Fall out from covid-19

NumbersGal

The utility sector (see for example XLU) has benefited from the drop in energy prices and has done pretty well compared to most of the other sectors (see https://stockcharts.com/freecharts/perf.php?[SECT] for example) , but I don't think it's going to be all roses for them. In particular, the power companies are going to have a huge drop in demand.

Sitting in Boston I think about National Grid, our local electric utility. --- B.U. and Northeastern between them have sent 100,000 students home, and that 's before you think about MIT, Harvard, the various U Mass branches and the smaller universities. These universities are not heating or lighting the dorms, the classroom buildings, the labs etc.

And then there's all the lights and heat not being used in the public schools, the parochial schools, the churches, (all of which have, in the past, been immune to recessions and are now closed).

Plus just the lights in restaurants and stores.

Of course, in some places there will also be lost sales to mfg plants.

Many, many years ago I used to teach something called the Leontieff Input-Output model ---- it is a matrix with all the industries across the top and down the side and the entries are the units of what one industry uses from another. (How much electricity does the auto industry use and how many autos/trucks does the electric industry use?) Leontieff won a Nobel Prize for this -but it also allowed people to ask questions like "what happens to GDP if there is a steel strike?" And it seems to me, that is what we need here. I don't know if any of the big forecasters are using this or not (& I certainly don't know the entries in the matrix).

Any thoughts? Anyone who would know this 'trickle down' effect?

Rbrt

Interesting thoughts. I assume the big investment banks use models of this sort. I know Goldman Sachs has recently predicted a significant drop in GDP - from the attached:
“ The coronavirus pandemic will drag the US into a recession after a sharp decline to economic activity through the first half of the year, Goldman Sachs said Sunday.
GDP growth will slow to a halt in the first quarter before shrinking 5% in the second quarter, the bank's analysts wrote.”
https://markets.businessinsider.com/news/stocks/economic-recession-forecast-coronavirus-fuel-us-gdp-contraction-market-goldman-2020-3-1028999426

johnN

Hello..too early to tell/predict...maybe severe global contractions for at least one two quarters. Massive loss revenue globally.

The only positive things I think [maybe] we have best healthcare forces and capabilities to handle this better than any other other nations in world

https://www.mdedge.com/infectiousdisease/article/219067/coronavirus-updates/heres-what-icus-are-putting-against-covid-19?ecd=wnl_evn_200316_mdedge_8pm&uac=&oc_slh=6601c34c2833beb12655a2e03b8ccc3bf2dbbbb948d0159afae12e9fec9f0920&utm_source=News_MDedge_eNL_031620_F&utm_medium=email&utm_content=COVID-19: Treating infected patients | Containment needs go viral

msf

The US does have more ICU beds per capita than other countries as the graphic shows. A Johns Hopkins page provides similar data.

That's certainly one measure of preparedness. But it's just one of many and IMHO underscores how the US healthcare forces are underprepared and poorly utilized compared with other countries. The Johns Hopkins page notes that the limiting factor on ventilator therapy is not the amount of hardware available but the number of medical professionals in the field.

Under normal circumstances, a country having a greater reserve capacity as measured per capita means that it is more likely to be able to handle a surge in medical needs without suffering additional deaths. But in extraordinary circumstances, a surge can far exceed capacity.

The number of additional deaths is then determined primarily by the spillover of the surge, not by the comparatively small number of ICU beds available. This is why the critical factor is not the number of ICU beds per capita but how well a country spreads out the surge, i.e. "flattening" it by early intensive government intervention.

It's not just ICU beds and ventilators that are needed. It's a whole infrastructure - health care professionals, hospital beds in toto (where the US lags far behind per capita), it's an integrated healthcare system (e.g. Taiwan is able to ration masks to ensure availability), and so on.

The US is very good at spending money on the most expensive equipment and drugs. Not so good at allocating resources where they can do the most good for the most people.

It provides the best medical care money can buy, even if that best care is bought from other countries.

msf

NumbersGal said:

And then there's all the lights and heat not being used in the public schools, the parochial schools, the churches, (all of which have, in the past, been immune to recessions and are now closed).

Plus just the lights in restaurants and stores.

Of course, in some places there will also be lost sales to mfg plants.

Many, many years ago I used to teach something called the Leontieff Input-Output model ---- it is a matrix with all the industries across the top and down the side and the entries are the units of what one industry uses from another. (How much electricity does the auto industry use and how many autos/trucks does the electric industry use?) Leontieff won a Nobel Prize for this -but it also allowed people to ask questions like "what happens to GDP if there is a steel strike?" And it seems to me, that is what we need here. I don't know if any of the big forecasters are using this or not (& I certainly don't know the entries in the matrix).

I'm not familiar with that, I'll have to look it up - sounds interesting.

WIth respect to electricity utilization (just wildly speculating here), I suspect that the impact would have been much greater half a century or so ago, when the US was a manufacturing country. But now it has, as you observed, a service economy.

Is more electricity used when many people congregate in larger areas like stores, schools, etc., or is more electricity used when people "shelter in place" in their own homes with smaller rooms but many, many more of them being lit and come spring/summer, air conditioned? Certainly providing services consumes electricity as well, but so do televisions, home cooking, and so on. This will be an interesting real time experiment.

Baseball_Fan

FWIW...my brother is a pulmonary specialist at a large hospital in a very large Midwestern city. Spoke to him yesterday. They are have not and are not seeing any noticeable increase in patients with respiratory issues to date. They are expecting to do so and are preparing. Just started testing for Covid-19 last week. Let's all hope that everyone heeds the advice of the CDC and does their utmost best to follow their instructions so we can beat this virus into submission.

On another note and maybe slightly off topic but in the same genre as utilities. American Water (AWK). Maintains and operates water and wastewater systems in the USA. Buys out municipal controlled water systems as the local muni's want to get out from the pension liabilities and/or can't afford to operate/maintain the systems. Likely the most recession "resistant" company stock you can buy in today's world? I would think that data center REITs might be a good are to look as well? The problem I am having in terms of mutual funds is that most energy/infrastucture funds hold energy companies as well and I can see those getting hammered due to lower energy usage by mfg orgs as described in the commentary noted by others. Maybe Reaves (RSRFX)?

(full disclosure: I own AWK stock)

FWIW, for entertainment purposes only, take of you and yours, everyone stay healthy

Baseball Fan