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Authored by Alfredo R. Paloyo, Senior Lecturer in Economics, University of Wollongong, via The Conversation

Panic buying knows no borders. Shoppers in Australia, Japan, Hong Kong and the United States have caught toilet paper fever on the back of the COVID-19 coronavirus. Shop shelves are being emptied as quickly as they can be stocked.

This panic buying is the result of the fear of missing out. It’s a phenomenon of consumer behaviour similar to what happens when there is a run on banks.

A bank run occurs when depositors of a bank withdraw cash because they believe it might collapse. What we’re seeing now is a toilet-paper run.

Coordination games

A bank holds only a fraction of its deposits as cash reserves. This practice is known as “fractional-reserve banking”. It lends out as much of its deposits as it can – subject to a banking regulator’s capital-adequacy requirements – making a profit from the interest it charges.

If every customer simultaneously decided to withdraw all of their deposits, the bank would crumble under the liability.

Why, then, do we not normally observe bank runs? Or toilet paper runs?

The answer comes from Nobel-winning economist John Nash (played by Russell Crowe in the 2001 movie A Beautiful Mind). Nash shared the Nobel prize in economics for his insights in game theory, notably the existence of what is now called a “Nash equilibrium” in “games”.

Both banking and the toilet-paper market can be thought of as a “coordination game”. There are two players – you and everyone else. There are two strategies – panic buy or act normally. Each strategy has an associated pay-off.

If everyone acts normally, we have an equilibrium: there will be toilet paper on the shop shelves, and people can relax and buy it as they need it.

But if others panic buy, the optimal strategy for you is to do the same, otherwise you’ll be left without toilet paper. Everyone is facing the same strategies and pay-offs, so others will panic buy if you do.

The result is another equilibrium – this one being where everyone panic buys.

Preventing coordination failure

So either no one panic buys (a successful coordination) or everyone does (a coordination failure).

The fear of everyone else panic buying has made some people panic buy as well. But those who are panic buying are not acting irrationally. They’re not stupid! They are executing an optimal strategy because the fear has a basis in reality: many people have experienced going to supermarkets and finding empty shelves.

Obviously, though, only one of these equilibria is desirable. So what can we do to prevent coordination failure?

One solution is a market mechanism – allowing the price of toilet paper to increase to reduce demand. This is unlikely to happen, though, given the potential backlash associated with “price gouging”.

There are two other solutions.

The first is for the government to step in as guarantor.

In 2008, for example, the market crash engendered by the subprime mortgage crisis left multiple Australian banks vulnerable to depositor runs. In response, the Australian government announced a guarantee scheme for deposits. Depositors, assured the government would cover their losses even if their bank collapsed, no longer had the fear of being caught out by not withdrawing their savings.

In the case of toilet paper, the government acting as guarantor might involve holding a strategic stockpile of toilet paper. But all things considered – from logistics to costs – this probably isn’t a very good idea.

The second solution is to ration the commodity – putting limits on the amount a customer can buy. Imperfect though these buying limits are, they are feasible, as shown by the restrictions put in place by Australia’s supermarkets.

It has been an interesting dance over the last 18 months for the Class 8 trucking industry and its analysts. While the numbers have consistently told us one thing, namely that the economy is slowing and that the trucking industry is bearing the brunt of the recession, analysts continue to make excuses for the poor numbers while holding out what seems like neverending hope for a turnaround.

But the data doesn’t lie: February Class 8 orders fell 16%. The month is traditionally a slower one for the heavy duty trucking industry, but this year included an extra day. The seasonally adjusted orders were the weakest monthly order rate since last August, according to ACT Research. 

ACT’s senior analyst Kenny Vieth said: “Weak freight market and rate conditions, as well as a still-large backlog, continue to bedevil new Class 8 orders.” 

Thanks for that groundbreaking analysis of the situation. Lest we forget, ACT Research had said last month that it expected the backlog in Class 8 orders to “continue to wear away”. We guess that is no longer the case.

Forward projections for the rest of the year don’t look optimistic either. Analyst Ann Duignan from JP Morgan has said she expects production of ~236,000 Class 8 units in 2020, or down 31% y/y. She is also estimating ~240,000 units in 2021, or up 2%. We anticipate that these numbers could vary sharply depending on how severe the coronavirus outbreak in the U.S. winds up becoming. 

Leading indicators remain weak, according to JP Morgan:

According to our analysis, the ISM New Orders Index tends to be the best leading indicator of future freight trends and truck demand. Specifically, the YoY change in ISM New Orders has historically led the YoY change in the Cass Freight Index (our preferred broad-based indicator of freight trends) by 6-9 months.

ISM New Orders Index decreased 2.2pts MoM to 49.8 in February, down 9.3% YoY and back in contraction region (<50). The Cass Freight Index was down 9.4% YoY in January (the latest month available), a fourteenth consecutive YoY decline. We note though that the Cass Freight Index includes rail freight and may be less of an indicator of overall freight, so we also look at the ATA Total Loads SA Index, which increased 4.1% YoY to 112.0 in January (vs. up 6.0% YoY in December).

And while it’s seemingly stunning to “analysts”, this data should not surprise Zero Hedge readers.

Recall, in January, Class 8 orders had a temporary dead cat bounce. While analysts pontificated about brighter days for the heavy duty truck market during almost every single data report throughout 2019 and through January 2020, we remained skeptical.

For now, it looks as though we continue to be correct.

Authored by by Mac Slavo via SHTFplan.com,

Leaked medical conference documents have warned that hospitals across the United States are preparing for 96 million coronavirus infections.  Not only that, but the same document wants hospitals to make preparations for 480,000 deaths from this outbreak.

the American Hospital Association (AHA) conference in February reveal that US hospitals are preparing for:

• 96 million coronavirus infections

• 4.8 million hospitalizations from the infection

• 480,000 deaths in the United States

According to Business Insider, these leaked documents are telling. Dr. James Lawler, a professor at the University of Nebraska Medical Center, presented the harrowing “best guess” estimates of the extent of the outbreak to hospitals and health professionals as part of the AHA webinar called What Healthcare Leaders Need to Know: Preparing for the COVID-19 on February 26.

These documents paint a bleaker picture for those who are over the age of 60. According to the leaked documents:

“People aged 80 and over have a 14.8% chance of dying if they contract the infection, the slides revealed. The risk declines with youth, though those aged 70-79 and 60-69 are still placed at a significant risk, with 8% and 3.6% mortality rates respectively.”  –Business Insider

Additionally, it’s worth noting that Dr. Lawler’s estimate of 480,000 deaths would indicate a death rate of just half a percent (0.5%), which is significantly lower than death rates being reported by the WHO (3.4%) and the nation of Italy (5%). If the death rate in the United States reached just 2% while 96 million Americans are infected, that would result in 1.92 million deaths.

The United States has fewer than one million hospital beds, and they are typically around 75% occupied by existing patients, unrelated to the coronavirus. Natural News has calculated that U.S. hospital beds will be overrun by May 30th if nothing is done to stop the exponential spread of the coronavirus.

Mike Adams, aka, the Health Ranger at Natural News, has a new video out presenting the math and statistics found in these leaked documents.

“If you want to die, heed the advice of Mike Pence and do nothing to prepare for the pandemic. The Surgeon General also hopes you stop buying protecting gear so that you get infected and die more quickly, thereby making more protective equipment available to the government which is stockpiling like mad at this very minute.”  –Mike Adams, Natural News

As Alt-Market’s Brandon Smith notes, it is also likely that hospitals are prepping for only 480,000 deaths because that is the maximum number of terminally ill patients their facilities can handle anyway. 

If Italy is any indication and this virus does not burn out soon, the death rate will probably be between 3%-5%.  The real number of infected versus dead will not be accurately calculated for another year at least…

Update (1729ET): Barely more than a minute after our last update, Javers reported that they’re setting up the Vice Presidential seal at the podium in the press room, indicating that Trump will not be joining the task force this evening.

And… now they’re setting up the vice presidential seal and flag. Good indicator we are NOT about to hear from POTUS. Aides caution he could always come in late, though, so stand by. pic.twitter.com/rX5JjYkdQ5

— Eamon Javers (@EamonJavers) March 10, 2020

* * *

Update (1727ET): Eamon Javers just tweeted that nobody is sure whether President Trump is coming to the press conference tonight.

That was basically the impression we had. Trump did promise to release the details of the plan ‘tonight’. But if there aren’t any details to release…well.

GIven his showman instincts, a surprise appearance isn’t out of the question.

As of right now, aides will not say whether or not President Trump will be coming to the 5:30 press briefing to unveil his economic plan. POTUS said last night that he would have a news conference today to announce major and dramatic economic plans. That has not happened yet.

— Eamon Javers (@EamonJavers) March 10, 2020

* * *

Last night, as the White House scrambled think of something, anything that they could say that might calm anxious markets (and increasingly anxious workers and business owners), President Trump dropped in on the task force’s press briefing (VP Pence, the task force’s nominal head, was supposed to lead) and told reporters that the administration was planning a stimulus package aimed at helping Americans cope with the economic fallout from the outbreak.

Trump has already signed an $8.3 billion stimulus package into law, but that money’s been earmarked to help the CDC and states fight the outbreak via testing and accomplish urgent priorities like rapidly expanding bed capacity to handle the soon to be overwhelming numbers of patients with life-threatening pneumonia who will be flooding emergency rooms – at least, that’s according to the most dire predictions of states and the CDC.

Now, he needs to convince markets that the administration is going to come through with the fiscal stimulus that every analyst, economist and armchair trader with a twitter account believes is necessary to save the US economy – if not the whole global economy – from sliding into a brutal recession.

With markets finishing in the green on Tuesday, the sense of urgency has slackened somewhat. Still, reporters are claiming that there is no plan, and that Trump essentially pulled the payroll tax cut idea out of his ass, failing to run it by his staff and senior administration officials, as well as the Congressional Republican leadership.

But since President Trump promised earlier to unveil the ‘details’ of his plan tonight, it appears he will be joining the task force to lay out the broad strokes of a ‘plan’ that’s reportedly nowhere near finished.

Will Trump start a war with fellow Republicans at a time of urgent national crisis, with his electoral future on the line? Hopefully, for his sake, his advisors have made clear just how important it is to convey to the public that this is a serious problem that Trump and his administration are meeting with serious solutions.

During a tweet sent a few hours ago, Trump praised the task force, and notably omitted any reference to the media conspiracy he alleges is being orchestrated to blame him for the outbreak.

The press conference is set to begin at 5:30, but like most Trump Administration press briefings, we suspect it will be late. Will Trump and the White House task force manage to restore confidence in the market and stop today’s rally from being just a dead cat bounce?

You’ll have to watch to find out:

Bringing back memories of 2008, WeWork’s dramatic collapse leading up to its IPO didn’t deter bankers at Jefferies from taking bonuses – rather, it encouraged them.

After Jefferies wrote down the stake of its WeWork holdings by $182.3 million last year, its board authorized $10.7 million in cash payouts to its CEO and three of his top lieutenants, according to Bloomberg, who cited a regulatory filing.

Better yet, writing down WeWork’s IPO wound up cutting into an earnings ratio that would have been effectively denied senior management their payouts. But the board used the excuse that WeWork’s valuation collapse was “completely unanticipated and dramatic” and made with the bonuses anyway. Maybe someone should tell them that’s what can happen when you’re making investments for a living.

In the past, Jefferies’ board had said there should be a “strong link between executive compensation and performance.” It appears as though that is only true in cases where executives are entitled to their bonuses.

Without the collapse of WeWork, executives would have met the ratio parameters necessary to get their bonuses. Occasionally, directors have discretion over adjusting bonus awards for unforeseen circumstances, which can sometimes draw criticism from proxy firms and investors. 

The bonuses were issued to CEO Richard Handler, President Brian Friedman, Chief Financial Officer Teresa Gendron and General Counsel Michael Sharp. For the year, Handler was paid $43 million in stock, $1 million in a cash salary and a $4.5 million bonus. The bonuses are generally linked to a metric that compares the firm’s net income to book value and the bank posted a 5.89% return for 2019, which was short of the company’s 6% bonus threshold.

Without WeWork, the ratio would have been 7.74%. So, like every company does now with non-GAAP earnings “ex-items”, Jefferies simply played pretend and acted as though WeWork, the largest IPO blowup story possible of the last decade, never happened. 

The Board defended the payouts citing hiring a new class of investment bankers that’s 49% female and avoiding regulatory scrutiny for the year. A spokesman for Jefferies declined to comment to Bloomberg. We wonder why.

Via The World Complex blog,

What a week we just had in the precious metals market.

From a huge drop last Friday – which in the past would have presaged further declines the following week – to a significant rebound in the gold price, coupled this time with a major drop in the US dollar – which I will argue may be the signal for a switch to inflationary conditions.

First the chart

We see the nice deflationary trend of the past 18 months looks to have been decisively broken by last week’s action.

Although it will be a few weeks before we can be absolutely sure, last week suggests that we are about to embark on another bout of inflation, no doubt as carefully calibrated by the Masters of the Universe as they can fill a shot-glass of whiskey from a pool of liquidity the size of a football field. Either, like a small child pouring very carefully, they have poured only too much, or they have sloshed out enough whiskey to fill a large swimming pool, and we are about to see what happens when it all lands in a shot glass.

Now, why the need for some liquidity?

Another chart:

This graph plots the gold-copper ratio against its rate of change. I typically interpret this ratio as an indicator of the real world preference between bricks and mortar and financials. When the ratio is low, it’s a sign that people would rather make refrigerators than chase derivatives.

Rate of change is the vertical axis. Near the top of the chart means that the plot is shifting towards the right at high speed. Currently, the system is moving toward the right (ratio is increasing) at the fastest rate in the last couple of years.

To me, this means the real economy is degrading very quickly.

Thus the Fed may feel pressured to pump out some liquidity.

If we are moving into an inflationary cycle, then one consequence, according to this recent post, is a decrease in the gold-silver ratio. Given that moves tend to get larger as liquidity sloshes around the system, the gold-silver ratio could hit a significant low, implying a new all-time high for the silver price (in fiat terms).

Normally I would wait a few weeks to have greater certainty, but if there is a swimming pool full of whiskey heading for a shot glass I want to get as close to ground zero as possible with a bucket.