Election Celebrations

What a mess!

On the other hand this charade has given us a number of celebrations in lieu of a simple, one time, election night celebration.

Early election eve the hopes for a Biden electoral landside was squashed when Florida was called for Trump   But there were hopeful signs - Biden was leading in NV and AZ, in range in MI and WI and he won one electoral college vote from eastern Nebraska.  This last was key because it meant if Biden could win MI and WI and maintain his leads in other states then he had 270 without the remaining swing states of PA, GA and NC.

In the early AM Biden pulled ahead in MI.  It was now all about WI.  At about 3:00 AM Milwaukee county updated their numbers, mostly from mail-ins and Biden was now ahead!   Recall that a poll about 2 weeks prior Biden up by 17 percentage points!?  He was now ahead by less than 1 percent. But that was enough.   This was celebration number 1.

As the days passed it seemed likely than Biden would also win PA.  Meanwhile he maintained his lead in AZ and NV and now looked like he had a shot in GA.  On Saturday the media outlets called PA and declared Biden the winner.  (Most outlets had not called AZ, some had not called NV).   Now NV and PA were called and we were are 279 and climbing.  This was celebration number 2.  People literally danced in the streets.

Biden was leading in GA but the margin was close enough to require an automatic recount.  A few days later  the recount confirmed GA.  About the same time AZ was called.   All states now called and we were are 306.  Celebration number 3.

Meanwhile all of Trump's court cases were being summarily dismissed.   Trump backers claimed fraud in press conferences but not in court.  This was capped by Giuliani making unfounded claims at the Four Seasons landscape company in an industrial section of PA.  It was a riot.  Celebration number 4.

Second recount in GA and Trump paid for a partial recount in WI.  Both confirmed Biden's win.  Celebration number 5.

Another presser with the crazy Sidney Powell and the melting Giuliani.  This was a howler.  Not much to celebrate but certainly something to laugh about.

With all the law suits and recounts no votes were disqualified.  It is now Dec 8. "safe harbor" day and it's over.  That Trump and some of this crazed supporters think that it isn't but there is nothing to worry about.  It just continues to get more embarrassing for Trump and the alt-right.

But we get at least two more celebrations.  Dec 14th when the electors vote and then again on inauguration day.  

Economy and the Market

Well the stock market is doing very well despite the incredible surge in COVID cases, deaths and hospitalizations.   The economic rebound has stalled and we may now be headed for a second wave of increased unemployment.  

So why is the market up?

1)  The market is not the economy.

2) The market is often wrong.

3) The market is looking ahead 12 months and assuming that we will have a vaccination and that enough folks will get vaccinated.  This could lead to an expanding economy - more jobs, more demand, growth globally.

But uncertainties exist:

Government funding ends on Dec 11.  No one can predict with role Trump may play in a CR.

Over fiscal relief spending ends on Dec. 31.  The prospect of a covid relief package - even a minor one will remain in doubt as long as Trump continues to fight the election results.

The pace of vaccination may not keep up with the Covid surge in the next 3-6 months. 

Post election snapshot

On election night I was a nervous wreck.  I stayed up until 5:00 AM.  It was about 3:00 AM that I started to feel hopeful.   Results came in from Milwaukee and Biden who had been behind by 100,000 votes was now ahead.  He was also ahead in Michigan, Arizona and Nevada and with the one elector from Nebraska he was on track to exactly 270.

At the same time the Biden camp expressed confidence about PA even though we were down by over 600,000 votes in the early returns.  Hour by hour Biden cut into the lead.  By 8:00 AM the lead was down to 64,000.

As the days went by the results in Wisconsin and Michigan firmed up and the PA gap closed relentlessly.  Nevada looked secure.  Arizona less so.  For some reason Arizona was the outlier with the mail-in votes.  AP and Fox News called Arizona but the other news outlets did not.  In the meantime Biden was gaining in GA.

Finally on Saturday the news outlets called PA.  The one of two who had not called Nevada now called that as well.  Biden was at 279 with Arizona and Georgia still a little unclear.  We all celebrated along with a huge sigh of relief.  

Of course, Trump did not concede.  At first his strategy seemed to be to file law suits in 6 or so states trying to get votes thrown out.  None of this worked.  The next plan seemed to be a recount.  GA had already decided to do a recount and Wisconsin seemed likely to do so.  But those two states would be insufficient to change the outcome.  On Nov. 19th Georgia finished the recount and Biden was the winner.  

The electoral college remained at 306 to 232. The popular vote had Biden up by 6,000,000.

On Thursday, Giuliani had a presses with a bunch on new bogus allegations.  The legal fight looks over.

That leaves the last hurdle.  Certifying the election state by state and voting for the electors.

Timeline:

By Nov 30 the majority of the "swing states" will have certified the election.

Dec. 8 is the safe harbor day when the electors are finalized.

Dec 14 the electors vote.  I see no chance of "unfaithful" electors changing the result.

Trump's last chance, and he's trying today by meeting with Michigan GOP state legislators is to have the state legislators ignore the vote in their state and try to elect GOP electors.  Would the GOP leadership in Congress go along with this.

At this point the following GOP Senators have congratulated Biden: 

Romney, Collins, Murkowski, Sasse, Rubio (partial)

Tesla

Tesla fascinates me, first, as a company and secondly, as a stock.

I wrote this back in Sept 2018.

Seems to me the question is, if Tesla stops all R&D and focuses on producing and selling the high end Tesla 3 (you can forget about the $35,000 version) can Tesla turn a profit?

Even if they can and can stave off their debt issue by 2020 they will have lots more competition and will be producing cars that are 3-5 years old.

Currently Tesla, like Apple, has brand name appeal that will attract buyers even if the product is not competitive (see Mac PCs).  What I've read about the Tesla 3 is mixed.   Great car but some material quality issues.  If they focus on the Tesla 3 they should be able to correct the quality issues.

Worse case is that the Tesla 3 even at $70,000 is not sufficiently profitable.

So what happened:

Tesla overcame the challenges in 2019.  They became profitable Sept 2019 and remained profitable for the next 3 quarters making 2019 the first year of profitability in their history.  They reduced R&D but did invest in a new plant in China funded by a bank loan from a Chinese bank.  So they staved off the financing issues.  They raised $2 billion by issuing new shares in Feb 2020.  

Competition did not arrive in 2019.

However Tesla did not make a profit by selling Model 3s.  They made a profit by selling energy credits.

Current company analysis: Pros

Tesla remains the technology leader in EVs.  The Model S remains the best EV in the market.  The Model 3's quality issues do not seem to have impacted sales though they have had to reduce prices to retain sales.   The Model Y which is a modified Model 3 is now available.  The low-end Model 3 now sells for $38,000 so we are finally close to the promised $35,000 EV.  

Reviews about the driving experience of Teslas are very positive. 

China production is fully online and they will be exporting cars made in China to other markets including Europe.

Tesla may have a big lead in battery technology and in autonomous driving.

Current company analysis: Cons

Competition did not arrive in 2019 but has arrived in 2020.  Volvo now outsells Tesla in Europe.  In fact sales in Europe are down and overall sales are flat.  VW is about to launch a competitor in the US.  Lucid is getting close to selling a high end competitor to the Tesla S.  

Growth is slowing or perhaps non-existent.  They sold 90,000 cars Q4 2018 and 90,000 cars Q2, 2020.  Revenue has plateaued at $25 billion TTM.   

Tesla does not make money selling cars!  The company is now 17 years old - founded in 2003.  Went public in 2010.  Has received billions in government subsidies.  Has had a huge technology advantage and still do not make a profit selling cars!  They made a profit in 2020 only because they were able to sell energy credits which they get for free to other car makers.

Tesla reduced capital investment.  Some analysts have claimed that they have accounting issues related to underfunding their warranty offset account.  This combined with the sales of the energy credits cast some doubt on the companies income statement. 

Prognosis

Tesla may become a profitable car maker with domination in the EV market.  They need to start making money selling cars which means they either need to scale up despite the increased competition, improve their operational efficiency or develop a new high-value cars.

Tesla may become a successful niche car manufacturer.    They turn profitable but not dominant.  Sales grow sluggishly and are highly dependent on the economic cycle like the rest of the industry.

On the other hand they may completely fail as a car maker if they do none of the above of if GM or VW or Toyota develop competitive cars with scale that Tesla can't match.

Tesla may succeed as a company even if they don't succeed as a car maker.  Other possibilities are to develop and license autonomous driving or to develop battery technology.  They are about to make a "battery day" announcement.  I will be tracking that though Tesla has frequently over-promised and under-delivered, e.g. full self driving by 2019, $35,000 Model 3 in 2018.  

Still waiting on both.

Corona Virus: The New Normal

 This past week

Sunday - Point Lookout Vineyard with Pete and Tess
Tuesday - Hike with Pete
Wednesday - Ben and Joanna over for cocktail hour
Thursday - Beers at Southern Appalachian with Bob, Diane and Ben
Friday - Music at Appalachian Ridge with Mina
Saturday - Dinner at Sol Y Luna with Phil and JoLyn
Sunday - Hosted dinner with Bob and Diane

What we haven't done; played bridge, eaten at a restaurant indoors, no gym, no church, no indoor gatherings at all.

Don't see anything changing in the near term.

Corona Virus: A Macro look

 We are now 5 1/2 months into the pandemic.  A few thoughts on the macro trends.

1)  The Pandemic itself.

The initial surge was in the North East.  The response was late and inadequate to the crisis.  The number of new known cases was averaging 30,000 day but the actual number was much higher.  Much of the country went into various levels of stay at home orders, closing businesses and restrictions on gatherings.  What was missing was a nation-wide order to wear masks and social distancing.  The pandemic eased from April through the middle of June. 

Then states began to re-open businesses and ease restrictions.  States that did not experience an initial surge and loosened restrictions were soon hit with surges, specifically AZ, FL, TX and CA.  The number of new known cases soon surged and eclipsed the numbers from the north east.  But the number of deaths did not jump nearly as high.  The general thesis was that younger folks were catching the virus but those folks with elevated risk where avoiding the virus.  

I expected that as soon as cases surged folks would quickly and voluntarily change their behavior.  Well is wasn't so quick.   For the next month. mid-June to mid-July cases continued to surge. Deaths also increased dramatically but did not get back to the levels of April and May.  Deaths which had declined to 500 day rose to 1000 day (rolling average).  As I write this deaths are slowly declining.  

The conclusions are that the virus is highly contagious is precautions are not taken.  However the virus seems not to be as deadly as once feared especially in the general population.  Treatments also seem to have progressed.

It now seems that closing the economy was not the optimum public approach.  Restrictions on businesses were and are still needed but closing the economy was probably unwarranted.  At the same time there should have been more restrictions in certain areas - especially senior citizen housing.  And a national policy on wearing face masks and socially distancing should have been enacted in March.   

Testing policy is still a mess.  Most folks should not be tested.  Only those who are vulnerable or who interact with the public need to be tested.  There are far too many cases for contact tracing.

2)  The North Carolina experience

NC is unusual.  Stay at home orders and business closures were ordered in mid-March well before we had any significant outbreaks statewide.  That meant that like other southern states we had a high number of Susceptibles and a low number of Recovered.  But unlike the other southern states we re-opened slowly and carefully.  We are still in "phase 2" which is now scheduled to end on Sept 11.

As a result NC is well below average in cases and deaths per capita.  But at the same time we haven't seen much change in the numbers in the last 4  months.   Basically unlike the rest of the country we aren't seeing any improvement.

2)  The economy

Unemployment surged to 20% and then quickly rebounded.  It is now at 10% and looking "sticky".  Airlines, hotels, restaurants, etc. won't recover for a long time.  The number of people out of work will also impact overall demand; consumer spending and business investment will also suffer.  State and local governments will also have to retrench due to decreases in tax revenue.

Congress passed a massive CARES Act in May.   Most of the provisions have now elapsed.  A second fiscal recovery plan is needed but Congress is stale-mated now.

3) The stock market

Partially due to the massive government fiscal and monetary policies the market recovered from the March debacle.

What we (may have) learned.

 The stock market is not the economy.

 The stock market index does not represent the stocks in the index.  It stock market index measures the success of Apple, Amazon, Microsoft, Google, Facebook and Netflix.  According to one source 292 members of the S&P 500 still are down year to date (YTD).

And the economy is not the only measure of how well the country is doing.

Some additional observations about the economy.

 The stock market is being propped up by near-zero interest rates.   Current acronym for buying stocks TINA – There Is No Alternative”.  

 The bankruptcies will hit small business and very few large, public corporations.

The market has not priced in any bad news regarding either a worsening of the pandemic or a failure of Congress to support the economy.  The overall market looks risky to me.

On a special note Tesla looks like the biggest equity bubble since the dot com bubble. It split and the split shares are selling at $500/share.  I expect this stock to drop by 50% or more.  But like most bubbles it is hard to predict the timing.  

Corona Virus: Four Months In

On March 10 I went to the FCUCC Book Club and the gym.  By the end of that week we had a stay at home order.   So it has now been 4 months living under covid restrictions.

This has lasted much, much longer than I expected.  I thought by now we'd be going our to restaurants and entertaining.  Not yet.

And, we've been fine.

We have been out to eat once - on the patio of Sol Y Luna.  Other than that it's been takeout.

We have been out to listen to music a few times at Southern Appalachian Brewery, Point Lookout and St. Paul's. 

As far as my list I am still reading my backlog of Economist and Foreign Affairs but the rest of my list has been completed.

Corona Virus: NC Phase 3

North Carolina was scheduled to begin Phase 3 on June 26.  Phase 3 would reopen business like bars, gyms, bowling alleys, etc. to open.  Other businesses and gatherings to be able to increase capacity.

Since Phase 2 the pandemic cases and deaths have been largely steady - perhaps a small rise.  The percentage of positive cases also remains steady at 10% and it should be decreasing over time.  So Cooper delayed Phase 3 and also mandated wearing masks in public spaces.

I thought he might implement a Phase 2 1/2.  He did not. 

I thought he would be criticized by the right.  He was.

I thought this might hurt him politically but then surges in TX, FL and AZ have shown that a rapid reopening is a big mistake. 

Corona Virus: June 6

Well we are definitely in a new stage.

On May 22, NC moved to stage 2.   Since then the number of nee cases has increased.  There is some noise over new deaths.  NY Times shows an increase.   NC dashboard shows a decrease.

I've been to two restaurants both times outdoors.  Karel went shopping on Main Street.  The demonstrations over police violence has pushed news about the corona virus "below the fold".  Stock market is surging.  Unemployment for May was surprisingly good.

Re tracking.  I wrote last time that I switched to tracking deaths not cases.  I have finally deciphered the fallacy of "Herd Immunity".  It doesn't apply once the reproductive rate < 1 and country-wide we are just about there.

Still missing from the "New Normal" are returning to the gym - which should happen no later then the end of June, playing bridge and going to church.  The last two are more doubtful.

The level of concern in my circle is mostly consistent.  Folks are not worried but they are taking precautions.  There are a few that are much more worried - even scared.

As for my projects
- yard work complete
- lecture series complete
- Spong lecture series complete
- India pictures uploaded and copied but not categorized
- Finished 12 of the 14 volumes of Civil War

Corona Virus: May 19

I just finished updating my stats.  I now think that the "new cases" data is not a reliable source of information.  I have started switching my graphs to 14 day moving averages of deaths.   Things overall haven't changed.  States are reopening businesses and there have not been widespread spikes in deaths.  Curve is on the slight decline but there is no reason to expect the pandemic to be over anytime soon.

I expect NC Gov Cooper to go to Phase 2 on May 22 in accordance with his preliminary schedule.  I also think it will be fine.  I don't think reopening will have much of an impact.  Those at risk will continue to stay home and be cautious.

Let's see how many downtown restaurants we lose.  I suspect French Broad Café and the new breakfast place will not reopen.  Maybe Renzo's.  The over-under is 3.

As far as the end there are some early positive indicators for both a vaccine and a treatment.  I think the treatment is more important than the vaccine.  First, it is more targeted.  You only need to apply it to folks who test positive and are getting sick enough to ask for health care.  Second, I think it may be approved sooner.

Phases of New Normal
- Return to Planet Fitness
- All parks and trails open
- Indoor social gatherings
- Go to a restaurant
- Play bridge
- Pandemic moves off the front page of the NY Times


As far as my day to day status, I have:
- Finished the yard project
- On volume 8, that is about half way, on Shelby Foote's Civil War
- 2/3 done on the Modern Political Traditions
- Episode 8 of The Last Dance
- Finished season 2 of This is Us
- Making less progress on Sherlock Holmds
- Still way behind on back issues of the Economist and Foreign Affairs

Corona Virus: May 2

Not much new.  Henderson County continues to see outbreaks at senior housing.  I am beginning to think we made the wrong decision re testing when it was (and probably still is) limited.  What we could have done was that if someone was symptomatic and had none of the risk factors they should not have been tested.  They should have been told to assume they were positive and act accordingly.

Instead we should have pro-actively tested all of the staff in senior housing along with random testing of the seniors.

For most folks who are positive there is no reason to get any health care.  Most will recover with or without seeing a doctor or going to a hospital.  Some will die with or without health care.

Data points

- Overall US cases remain flat.  No sign of either a spike or the downhill slope.  Doesn't look like we are any where near stressing health care capacity (see above).

- NC continues to be under stay at home orders.  Number of cases continue to increase linearly (not exponentially).

- GA relaxed stay at home orders and there trend line is down.  That is if you believe their numbers.

- HVL had a spike this week

I did some bargain hunting last week.  Purchased F.  Risky but seems like there is more upside than downside.  My other buy of SBUX has worked at well.

Daily life

- Yard work
- Walks at Kellogg
- Watch 2 hours of TV at night (This is Us and Little Fires Everywhere)
- Reading The Civil War
- Using the stationary bike while watching The Last Dance
- Listening to the 2008 Spong lecture
- Listening to Bloomberg Surveillance podcast
- Watching the great courses lecture on Modern Political Tradition
- Reading Sherlock Holmes to Karel at bed time.
- Trying to catch up on the Economist.

Corona Virus: April 23

Earlier this week our neighboring states of TN, SC and GA announced they would ease "stay-at-home" orders.  This led to a long email thread where someone I know predicted doom and gloom, the end of the world as we know it.

I remain solidly in the middle.  Every day there are new data some positive, some negative.

Another 4 million joined the ranks of the unemployed.

The stock market moved sideways.

Congress is debating the fourth rescue package.

I'll stick with my prediction that we start easing here in WNC in mid-May, and with another prediction with much less conviction that we've seen the stock market bottom.

I'm bargain hunting tomorrow.

Corona Virus: Part 3

The date for easing restrictions here in North Carolina is coming into focus.  I am predicting May 15th.  I am assuming that over the next two weeks the we continue to see declines in the number of new cases, number of hospitalizations, and number of infected.  

We need additional data on the number of hospitalizations,  capacity of health care system and data on test kits.  How many test kits will be needed vs. availability.  Very little data on these as of today.

There is growing pressure to ease restrictions earlier.  If that happens we plan to maintain our stay-at-home until May 15th regardless.

I have goals for our isolation time:

- finish Shelby Foote's The Civil War.  Just started the fourth volume.
- finish the Great Course on Modern Political Theory
- finish the Spong lecture
- catch up on back issues of the Economist
- catch up on back issues of Foreign Affairs
- complete all spring yard work; all leaves mulched, all limbs collected and burned
- maintain weight at 160 or less

Corona Virus: Part 2

I am now getting a sense of the framework for the conditions that must be satisficed to end the stay-at-home orders.

Three assumptions:
a) No effective treatment is discovered
b) Stay-at-home orders will be ended either at the state or local level - not national.
c) Even after stay-at-home orders are ended there still will be restrictions and limitations.

1)  The health system must be able to handle new cases with normal resources, i.e. a non-emergency basis.  For example, the health system must be able to handle non-emergency surgeries, normal cases loads, etc. without the need of staff working overtime.

2) The state or locality must have the resources for "test and trace".  Anyone who is symptomatic must have access to a test.  The state or locality must have a system in place to identify and notify those who have a high probability of being in contact with anyone who has tested positive.

Corona Virus: April 10

I will try to capture my thoughts on a regular basis.  I'm curious to see how my perspective changes as the pandemic evolves.  I regularly follow the economic and financial market news so I want to see how my understanding of that evolves as well.

Seems to me the best way to start is to think about the various models.  In economics as well as in markets experts are called upon to make predictions about economic factors like GDP, unemployment, inflation, etc.  In financial markets the predictions are about the equity markets, interest rates, corporate profits, stock multiples, etc.

The pandemic models try to predict both number of folks infected and number of deaths.

What all these models have in common is that they are usually represented as a cartesian graph where the X-axis is time.

The dependency seems to be; the health care/pandemic model which will determine the economic model which in turn will determine the financial market model.   The unknown is all of these cases is the X-axis.  My current understanding is that the longer the pandemic model stretches out the greater the impact to the economy and hence the market.  The best case scenario is that the stay-at-home orders begin to ease in early May.  This is based on the expectation that the pandemic will peak in the US within a week - say by April 15th.

What remains undetermined is that are the other conditions that need to be satisfied before work can resume.   I am making the assumption that no treatment is found in April.

Here's the current status:
- number of new cases is 30,000/day
- number of deaths is over 1,000/day

I would think that we would need to see the numbers reduced to something like <1000 new cases and < 100 deaths with many states at zero for both.

The second condition would be the availability of mass testing capability.

A few words about the economy.  Over the last 3 weeks 15,000,000 people have filed for unemployment.  Current estimates are that we will get to 15% unemployment rate by end of April.  The other current assumption is that a return to work will be gradual.  Some industries especially travel and leisure may remain at low level of employment for months.  No one knows how consumer behavior will change once the stay-at-home order is rescinded.  Putting people back to work impacts the supply side but the consumer demand side is unknown and unpredictable.

All this leads to is market uncertainty.  I am looking at opportunities to increase my equity holdings and scale back my bond holdings but right now there are too many unknowns.  The biggest unknown is the X-axis.