Weekend reading: Would you lend yourself money in an emergency?

I wouldn’t trust myself not to default.

Wow, I can’t believe you featured my post, thanks! I looked at my stats this morning and didn’t know what hit me 🙂 I’ve been following your posts for a really long time, there’s always so much value here.
Pete’s article is great and I’m definitely reluctant to use my emergency fund. Seems anticlimactic after putting so much effort into building it up.

Loved Charlie Brooker’s antiviral wipe this week on BBC. A great satirical review of coronavirus news for anyone in need of a laugh.

“The stock market has also taken a battering. Some economists fear it may have set capitalism’s destruction of the planet back by up to ten years.”

Chris Whitty as “Tintin prematurely aged after watching his dog drown”

https://www.bbc.co.uk/programmes/m000j4bl

@Far_wide. Yes, it is off the front pages, but the Brexit clock keeps ticking. If there was any real desire for a ‘good’ trade deal with the EU, you would think that people would recognise that an extension is essential while we (all of us) deal with coronavirus. But apparently macho posturing is the order of the day. When the tactics are so much at odds with the claimed desired outcome of the negotiations, it is hard to understand what they are playing at.

Obviously the big brains are working at a level way too subtle for me.

Depends what you call an emergency, if you lose work and have to tide yourself over, then you have no choice – i was eyeing up my wedding savings when my work was at risk due to health in 2018 (saved by new medication), but I could survive without a car, boiler, etc – and if you lose work totally you should be entitled to free council tax and food bank, so really for bare bones needs its just about paying the mortgage if UC &food bank &council tax benefit wont do it

I’m paying down my 0% cards now for credit rating going into a new mortgage soon, it’s not free if it costs your rating, although its worth having the liquidity

As always, a highly enjoyable read and a great selection of articles. I’ve been following your blog for a long time now so it’s extra special to be included on the list.

On a separate note, I’ve received a few pingbacks on my blog from websites that seem to be scraping your content. Very disappointing – shoot me an email and I’ll send you the links. Think there may be a way to take them down.

Liked seeing an article about ergodicity. Commentators have really bought into a whole bunch of guff about rational agents, efficient market hypothesis, risk-neutrality etc without ever really considering that many of these idea rest on dubious assumptions of orthodox economics. When these ideas are challenged, people rapidly argue it’s behavioural “irrationality” when actually it’s the theory assuming the system is ergodic when the reality is that it’s not. It’s manifests itself so consistently in the inherent probability distributions investors assign to various scenarios. Tail too high, centre too high, mid-wing too low etc. Long may it continue!

Like @nearlyrich I have an offset mortgage which correctly or incorrectly I treat as our emergency fund. It also raises the interesting question of what represents good debt, as I think discussed on this site last week
Fully drawn it would represent LTV of around 30% based on my depressed estimate of primary residence value. It’s a tracker at 1.5% /base and expires in 2029. I drew down a third of it in March just in case the lender (HSBC) had liquidity problems.
I have a 70/30 portfolio (the bond element is nearer 35% if based on the ringfenced equities I hope we can leave to the kids).
I often wonder why I have bonds in my portfolio when the offset gives me 5+ years of emergency funds if all other income sources dried up. There is also the issue of the fact that the risk on the bonds is correlated with mortgage risk (interest rates).
Would be very interested to find out what others thought particularly the (lucky?) others with an offset.
Always great to read Monevator articles and the erudite comments by other readers – thanks.

You missed the Indy was panicking food prices would go down and effect farmers due to brexit ( quite the difference to what we were promised by remain during the campaign and your studies about the benefits of trading with those just around you )

Also missed Nissan is considering shutting their Barcelona plant and moving production to Sunderland… doesn’t fit the narrative that the single market is valuable i suppose

Be lovely in three or four years time when the Eurozone is trying to come out of this latest recession and U.K., japan , US and the rest are growing again… lot of hard brexiteers going to be able to say ‘If membership of the single market is so valuable why is it so many members of the single market are doing so badly’

Oh hang on, we’ve been saying that since summer 2016

It is broadly this principle that makes credit unions so successful. You save (which can include payroll deduction to force a regular savings habit) and then when you need money, you borrow against it. It is true that you will pay interest on it, but usually less than if you didn’t have savings, and it allows you to compartmentalise your savings and expenditure.

The successful credit unions also pay a dividend on savings balances. My own pays 0.80%, which is close to being a best-buy rate for instant access.

Thanks TI – bueno selection!

@merlotman 65:35 me too! I struggle to categorise my offset but I do know it’s a very useful facility to have available. It’s certainly a leverage if only because it avoids having to hold cash in one’s portfolio and at those easily serviceable tracker rates (1% over base in my case) it would be rude not to. In my case it’s a debt secured against my house and invested across my 65:35. If I hold it until I eventually sell up/downsize then you could say it’s an equity release and an argument for considering my main residence as part of my portfolio …but I don’t. Nor do I by the way consider the annuity I receive as (bond) component of my portfolio but I should because I had the option to transfer instead. In your case you could consider your offset as your ‘dry powder’ for rebalancing as well as your emergency fund. I’ll not complicate matters by mentioning gold, but certainly a bit of both worlds with the offset used alongside your bonds would enhance the diversification in your portfolio so perhaps the answer is a ‘Bernstein-style’ 50:50?

Thanks for the Erin Bromate link. Really good.
Not sure I am much atuned to ergodicity. Are processes stationary is more of a concern when studies look at back testing then project a probability for future outcomes.

@Vanguardfan. It’s worse than that for me. Not on lying do I hesitate to borrow from the rain day fund. I hesitate to use the toilet roll and chilli con carne from the stockpile.

I enjoyed this youtube rant of an interview with David Starkey. Suppose it depends which side of the fence you sit on. https://www.youtube.com/watch?v=8S8Js-tEmlg

Re: @Merlotman (and @nearlyrich)
Similar query here from the opposite starting point, I have no bonds currently in my portfolio and considering swapping some of my offset mortgage savings for bonds. Between my offset mortgage savings and smaller amounts in various other accessible cash accounts I have the amount needed for emergencies plus non-equity portion of my portfolio (72/28%).
To date I’ve never held bonds, mainly through not really understanding them, and when I’ve tried to educate myself I came to the conclusion of why not ust hold cash (despite the various Monevator articles on the subject). Looking again today I still can’t see the point even though everyone says you should hold bonds (bonds are not cash). Not sure if I’m reading the data right but UK (nominal?) bond yields seem to be no higher than 0.64% (http://www.worldgovernmentbonds.com/country/united-kingdom/) and even 6 months ago were no higher than 1.3%, in comparison with my offset mortgage which is 2.05%. What am I missing? Can anybody educate me?
(offset mortgage is fixed for another 3 years so perhaps the recent ‘good debt’ conversation is applicable for what would happen when that ends).

@Far_wide (7), actually GBP has deteriorated recently against USD and EUR, in direct proportion to no deal uncertainty and that risk escalating.
@Learner (19) trust you’re aware of what employment rights you may have, aside from notice. If 20+ redundancies, collective consultation was required. If 2 years’ service (or 1 dependent on start date), unfair dismissal. What you describe may not meet fair redundancy requirements including selection, consultation and consideration of alternatives. An additional factor is an employer needs to demonstrate why it chose redundancy without furloughing. They’d arguably need to show the job cuts would only be delayed not avoided by furlough. A factual question they’d have needed to assess and communicate their reasoning to staff in the consultation. Good luck.

In addition to each individual’s resources and commitments, it is worth occasionally reminding ourselves of one factor determining perceptions of financial safety, namely personality and psychology. It can be a spectrum from those 100% in shares to the others solely in cash, safe government bonds or gold to hoarders of bags of rice and shotgun shells. It is, of course, risk tolerance and we are all somewhere on that axis. Our position, like our personalities, doesn’t change all that much with the state of the markets. There is really no right or wrong in any approach and what seems prudent to some may appear reckless to others. We should remind ourselves of this when evaluating “ideal” recommendations which seem to abound at the moment.
Just saying.
TP2.

@Sparschwein (@Tony, @Ian, @Merlotman)
I understand your concerns re financing stocks with debt and it’s good stuff from Nassim Taleb. However there is a case for gearing/leverage in the right circumstances and that for me includes a cast iron ability to service (or repay) the debt whatever events may bring plus attractive borrowing costs. I’d also highlight the interesting work by Demonetized on the leveraged Permanent Portfolio.

I am certainly not advocating the use of an offset to finance short-term bonds; just the opposite in fact because it’s a better return to leave your cash offset. I’m suggesting an offset mortgage, which is a bit like a large overdraft, can be used as an emergency, but serviceable cash facility so avoiding the need to hold a cash buffer,or short term bonds which are often equated to cash anyway. Long bonds are a different matter and deserve their place in a portfolio for their ability to zig when stocks zag as The Accumulator demonstrated in his recent article. They definitely do not equal cash. The UK Gilts Vanguard fund VGOV is pretty long in my book by the way with a duration of about 12 years.

@Tony Edgecome … I guess that’s why my comment was discussing the value of single market membership and not eurozone membership.

That must have passed you by…a bit like the Nissan story and declining food price stories. It’s a good time to believe in hard brexit, but not half as good as it will be in 2025, don’t worry, I’ll be back to compare our performance with the eurozone at that time 😉

The David Starkey link is great, hard to disagree with much – thanks for sharing.

I see the pound is under pressure again now people are focussing on the omni-shambles that is brexit (I’m no hard core remainer fwiw) coupled with us possibly being more affected than some other countries due to the service nature of the economy and our current account structural deficit. Somewhat not on topic but related to some of the comments – I keep a sterling mortgage and also keep the bulk of our liquidity in gold and $ TIPS beyond some sterling cash given I have a perma bear view on sterling outlook. Somewhat validated when David Davies gave an interview a while ago saying how sterling depreciation was the way forward to offset competitive friction from leaving the single market. Yup, I suppose if I offer to cut my salary by 20% my employer will see me as more valuable too. Just so happens I’ll be 20% poorer though but let’s keep that on the back burner shall we.

We’ll muddle through this in spite of the current crop of politicians who are as bad as ever seen on all parts of house but I suspect in a few years time the UK’s positioning relative globally will have declined further…hence the diversification away from £. But I don’t know of course.

Sparschewin comment is bang on the money. It’s worthwhile thinking about your finances from a what if scenario both positive and negative, associated likelihoods – recognising we generally think tail events are less likely to happen than they are and try to position accordingly to cover the bases if you can – what if i lose my job, what if things go well in the global economy, what if the UK economy goes down the gurgler, what if tech companies don’t continue to outperform, what if tech companies do continue to outperform, what if value never comes back or does, what if bonds fall over, what if rates go really negative, what if my partner dies, what if my partner lives to >100 etc etc etc.

@nearlyrich @Tony @Sparschwein @Ian
So to the question of why I hold bonds when I have an adequate emergency fund available via an offset for my part it is because 1. I am looking for bonds as a hedge for when equities lurch down again (start of Q2 reporting season my guess) and I might sell some bonds at this stage 2. I didn’t want to move cash out of ISAs /SIPPS because I want to keep the tax shelter, didn’t want to increase equity exposure but wanted at least some sort of return 3. I want to have a mortgage albeit manageable for IHT planning.
Nevertheless I am wary of bonds in the longer term particularly given where interest rates are currently.

That article FI Warrior, links to the interesting Thomas Meunier pre-print paper. There is a comment in that paper at the end.

“As a concluding remark, it should be pointed out that, since the full lockdown strategies are shown to have no impact on the epidemic’s slowdown, one should consider their potentially high inherent death toll as a net loss of human lives”

Certainly looking at the UK data it looks like R0 (or more accurately Re) was already below 1 before 23rd March. Thomas Meunier’s analysis, through just looking at the data, is essentially that not only had R fallen below 1 before the full lockdown, but that full lockdown had no impact on further reducing R in a number of countries.

I read a lot of people saying the lockdown worked in the UK, because ‘it obviously worked’ or because ‘the number of deaths has reduced’, or ‘the NHS wasn’t overrun’, but these statements are all assumptions, and not data driven arguments because we haven’t compared what happened with what would have happened if there had been no lockdown.

At the simplest level the UK lockdown was on 23rd March and the death peak was 16 days later on 8th April*. The period from infection to death is on average perhaps 21 days, arguably slightly more, I’m struggling to find good UK data here. And so R0 was below 1 before 23rd March it appears. And if lockdown had added anything then you would expect deaths to fall away much more quickly some time after 13th April (23rd March + 21 days). Note the fall away might be delayed after 13th April, because of secondary infections within households, but it isn’t obviously visible at any point.

This isn’t a point about whether the lockdown decision was a ‘mistake’, it is about whether the lockdown with the benefit of hindsight added anything. I think the answer to that informs policy going forward. I’m not saying absolutely lockdown didn’t add anything, but I am asking for a data driven argument that it did add something.

So I’m still wondering if anyone has any UK data to show that the lockdown did add anything to the behavioural changes and distancing measures etc that had already taken place before 23rd March?

* Hospital covid-19 deaths in England clearly peaked on 8th April, care home covid-19 deaths taken on their own peaked a bit later, but overall covid-19 deaths peaked on 8th April.

UK covid-19 hospital deaths for England see “COVID 19 total announced deaths 17 May 2020” at

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

@Snowman, I have noticed that too.

The data the government love showing on transport use (largely a proxy rather than direct indication of infection) is quite clear that people were changing their behaviour hugely the week before lockdown. Given that the epidemic was largely driven by London infections at that point, I wonder if reduced underground travel had a disproportionate influence on national transmission numbers and subsequent changes were much less.

Elsewhere in the country the peak was slightly later than 8th April. And in a graph combining NHS data (England) with deaths outside hospitals, although the highest single number fell on 8th April if a smooth curve was constructed it would peak around 5-6 days later. (I looked at https://www.cebm.net/covid-19/covid-19-death-data-in-england-update-15th-may/ for this).

Going back to your point, it seems clear that not all of the restrictions on normal life have equal effect. It seems likely that people being close packed for significant periods on public transport was a big driver of infection, and probably other crowded indoor activities were similar (pubs, nightclubs). But unpicking the differences seems largely to come down to informed guesswork, though the public health professionals may have some other sources of information. It is almost certainly true that 75% of restrictions could be relaxed without a huge infection surge, but with so many of the public frankly being scared (see parents and teachers) the government needs to back up any decision with convincing data.

And on top of that is the suspicion, voiced here by @TI, that uncounted mild infections may mean that enough of the country is immune (in London at least) for transmission rates to be much more easily controllable than they were in March.

@Snowman, @Jonathan,
Good points made by both of you. However, the ONS stats for the number of excess deaths for the week ending 1st May is 8000. Looking at the daily death trend of Covid-related deaths for the UK it does look as if it is on a downward path and perhaps running at 2/3 the rate of late April. So let’s assume that the current weekly excess death rate for England and Wales is 5000. That equates to 250,000 per year. Does anyone believe that lockdown is causing an increase in net deaths of 5000 per week?
In support of what you both are saying, I adduce this report from the Guardian about the measures introduced on 16th March -https://www.theguardian.com/world/2020/mar/16/what-basis-government-coronavirus-measures . My point is to remind folk that the March 16th government exhortations were extensive and powerful and that date is 23 days prior to 8th April.
Finally, a comment on this year’s deficit which the OBR is forecasting will exceed 15% of GBP. For a historical comparison, it was around 7% in 1975/6, slightly higher in 1993/4 and 11% in 2009/10. Time taken to reduce to zero was 11, 5 and 8 years respectively.

Irrelevant trivia – David Starkey is from South Cumbria and went to Kendal Grammar school.

@Mousecatcher. High frequency European/US/UK data, all prior to their lockdowns, shows that their economies were already contracting from a massive collapse in aggregate demand. That was added to an already baked in supply shock out of Asia. Your concept that people were going about business as normal is simply not true. Businesses and households didn’t wait for the government to impose lockdowns. Instead they were radically altering their behaviour based on risk version, fear, panic, uncertainty etc.

The lockdown is not to blame for the recession. No one is to blame. A pandemic is a major exogenous shock. In a shock you get all the same symptoms, almost irrespective of the cause. Major risk aversion, velocity of money to a standstill, capex stops, credit is not rolled over, supply chains breakdown, aggregate consumption collapses. It leads to recession and lost jobs. End of.

So I have no idea why everyone is acting surprised about the economic damage and trying to reassign blame to the lockdown. The chain of damage was baked in from, at the latest, mid Feb. This has to be the easiest trade to profit from since 2Q13, 1Q09 or early 08. The market offered you 10:1 or 20:1. All time low implied vol, the market totally over it’s skis, still blindly BTFD on every risky asset, while staring at an abyss. And they say the market’s efficient. The only thing that has saved most risk assets is unprecedented co-ordinated monetary and fiscal action.

Re economic damage being blamed on the lockdown. Covid-19 reporting is so politically charged that we’re better off reading the original studies. Here’s one from Uni Copenhagen comparing consumer spending in Denmark and Sweden.

“Denmark and Sweden were similarly exposed to the pandemic but only
Denmark imposed significant restrictions on social and economic activities. We estimate
that aggregate spending dropped by around 25 percent in Sweden and, as a result of
the shutdown, by 4 additional percentage points in Denmark. This implies that most of
the economic contraction is caused by the virus itself and occurs regardless of whether
governments mandate social distancing or not.”
The not-yet peer-reviewed manuscript is here
https://www.nielsjohannesen.net/

Sweden has a much higher Covid-19 death rate than their neighbours with more stringent lockdown policies. Sweden (much like the UK) got the worst of both worlds: many avoidable deaths AND similar damage to the economy as countries with better policies.

Latest UnHerd video: Professor Karol Sikora: fear is more deadly than the virus

https://www.youtube.com/watch?v=uk2YZfnsOPg&feature=emb_logo

(sorry put this it on the wrong post originally, but it’s a must watch)

@TI, Moderna’s early data is extremely interesting given the complete novelty of their vaccine. Though by their nature companies tend to err (heavily) towards hype. But to be brutal, no candidate vaccine has actually been shown to protect against infection yet.

(Not saying they won’t, I personally am optimistic, but it isn’t a vaccine unless it works).

@Sparschwein, good point, the key thing will be how ready countries are to overcome the current economic downturn. While at one level it looks OK for Sweden, my guess is that like most countries they are so interconnected that they need others to bounce back equally quickly to benefit fully.

And @Snowman, as it happens Sikora was once a (rather senior) colleague of mine. Very clever guy, but inclined to do things that attract accolation.

Week 19 ONS England figures out

3,081 excess deaths over the 5 year average for week 19 vs 3,930 covid-19 deaths for that week.

So more covid-19 deaths than excess deaths!

That’s a complete turn round from previous weeks. Week 18 there were 8,012 excess deaths and 6,035 covid-19 deaths.

I think we can guess what is happening here, but I will wait for thorough analyses

@Mousecatcher. “But isn’t the contraction that you say was already evident in Feb a symptom of the lockdown mentality, ie a response to being told night and day that the Black Death was on the way?”

You’re rewriting history. Do you write for the Telegraph or Spectator? There was no lockdown in UK/Europe/US in Feb; it didn’t arrive here till Mar23. There was already a massive shock hitting global supply chains from the impact of China (and other Asian countries) locking down. We had the complete disintegration of the OPEC+ agreement on Feb29, causing an oil price collapse. By Mar1, the global economy was going down. It was nailed on.

You’re also you’re implying that people are being irrational about the risks. The Spain antibody study implies an IFR of 1-1.1.2%, the NY study is not much better. There are other studies implying perhaps 0.3-0.4% but they look increasingly on the backfoot. Yes, this isn’t the Plague of Justinian but it’s still bad. Take the counterfactual: nobody did a lockdown at all, no closing of borders etc. The global spread would have been faster, many countries health systems would have been overloaded, media headlines would incite more panic. You really think many people would be going to restaurants, flying, taking the train/tube to work? Yes, at the margin the economic damage might not be as bad but you would still be staring at a huge global demand shock.

@Sparchwein made the point. The Scandis show us that the SEK economy is only doing marginally better than NOK or DKK. That’s why I said the impact of the lockdown (hard vs. soft) is about 20%. Even better look at Australia. Feb23 lockdown, per capita deaths at just 4/million vs. UK at 512/million: 128x better in terms of health outcomes. With deaths at such a low level, it’s so much easier to re-open the economy, re-open schools, to get consumption going. The level of uncertainty, risk aversion is so much lower there than here for valid reasons.

So it’s not economy vs. lives; you can win on both. The UK made a conscious decision to kill more people more in the first wave and, in the process, did more damage to the economy. We lost on both fronts. GBPAUD is 10% lower since Mar23. Investors are voting with their capital. Global policy makers/scientists are just appalled by how badly the UK has handled the pandemic. We keep putting the wrong people in charge of the country. As a country, we’re addicted to self-harm.

@TI. “in general I remain pretty skeptical that everything has played out in a completely foreseeable fashion. The volatility tells you it hasn’t. It tells you, among much else, that people were repeatedly on the wrong side of the trade …”

I’d agree with all that but that is not what I implied. You’re thinking too much in terms of ‘views’ and in terms of ‘delta 1’ trades. What I’m saying is that the implied probabilities for something going wrong were incredibly low even in mid Feb. Take the Russian Rouble. USD/RUB implied volatility was 7% at the start of 2020; so a 67% probability of an 7% move over 1 year or about 1% per week. It moved 20% in a week in March as oil collapsed. A 3m option I bought for 0.3%, I took off for over 12%. Similarly, you could position money market lents or flatteners for a max 5bp loss that ended up making you 200bp. All over the place, the market was allowing you to buy constrained downside structures with very high leveraged payouts to the upside if everything did fall apart. It’s something I’ve only seen perhaps 4 times in 20+ years.

Even at a personal level, it was offering great ways to position. I replaced nearly all my SPX funds with 1-year SPX calls, costing just 4%. For a market that had rallied 30% in 2019 and had dropped 20% in a 4Q18 that is bonkers cheap insurance. It allowed me to redeploy some of the the cash into long-duration USTs, which have made me 25%+ this year. The options themselves, even with only 7 months to expiry and with the SPX down 9%, are still worth about 3% as the positive vega reval has offset some of the negative delta reval.

@Ruby. We have a good idea what negative rates will do for government bonds since we have the Eurozone as an example where negative rates have been in place for a while. The ECB went negative with their depo rate in 2014, and it’s currently -0.5%. They are also doing QE + TLTROs. We see that 10-year German Bunds never got below about -0.85% (currently -0.45%) while French OATs at the lows were -0.4% (currently 0%).

Now, UK Gilts are at +0.27%. So perhaps another 1% lower might be a stretch target in extremis but that implies Bund-like credit quality and scarcity value. That requires the BoE to be hoovering them all up in some QE++ type programme. More realistically, something like current levels to perhaps -0.25% would seem more realistic. That implies perhaps another 50bp or 5% return on 10-year Gilts.

Of course, they could go lower if, globally, govt bond yields fall further. But I have to emphasise two things. First, even if policy rates go negative that doesn’t mean bond yields have to. The ECB has a negative depo rate since 2014 but French OATs have spent more of their time with a positive yield (typically 0.5%-1.5%). Second, the BoE (and the Fed) are far less keen to go negative on policy rates than banks such as the ECB. Instead they prefer other measures such as QE, yield curve control, credit QE etc.

Right now, I just don’t see a 3:1 or 4:1 payout ratio from being long Gilts. I don’t own any material position in Gilts. In fact, I see Gilts as probably one of the most expensive Govt bond markets in the world. My feeling here is that, globally, the disconnect is that the market sees a strong mean reversion in earning expectations (high projection rate), keeping equities high, while also seeing no mean reversion in policy rates for a decade (low discount rate). Sort of the total opposite of what we had in early 2009. Then the clear trade was long equities vs. long govt bonds. Now, if anything, the trade seems to be short equities vs. short govt bonds.

Please could we have commentary on the recent relationship between bonds and equities. My colleague often says ‘what are the alternatives’, so in response to the suggestion that bonds/ equities are expensive/overvalued today we should ask, in relation to what? It would be good to revert back to investment from Covid and Brexit (yawn).

We will have cheaper mirrors, garden shears and pistachios after the brexit transition ends!

On the Moderna first trial of a vaccine in humans:

It’s a phase 1 trial which is “to assess whether the vaccine is safe in humans and what immune response it evokes”.

There seem to have been 45 people in the trial, but information was released only on the 8 people who developed “neutralizing antibodies”. What happened with the other 37? Three developed more serious side effects when testing a higher dose (though these resolved within 24 hours); so longer-term usage will need testing.

TL;DR: Wait for the paper to be published, and phase 2 results, before reacting like the market.

@TI

Why does the new reported cases thing not surprise me!

Of the hospital deaths announced today one took place back on 24th March and one took place on 27th March, almost 2 months ago!

But on a positive note we mustn’t forget the ONS have been totally excellent, and I think we can rely on their data being highly accurate.

@Snowman, #89

I’d rather have left this week to the excellent financial discussions (thank you @ZX, learned so much) but I feel this needs commenting.

> I’m shocked by comments nationally from councillors and other public figures about beachgoers putting local people’s lives at risk.

I’d say it’s valid in some areas. If you live in west Wales, where the healthcare provision isn’t (shall we say) the best, where your nearest hospital is 1.5 hours away, then yes, people coming in and spreading the virus to locals is going to be more risky than spreading it here on the south coast of England, because of the care available. I see the risk from ppl moving to their second homes as considerably higher, particularly around healthcare capacity (even number of GPs), but it is there.

> And NO there is no remote indication that a second peak of death will overrun the NHS whatever media or government scaremongering might want you to believe. And if you don’t belive that, let’s openly talk about that

As my professor used to say, “citation needed”, or “show your workings”. For example do you assume that the NHS stays on the current “war footing” or all normal treatments are resumed? Do you think a peak will be lower/higher than the one we’ve just had? Will there be a change in treatment by that time? Or is it more fundamental that in your view there isn’t going to be a second peak, and some other trajectory (slow burn, sinusoidal, random distribution) will be followed?

Without that, it’s hard to evaluate your statement that there’s no remote indication the NHS would be overrun. I could see problems, particularly this coming winter, if we decide to protect the health of those without the virus and continue treating other conditions as we did before, without diverting resources away to enlarged ICUs and covid wards.

> When we suspend free thought and we suspend open scientific discussion we head into something George Orwell warned us about.

I agree with you, but rather than this being the risk I say we’ve had too much free thought (5G causing coronavirus? Contrails spreading it? Government plot? Catch it by walking past someone?) and yet – thanks to the same channels that have allowed such ‘free thought’, a lot more open scientific discussion than I remember happening before.

Right, now back to coaxing my investments to a return that will hire an interior designer. After 2 weeks of decorating it’s (now) painfully obvious that colour and choosing complementary styles is not my strength.

Bit late to comment on the weekend reading, but for me the biggest event was the easing of restrictions. Marinas have opened and we have been able to take our boat out. The thing we must not do is spend the night on our boat ;). I guess staying in boats and second homes increases the risk of passing on the infection? I would love to hear the explanation and evidence behind that one.

We most definitely fall into the mental accounting trap when it comes to inherited money. My wife has a small inheritance from her parents which is kept in a separate account and treated differently to other money. It is earmarked, I think, to be disposed of in a way her mother would have approved of. Charitable giving, assisting other family members. That sort of thing.

I am currently winding up my father’s estate. My share will now bypass me and go to the kids. I have told them to carefully consider what they do with it as this money did not come easily to my parents. They would not have approved of it being frittered away.

@TI. There is clearly no actual floor on policy rates. Both independent research and central bank research has shown that policy rates down to -3% to -5% are possible without causing financial instability. But there are a variety of economic, political and technical reasons why the ECB have been more keen than the Fed and BoE to go negative on policy rates.

A key driver is the difference in the balance of payments position. The Euro-area runs a current account surplus unlike the UK or US who run deficits. Now, the ECB targets price stability but there is no doubt that they see a need for a weaker Euro to help achieve that. Running a negative rate differential vs. other countries helps to achieve that. It enhances the use of the Euro as a funding currency for speculative purposes and also drives portfolio outflows. By contrast, the Fed and BoE prefer to leave the currency to it’s own devices.

The second issue is the ECB has had less flexibility in terms of it’s Asset Purchase Programme (APP), it’s version of QE, primarily due to political issues. The capital key requirement in the APP limits how much of each sovereign govt bond they can buy. The end result is that the’ve had to buy more German Bunds than optimal and less Italian BTPs. The ECB APP results in severe risks of Bund scarcity and too flat a curve, impacting the German financial sector (curve steepeness is more important than level of rates for sustainability). The whole QE proramme is politically charged. By comparison, the Fed and BoE have more freedom and less political influence.

This are also technical issues. The Euro-area is an amalgam of sovereigns and banking sectors of varying credit quality. The ECB depo really represents the lower bound of that credit spectrum, so to get front-end commercial depo rates lower in some of the lower credit quality countries, they need to run negative rates.

So I tend to think it was the ECB that was forced to go negative due to political+economic+technical reasons that limited it’s flexibility in other unconventional policy areas, rather than the Fed and BoE being somehow overly resistant.

I think both the Fed and BoE would go negative if required. It’s just that they know that it’s efficacy is somewhat limited and it has some nasty side effects. It’s somewhat like pushing on string. Instead, they are trying to find other channels by which they can stimulate credit demand in the real economy, whilst not blowing ever larger bubbles in asset prices.

On the subject of censorship, youtube has taken down the discussion between Karol Sikora with unherd.

https://twitter.com/ProfKarolSikora/status/1263431671426232320

Here it is for those interested

https://unherd.com/thepost/professor-karol-sikora-fear-is-more-dangerous-than-the-virus/

Too much ‘free thought’ obviously.

@ Snowman – ps. I don’t really follow the arguments which say that contact tracing is the answer to all of this if 50% or more of infections are asymptomatic and, presumably, still capable of passing it on.

@Snowman, #95, #96 & #99

> So do you think it is reasonable that we should tell people to fear a second peak that overruns the NHS, and if so why?

I think it is reasonable to tell people to fear a second peak, in order to reinforce behaviour changes which a number of your reasons rely on. And if a perceived threat to the NHS is the best way to ensure they act, then I’m fine with that; it’s propaganda.

Unless the virus fizzles out, and we will only get evidence in 2-3 years’ time if that is the case (vs being suppressed through measures taken) 

One assumption you reveal in #95 but didn’t explicitly state in #89 is that changes in behaviour are maintained. There is a difference in the likelihood of a second peak and/or overwhelming the NHS if behaviour is different, or if behaviour goes back to a 2019-style (no social distancing, all businesses reopened).

> You talk about ‘people coming in and spreading the virus’ but you give no reason why they would spread the virus other than that they are physically there.

There is no way to spread this virus without being physically present.

> I’m lucky to live in a nice part of the country, but I would much rather someone drove to a local beauty spot in my area and go for a walk away from others, rather than walk in their crowded city environment, albeit both are probably low risk.

I live on the coast between two cities. The increased chance of spreading to the (predominantly elderly) residents here is down to shared usage of local shops, crowding in the local areas where we exercise, and – non-covid but still disease related – the toilets, or rather lack of: they haven’t been unlocked, so what you now find at the top of the beach is human excrement.

> You’ll have to explain why you mention second home owners when the point was about beachgoers (daytrippers). Are you saying that daytrippers should not to travel to the beach, because that may allow others to sneak off to their second homes and overwhelm local healthcare services? 

I said in #90 that “I see the risk from ppl moving to their second homes as considerably higher”. This is because the risk of infection transmission from people who are present and interacting 24/7 is higher than those who are mostly on the beach for a day, and using local shops and takeaways for food at lunchtime and in the evening. I have no evidence to back this up, and once second home dwellers have been in-home for 2-3 weeks, there will be no extra risk.

> What do you think of the youtube policy of taking down any video that goes against WHO guidance. What if someone had uploaded a video at the beginning when the WHO said there was not going to be a pandemic. 

Too broad. Like the virus this is another unsolved problem (and one I see less chance of solving) around free speech. Unless one believes in absolutist free speech there are subjects society doesn’t want to see discussed and publicised, and these are usually legislated against. There are also topics that aren’t good for society (my opinion) including fake news and conspiracy theories. As yet society hasn’t worked out how to deal with both. I don’t have an answer, and this is a topic I’ve had to think and read about for 10+ years as part of my job.

Since you care about this, do keep an eye on the UK’s progressing Online Harms framework (which makes the Youtube policy look sane): https://www.gov.uk/government/consultations/online-harms-white-paper/online-harms-white-paper and on the Open Rights Group briefings.

> The open scientific discussion has passed me by. I could list many but what about the response to Professor Ioannidis for example?

It appears valid. His views are not matching with much of the scientific community and neither is the research he’s involved with. He could be proved to be right all along and a true maverick; or totally off-beam. Ditto Sikora, who I follow on Twitter.  I’m keeping an open but skeptical mind; there’s so much uncertainty around the virus and how to handle a pandemic, and what we know is continually being revised, that I see no place for holding a view beyond “The consensus is … and I personally prefer … because of …”.

> Apologies Indecisive if any of my posts come across as confrontational, but it’s the unnecessary fearmongering (in my view) that I’m not liking.

Your posts come across as someone with a fixed set of views who is keen to share them, rather than work towards greater understanding. I can be the same but I try to do better.

I have family aged 65-75 who have been breaking social distancing in many ways since it started, including to work in people’s houses (face to face less than a metre apart) during lockdown, who think we are now in a police state, who are vocal about going to sit inside any restaurant that reopens and don’t want the tables spaced out (because that wouldn’t be economically viable for the restaurant), who think everyone is too fearful, and think others can die because they have underlying health conditions, while they have kept healthy and anyway won’t catch it because they’re taking vitamins.

I also have others who are agoraphobic and don’t want to go anywhere in case they meet the virus.

I get to see it all. And frankly the latter are easier to deal with, because once places open back up, the temptation to go to the cinema/for a meal/shopping will get them out. And if they go less I’m happy – it lives up to the FIRE ethos.

You talk a lot about people “hiding behind sofas”. Are these people you know or a construct you use to describe the English population as you perceive it? As it is not one I recognise, and my totally unscientific estimate would put the fearful ones at <20-25% of the population.

5,838 deaths in hospitals in London (to date)
Population of London 8.9 million
Prevalence of antibodies 17%

So number who have had the virus = 0.17 x 8.9 = 1.51 million
So IFR (excluding care home population)= 5,838/1,510,000 = 0.39%

Or potentially much less if we take into account those who have seen off the virus but don’t have detectable antibodies

(if my calculations are correct which they might not be)

Note the BBC are reporting

“Earlier, at the UK government’s daily briefing, we heard news of a study which suggests that 17% of people in London and around 5% of the rest of the nation have virus antibodies.”

But I think that’s wrong. Hancock said AT LEAST 5% elsewhere have antibodies, and the region with lowest sero-prevalence is the South West which will be the 5%. So the overall antibody sero-prevalence outside London is probably around 10%

@Snowman. He did say “at least 5%” but I didn’t hear him imply that every region (or for that matter every town/village) had at least 5%. Why do you interpret it this way? It might mean that the result was 6% with CL of 1%, hence it’s “at least 5%”.

Based on 17% for London and say 6% for rUK, the IFR would be around 0.8% using the 36k deaths but 0.9-1.15% if we use say 40-50k deaths that some are arguing for.

Also once you adjust the London result for age demographics, the IFR would be 0.5-0.6%. Moreover, London has a lower weighting of care/nursing homes than many other parts of the country. It should be coming in with a lower IFR.

@ZXSpectrum re
‘at least 5%” but I didn’t hear him imply that every region (or for that matter every town/village) had at least 5%. Why do you interpret it this way? It might mean that the result was 6% with CL of 1%, hence it’s “at least 5%’.

I didn’t know what he meant so I tried to work what interpretation of his words might make most sense.

I worked off the London 17% figure, went to the hospital death data by region, which if age profile at older ages is the same, and IFR are the same might give you a clue as to what % might have had the virus in the least affected area. This I understood to be the South West and my calculation comes out as 5% which made me think that is what the least 5% meant.

Good points from you and Matthew about the age structure being different. Hard to adjust for, it’s actually the %s at higher ages where all the deaths are that make the difference. I’ve ignored care home deaths as they may skew the calculations and ignored home deaths which is an issue. It’s back of the envelope stuff.

The sample was something like 1,000 people from memory so they couldn’t get down to town level. Most data seems to be at regional level e.g. London, East of England, Midlands, North East and Yorkshire, North West, South East and South West.

I’ve backtracked a bit because some of the other figures now being reported don’t make sense. So I’m now saying let’s wait for the official figures.

Good article on second waves that I hadn’t seen before

https://www.cebm.net/covid-19/covid-19-epidemic-waves/

Scaring people that the merest relaxation of individual lockdown measures risks a second wave that will send exponential growth out of control and overwhelm the NHS is unacceptable (in my view), but providing realistic information on the dynamics of previous viruses as a means to understand what might happen with the current one is a completely different matter.