Some Random Thoughts on the State of the World

March 27, 2020 – Wow, I’m in a writing mood these days. A second post this week! Here are a few random thoughts about the current situation. All the things on my mind right now that might be too short to put into a separate blog. Since you’re likely all sitting at home feeling bored, I thought you might enjoy this…

We’re doing fine here in Washington State

Given that WA State was ground zero for the COVID-19 outbreak (first confirmed case and first death), many people have asked how we’re doing. Nothing to worry about! We are probably in one of the safest places in the country. Clark County, the southernmost county of the state and pretty far away from the badly-hit Seattle area has only a few cases so far while at the same time, everyone has been extremely paranoid cautious, right from the beginning. Hopefully, this will help curb the spread.

And of course, our pantry is full, we have a lot of free entertainment here indoors and outdoors, so life is good in ERN country! Also, Walmart seems almost fully stocked, with the exception of toilet paper. Which brings me to the next point…

The Toilet Paper Panic 2.0

Amazing, how even here in the Pacific Northwest, we can experience a toilet paper shortage. I mean, we got more trees than people here and water is abundant. The mascot of the local Camas High School is the “Papermaker” because – I’m not kidding – we literally have our own Georgia Pacific paper mill in town. Not sure if they produce toilet paper, though.

Camas HS Papermakers
Camas High School Papermakers. Is that toilet paper in there?

So, the toilet paper shortage can’t have anything to do with supply issues, certainly not from overseas. It’s just another example of a self-fulfilling prophecy. People believe there will be a shortage, there is panic buying and then there’s indeed a shortage. Amazingly, this current toilet paper panic is almost an exact repeat of a previous one. In 1973, late-night show host Johnny Carson, making light of the economic malaise back then (lines at gas stations!), cracked a joke that toilet paper would be next thing to run out! Panic buying ensued and caused an actual shortage.

I wish some clown could spread the rumor that the ERN blog will be shutting down soon, so everybody, get your fill of Early Retirement Now and click through all the 180 or so posts before they’re gone!

The impact on the economy? Prepare for some ghastly numbers!

If you remember the post from a while ago, the drop in the stock market looked like we were running through one of the previous bear markets but in fast-forward at 10x speed!

3 Bear Markets Comparison
Cumulative return since the peak. Running through a Bear Market at breakneck speed!

We’ll observe a similar effect on the economy. It’s because the shutdown is almost perfectly synchronized (“perfectly” in a bad way). Remember the 2007-2009 recession? It started in banking and finance and real estate and construction but then worked its way through the economy and eventually impacted every corner of the country and every sector of the economy. (Well, almost every corner because government bureaucrats and lobbyists and the ZIP codes around Washington D.C. did just fine in 2008/9.) But this time it looks like every industry in every corner shut down at the same time in March 2020 (except the government and lobbyists, again)!

To see how the current situation is a “recession on steroids” take a look at the unemployment claims. The all-time-high used to be 695,000 a week in 1982. Closely followed by 665,000 in 2009. Yesterday’s reading was 3,283,000 (in one week!!!), almost 5 times the previous peak reading!

U.S. Employment and Training Administration, Initial Claims [ICSA], retrieved from FRED, Federal Reserve Bank of St. Louis;, March 26, 2020.
3 million extra unemployed people on top of the “normal” 300k per week! That represents about 2% of the labor force, so this could have added roughly 2 percentage points to the unemployment rate (back-of-the-envelope calculation). During the awful, awful 2007-2009 recession the unemployment rate grew by 5.6 percentage points over 2 years. We now added more than one-third of that in 1 week!

We will have to wait longer for the GDP numbers. The Q1 number will be released in late April, but will not reflect the worst of the crisis yet. We’d have to wait until the Q2 estimates come out (late July) to see the total impact of this mess. Just for comparison, it took 18 months from top to bottom (Decemer 2007 to June 2009) and in those 6 quarters, GDP dropped by a total of 4%. If this same 4% drop peak to bottom materialized all in one single quarter it would be reported as a -15% rate. That’s because quarterly GDP growth rates in the U.S. are reported as annualized growth rates: (1-0.04)^4-1=-0.15=-15%. Ouch!

So, the economy could be unraveling at an unprecedented speed right now, which brings me to the next point…

We’re in the economic “Death Zone” right now

I like hiking and mountaineering analogies. The one that comes to mind right now is the fact that human life is not sustainable in altitudes above 8,000 meters. Forget about the dangers from cold, wind, avalanches, rockfall, falling down, exhaustion, etc.: human life is physiologically impossible at that altitude because the human body disintegrates and slowly dies there. That means mountaineers ought to get to the peak, take their selfies and then get the hell back out of the “Death Zone” to a lower altitude.

Mt. Everest. The “Death Zone” starts at about the saddle to the right of the summit. Source: Wikipedia, Pavel Novak.

That “Death Zone,” that’s exactly where our economy is right now. You cannot shut down the U.S. economy and certainly not the world economy for an extended time without doing irreparable harm. The longer this lasts the more permanent harm we do. The longer this lasts the louder the voices of “the treatment is worse than the disease” will become. So, I wonder, am I the only one getting antsy about these two issues:

  1. That malaria drug that seemed to work in a study in France needs to go through another clinical test in the U.S.? Ohhh-Kayyy?! How long will that take? Years? Months? It should take exactly 7 days: run a controlled experiment with 2,000 patients. 1,000 get the drug, 1,000 a placebo and if there’s a measurable effect then unleash the cavalry on this COVID critter. But I’m afraid that some bureaucrat is worried about side effects. According to this site, it may cause hair loss, oh my! Please, fast-track this one! This is not about approving a new athlete’s foot drug. The survival of the economy depends on this! And maybe now is a good time to produce the drug on a large scale already, so we have a large enough stash to deploy when the clinical study is done.
  2. We need a lot more testing, especially for people with no or light symptoms. Then tell everyone who’s tested negative to go back to work (wearing a mask!!!). And then have a rigorous testing regime to detect people who have a fever and retest them again. It’s mind-blowing that we have tens of millions of healthy people sitting at home and twiddling their thumbs right now, while the economy is going down the tubes!

Update on 3/30/2020: The FDA issued an “emergency authorization” for the malaria drugs. Hallelujah! I’m a lot less antsy now!

You tell me: Am I being too antsy? Maybe this crisis messes with my brain! Which brings me to the next point…

The crisis messes with peoples’ brains!

I saw this headline: “Man Dead From Taking Chloroquine Product After Trump Touts Drug For Coronavirus” ( They didn’t take the malaria drug, they ingested aquarium cleaner because one of the ingredients has a similar sounding name. I’m not sure who’s more stupid here: the couple who thought it was a good idea to digest aquarium cleaner (then again, fishes don’t catch COVID-19, so maybe, maybe, there’s a connection…) or the journalist who blames Trump for this. Trump says, well, Trumpian stuff sometimes. You don’t eat aquarium cleaner chemicals based on that! It says “not intended for human consumption” on the package! I’d nominate this guy for the Darwin Award.

Enough venting. Let’s also look at finance topics:

Now’s a Good Time to Perform a “Retirement Flexibility Reality Check”

Whether you’re retired or not, I’d urge you to do a quick reality check about your flexibility Plan B. That’s because you hear a lot in the FIRE community that you don’t have to worry about Sequence Risk if you’re just “flexible.” I tried to debunk that in my series pointing out that flexibility might not work because a) the magnitude is more than people think and b) the duration might be much longer than some people will feel comfortable. Specifically, in my post in 2017 (SWR Series Part 23), I found that “flexibility” would have meant a 30% tightening of the belt for more 20 years in some of the historical bear markets. Ouch! So, if you rely on flexibility to save your retirement think about this:

  • If you rely on going back to work, what’s the job market like right now. I can attest to you that in my old industry, finance, you can Fuhgeddaboudit (now a word in the dictionary) right now!
  • How about part-time gigs? That might actually work. Amazon is hiring delivery drivers. Pretty much all retailers that have now become essential businesses are looking for part-time workers. Kiplinger had a report about “24 Major U.S. Companies Hiring Now to Meet Coronavirus Demand“.
  • If you plan to rely on your blog for income, monitor how your income has evolved. My ad revenue is down. I think advertising budgets are down and they will likely decline even further. I don’t rely on my blog for more than 10% of our budget, so, no big deal for me. It might be a different story for people that rely heavily on their blog income for retirement!
  • Monitor your spending. For us personally, we have a very generous retirement budget with a lot of discretionary spending. And that spending came to a screeching halt recently. Nothing to spend on! Our upcoming travel plans are now on hold, and all other entertainment spending is down to zero (restaurants, etc.). So, for us personally, the “tighten your belt” flexibility might work. I’m not sure, though, if that also works for retirees with a $20-30k annual budget.

A reality check for some exotic investments

“Only when the tide goes out do you discover who’s been swimming naked.”  Warren Buffett

Another reality check: How about all those exotic new investments: crowdsourcing real estate equity and/or debt deals, hard money loans, etc.? Most of them sprung up after the Global Financial Crisis and they had no true historical robustness check. No way to check who’s swimming naked, in Warren Buffett’s words! That commercial real estate mezzanine loan that only two months ago looked so juicy at 10%? It might turn into a -100% investment if the whole thing goes “poof”! I certainly don’t wish anyone any bad luck, but you might want to prepare yourself for delayed interest payments, delayed principal payback dates and potentially even some losses and bankruptcies.

To be completely transparent, I’m not completely insulated from that either. About 11% of our net worth is in private equity investments, mostly in multi-family rental units. Private Equity is the “original” crowdsourcing platform that’s been around since before the internet, so the providers we use have survived past recessions and bear markets and housing crashes. So, I cross my fingers that the investments will survive but I always expect some disruptions, e.g., more delinquent renters, longer vacancies, lower dividends, maybe suspended dividends, maybe additional capital calls, delayed equity returns, etc.

Thus, I would never ever consider any of the exotic investments a safe asset with a 6-10% yield! I’ve detailed my approach in a safe withdrawal rate case study in 2017, i.e., how to stay honest with the seemingly safe exotic investments in the context of safe withdrawal math:

“Historically, [her] Hard Money Loan has paid in excess of 10% in annual dividends. Peer Street about 8% p.a. The challenge for the SWR analysis is that we don’t have much in the way of historical returns for Peer Street investments. Certainly not going back to 1871! Of course, just because we don’t have historical returns doesn’t mean that it’s a good assumption for us to model Peer Street paying 8% returns every year going forward. It would be a huge mistake to model the real-estate-backed loans as safe Treasury Bonds with an 8% coupon! If we were to have another 2008-style recession I’m sure the Peer Street and private hard money loans would take a big nosedive! So, here’s my proposal for how to “hack” the ERN Google Sheet for this situation.

I assume, for the historical backtests, that half of the Private Equity plus Peer Street portfolio, $258,356, is set aside and will earn a 7% (nominal) yield forever, paid in the “supplemental income” column, while the other half will behave just like an S&P500 equity index portfolio. If we average over the two components we’ll get an expected real return of just about 6%, exactly the same as your current 8% nominal Peer Street yield minus 2% inflation. But we still generate a pretty substantial business cycle exposure in the alternative investments in the simulations.”

In contrast, people who did assume that their crowdsourced investments behave like “Treasury Bonds with an 8% coupon” might be in for a rude awakening.

Crunching some numbers on the virus

The site Worldometers has pretty fascinating and up-to-date data on the infection and fatality numbers. Not just daily snapshots (see Johns Hopkins University for some cool data) but also the time series for most larger countries since mid-February. I looked at the numbers and want to share some of my observations.

I pulled the numbers for eleven countries (maybe more countries to be added later). Here are the confirmed case numbers so far since mid-February. With a log-scale on the y-axis, because any other way is just not very informative!

Confirmed cases Feb 15 to March 26. Source:

The reason I find this chart not very informative is that it’s not adjusted for population size. Of course, the U.S. will have the most cases because it has the largest population! Duh!

Also, notice how countries have a different “take-off” dates. For example, if I search for the date at which the cases per 1 million residents crossed 1.0 for the first time we note that South Korea crossed that first on February 19. In this sample, Poland was last on March 12, a whole 22 days behind Korea. Everybody else is in between, including the U.S. at 17 days behind. Amazingly, Italy is only 3 days behind Korea!

How many days after 2/19/2020 to reach 1 case per 1m population. Source:

If we now do two transformations to the time series chart: 1) plot the cases adjusted for population size and 2) start each line when the cases per 1 million population reach 1.0 (i.e., shift them to the left by the number of days in the bar chart above), then we end up with this chart below

Confirmed cases per 1 million population, setting date 0 when first crossing 1.0. Source:

Very interesting! Most countries had a very similar initial path during the first 15 days after crossing the 1.0 mark. You go to about 100 cases per million residents within 15 days. That’s 100x growth in 15 days, a mind-blowing 36% daily(!!!) growth rate! (UK and Austria seem to buck that trend with a slightly lower growth rate)

After 15 days there’s significant divergence. South Korea managed to bend the curve very nicely and move sideways. Other countries were not so lucky. Cases kept growing, though at varying speed after crossing the 100 marks. Italy looks scary and that’s because it’s only a few days behind Korea. But if people monitor in horror what’s been going in Italy, be prepared for…

  • Even worse numbers than that in Spain and Switzerland…
  • A similar case number trajectory in Germany, Austria and the U.S.,
  • Slightly better numbers in France.

In other words, I certainly hope that the other countries will be able to bend the curve better than Italy because if not, we’re going to see Italy 2.0, Italy 3.0, Italy 4.0, etc. in the other countries really soon. Very likely, Spain will look even worse than Italy soon! Bummer!

How about fatalities? If we plot fatalities in a similar fashion, i.e., fatalities per 1m residents and also shifted by the same lags as above we get the following chart, see below:

Fatalities per 1 million population, setting date 0 when confirmed cases first cross 1.0. Source:

Even though the case numbers took a similar path (if adjusted by population and take-off-date), countries have very different paths for the deaths:

  • South Korea is again looking the best
  • Italy had the worst fatality rate and Spain is on an even worse path!
  • U.S., Switzerland, the U.K. and France are on comparable trajectories, looking a bit better than Italy,
  • Germany and Austria look significantly better than most of the other countries, except Korea.
  • Poland has a very short history so far (22 days behind) but looks really good so far.
  • Iran was able to bend the fatality curve, though, I’d be cautious about data quality there.

So, there’s some hope in those numbers. If you look at the raw numbers, the U.S. looks like the worst country. But neither in the progression of cases nor deaths are we significantly worse than other countries and we’re likely on a better trajectory than some of the other places. Let’s hope we get to the bend point soon!

Hope you enjoyed today’s rambling post! Looking forward to the discussion below!

230 thoughts on “Some Random Thoughts on the State of the World

  1. Hey, ERN. Just a quick note to say two things about the problems of bad/missing data in our current situation.
    1. I enjoyed the article immensely, even if I am much more cautious about sending people back to work and skeptical of all the data. In South Carolina it’s damn near impossible to get tested. You can be symptomatic but unless you are in a high risk category, had direct contact with a confirmed case, or are horribly ill, they cannot test you. The state put strict rules in place about who can be tested. Even with that, we have a backlog of unprocessed tests that exceeds our current confirmed cases. That means that we have grossly unreliable numbers for anything like county by county decisions.
    2. On the investing front, wow this is a bad and I think wholly unprecedented event. As your chart shows, the market has never behaved like this before. The fact that it’s an exogenous event that has profound and wide reaching impacts on the global economy means we have no playbook and no backtesting that fits this scenario. Some traditionally defensive dividend stocks are way down. Meanwhile some tech stocks considered overvalued growth plays are holding up very well. I think everyone looking at the market right now is flying (partially) blind. I mean, SDY is underperforming SPY in a downturn. I can see why it’s happening, but it speaks to the uniqueness of this moment. How many stocks will be able to maintain div aristocrat status? Is there any honest way to model this market?

    1. Thanks Pat!
      Yes, this is unprecedented, indeed. Never seen this coordination of a shutdown. At least in 2007/8 the economy went down in stages. Now everything shut down at once. The good thing might be that everything will start again in a synchronized way. But who knows??? We’re totally flying blind!
      I still maintain, that we should apply the worst-case scenario as Great Depression and 1970s. If your portfolio made it through that you’ll survive this.

  2. Hey ERN, thanks for another awesome articule. Keep ‘em coming.
    However i’m afraid your nice graphs suffer a bit from giga. The data worldometer and John Hopkins are tracking are the official ones reported by the various goverments. Not only is there possible political interfering ; like what happened during the 1918 spanish flu epidemic; or various different reporting/testing between the countries; e.g. Germany way of reporting covid-death; but some of those factors are even changing within a country e.g. China’s spike in cases due to changing the definition or countries ramping up testing. All that making the dataset wholly unreliable but for the most rudimentary facts i.e. cases going up. Extrapolating various case studies even suggests that the reported numbers might be off by a factor of 100 so several orders of magnitude.
    Hope you and yours stays well

    1. Yeah, noted and agreed. We have to use the data as is and take it with a grain of salt. There are all sorts of differences in data construction. Outside of China, I certainly trust the numbers. Hard to believe that Germany is intentionally underreporting figures.
      But there are differences across countries due to testing intensity. US numbers skyrocketed once the testing became more available.
      Also, if the numbers are off by a factor of 100, that would be good news. That means everyone is already carrying the virus and is completely asymptomatic. That would be the end of the panic and it would mean the (true) death rates are miniscule.
      All the best to you, too! Stay healthy! 🙂

  3. It’s so interesting to watch the narratives unfold. I just read a story about Sweden. They are eschewing social distancing and the trains are packed. I see in Brazil the head pol wants no more quarantine because it’s hurting business. I saw a family came together to bury grandma and now 17 of them are infected and 4 have died. I saw a church that had a 4 hour prayer session with much singing and 250 are infected. I saw an article on a choir who got together for practice and observed 6 ft social distance hand washing etc and all but a couple are infected. If 17 get infected and 4 die the death rate is not even arguably 1%. In China they use smart phones as cash and for the government to track you in other words you pretty much can not exist without a phone. 21M cell phone signals are missing following the virus. Doesn’t sound like 80K cases to me. If you look at the log graph on the John’s Hopkins site for china you can clearly see 2/12/2020 is the day China declared the virus was over. The virus doesn’t care about narrative. The virus has no legs and it has no will, in fact it’s not alive. It is just a bit of RNA. The virus does have a mathematically reliable penetrance into humanity however The virus will penetrate. The only thing we control is the rate at which it penetrates. Not to be a bummer. I live in the same world you do, but I’m under no illusion the infection is 2 orders less damaging than it is. All you have to do is look at the NY experience. So far I think that experience has been transparent and well documented.

    1. Yeah, Sweden is an interesting case to watch. We used to have three countries, UK, Netherlands and Sweden who had a pretty relaxed attitude. But UK and NED got cold feet. I’m glad Sweden still wants to be the guineapig for the world. So, far they had no noticeably different path from other countries with much harsher restrictions. but that can change, of course.

  4. I feel for our healthcare workers, but let’s be frank: as educated as they are, many of them don’t know as much as they purport to know. I see MDs tout unscientific crap all the time and it gets glossed over because they have an MD. Science is the new high priesthood, which unfortunately means for all the good science does there’s this extra bag of stuff that comes along with it that is actually bad.

    This is a serious crisis and we need to take the medical input seriously but it is also a serious economics crisis. That is what is going to make navigating this hard and require real leadership because as the economy worsens so will the coronavirus situation and it’s going to take a strong leader to say no to the people on both sides that want to ignore the other and optimize for their focus only. I’m with Big ERN on this one. You cannot cause a worldwide collapse of the economy and sleep easy that you aren’t playing with fire. We should be using what precious time we have created to rapidly build a plan B so that we can restart economic activity, stepwise, as soon as we can.

    One thing seems clear: China’s numbers are really suspect. The virus had time before their lockdown to escape and travel the world, but their lockdown was so perfect within China that Beijing has only 580 cases and 8 deaths? Really…

  5. Washington Post is reporting 10 million people filed for unemployment in March. Phew… 6.6 million just last week.

  6. I could go along with buybacks for all companies that DO NOT take on additional debt to do so or ask for government bailouts. Once a bailout is done, then it’s just a transfer of wealth from the taxpayers to shareholders that took on too much risk and a massive misallocation of resources that should have gone elsewhere for long term gain instead of short-term stock prices.

    Risk assessment is completely distorted in our current system of bailouts, fed injections/purchases/etc to infinity and beyond. If the Fed has less then $9T on it’s balance sheet when this is all said and done it will be a miracle. The USA is never going back to a normal interest rate policy and have in essence become Japan in the early 90’s. Even Janet Yellen is now asking Congress to allow the Fed to purchase stocks…that didn’t take long.

    It’s hard to justify the current state of affairs…other than to say the buck always stops with the tax payers which are always tasked with cleaning up the messes but never allowed to enjoy in any of the gains; unless taking on even more debt is their “gain”.

    The USA government is a debt slave instead of being an FI convert.

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