago here when even I hadn’t realized just what a joke Team Brexit was, how utterly bereft of a plan or strategy or unity, and thus how they’d stay cheap indefinitely as a result.

  My co-blogger did write a passive article about them a few months ago, explaining why he was no longer so sure they deserved a place in passive portfolios.

  Judging from your comment, maybe you read this and somehow thought it was a recommendation.
• 33 ZXSpectrum48k May 9, 2020, 4:33 pm

  Two points. 1) Of course it’s the market. What do you think defines the projection and discount curves?

  2) The quote “if you can’t explain it simply you don’t understand it well enough” by Albert Einstein. There is no citation supporting such a quote. As anyone who has ever read Einstein’s original papers, he didn’t win the Nobel for the simplicity of his explanations.

  The quote probably comes from a misinterpretation of a conversation Einstein had with Louis de Broglie. Instinctively, Einstein had an inability to accept the statistical interpretation of quantum mechanics. Einstein said to de Broglie “that all physical theories, their mathematical expressions apart, ought to lend themselves to so simple a description that even a child could understand them.” This also linked him, incorrectly, with Ernest Rutherford’s comment that “it should be possible to explain the laws of physics to a barmaid.”
• 34 Neverland May 9, 2020, 4:53 pm

  @ZXspeccie

  So you are a bond fund manager

  How much more QE over and above the current extra £210bn do you think the UK can get away with without a credible plan to return to a primary fiscal surplus in the medium term given government debt to GDP must now be around 100%?
• 35 cat793 May 9, 2020, 5:20 pm

  The critical question seems to be whether we can ease lock downs before too many small businesses (and airlines etc) run out of money. I think now the initial wave of fear of the virus is being supplanted by fear of impoverishment. Hence the building momentum to ease lock downs around the world even as it seems possibly premature.

  If people do prove willing to face the risk of Covid 19 and continue easing then I agree that it will be a V shaped recovery. Only anecdotal but I don’t know anybody who has actually lost their job. They are on furlough, working from home or working normally. All these people have money to spend but cannot. Once they are free to do so they will be out (tentatively maybe) spending on restaurants, bars, cafes, flights, hotels and other service industries. Demand has been artificially suppressed. Most people still have money to spend.
• 36 MrOptimistic May 9, 2020, 6:11 pm

  @ZX. I’ve tried to explain many things to barmaids over the years but never, I hope, the laws of physics. On second thoughts perhaps I did and then that would explain many things.
• 37 Ruby May 9, 2020, 6:11 pm

  @ZX Spectrum 48K – great post, thank you. It filled in a few gaps in my understanding and I only had to read it once!
• 38 Sparschwein May 9, 2020, 6:48 pm

  I think there’s a point here that central banks’ interventions have been driving asset prices up

  – directly through aggressive buying. The Fed has a whole thicket of debt purchase programs way beyond just govt bonds, they also buy corp bonds, even junk bonds.

  – indirectly through a lower risk-free rate, as @ZXSpectrum explained very well (#21). The principle applies to all assets that produce future cash flow (and arguably even to those that do not).

  – and the Fed’s lending facilities reduce bankruptcy risks.

  The benefits of all these policies accrue to those who own financial assets, which are already concentrated in the hands of a minority.

  The consequence: ever more inequality.
• 39 FIRE v London May 9, 2020, 6:51 pm

  @ZX48k as usual you bring clarity / light into the fog – thank you.
  But in fact Neverland asks a good question re how sustainable UK monetary/fiscal policy is right now – I too would be v interested in your view?
• 40 ChesterDog May 9, 2020, 7:46 pm

  TI, if no one has already got there ahead of me (haven’t read all the comments yet), auto-correct bit you:

  “…because I finally became convinced rates we’re going anywhere in a hurry. “
• 41 The Investor May 9, 2020, 7:53 pm

  @ChesterDog — Oops! Thanks.
• 42 Jonathan May 9, 2020, 8:37 pm

  @ZX, wasn’t it Richard Feynman who used to boast of his success with barmaids, presumably after explaining physics to them?

  And @Learner, there was a good kouign-amann recipe on Great British Bake Off a few years ago, it is certainly in the recipe book we bought and I think also online. Good in that it worked really well first time. Though assuming you are in Brittany you may be more critical than we were about how authentic it is.
• 43 I know nothing (IKN) May 9, 2020, 9:20 pm

  Dear The Investor – how about post hypothesising that inflation will at some point run above the target rate (currently 2 per cent) and the impact on investments. Given governments will run large deficits and debts are their stooges, central banks, likely to ignore inflation. I think I’m correct in saying between 2010 and 2020 there were periods when inflation was running at well above 2 per cent but the BofE would simply ignore it and keep rates low. If we are likely to see that over the coming years and decades how should we position our investments. I for one intend to load up on debt, upgrade to the biggest house I can (in a nice not heavily densely populated part of outer London) and reduce my allocation to governemnt bonds in favour of equities (preferably diversifying away from the UK) and Corporate bonds. What say you? Maybe an article on the subject?
• 44 xxd09 May 9, 2020, 9:50 pm

  Feynman also said “ Science is the belief in the ignorance of experts”
  Maybe apposite today?
  xxd09
• 45 Jonathan May 9, 2020, 10:04 pm

  @xxd don’t remember that one, but advice to maintain your critical faculties regardless of someone’s reputation for expertise sounds typical of Feynman. And a universal truth.
• 46 Richard May 9, 2020, 10:15 pm

  Inflation didn’t run rampant after all the QE 10+ years ago. Why is this time different? I would not bet on inflation by taking on debt (if I was a betting man).

  Of course you may say the official measure of inflation has purposefully been kept low through manipulation…..
• 47 Snowman May 10, 2020, 8:29 am

  If 80% of the UK population get the virus, and
  0.4% of those who get the virus die.
  And on average they lose 5 years of their life

  Then that is on average a loss of life in days over the whole population of
  = 0.8*0.004*5 /365
  = 6 days

  So it’s as if you said to every person in the UK now; we are telling you now when you get to say 80 years old, we are going to jump your life forward about a week, and so you lose that week of your life.

  That’s slightly better than when in 1752 Britain switched over from the Julian to Gregorian calendar and the calendar jumped forward 11 days, and everyone lost 11 days of their lives.

  It seems strange that we are calling this a disaster, when that is the average affect to us. It probably only justifies some minor ‘give us back our 11 days’ riots.

  And why if someone was not scared of dying this year before covid-19 came along would you, if thinking rationally, be scared of dying from covid-19 this year? The probability of the latter is equivalent and slightly lower, because it is a virus that roughly affects us in proportion to our normal age/health adjusted ongoing mortality risk.

  Of course if you are the person, or friend and family of that person that dies, and loses a number of years of your life then it’s very real. But that’s true if we die in a cycle or snowboarding accident. It doesn’t mean we don’t go to the top of the mountain and enjoy the off piste or black run down.

  A neighbour said to me yesterday ‘do you think we will ever get back to normal?” and my immediate response was ‘of course we will’. At some point most of us will have had the virus and it will be gone. At that point perhaps it may have mutated and we might get it again, but our earlier encounter will give us much more protection against it then and it will be like seasonal flu.

  But perhaps my reply was a bit rushed, and maybe we will self destruct through the way we deal with this. The sensible ‘flatten the curve and save the NHS’ idea seems to have morphed into ‘let’s irrationally destroy all life for 2 years by suppressing the virus’ and some bizarre concept of a ‘new normal’ for decades to come.

  I suspect common sense will prevail at some point and we won’t self-destruct and destroy our own enjoyment of life, but who knows.
• 48 Jonathan May 10, 2020, 11:37 am

  @Snowman, I am not sure I find the concept of average number of lifetime days lost to be helpful. We take precautions all the time (most likely as a snowboarder you wear a helmet, certainly I do skiing) to reduce a small statistical probability of a bad outcome.

  But I do think comparing the Covid risk with more familiar risks is helpful. David Spiegelhalter said this morning that only two individuals under 20 had died in the UK from Covid; I imagine a similar number normally die from accidents every day. It hardly registers as a risk. But the risk is much higher in over-80s: possibly similar to their higher risk of heart disease related deaths so it would justify the same investment in protection and treatment as we do for heart disease.
• 49 ZXSpectrum48k May 10, 2020, 12:18 pm

  I’ve been receiving considerable macroeconomic research in the last month concluding that the lockdown is not responsible for the majority of economic damage occuring. Little of this idea is getting into the public domain since most of it is paid for research but it’s very much the opposite of the narrative being spun by the media that the lockdown is causing the economic damage.

  The Harvard economic team, however, has published their https://opportunityinsights.org/wp-content/uploads/2020/05/tracker_paper.pdf. One of their conclusions is that the shutdowns themselves had “little or no impact on economic activity”. Tbh this supports my view that “it’s the pandemic, stupid” and that in counterfactual scenarios where no lockdown has occured the damage would be just as bad. Businesses were laying off staff and household were changing their behaviour well before the US or UK government finally woke up to the risks.

  @xxd09. That Feyman quote is out of context. It was part of a speech given at the 1966 National Science Teachers Association. The full text is here http://www.feynman.com/science/what-is-science/.

  I would argue a more appropriate quote for current times from his speech is
  “I think we live in an unscientific age in which almost all the buffeting of communications and television–words, books, and so on–are unscientific. As a result, there is a considerable amount of intellectual tyranny in the name of science.”
• 50 The Investor May 10, 2020, 1:11 pm

  @ZXSpectrum48k — The Quillette article in the Covid-19 links argues similar, suggesting that lockdowns pretty much followed behind the public already self-isolating / businesses disrupting themselves (and so ushering in the start of the economic downturn).

  With that said, you could still argue our (potential over) reaction to the virus, whether government-sanctioned or not, is responsible for much of the slowdown.

  I appreciate that you think there’s been an under-reaction, not an over-reaction. But for those of us more leaning towards the latter camp, you could still argue that an alternative government response that tried to keep the economy moving and being realistic about the virus whilst simultaneously shielding / testing / tracing / whatnot would have produced less of an economic hit.

  There’s a statistic above from Professor David Spiegelhalter saying two people under-20 in total in the UK have died of Covid-19.

  If that’s true even I’m shocked it’s that low, and I’ve been keeping close tabs on this thing.
• 51 The Investor May 10, 2020, 1:26 pm

  Typo: Whoops — Two people UNDER-20 obviously!

  There’s not that much uncertainty out there…
• 52 Vanguardfan May 10, 2020, 1:31 pm

  ‘Sweden unlikely to feel economic benefit of no lockdown approach’
  https://www.ft.com/content/93105160-dcb4-4721-9e58-a7b262cd4b6e
• 53 Jonathan May 10, 2020, 1:42 pm

  @ZX, interesting paper. I think unpicking what resulted from legal imposition of restrictions and what from human responses to pandemic fears will be a fertile academic area for sociologists for some time to come.

  Here in the UK, lockdown only occurred on March 24th but clearly human behaviour was causing toilet paper hoarding well before that. And I think it was in one of @TI’s links I saw the graph showing that on one measure at least, Sweden’s behavioural response was very similar to elsewhere despite the much less draconian lockdown.

  But I think all that means is that the start to economic recovery won’t simply be the government giving the green light, there needs to be the public perception that they can start doing things and spending money without risk.

  And thanks for another good Feynman quote. “Intellectual tyranny” is a strong term, but the media do distort science to justify a good story. The reason the government has SAGE is not simply to access individual experts, it is so that there is a rigorous scientific filter to ensure that information has to be reliable to be used as the basis of policy. It is just a lucky chance that people like Chris Whitty and Patrick Vallance happen to have relevant personal expertise, their official role is really to ensure critical scrutiny to decide which science should inform the government.

  The easy news headline starting “scientists say …” is a pet hatred of mine. There is almost always some single source without any analysis of whether that opinion is justified by the data or building on previous consensus. I always feel it is an unwarranted waste of my time to need to read likely prejudiced speculation to discover that what the journalist means is “one provocative individual with a science background says …”.

  (Though of course “one provocative individual with an impeccable science background” would be a good description of Feynman).
• 54 Sparschwein May 10, 2020, 1:46 pm

  > I would argue a more appropriate quote for current times from his speech is
  “I think we live in an unscientific age in which almost all the buffeting of communications and television–words, books, and so on–are unscientific. As a result, there is a considerable amount of intellectual tyranny in the name of science.”

  Very true. As a scientist I am disgusted how the name of science is being abused for political propaganda. The typical mechanisms of propaganda in the media include: caveats and unknowns ignored; facts distorted and/or taken out of context; shoddy studies and nutcase outlier opinions hyped ad nauseam, if only they serve the vested political and financial interests.

  I try to stay away from the Covid-19 debate because I’d rather use my time more productively than fight the windmills of disinformation.

  Populists are un-scientific at heart: They operate not through seeking an understanding of the real world, but by manipulating opinion and emotion.
  Remember the Brexit campaign, screw the experts etc?
  It’s not a coincidence that the populist governments in the UK and US have handled Covid-19 especially poorly.
• 55 WhiteSheep May 10, 2020, 2:13 pm

  Two deaths under 20 – ONS data shows 2 deaths under 15 up to 24 April (https://www.ons.gov.uk/peoplepopulationandcommunity/birthsdeathsandmarriages/deaths/datasets/weeklyprovisionalfiguresondeathsregisteredinenglandandwales; under 20s are not broken out).

  The Verity et al. paper from March estimates the infection fatality rate in China in the under-10 age group as 1 in 60,000, but with high uncertainy (lower 95% confidence limit 1 in 540,000). In the 10-20 group the estimate is 1 in 14,000 (1 in 70,000 lower 95% confidence limit). However, these estimates appear to correspond to a single death in the Chinese cohort in the 10-20 group.

  So 2 deaths under 15 does sound low, but in these age groups we seem to be looking at low number statistics in general.
• 56 Seeking Fire May 10, 2020, 2:32 pm

  The Investor ….As White Sheep says – The ONS data out on 24th April (next update May 12) shows that 9 people have died under the age of 20 and 2 under the age of 14.

  https://www.ons.gov.uk/peoplepopulationandcommunity/birthsdeathsandmarriages/deaths/datasets/weeklyprovisionalfiguresondeathsregisteredinenglandandwales

  So yes out of a total of approximately 29k recorded deaths per ONS just a tiny proportion have involved teenagers / children. >90% are people over 70.

  I’ve asked half a dozen friends now, including one who says they won’t send their children back to school, how many people under the age of 20 have died with answers from them ranging from 500 – 1000. When I say the ONS have recorded 9 people so far there’s a dumbfounded silence and a computer says no response. It’s possible they all had underlying health issues but not known from the data. 2 or 9 deaths doesn’t sound low it IS LOW!

  This is clearly a disease that is dangerous and deadly to the elderly and quite possibly not pleasant if you are youngish – middle aged. Having thought the govt had done a reasonable job it is now obvious that there has been a major disaster relating to elderly people and care homes. Germany and UK have a similar number of cases recorded (we are obviously much higher I admit because we aren’t testing as much). But if you look at the age profile (available on statista) around 15% of Germans tested positive were above 70 years old whereas for the UK its closer to 30%. We haven’t shielded elderly, which we should have done but equally we have scared everyone witless that if they touch anything in a supermarket they are going to be brown bread.

  How about a bit of self help. (a) If you are fat (can grip your love handles), stop reading this blog, put down the biscuits, go for a run and lose some weight. There seems to be some correlation with fat people getting ill. (b) get 8 eight hours sleep to boost your immune system (c) if you do get sick with any illness do nothing and focus on recovering. Good old BOJO appeared to do none of this. It may not help at all but try and lengthen the odds.

  I would love to see schools opened in the next couple of weeks and more efforts made to shield elderly people away from the population to help a return to normality.
• 57 ZXSpectrum48k May 10, 2020, 3:06 pm

  @FvL. Regarding that sustainability of UK monetary/fiscal policy right now. First, my area these days is more EM markets than the UK. Second, it requires a long discussion, not appropriate for a comments section.

  Our monetary policy approach is not different from most other in the G10: rates at ZLB and QE. There is clear long-term term damage in this approach but the market has accepted it for over a decade. Another round just takes us one step closer to Japan.

  On fiscal policy, I think it’s sustainable near-term. It’s not that fiscal expansion, leading to larger Gilt issuance, is a good option. It’s just the least bad option. It’s never been cheaper – we’re paid to issue debt in real terms – and demand for duration is insatiable. Let’s allow investors to fill their boots. £200bn of issuance will cost £600mm-£1bn a year in interest. a rounding error vs. govt expenditure at £800bn/annum. The principal is being deflated away. The Gilt curve the longest duration market in the world, so rollover risk (which is what triggers fiscal crises) is low.

  The UK has a large captive audience for it’s debt. Regulations have domestic lifers and pension funds over a barrel. Foreign real money bond investors are less likely to dump Gilts or shun them through a buyer’s strike: 20-30% of them are passive and 50-60% are active but they only vary their duration exposure by 5-10% vs. index. So in practical terms, real money investors are about 70-80% indexed. This is a side effect of passive investing: it allows governments to be less fiscally prudent and get away with it for longer. Stuff the debt holders and they don’t even complain. 20 years ago, when investors were allowed to speculate, it would have been easier for them to hurt imprudent countries via the debt channel. Now nobody wants or can go against CBs or govts.

  Clearly alternatives to higher Gilt issuance is higher taxation to fund govt expenditure or letting the debt burden fall on the private sector. Normally, both would be probably be better, but here neither are ideal. Higher tax reduces free cashflow and this is a cashflows recession. Private sector debt is shorter duration and has much higher rollover risk. Either it won’t get rolled leading to default or it gets rolled at punitive credit spreads.

  Long-term, of course, this isn’t sustainable, but that comes more down to the key UK vulnerability: it’s persistent current account deficit. That is why both private and public sectors are getting into debt. As Carney said we live “on the kindness of strangers”. As usual, I suspect the eventual stress will appear via the currency channel.
• 58 Jonathan May 10, 2020, 3:06 pm

  @Sparschwein, your comment seems to acknowledge one of the significant intellectual divides.

  For scientists (I am another one) there is primacy of data, and the acid test of any new claim is whether the authors present evidence that will back it up. Though to be fair, it is also how any new evidence builds on previous accepted understanding.

  In the humanities, like philosophy and history (not sure about the classics our PM studied) there is instead primacy of authority. Any new claim starts from a specific previous view, preferably by one of the big names in the field, and explores its consequences in depth with the aim of extending the boundaries of that view.

  Brexit views are well established to lie on a gradient of previous educational level, I wonder whether they would also correlate with discipline among those with degrees.

  Unfortunately the vast majority of journalists are not equipped to critique science on its own terms.
• 59 Tony May 10, 2020, 4:27 pm

  @ Jonathan: “Brexit views are well established to lie on a gradient of previous educational level, I wonder whether they would also correlate with discipline among those with degrees.”
  I sometimes, neutrally and baldly, cite the marked educational divide on Brexit, demonstrated in the various polling analyses. Which as with the age divide, tells us something, albeit not the reason why. But your turn of phrase is priceless. My field is law, although I initially studied a science degree. Much in common: ability to absorb masses of information and evidence, weed out the relevant, and distinguish solid from baseless positions.
• 60 Neverland May 10, 2020, 8:30 pm

  @zxspeccie

  “As usual, I suspect the eventual stress will appear via the currency channel.”

  Depreciation of sterling leads to higher inflation. Luckily we have a nice case study from the watertorture effect of the Boris/Farage double act since 2016.

  5% decrease in sterling ~ 1% long term increase in CPI, link

  https://www.bankofengland.co.uk/-/media/boe/files/report/2018/eu-withdrawal-scenarios-and-monetary-and-financial-stability.pdf?la=en&hash=B5F6EDCDF90DCC10286FC0BC599D94CAB8735DFB

  If you do em bonds you will be very familiar with the travails of the turkish lira
• 61 Simon T May 11, 2020, 8:01 am

  @Seeking Fire “How about a bit of self help. (a) If you are fat (can grip your love handles), stop reading this blog, put down the biscuits, go for a run and lose some weight. There seems to be some correlation with fat people getting ill. (b) get 8 eight hours sleep to boost your immune system”
  As a slightly over weight middle aged man reading this with a bacon and egg sandwich in one hand, err you actually made me laugh out loud.
  Actually for the first time in decades I have been running around the garden and doing knee presses.
  In my youth I was an athletic person but for the past two weeks something has clicked inside me that I need to do exercise.
  It just happened, I have no idea why, I have not been outside the driveway in 7 weeks and normally I would be walking all over London between clients etc, on Fridays I would be sometimes seen dragging my suitcase and laptop bag between my hotel in Battersea and Kings Cross to get on the train (its a nice walk btw).
  I just feel weird at the moment
• 62 Simon T May 11, 2020, 8:02 am

  Oh I forgot the hangover, late night Brandy now seems the new normal
• 63 Naeclue May 11, 2020, 8:16 am

  A strange time to do it, but we started moving towards our new drawdown strategy last week. Previously 60:40 for many years, now 50:50, 50 years expenditure in stocks, 5 in cash. Gilts and US Treasuries are gone, SIPPs now equities only. ISA equities and a short dated corporate bond fund that we will gradually dispose of in future years as we bring share ETFs in. We would do that now if we did not have CGT to pay on the ETFs.

  We found we were not far off our 50y stocks target already, only having to buy 5y worth. Biggest change was the disposal of gilts and long dated US Treasuries.

  We don’t plan to do any more rebalancing, but will cap value of stock portfolio at 60 years expenditure.
• 64 Snowman May 11, 2020, 8:48 am

  @Jonathan

  Re David Spiegelhalter who a lot of us here recognise as a voice of reason.

  He was on the Andrew Marr show yesterday and absolutely nailed it with a brilliant interview. To the point, and with the humility to recognise he perhaps could have been clearer in his Guardian article about international death comparisons (I think he’s being a bit harsh on himself there but you have to warm to him in being so self aware)

  A must watch on the BBC iplayer from 46 minutes 17 seconds (about 10 minutes duration)

  https://www.bbc.co.uk/iplayer/episode/m000j4vd/the-andrew-marr-show-10052020
• 65 xxd09 May 11, 2020, 9:05 am

  Naeclue-am I reading this right -you are measuring your safety net for retirement re expenses with the size of your share portfolio
  Most investors put bonds and cash in this role
  Mind you it’s the Warren Buffet way when you have the benefit of a massive portfolio-his recommendation for his wife was 90% S&P 500 and 10% US Treasuries
  If this your case congratulations on your sizeable portfolio
  xxd09
• 66 The Investor May 11, 2020, 9:40 am

  @Snowman — That was indeed a good interview. Worth watching his rationality in light of the social media hysteria that met the government’s confused message last night. (Understandably to some extent… The gist: “Here’s a clear 5-point scale. We’re at 3.5. Ish.”)

  They’ve successfully terrified the population with simple slogans, and now they want to unwind it and introduce some subtlety before we get a depression.

  There’s never been an easy answer and the statistics are still incoming and altering the picture of course, but if the messaging had been more sober and proportionate from the start — and put more emphasis on protecting the elderly if they really had to lay it on, so people got a better sense of the apparent risks from this disease — then I feel it might have helped.
• 67 Naeclue May 11, 2020, 10:07 am

  @xxd09, when we properly worked out what we were likely to spend, excluding significant one-off planned expenditure and funding the gap to state pensions, we found we needed a drawdown rate of less than 2%, so settled on a drawdown rate of 2%. We would like to leave a legacy (our SIPPs) and from all the reading we have done, the Warren Buffett portfolio seemed the way to go, but with global stocks instead of just the S&P 500. A 2% SWR seems historically fairly safe even with a high equity component, and the higher the equity component, the higher the expected legacy.

  2% is approximately the dividend yield of the FTSE World index, so with a bit of luck we should not need to sell shares other than for portfolio management. eg selling shares in SIPPs, buying in ISAs to raise cash for SIPP withdrawals and also selling shares outside tax shelters and buying inside the ISAs. We plan only to start selling shares if we drop down to only 1 years worth of cash.
• 68 Simon T May 11, 2020, 10:23 am

  @naeclue – I am 5 months now away from retirement and starting to get my ducks into line (transferring DC pensions into SIPPs), my planned portfolio looks to me complicated but only because I am diversifying across platforms. (HL, ii and AJ Bell) and also fund managers. I am working along a four pot strategy (cash, heavy bonds, 60/40, active/100%). It is a bit scary to say the least
• 69 Ruby May 11, 2020, 10:23 am

  @The Investor – agree David Spiegelhalter is a beacon of common sense amid all the guff. It does seem to be overwhelmingly the case though that the guff continues to trump common sense. I have a CEO chum who has no plans to visit London again this year even though he has a business and staff to manage there. I said that being like Charlie in ‘Charlie’s Angels’ only goes far and staff need to see their managers but to no avail – he’s no going to risk killing his children. Risk seems to be a rather slippery concept to most of us and the prevailing opinion still seems to be that covid and the bubonic plague are similarly lethal.
  This is partly why I think the pace of recover will be so slow and confidence will take a long time to return. I suspect too that the unions, and the teachers unions have started making noises already, will use it a pretext for negotiations of various sorts and the atmosphere in some sectors will become pretty febrile. None of this bodes well for the end of the furlough scheme and I assume the Chancellor will be brow beaten by media and unions alike to extend it rather more generously and for longer than might otherwise be the case.
• 70 Tony Edgecombe May 11, 2020, 10:40 am

  The messaging from government has been appalling over the last few days. All they needed to do was announce golf courses and garden centres can re-open. Instead we had the usual bluff and buster from BJ, it seems he can’t resist an opportunity to grandstand.

  The Spiegelhalter interview was good, he is always worth listening to.
• 71 Snowman May 11, 2020, 10:44 am

  @TI

  David Spiegelhalter started by making the point that he found it extraordinary that according to Ian Diamond at the ONS, it wasn’t until April 17th that they finally got asked to do a survey to find how many people have got the virus and how many have had the virus. First results due out this week apparently.

  I’ve just looked back and the urgent need for the population random sampling and antibody testing was being discussed back here on monevator on 14th March and the need was apparent way before then. This should have been a central part of pandemic planning. There might have been a delay by having to wait for a reliable antibody test, but there was nothing stopping the random sampling itself being started back in March.

  How can anyone have any confidence in the UK response to the virus, when this sort of thing has been going on?
• 72 ZXSpectrum48k May 11, 2020, 11:11 am

  @Ruby. I wouldn’t travel into London and I’m only in Surrey. I think viral load matters hugely to health outcomes. London and NY score top marks for viral load. Train+tube+office/cafe+tube+train = lots of potential opportunities to be exposed.

  I think you also have to make the distinction between outright risk vs. relative risk and also risk vs. return. If the IFR is say 1%, then picking a few recent research papers at random I could calculate my probability of death at anywhere between 0.45% and 1.2% (mainly driven by being males tbh). Now the background death rate for my age/sex is around 0.3%. So in outright terms, some would consider the risks not that high. In relative terms, however, I’m looking at a 50% to 400% increase, which is huge.

  Moreover, what is the upside from travelling into London? I could see/hear everyone via videoconference, I could my manage the staff, talk to analysts at banks. There is just no reason for physical proximity. It’s just a social convention that we commute into work. It’s not actually necessary. I’m with your CEO friend here. Upside of travelling to London, precisely zero. Downside something. Something wins. I hardly know any colleague/ex-colleagues in my line of work that have any intention of working in London office. Like me, they just don’t see the risk-reward and we’re all in the business of evaluating risk-reward.

  @Snowman. The lack of population random sampling for antibodies is another reason that I think this govt has failed utterly. We should have been doing this every week across the country for at least two months. It’s a key part of understanding the transmission mechanism.
• 73 Grumpy Old Paul May 11, 2020, 11:40 am

  I’ve been following David Spiegelhalter via his blog and twitter for some time. He doesn’t pull any punches in that interview, especially when referring to the daily media circus and the statistics banded about therein. The only issue that I was slightly sceptical about was the proportion of excess deaths he implied might be “indirect deaths” due to COVID-19. I can accept that medium/long term there will be excess deaths due to a lack of screening, reduced levels of treatment for cancer and late diagnosis of disease as a result of reduced GP consultations but I would have thought these would take many months or years to loom large in the statistics. I suspect that as more COVID-19 tests are performed, especially in care homes, the proportion of excess deaths attributed to COVID-19 will climb. I’m basing this observation largely on https://www.ons.gov.uk/peoplepopulationandcommunity/birthsdeathsandmarriages/deaths/bulletins/deathsinvolvingcovid19englandandwales/deathsoccurringinmarch2020#comparing-covid-19-to-other-causes-of-death which analyses deaths during March.
• 74 Ruby May 11, 2020, 11:54 am

  @ZX Spectrum – I think human contact greases the wheels and zoom or teams or whatever, while a useful stop gap, is no substitute. Pitching for a deal or sale on zoom works but often we like to give business to people we like and for that we need contact – lunch, drinks, golf whatever. Maybe it’s a generational thing (not that you sound much younger)! but I don’t think many lines of business lend themselves to remoteness even if technically it’s feasible.
  I live in London and am mid 50’s. I’m not particularly cavalier generally and don’t feel at great risk. The only thing I’ll do differently is avoid the tube but, as I cycle anyway, that’s no great hardship. I’m more at risk from drivers probably.
• 75 Grumpy Old Paul May 11, 2020, 12:05 pm

  @Jonathan,
  “(Though of course “one provocative individual with an impeccable science background” would be a good description of Feynman).”

  Something of an understatement! Feyman is a great source of quotes as in https://www.brainyquote.com/authors/richard-p-feynman-quotes .

  Frank Zappa isn’t bad either as in https://www.goodreads.com/author/quotes/22302.Frank_Zappa . I think my favourite is “There is more stupidity than hydrogen in the universe, and it has a longer shelf life.”. (Also attributed to Harlan Ellison and, in a slightly different form, Albert Einstein.)
• 76 Snowman May 11, 2020, 12:39 pm

  @Grumpy Old Paul

  In relation to the weekly excess deaths in the ONS statistics, I think David Spiegelhalter was saying some were likely to be deaths from covid-19 where the death certificate didn’t show covid-19 but that still left a lot of unexplained excess non covid-19 deaths.

  He mentioned Sir Ian Diamond’s explanation that there were lots of indirect deaths happening. David S thought that looked plausible because the excess number of non covid-19 deaths in care homes and at home were proportionately much higher than in hospitals. I’ve looked at the stats and noticed that striking feature also. Re care homes, you could imagine that someone with a serious health complication in a care home might not get transferred to hospital for treatment and might die in the very short term. And re deaths at home, there may be some immediate deaths from heart attacks and strokes for people who would have sought treatment that would have saved them.

  So David S’s explanation seemed reasonable to me. I got the impression he was saying this appeared to be what was happening, but you could hear it as him saying this was almost certainly the explanation and I would agree with you we can’t really say that at the moment.

  David S went on to explain that doesn’t cover the medium/long term indirect deaths which you mention could happen for example due to lack of access to cancer treatments and screenings.

  You also have to take into account some of the covid-19 recorded deaths in any setting could be deaths in people who would have died anyway in that week, but died with covid-19 not because of it. So there would then be a need to find an explanation for even more non covid-19 excess deaths

  On care homes another excellent article from Malcolm Kendrick, in this case on his reflections on what has happened so far.

  https://drmalcolmkendrick.org/2020/05/11/how-to-make-a-crisis-far-far-worse/
• 77 Anonymous May 11, 2020, 12:52 pm

  You have linked to the covid19 tracker (now study) app run by Kings College/Zoe in the past few weeks.
  After reporting as usual (1 of the 3m plus) today I was dismayed to see they are now requesting donations to keep this work going. They are acknowledged by Scottish and Welsh governments and the NHS per their website so surely it is not beyond the wit of man for them to recieve some government grant/funding even if just for the short term given their work and findings to date.
  I have no connection to the study just a fed up frustrated individual.
• 78 SpreadKindness May 11, 2020, 1:21 pm

  This government has been totally and utterly useless from start to finish. I honestly don’t think they could have been any more incompetent if they tried. But then, what do you expect with populist politicians playing to the gallery? Nowhere else in the world has this virus been a problem. When I was managing the Ebola outbreak as Chief Scientific Adviser to The Congo back in the early 2000’s, we literally wrote the playbook for this sort of thing. Its not complicated.
• 79 Sparschwein May 11, 2020, 1:30 pm

  @Jonathan – good point about the divide with the humanities. I suppose it’s fundamental to the natural sciences that one accepts the existence of an objective reality and seeks to understand it via an iterative process.
  The populist post-truth phenomenon seems more recent. Followers are willing to suspend logic to the point that obvious facts and blatant contradictions in the great leader’s claims matter not. Beliefs “trump” reason. I think about this as a counter-movement to enlightenment and the route to another intellectual dark age.
• 80 Naeclue May 11, 2020, 1:53 pm

  @Simon T, I would advise careful consideration before you start spreading across too many platforms. You will increase both charges and complexity. Pots of cash in lots of tax sheltered accounts is a pain as well.

  We are down to 2 brokers, 8 accounts. SIPPs at HL, ISAs at iWeb, unsheltered accounts across both (unfortunately). I doubt whether AJ Bell or II do anything that HL don’t, so personally that would be my choice for SIPPs. AJ Bell and II may look cheaper, but that is before you take drawdown charges into consideration, which are zero at HL.

  Service is top notch at HL, never had a problem with them, unlike many other brokers I have been with. Only irksome things for me are quite high FX dividend conversion fee of 1%, and relatively high dealing fees.
• 81 Boltt May 11, 2020, 2:05 pm

  Interesting article in the Actuary magazine – hopefully the link works.
  I‘ll resist the temptation to give the punchline.

  https://www.theactuary.com/features/2020/05/07/co-morbidity-question

  There are some excellent actuaries out there.

  B
• 82 Simon T May 11, 2020, 2:25 pm

  @naeclue – thanks, I use SnowMan’s xls (version 35) over at MSE forums to calculate costs and dealing charges – it’s an excellent resource.
  I use AJ Bell for ETFs and it is only in place currently because of that is the standard destination for the IFA handling a DC with GMP underpin (because it’s over £30k I have to take advice).
  I only keep £30k in HL in two funds.
  I have another £450k in ii.
  And I have another £250k coming from a house sale which will go into ISAs and a trading account – probably ii and AJ Bell.
  Of all three – AJ Bell is a pain in the butt for passwords – ie really secure, HL is better, ii only has one password. I like the watchlist X Ray analysis with ii.
  I tend to use the apps because of the touch password access on the iPad.
• 83 Naeclue May 11, 2020, 2:38 pm

  For me, one thing that has become apparent during the lockdown is that there is no way I would want to retire abroad. I never have been tempted much by the prospect, but now it has become obvious we would miss friends and family too much.

  So here to stay, whatever happens to taxes, unless my fellow Scots are daft or pissed off enough by the English to go for independence. In that case we would discuss moving to Glasgow.
• 84 Naeclue May 11, 2020, 2:44 pm

  @Simon T, HL has a password and a pin!

  A feature I like with HL is the ability to link accounts, so I can check on and trade in my wife’s accounts without having to log out of my own account. The only thing they will not let me do is set up a drawdown payment, which is probably wise.
• 85 Naeclue May 11, 2020, 2:56 pm

  @TI, why is this “The new most hated rally of all time”? I don’t hate it and I am sure many others feel the same.
• 86 The Investor May 11, 2020, 3:03 pm

  @TI, why is this “The new most hated rally of all time”? I don’t hate it and I am sure many others feel the same.

  It’s a joke. The last rally (2009-2019) was often described as the most hated rally of all-time. People kept saying it was irrational, it was all Fed liquidity inflating the market, etc etc.

  Now people are saying the same thing about this latest one. 🙂
• 87 Ruby May 11, 2020, 3:24 pm

  I see boyfriends and girlfriends are now allowed to meet one another, but it must be in a public space. As it’s been nearly two months, I suggest we brace ourselves for a dogging epidemic……….
• 88 Naeclue May 11, 2020, 4:09 pm

  @TI, Ah ok, not the sort of people I pay much attention to 😉
• 89 ZXSpectrum48k May 11, 2020, 5:19 pm

  @Ruby. “I think human contact greases the wheels …. Pitching for a deal or sale on zoom works but often we like to give business to people we like and for that we need contact – lunch, drinks, golf whatever. ”

  Really? I hated being taken out by brokers, salepeoples and consultants. They used to spend thousands, often tens of thousands on restaurants, ski/golf holidays etc. I was honest with them: I don’t want your chatter, your views, your ideas and I definately don’t want to spend time with you at some restaurant or ski resort. I just want the lowest price. Thank god the FCA banned that stuff. About the only thing they ever got right.

  I do know that, if it wasn’t for the small issue of dying of COVID, then the lockdown would be utterly brilliant. I’ve hardly met or talked to anyone, except my family, for months and I love it. Perhaps I’m just too introverted. Or perhaps I’m confusing introversion with sociopathy. It’s hard to tell.
• 90 FI Warrior May 11, 2020, 6:31 pm

  @Ruby, ‘brace ourselves for a dogging epidemic……….’
  I think you owe quite a few people here a new keyboard for that comment. (lucky it’s harder to spill drinks over a phone though)

  Queuing earlier outside a shop where only 2 where allowed in at a time, my bored gaze met a sticker on the lampost I was leaning against and it said ‘Massage 07*** ******’. I asked the guy behind me if he thought they were still working during the current panic, but maybe he didn’t think I was serious enough about life and avoided eye contact. Then he handed over his card to pay the shop assistant for an unwrapped food item where staff also touched other food, cards and cash continually and interchangeably, while all zealously following the 2 metre rule behind screens.

  So most of these studiously compliant pillars of the community are totally ignorant of the science behind virology and epidemiology.
• 91 Ruby May 11, 2020, 6:42 pm

  @ ZK Spectrum – it sometimes certainly is, but maybe you’re right, I never greatly enjoyed taking out the ‘we’re up in London gotta have a night of it’ types and thankfully I haven’t done it for years. However, at some point you’re presumably going to have to hire the trainee ZK’s, show them the ropes, mentor them etc and that’s tough if you’re hidden away in your den and you’ll want to eyeball them. The alternative, doing everything remotely and giving a newly minted quant a bunch of money to play around with from his own bedroon, when he probably still wears pyjamas with pictures of aeroplanes on them, sounds rather high risk to me. So at some point I suspect the old ways will return.
• 92 Snowman May 12, 2020, 10:20 am

  This real time tracking looks interesting (joint Public Health England (PHE)—University of Cambridge modelling group)

  https://www.mrc-bsu.cam.ac.uk/tackling-covid-19/nowcasting-and-forecasting-of-covid-19/

  Possibly 6.5 million infected so far in England (12% of the population), with possible range 5 – 8.5 million?

  Seems more realistic than the Patrick Vallance 4% figure at the press briefing yesterday.
• 93 Seeking Fire May 12, 2020, 10:42 am

  The latest ONS data out today. 33.365k deaths ‘involving COVID’. 10 deaths under 19 / 2 under 14. Just under 30k deaths relating to those >65.

  It is ridiculous (IMO) not to send your child to school when you can if you are worried about them dying from coronavirus. It is not ridiculous (I admit), if you have concerns around transmission amongst the community, they have a suppressed immune system or they live with elderly people or indeed you think there are long term medical implications from having had COVID. If those risks outweigh your benefits them continue to home school them. But millions of children (less v lucky children who are getting video schooling of which we are fortunately benefiting from) are being v significantly impacted and increasingly so.
• 94 ZXSpectrum48k May 12, 2020, 11:10 am

  @SeekingFire. Our school sent out a survey Sunday night asking if parents would send their children back from Jun1. I got the results last night. 77% would not, 21% would, 2% DNR. When asked why they would not send their children back, only 12% of the 77% said that it was due to the risk to their children. Much of that could be covered by some children having conditions such as asthma. The vast majority were concerned about the risk to themselves as adults or risk to other adult family members (grandparents etc).

  I don’t think by and large, parents are worried about the specific risk to their children. They are concerned about their own health, family members and unnecessary transmission of the disease in the community. That has to be weighed up against the pros/cons of the Remote Learning Schemes being used by various schools.

  Again I think it’s simply risk-reward. We’re a prep school for 4-13 years olds . With the exception of some 10-11 years old who need to cram for 13+/GL entrance exams, what is the real downside of losing 1 term? None. The Remote Learning Scheme is keeping them ahead of the curve on core subjects. So all we’re losing is peripheral stuff for a 10 week Summer term, of which 5 weeks will have past before they are even allowed to take the back children. Losing 5 weeks of Art, Drama, Sports etc is not really going to damage them.
• 95 Vanguardfan May 12, 2020, 11:16 am

  It’s also not ridiculous if you’re an older teacher or in one of the vulnerable groups (or with a vulnerable household member). There won’t be PPE for teachers getting up close with 4-6 year olds.
  I am really frustrated, however, that the priority for school return has been determined on the basis of childcare for the workforce, rather than educational benefit, or even on how difficult it will be to reduce risk of transmission within the school setting. Years 10 and 12 should have been prioritised. They seem to think that teenagers are adult learners who just need a bit of guidance with their online learning….
• 96 Vanguardfan May 12, 2020, 11:20 am

  And not forgetting that the current provision is pretty basic, in the state sector. Does not come close to the usual learning experience. There are no real time zoom lessons going on.
• 97 Seeking Fire May 12, 2020, 11:34 am

  Vanguard Fan – you are absolutely right, I had forgotten to write down about teachers (particularly elderly ones) albeit I had thought it!

  ZX Spectrum – yes you are right but your children’s position is not the position of the vast majority of children (circa 95% are in state schools) so it doesn’t really surprise me the results of your survey. We are also v lucky enough to be in the same position. Majority of people are not and many people need their kids to be at school or have care provision in holidays to be able to work. Plus may parents don’t have the inclination to do home schooling. In your case your school might decide to continue online lessons for remainder of the year. Whilst we are drilling our children on the three R’s (!) I also disagree that the lack of social interaction isn’t a major impact on their development.

  This is a tricky one for everyone though I agree and key to see what happens with transmission rates when children go back to school.
• 98 ZXSpectrum48k May 12, 2020, 11:46 am

  @Vanguardfan. I agree. The decision on what ages go back is clearly being driven too much by economics and not education. Why 4-6 year olds need to go back is beyond me; many countries don’t even start school till 7. Missing a term at 5 just isn’t a problem. Due to a variety of screw ups, I didn’t go to any school until 7 and it did me zero harm educationally (of course it might be the reason why I’m socially maladjusted …).

  @SeekingFire. But why aren’t state schools doing real-time lessons? I don’t see the logistical issue. Our teachers are doing 6 to 7 45min real-time lessons from their homes via Zoom plus study groups. It’s just requires a computer and webcam. They upload their written lessons in word/powerpoint/whatever format before hand and the lesson is recorded for later playback if any child needs to review it. Homework is uploaded as a pdf, word doc, or shared via Google and marked for the next day. It’s not rocket science. Our local state primary is doing something very similar to my prep school. I do wonder why I pay …
• 99 Grumpy Old Paul May 12, 2020, 12:18 pm

  @Snowman,
  I agree with your scepticism about a 4% infection rate. Based on a “real” Covid-19 total number of deaths to date of 50,000 and a UK population of 67 million, that equates to an IFR of 1.7%. Based on an IFR of 0.5, I calculate infections of 10 million or 15%. The IFR range which the Cambridge modelling group’s results equates to is roughly 0.6% to 1% by my calculations. They pass my sanity check.
• 100 Boltt May 12, 2020, 12:25 pm

  Here’s a paper Using multivariate (Cox) modelling relative CV19 death risk using 17m NHS records and ~6000 deaths. Factors Include ; age, ethnicity, BMI, medical conditions, deprivation quintile, etc.

  If you want to understand the relative importance and size of the risk factors you will find the estimates in the paper – bad news for men!

  https://doi.org/10.1101/2020.05.06.20092999

  Found on LinkedIn – https://lnkd.in/gfNDCET

  B
• 101 Snowman May 12, 2020, 1:19 pm

  @Grumpy Old Paul

  Exactly my reasoning for not believing the 4% estimate.

  My own previous hunch of the number infected had been around 8 million for the UK population which compares with the Cambridge Group 6.5 million for England, and if you add in Scotland, Wales and NI you might get close to my figure.

  However because my estimate was a while ago and the Cambridge Group figure is now, my figure is quite a bit higher than the equivalent Cambridge group figure.

  My hunch had been based on hospital deaths over time, a likely growth/fall of those deaths and infection fatality rate. With hindsight I over-estimated the growth of hospital deaths quite significantly, I hadn’t anticipated that the R0 would fall below 1 well before lockdown, and so didn’t expect hospital deaths to peak as early as on 8th April and so over-estimated the number infected.

  I left out care home deaths when forming my hunch because they may just reflect it is easier for the infection to get into care homes, added to which government policy has woefully failed to protect care homes as we know. So a larger proportion of those in care homes get the infection, than say people living in their own homes who have increasingly ‘stayed at home’ and so it skews the mortality experienced massively to a disproportionately higher age and higher vulnerability group.

  It’s important to say the Cambridge modelling group estimate wasn’t based on any serology testing but based on similar reasoning to mine but with some people interaction thrown in also. According to Joshua Blake’s twitter account:

  “We estimate the number of infections based on knowledge on how people interact, estimates of the fatality rate of the disease, and observed numbers of deaths.”

  I still have a hunch that T cell immunity not picked up by antibody tests COULD lower IFR estimates further as we find out more. Where IFR has been estimated, such as in the Gangelt study, roughly based on number of deaths/number testing positive for antibodies, this possible error would increase the estimate of the number who have been infected. Possibly just wishful thinking on my part.
• 102 Al Cam May 12, 2020, 3:43 pm

  @Naeclue:
  I am probably just being thick but I do not understand quite what you meant by:
  50:50, 50 years expenditure in stocks, 5 in cash, and also a 2% drawdown.
  Is this because the 5 years of cash expenditure is to cover spending/consumption at full tilt, and the need for funds for spending/consumption drops somewhat (to say c. 2% drawdown ) as pensions come on stream in a few years time?

  I previously mentioned that I recalled that some fixed rate account providers were (due to C-19) permitting penalty free access. I came across this in the May issue of Which Magazine:
  “If you need access to your savings, Barclays, First Direct, Lloyds Group (including BoS, Halifax, Lloyds Bank), Nationwide, RBS, and TBS are allowing customers with fixed-rate savings accounts to close them early without additional charges.
  Which is clearly not to the dis-advantage of the banks, but any port and all that ……….
• 103 Naeclue May 13, 2020, 12:03 pm

  @Al Cam, I was just approximating. The portfolio I am working towards is 50:5 equities:cash. 50 years expected annual drawdown in equities, 5 years in cash, so 55 years in all, giving a drawdown rate of 1/55 = 1.82%, or approximately 2%. The drawdown rate will of course vary with time as it depends on the portfolio valuation and how much we actually spend, but this is the starting position.

  Dividends get added to cash as they come in, no reinvestment. No automatic annual rebalancing, but an annual review, as follows:

  1) review expected spending over next 5 years, divide by 5 to give average per year
  2) if cash 60 years spending, sell the excess and add to cash
  4) if cash > 6 years spending (excluding allocations to specific expected purchases), give excess away.

  No more rebalancing, just selling equities as required – inspired by McClung. Variable withdrawal rate, as determined by annual review. If/when equities crash or are run down, the portfolio value will feed into the annual spending review. As mentioned, we have an extra cash portfolio to span the period until state pensions are paid and for specific expected one-off purchases (new boat and house improvements).
• 104 Naeclue May 13, 2020, 12:21 pm

  Something weird going on with comments. Maybe greater/less than signs?

  1) review expected spending over next 5 years, divide by 5 to give average per year
  2) if cash less than 1 years spending, sell equities to bring cash up to 1 years spending
  3) if value of equity portfolio greater than 60 years spending, sell the excess and add to cash
  4) if cash greater than 6 years spending (excluding allocations to specific expected purchases), give excess away.
• 105 The Investor May 13, 2020, 1:14 pm

  @Naeclue — Yes, I think the comment system thinks they are a bit of hypertext or similar. It’s an occasional problem that I have no idea how to fix alas. 😐
• 106 Al Cam May 13, 2020, 6:19 pm

  @Naeclue:
  Thanks very much for the further details.
  As I see it, you are in effect running a floor and upside approach – with a cash floor (plus an allowance for foreseen one-offs, plus emergencies?) until your pensions come on stream at which time they (your pensions) will provide the floor for the rest of your life(s). You raise some interesting points with how you have chosen to organise your upside/reserves and how you plan to distribute any excess too. At a first glance this looks like a pretty neat approach (which, in effect, side-steps bonds). I will take some time to mull this over.
  Again, thank you very much for taking the time to explain.
  P.S. I assume your spending review – that you mentioned in previous posts – helped you form the approach too. At least in so far as it helped cement in your own mind how relatively little (by %age, but, of course, not necessarily by £’s) you will probably need to draw from your upside post pensions – which are now within sight too I guess.
• 107 Vanguardfan May 13, 2020, 7:19 pm

  In yet more gloomy covid news, Spain are reporting overall antibody prevalence of 5%, with the most affected areas like Madrid up to 14%. Death rates in Madrid and Spain as a whole are higher than London and UK respectively. That actually gives an infection fatality rate of around 1%. Eek. Although of course there could be waning antibody levels by now, or infections which don’t produce antibodies. Neither of which are good news.

  (Sorry, I couldn’t find any details of the study, just headline reports from the FT live reporting).
• 108 Naeclue May 13, 2020, 8:39 pm

  @Al Cam, I am not really sure what you mean by floor and upside, but to be clear, we will continue to follow the same strategy, including holding up to 6 years cash after we start receiving state pensions. We have an additional ~£10k cash per year each until we get there, which we will draw down, as a state pension substitute.

  I found Pfau’s work, along with McClung’s and the Early Retirement Now web site really useful reading in developing the strategy. And Monevator of course 😉
• 109 The Investor May 13, 2020, 8:42 pm

  @Naeclue — Tsk, you’ve made 508 comments on Monevator and you don’t remember this article? 😉

  The best plan I’ve seen yet for securing your retirement income is to create a minimum income floor. This entails investing your pensionable assets in the safest financial products that can cover your basic needs for the rest of your life.

  Anything left over is tucked away into your emergency fund and a ‘risk portfolio’ that’s tapped when you want to pay for life’s little luxuries.

  https://monevator.com/secure-retirement-income/
• 110 The Investor May 13, 2020, 8:58 pm

  @Vanguardfan — That is gloomy news indeed. I just read a precis, too.

  I’m not fully sure why infections that don’t produce antibodies is necessarily bad, presuming they’re weak / asymptomatic infections. Presumably these people would just keep killing the thing thing trivially, and would be at a minor risk of spreading compared to someone who got the full blown disease? So even if they got it 2-3 times in repeated waves, you’d presumably be driving up the antibody-producers up at the same time? I’m speculating though, I can’t remember the science of infectiousness, I’ve taken the week off Covid-19… 😐

  I seem to remember there was a French school where lots (like the majority) of asymptomatic kids tested positive; be very interesting to hear of a follow-up there. In general I don’t know why we’re not hearing more about follow-up studies like that, though I presume they’re being done.

  But anyway, broadly, I agree. As I wrote when the New York City c.20% number came in, these low antibody counts are bad news and a nail in the coffin of the best case scenario.

  Who knows exactly what happens next.

  Recent New York City data shows that frontline workers (first responders and health professionals) are testing +ve for antibodies at a lower rate than the general population, which as Mayor Cuomo says implies PPE and handwashing works. So perhaps we will all become astronauts walking around the city in bubble suits.

  I suspect governments are going to continue to push to reopen though, and with regret I have some sympathy with that. These GDP numbers that are coming in, while apparently a shock to financial commentators, are dire and just the start.

  Over 30 millions Americans have now filed for unemployment, the vast majority of whom are younger and if they got Covid-19 would at worst be ill for a week or two and then recover. They want jobs and incomes. I don’t think they will accept a prolonged lockdown. You can see the same dynamic at work here in the UK, where the Government seems to be loosening restrictions while death rates still imply substantial population infection.

  I continue to wish we’d put more effort and resources into shielding the elderly than crashing the economy. Johnson said he was spending £600m extra on PPE for care homes today. That’s a sliver compared to what’s been blown up by the lockdown (/paid for by future generations with debt). As I’ve said from the start, when something like 50% of Covid-19 deaths are hitting over-85s, start with the over-85s.

  And yes, I obviously do understand fully the rationale for lockdown which we’ve discussed many many times. We had to do some sort of lockdown, including an emergency brake to get a handle on things.

  It’s hard to say it’s worked particularly well though, if the aim was to prevent deaths.
• 111 Al Cam May 13, 2020, 11:58 pm

  @Naeclue & @TI
  Another good description of floor and upside is given at: http://www.theretirementcafe.com/2018/01/unraveling-retirement-strategies-floor.html
  There are many textbooks available too – albeit, I think, they all originate from the US. IMO, the definitive text book is Retirement Portfolios: Theory, Construction, and Management, by Michael J. Zwecher
• 112 The Investor May 14, 2020, 7:49 am

  Here’s some positive news – Public Health England has approved Roche’s antibody test for use in the UK:

  Roche’s test was approved at the start of May by the EU and by the Food and Drug Administration in the USA as being 99.8% specific for Covid-19 – so it is not confused by antibodies against other coronaviruses which cause colds – and 100% sensitive, so it will pick up any antibodies that are present. It will work on blood samples taken by a healthcare professional at least 14 days after the person developed Covid-19. […]

  The Elecsys Anti-SARS-CoV-2 serology test is processed in laboratories using Roche analysers that hospitals already have. Roche says its fully automated systems can provide results in approximately 18 minutes for one single test, with a capability to do 300 tests an hour, depending on the analyser.

  https://www.theguardian.com/world/2020/may/13/public-health-england-approves-roche-test-for-coronavirus-antibodies

  There might be fewer antibodies out there than we’d like, but hopefully at least we’ll start picking them up soon.
• 113 Snowman May 14, 2020, 7:57 am

  If you want to explore thoughts that relatively low sero-prevalence in antibody testing isn’t necessarily a problem, have a look at the documents in Ivor Cummins’ tweet in this twitter thread

  https://twitter.com/andrewbostom/status/1260573902431977474

  I’m not putting that forward as evidence, I’m just saying I’m keeping an open mind about possible mechanisms and natural herd immunity thresholds.
• 114 Naeclue May 14, 2020, 8:06 am

  @TI,@Al Ok, safety first or floor-and-upside, I understand what you mean now. Not really what we are doing, but subconsciously I know we do have a floor income with our state pensions. Our drawdown plan does not have a floor though other than the state pension. Floors are very expensive and I don’t consider we need one as we have other options should the investment portfolio not deliver. We have a holiday home we could rent out or sell and at some point we will probably downsize.
• 115 Al Cam May 14, 2020, 8:42 am

  @Naeclue:
  Re floor-and-upside, I understand what you mean.
  And, thanks again for the additional portfolio/spending strategy details that you provided. Some really good food for thought there, especially if you have concerns/worries about bonds! Furthermore: sub 2% drawdown with a 6 year cash buffer feels pretty safe. Enjoy the ride!
  FWIW, Dirk Cotton wrote just over a year ago: “I’m going to make a claim that may sound a bit outrageous: there is only one grand retirement-funding strategy. That strategy is to allocate some amount of retirement plan resources to generate a floor of safe lifetime income, to invest the remaining assets, if any, in a risky aspirational portfolio, and then to decide how to spend the risky assets throughout retirement.”, see
  http://www.theretirementcafe.com/2019/02/honey-whats-our-retirement-plan.html
  This sounds pretty close to your new plan.
  Thanks again.
• 116 xxd09 May 14, 2020, 10:11 am

  Interesting comments on retirement funding
  Size of retirement fund obviously critical -gives you so many more options
  Timing is much more of a problem for the individual investor-small window as you go from working to retirement if contemplating radical financial changes at this time
  A large fund let’s you create that wonderful index linked for ever pension via an annuity
  Putting the rest of your savings in equities for a hopeful boost
  It seemed to me early on as I would not be in the position of having excess money at retirement never mind the timing of buying annuities and would a state pension really buy you more than some groceries-a less sophisticated approach was needed
  It appeared to me that if your method of accumulating money worked pre retirement why would you change the system post retirement
  After all you had been doing this for up to 30 years preretirement successfully -(I hope)
  Obviously the fund would continue to grow as it had always done through thick and thin
  The only difference now would be that de accumulation would be the new order of the day- no more contributions would be made and provided you kept reasonably below the growth rate of your tried and tested portfolio you would do fine
  You would have more bonds probably but 70/30 does as well as 30/70 in the long run
  Asset Allocation would depend on the size of your fund and your personal ability to live with volatility
  Perhaps too simplistic but it seemed to do the job for me and will now to the finish probably
  xxd09
  PS Lockdown boost from reduction in spending especially travel-a big item for retirees
• 117 Simon T May 14, 2020, 10:31 am

  As I approach drawdown quickly (128 working days but I am not counting), and the tender age of 54 1/2 I wonder whether I have really thought through my drawdown strategy enough.
  I have a 4 bucket strategy based on my idea of volatility however in the end the whole portfolio comes out at (30 bonds/gilts, 50 shares, 12 cash, 5 gold/commodity, 3 infra).
  Now off to read the links.
• 118 Al Cam May 14, 2020, 10:36 am

  @Naeclue:
  Having thought about your new plan a bit more, I have a couple of questions:

  Q1) should you consider extending the minimum duration of your cash buffer?

  I ask because:
  a) One year is probably of the order of a generous “emergency fund”.
  b) Also, previous work has shown that about four (or three) years cash is required to ride out a more UK-focussed (or global/US-focussed) equities bear. Further info on the three years can be found at ERN’s website (see: SWR part 25 in particular) and on the four years at:
  https://the7circles.uk/safe-withdrawal-rates-ern-7/
  Unfortunately, the original 7circles post is now behind a paywall, but the gist of the discussion can be gleaned from the comments – which are still visible.

  Q2) how does the plan cope with the other key risks/challenges such as longevity, inflation, cognitive decline, first death, etc

  In any case, just my thoughts.
• 119 The Investor May 14, 2020, 1:21 pm

  Some interesting research on variation of R within England. If correct, then London’s R rate is now half that elsewhere. Which seems initially surprising given how much more densely we’re packed in compared to some other parts of the nation — but remember this is *current* R, not R-rate two months ago.

  https://joshuablake.github.io/public-RTM-reports/

  All things being equal (and we know they’re not) could this indicate that some level of herd immunity has been in achieved in London, I wonder?

  Obviously not ‘immunity’, because like perfection it’s either there or it’s not. But many people not getting the virus twice, because they’ve already had it. Notwithstanding data coming in suggesting antibodies may only be in 10-25% of hard hit populations.

  Could also imply that the most vulnerable Londoners have already died I guess, too.

  Perhaps we can take this as broadly positive, given that the lockdown was imposed nationally at the same time?

  Or perhaps it’s another artifact of differing/legacy testing regimes…
• 120 Vanguardfan May 14, 2020, 1:44 pm

  Interesting re the R numbers.
  Another factor to consider is that London has a younger population and relatively fewer care home beds compared to the rest of England, and transmission in care homes is still fuelling a lot of R, I suspect.
• 121 Snowman May 14, 2020, 3:15 pm

  Interesting TI on London having a Re of about 0.3 less than elsewhere under the Cambridge modelling team figures.

  Working off the England regional hospital deaths by actual date of death (i.e ignoring care home deaths), I’m still calculating that Re is about 0.2 lower in London.

  Now some of that can be explained by immunity we can expect from the serology testing. So if 10% of London has had the virus and 3% elsewhere that explains only about 0.07 of the 0.2 – 0.3 difference in Re (remembering that Re takes into account those who aren’t susceptible unlike R0).

  So could the unexplained difference be due to immunity higher than that which we expect to show up in serology testing, for example T cell immunity? Possibly. But it’s fairly weak evidence. It may just be that Ro is lower in London than elsewhere for some reason combined with the different proportion infected.

  Source of my figures
  https://www.england.nhs.uk/statistics/statistical-work-areas/covid-19-daily-deaths/

  Re(t) = deaths (t + 25)/deaths (t + 19) and averaged a bit over days
  (assumes 22 days from infection to death, and 6 days between generations of infection)
• 122 Hari May 14, 2020, 3:22 pm

  @SimonT

  Your retirement will work out. Retired at 49 in late 2007. You know what came next…
  You adapt, spending can be adjusted, opportunities abound, it all works out well.

  Re Covid and the modelling…. it’s all educated guesswork, you make assumptions, but small changes in these assumptions can give big variations in output, systems constantly adapt to changes that occur…. it’s no different to economic models.

  As an ex mathematician, I am as happy as the next person to play with the numbers, but that’s all there is to it. Educated guesswork is all we have, if we can be in the right ballpark then we’ll have done well.
• 123 Al Cam May 14, 2020, 4:02 pm

  @Simon T, @xxd09
  I like Dirk Cottons [retirement café] blog for many reasons.
  Principal amongst these are:
  a) anybody who can link 21st century retirement planning to two of Physics greatest predictions of the 20th century must be worth a read, see:
  http://www.theretirementcafe.com/2019/04/black-holes-higgs-boson-and-retirement.html
  b) and, on a more serious note, he writes from experience – having been retired from his real job since 2005.

  I know that both Monevator commenters xxd09 and Hari are retired and the latter has been for some time too – see above. I suspect commenter naeclue is also retired too. However, I know of very few UK retirement blogs that are written by BTDT retirees, especially with anything like the mileage that Dirk has under his belt. IMO Ermines blog is always worth a read and his occasional, self-labelled, rants are often quite enlightening – rather than just him letting off steam!
  Are there any other UK-based blogs with a similar pedigree to Dirk’s retirement cafe?
• 124 Snowman May 14, 2020, 5:01 pm

  Latest unherd video: The case for lockdowns: Dr Natalie Dean talks to Freddie Sayers

  https://www.youtube.com/watch?v=s7dIL_O04Ps

  At 19 mins 45 secs

  Freddie: “In the models that you’ve been doing, have you looked at potential deaths through lockdown at all…is that something you’ve looked at?”

  Natalie: “No, I haven’t individually looked at that” .
• 125 Naeclue May 14, 2020, 6:51 pm

  @Al Cam
  “Q1) should you consider extending the minimum duration of your cash buffer?”
  Not really, because we will be collecting dividends. Historical dividends from the equities approximately equals annual spend. In a very bad year, like this one, dividends may drop, but I doubt they will drop by more than 50%. If I start off with 5 years of cash, dividends drop by 50% and don’t recover, it would be 8 years before I was left with 1 years cash. This does hit upon an issue I was considering though. When the market is down, that really is a poor time to take dividends. It would likely be better to reinvest them instead. I could do that, or buy accumulating ETFs and funds instead, but then I probably would want a larger cash buffer. So which is best?

  1) hold 5 years cash and distributing funds, continually topping up cash with dividends
  2) hold 9-10 years cash and accumulating funds, sell funds to top up cash each year, provided the market has not crashed.

  Option 2 is essentially what McClung says to do. I don’t know what the optimal thing to do is, but collecting the dividends seems simpler, not least because I need some criteria for “not crashed”.

  “Q2) how does the plan cope with the other key risks/challenges such as longevity, inflation, cognitive decline, first death, etc”
  It seems ok on most counts, but there is not that much sensible data to back test with. The US market is too optimistic, others where the stock market has been completely wiped out are too pessimistic. The plan is simple enough for someone with a POA to continue to administer. First death does not matter from an IHT point of view and the SIPP will go to the survivor.

  We have both been retired for some time, although small amounts of paid work still crops up every now and then. After retiring I worked part time as a consultant, but eventually packed it in as it was not as part time as I wanted. We both fully crystallised our SIPPs before stopping work, as we had the LTA looming. Go over the LTA before crystallising and you start eating into the 25% tax free lump sum (the PCLS is capped at 25% of the Lifetime Allowance).

  Our previous strategy was simple. Continue to run a 60/40 bond fund, rebalancing once per year. Take 3% of the value at the start of the year as a budget to spend for the coming year, but don’t be too concerned if this is exceeded. With bond yields on the floor, I decided that 40% bonds was too much. Short dated bonds offered a worse return than cash and long bonds are now very sensitive to yield changes.
• 126 Snowman May 14, 2020, 7:20 pm

  There has never been a vaccine found for a human corona virus before. It is quite likely no safe vaccine will be found for covid-19

  So if 10% have had the virus so far in the UK.

  And the latest survey is that 0.25% of the English population currently have the virus at the moment (let’s call this 0.25% of the UK population also).

  Now they are going to keep the R below 1. But let’s assume they keep the R exactly at 1 so each person passes it on to one other.

  Let’s assume no safe vaccine arrives and so this carries on until 80% of the UK population get the virus which we will assume it takes to get to herd immunity.

  (80-10)/0.25/52 = about 5 years until we have herd immunity or perhaps a decade or two if R is kept below 1.

  The extremely vulnerable isolate for 5 years, avoid ever going into hospital or doctor’s surgeries where the virus is likely to be most prevalent, and then meet up with their friends and relatives at the end of this period.

  Life gets back to normal after these 5 years.

  Anyone see a problem with this strategy?
• 127 Al Cam May 14, 2020, 7:45 pm

  @naeclue:

  Q1) FWIW, personally I prefer accum units [and something more like your option 2 above] – and then sell Units if/when required. This means you can decide what to sell, when to sell, and only take as much money as necessary when you want – i.e. not when a dividend happens to be paid. Selling once per year should sill be achievable – perhaps as part of your annual review, say?
  Re criteria for crashed / not crashed: ERN’s SWR part 25 makes a pragmatic suggestion.
  IIRC, he essentially triggers on a 20% fall in the equity market. His actual proposal is to use the cash bucket (“on the side”) once only and run it dry – ie do not replenish it once it is in use / emptied. This may not suit you. In any case, the details are in the section called “Cash Bucket” at:
  https://earlyretirementnow.com/2018/05/23/the-ultimate-guide-to-safe-withdrawal-rates-part-25-more-flexibility-myths/
  I also seem to recall that he was quite surprised how successful this simple approach was when he back-tested it.
  re Q2) often (although not in this case I think) survivor benefits are c. 50%; whereas survivor needs can be >66%; is prolonged rampant inflation (a la the 70’s) a worry; I suspect longevity at c. +50 years from here is not an issue; and, personally, I too value simplicity and reversibility of a plan very highly too
• 128 Naeclue May 14, 2020, 7:56 pm

  @Al Cam, under current legislation an entire SIPP is passed to beneficiaries on death. If death is before aged 75 it can be drawn tax free.

  Our SIPPs hold big positions in US listed ETFs. The advantage of these is that they pay dividends free of withholding tax. If we swapped to UK listed accumulating ETFs we would lose 15% of the dividends. We could convert the other regions to accumulators though, but then I would feel the need to hold more cash…
• 129 The Investor May 14, 2020, 8:09 pm

  There has never been a vaccine found for a human corona virus before. It is quite likely no safe vaccine will be found for covid-19

  @Snowman — Almost everything I’ve read suggests a vaccine is a matter of when not if. I believe the main reason that coronavirus vaccines haven’t been created before is there is no market for it — the trivial coronaviruses are, well, trivial, and MERS and SARS basically flare out because they’re too deadly.

  As for your scenario, though, well, quite. I think most people would agree we’d need to death or glory it at that point. 😐
• 130 Snowman May 14, 2020, 9:18 pm

  Re a vaccine, I think the when and not if is wishful thinking. As they say “Hope’s not enough son ask your parents”.

  The desperation at wanting a vaccine is clouding judgement and so you do see a lot of expert opinion saying they think a vaccine will be found. And if vaccine development is your field do you think you may tend to be slightly over-optimistic about whether a vaccine will be developed?

  I posted an earlier video on vaccine development a while back, don’t know if you saw that, but here’s a recent article talking about vaccines

  https://www.wired.co.uk/article/coronavirus-vaccine-development

  “But while there are now at least 115 Covid-19 vaccines in development around the world, getting to that point may still be a long way off — and there’s even a chance it may never happen. How much of a chance, as with so many things relating to coronavirus, remains unknown”
• 131 Al Cam May 14, 2020, 11:48 pm

  @Naeclue:
  I understand (at least at the top-level) SIPP inheritance rules; but other folks may well have other assets – such as DB pensions with different survivor rules. In any case, and as I am sure I must have said somewhere before, all situations are, to some extent, unique and the devil is always in those pesky details. BTW, neat trick re US withholding tax!

  What do you think of Kartsten’s (aka big Ern) pragmatic crashed/not-crashed criteria and bucket on the side suggestion?

  P.S. I totally share your concerns/worries re bonds – and have long preferred cash as a shortish-term asset.
  P.P.S I have found that managing the LTA is a good mental challenge – but by no means impossible; although it would be preferable not to have it at all
• 132 Snowman May 15, 2020, 7:31 am

  https://www.medrxiv.org/content/10.1101/2020.04.27.20082347v1.full.pdf+html

  Another study with some interesting observations on asymptomatic transmissions

  Viral load and its relation to severity of symptoms comes up again (again suggesting that situations that may result in some risk of infection but with a low viral load are perhaps preferable to high viral load situations such as indoor festivals such as at Gangelt?)

  They also say:

  “Other reasons for asymptomatic infection include pre-existing cross-immunity as a consequence of previous exposure to common human coronavirus, which may enhance immunity and control of the infection in some individuals”

  That seems to be an idea that I’ve seen come up a few times but never seen properly discussed. Not heard it suggested but weren’t there a lot of asymptomatic cases within some of the prisons and homeless shelters from earlier studies, which seems surprising given there might be a tendency to sub-optimal health in these populations. Would these be populations more likely to have encountered previous human coronaviruses? If you think of the immune system as some mass AI system, with inputs honed beautifully through evolution through tackling a range of infections, that sounds plausible to me. But just uninformed speculation on my part.
• 133 Indecisive May 15, 2020, 11:21 am

  If anyone else has been forwarded the “19 million brits have been infected” story today (estimating that 29% of the population have had the virus) here’s an interesting examination of the paper:

  https://twitter.com/CT_Bergstrom/status/1261058066495074304