Blessed by the Potato

It’s like the 1918 influenza at the same time as the 1929 stock market crash with 9/11’s grounding of flights, all overseen by Nixon’s paranoia and pettiness. It’s Disaster Voltron.

I’ve been watching the news flow on the coronovirus intently since January. It’s kept me up at night, and made me silently scream that we should be closing the borders. This was not just the flu (though now I think people mostly get that).

There was (and continues to be) a lot of uncertainty, but from where I was sitting the risks looked real enough. I didn’t blog much in part because I’ve fallen out of the habit, and in part because I didn’t want to come across as a fearmonger (and I would definitely have come across that way). I started slowly stocking up through February — an extra bag of oatmeal here, an extra bottle of pasta sauce there, a few extra packs of applesauce — and got a bit of teasing for it from Wayfare. Was nice to not have to panic shop with the crowds when the shutdown order came though. Instead, Blueberry and I hit the library, and turned out to panic-check-out-books, as they made the announcement while we were there at 5:30 that they’d close at 6 and not re-open for 3 weeks.

All through the news out of China shutting down parts of its economy, the market continued to hit new highs. I thought I was on crazy pills, I couldn’t believe it. But I’m mostly a passive investor, and mostly didn’t do anything (something I’m kicking myself over with the benefit of hindsight). As the case counts started climbing outside China, I finally bought a put on the S&P500, expecting that at some point the market would start pricing some risks in (even if the virus itself was contained, the supply chain yada yada).

It was an interesting mental accounting: I didn’t touch my passive portfolio, I didn’t panic sell and liquidate my active portfolio, I just took some money from the gambling pocket and bought this one thing that would pay off if the market went down. That somehow seemed much more reasonable than re-assessing my risk tolerance or making big portfolio moves.

Finally, the market did start going down. When it was down about 10%, I felt relieved. Finally, I thought, people have woken up to this and are taking it seriously. I had no idea what the proper discount on stocks should have been, but I knew it was more than zero. So shortly after that, I sold that single put, making about $2k to offset the much larger losses I was taking elsewhere (and again with the benefit of hindsight, if I had held until today that would have been worth in the neighbourhood of $10k). I felt kinda smart-ish — not Big Short material by any stretch, but hey, I saw some trouble coming and did pretty much the absolute least I could have possibly done to mitigate it. I rebalanced (too early) and bought some stocks in my active portfolio (way, way too early). Then the market fell at an unprecedented rate and, like many of you, I started to feel scared, and sad.

I mean, hey, this is what risk is, and what it feels like. Markets go down sometimes, and I guess it’s better to rip the bandaid off? And there’s no telling if we’re near the bottom, or if the uncertainty and very dark worst-case downsides, combined with just how very, very elevated the market was before this started means that there’s still a lot further to fall ahead of us. On the bright side, I can stop using that metaphor about how it’s hard to explain in words what it feels like to lose real money in investing — there are no more bear market virgins.

Anyway, I was sharing the old “President Madagascar” Shut. Down. EVERYTHING. meme, and I felt some relief when our leaders finally started taking things seriously. By this point, everyone has had “flatten the curve” explained ad nauseam. Schools are out, states of emergency have been declared, and even curling is cancelled.

The question now is what the shutdown gets us and what the plan is going forward. Economically, even a short shutdown will mean 2020 comes in as a recession year. A long one could be a depression (not the Great Depression — but there were economic contractions more severe than recessions before the capital-D Depression, and we may get to re-live that). And that’s part of why the market is still going to have trouble finding bottom.

Healthcare wise, we’re going to flatten the curve and save a bunch of lives. And let’s get one thing straight, we really needed to do this in Ontario. We were already deep in the hole from a capacity standpoint — all of our incredible growth, hundreds and hundreds of new condo towers went up (driving that real estate bubble), and we’ve built um… zero hospitals? Negligible net new beds, anyway (side note: the city’s development charge page lists what development charges pay for, like schools and parks… but hospitals didn’t make the list). We can’t move the surge from Covid-19 into the hallways because we’re already chronically dealing with hallway medicine. We’ve already invented all kinds of tricks to squeeze efficiency out of the system: which, yay, we’re leaders in technology and innovation and have been forced to be by relentless cost-cutting pressures, but it means there’s no margin for something like this.

“Since 1999 overall bed capacity has been virtually constant although the population has increased by 27%.” —OHA Leaders in Efficiency Report

Ok, so we have to flatten the curve.

But then what?

I was hoping we would have a plan to move back to containment mode. Build the testing centres and ramp up our ability to test like, a lot of people. With fast turn-around times. Then find all the existing clusters and do targeted quarantines. Every time a new case shows up, do contact tracing and test everyone, and try to put the genie back in the bottle. Only re-open the borders and flights as we have the capacity to test those who come in (and maybe keep up targeted quarantines for anyone brave enough to fly somewhere). And let everyone else go back to mostly normal activities.

Maybe also do some rapid build-out of hospital surge capacity. Not sure we can match China’s new facility in 10 days, but perhaps we can appropriate a few nearly complete condo towers (or dorms or office towers or whatever space) to add a few tens of thousands of new hospital beds. We still have some domestic industry left — if GM in the states can re-tool to make ventilators on automobile lines, we can possibly get the soon-to-be-mothballed Oshawa plant to do likewise. Another issue there is staffing. I think if we think of this as a true emergency and go on a war footing, we could train up some people to supplement the real health care workers. From what little I know, WW2 field medics had 10-12 weeks of training, from basically a standing start. We have lots of people with some non-specialized health/human anaotomy/medical technology knowledge: researchers, medical physicists, hygienists, technologists, technicians, dentists, veterinarians, as well as medicine & dentistry students and those who are caregivers for chronically ill family members. Given that we know the problem is mostly confined to a single condition, with a ~dozen complications, we could possibly train up some relief for healthcare workers in a few weeks if needed. Some licensing exemptions (or a new emergency licensing standard) would also be needed from the government’s side. But we could probably do it — I think I personally could get up to speed enough to be mostly useful to help the nurses and the other kinds of doctors in a crisis and help them cope with being spread thinner on our expanded number of beds (and also to be ready for the fact that some of them will get sick too).

We need to flatten the curve. And we need to use that time to move the line up. #raisetheline

However, I’m hearing less and less about using this time to get ahead of the need and then open society up again. While the messages are still about temporary closures and postponed events… we don’t seem to be solving the underlying problem. Which means a 3-week school shut-down and province-wide state of emergency will just roll over to a 4, 5, n-week shutdown. Or we pulse it — open things up for a few weeks until we get close to overloading the system, then go on lockdown again to keep things at a simmmer, until we finally get a vaccine or herd immunity. Or we start asking how much lives are worth, really, mostly boomer lives, and just open things and hope that simply rolling past flu season will be enough capacity freed up and, like, see how it works out? Ugh. [If somehow I have missed the plan, someone please link to it in the comments.]

And to circle back to investing, that’s where I get scared. Maybe we can get back to work but just like not cough on each other or lick the elevator buttons? And hope that all the disgusting people we see on the subway and not washing their hands in public restrooms have learned their lesson from a 3-week shut-in and that even with mostly regular activities it’s then slow enough of a spread that we can manage with the system more-or-less as it is? But a lot of people will go bankrupt if we spend the next 6 months in low-power, shelter-in-place mode. A lot of companies will fail, and in that scenario I could likely panic sell everything at the open tomorrow and still come out smelling like roses.

Anyway, it’s not clear. For now, we do what we can to flatten the curve and raise the line and wash our hands and try to stay sane with a 7-year-old bouncing off the walls*.

My one take-away tip is to keep a journal. About the market, about your feelings, about the shut-down in general — write it down. Firstly, it’s an outlet for some very understandable fear. Secondly, it can help you organize your thoughts and stay rational. And thirdly, we are living in what will surely be one for the history books, and you’ll want to remember it.

*And I’ll hodl and reserve the right to continue to kick myself with the benefit of hindsight. Which is really all we can do shy of having better than truly lousy predictive abilities and the lack of a time machine.