Category: Prediction

Prediction

How will we combat the next recession? Military Edition

pollywannamath

Historically, the US government has had an arsenal to combat recessions. Not every weapon has worked every time, but the government has tried sending stimulus checks, lowering interest (discount and federal funds) rates, quantitative easing, and cutting taxes to varying success in past recessions. Economists bitterly argue about which monetary, fiscal, and governmental policies In June, the United States officially entered (and exited) a recession. While that recession did not last long, another may.

Interest rates are at historic lows. The Federal Reserve is buying a lot of corporate bonds. The national debt is skyrocketing. Stimulus checks are already utilized. The government is providing low-interest loans to small business. Economists debate whether the government could continue or increase these actions, but for the sake of argument I’ll posit that the government will not able to continue these activities. The government used its weapons and the arsenal is running low.

Occasionally I plan to write about the non-traditional approaches the government can take to combat future recessions and determine if these approaches will remain viable. For consideration today is military recruitment to boost employment and aid urban areas in recession.

Military recruitment generally spikes during recessions. Enlisting offers an individual an opportunity for stable income. Moving young men away from unemployment in cities to controlled military bases helps reduce unemployment and helps the government minimize the negative societal impacts of recession. Historically, a 1 percent change in civilian unemployment yields a 0.6 percent increase in Army recruiting; however, that may not be the case in the future.

Increasing military recruitment during the next recession will be tougher than it was in 2008 for a few reasons:

Without changes to public perception and the makeup of the military, military recruitment will be a less effective tool to fight recessions than it was in 2008.

Business, Prediction

Why I Was Wrong: Used Car Prices

pollywannamath

In March, I told someone to wait before buying a used car. COVID-19 was starting to cause lockdowns and promised to cause layoffs. In April, I gave the same advice. I gave the advice in May and in June. Now into July both wholesale and retail used car prices have spiked.

To examine why I was wrong, it’s important to examine the underpinnings of my advice. I assumed that COVID and COVID policies would cause a spike in unemployment and result in fewer people able to purchase vehicles of all kinds (new and used). I anticipated that defaults and repositions would spike in the summer and that supply would boom. Each month would bring worse COVID news, and each month would bring fewer people to car lots. With people working from home and potentially selling vehicles to stay afloat, increased repossessions, and depressed demand car prices had to sink with each subsequent month of the pandemic. It was calloused thinking, but I couldn’t think of an alternative model for car prices.

There was an alternative model. In this model prices of used cars rose as a result of COVID. There were a few elements that I was (sadly) correct about in March, unemployment rose and each month brought worse COVID news. My projection was proving to be prescient in April as used car prices plummeted. In May, it was clear that my projections were proving false in the medium-term.

My projection did not account for many of the reasons that used car prices jumped this summer. Those reasons include:

  • Public transit became unattractive during the pandemic for those who needed to commute throughout the pandemic. (Positive demand shock)
  • The CARES Act provided the unemployed with an $600 dollars per week enabling many to buy affordable used cars even while unemployed. (positive demand shock)
  • Trade-ins slowed because dealers incentivized lease renewals. (negative supply shock)
  • Car manufacturers closed factories leading dealers to prioritize used-car sales. (negative supply shock on new and used cars)
  • Lenders initially offered relief on auto loans at the start of the pandemic (although this slowed in May-July) which prevented the spike of repossessions I anticipated. (negative supply shock)

This series of unanticipated shocks, along with others of which I am still not aware, led to an increase in the price of used cars. To prevent missing the mark to the same extent in the future, what will I incorporate?

The government did not allow citizens to fail economically in the way that I anticipated that it would. I should know, especially in an election year, that the government will keep people (and businesses) afloat when it is politically beneficial. I also should have accounted for those who bought cars to escape public transit, in retrospect that was a pretty obvious component of a pandemic that requires social distancing.

What do I project for the next six months? Will I improve my projection based on the learnings above?

I anticipate that the price of affordable used cars (older than 2010ish sedan) will remain stable through the year. These prices will remain high because people will continue to avoid public transit and there will be some bolster to unemployment benefits though November at minimum. More expensive used cars will suffer. Dealers are offering irresponsible financing offers that include an 84-month option, as an example. Buyers will see lower monthly prices and agree to loans that will last longer than the vehicle they purchase. When its time for a new vehicle they will be trapped with negative equity and require a similarly predatory loan. Rinse and repeat.

Long-term I have concerns about the new and used auto market. People who bought vehicles to escape public transit will return to public transit and sell the vehicles. The increased unemployment will end. Millions of car loans are in deferral programs already, those period will end (and some are). I doubt the repossessions will come this year, but I think they will come. The rise in Americans trading in vehicles with negative equity is not an indicator of a strong market. The current COVID-related financing offers will not improve the scenario three years from now. Hopefully, I will write another post of why I was wrong in a few years.

Prediction

Home Design Predictions: 2030

pollywannamath

I recently watched a MasterClass on interior design taught by Kelly Wearstler. Although I don’t share her taste, the class caused me to think about interior design. When thinking through the trends over the next few years, I developed a few predictions:

  • Stainless Steel Appliances will be out. I think this trend is underway already with the number of matte colored appliances on sale. I don’t expect every kitchen to sport red or yellow ovens, but I think slate, greys and subtle colored appliances will be the dominant sales trend. Brass/copper will come back in a big way.
  • Grey will remain in style (kind of). Right now neutral and cool colors dominate. White, blues, grays, and sandy wood are everywhere. I think gray will remain in style, but will carry warmer pink and yellow undertones.
  • White is out. Potterybarn and Anthro killed it.
  • Fabric? On Walls? I anticipate seeing more fabric wall covers of all sorts in 2030. Expect to see a rise in Persian rugs, accent rugs, and fully fabric walls. Stick-on/removable wallpaper will continue to grow in popularity and esteem.
  • Location-sensitive design. No I don’t mean that people will hang a kitschy neighborhood map in their front hall. White, grey, and blue with stainless appliances are in everywhere. Grey wood is in everywhere. Sandy tones are in everywhere. That will start to change. People will start to take regional cues. Colors and uses of space will be defined by the geography and needs of the area.
  • Smaller Rooms (at least in the north). Similar to the point above, the trend toward sustainability will infect home design. Big open floor plan houses with 10 ft ceilings and a ton of exposed metal are hard to cool and heat. Home design will start to incorporate smaller spaces with zoned HVAC to better serve the environment.
  • Funky Floors. Vinyl floors are back and there is no reason they need to look like wood. This trend will start with wood grain look that includes a few Easter eggs and transition into funky patterned floors.
  • Wood Paneled Walls. Sorry Bamboo, I’m not talking about you. Dark wood paneling and billiards green. Name a more iconic duo. Like Bill and Ted, these two took some time off but expect to see them back and better than ever in 2030.
  • No, tech will not be embedded. Internet of things will still exist, but only in accessories, not embedded into the home itself. You will have a “smart” lightbulb, but not smart wiring for all lights. Technology growth outpaces home design so it will never make sense to build a truly “smart” home. Sorry, Disney.

All of these predictions point to a larger trend away from cool, minimalist interiors with lots of negative space into warmer, more personalized and intermate spaces. People from very warm climates will likely keep their large rooms designed for airflow, but will incorporate the spirit of this trend through warmer vinyl flooring and fabric wall accents.

Observations, Prediction

Korematsu 3? 4?

pollywannamath

It wouldn’t be shocking to many on the left to learn, after the election of 2016, that the Supreme Court would need to decide a  “Korematsu 3” during Trump’s presidency; what they wouldn’t be able to guess is that it occured based on the actions of the left in the worst U.S pandemic in the last 100 years.

Korematsu v. United States was the case that, in effect, permitted Japanese internment during Eorld War II in the U.S. The Supreme Court, at the time, understood that their decision to uphold the program’s constitutionality had the potential to pervert future readings of the Constitution, but deemed the risk of a Japanese attack too great to ignore.

Justice Hugo Black, writing for the majority wrote:

Compulsory exclusion of large groups of citizens from their homes, except under circumstances of direst emergency and peril, is inconsistent with our basic governmental institutions. But when, under conditions of modern warfare, our shores are threatened by hostile forces, the power to protect must be commensurate with the threatened danger.

To the court’s credit, the original ruling was clear that it should not be used in future cases. To the court’s discredit, the Korematsu decision was used as justification in one of Justice Jackson’s opinions only 5 years later.

What does Korematsu have to do with the situation the U.S finds itself in now? Many state and local governments have issued “shelter in place” orders as a result of the COVID-19 epidemic. For some localities, the need appears obvious and can be tied to a specific number of cases and forcastable public risk. Seattle, for instance, saw an early and imminent risk of outbreak when first calling for quarantine measures.

When other cities and states followed suit, it wasn’t always as obvious that the order protected against an imminent threat. Many municipalities now under state-wide shelter-in-place laws, have no confirmed incidences of COVID-19 in their communities. Should it be legal for state governments to shutter their businesses, close their community centers, and halt daily life because of an abstract, so-far-unrealized threat?

Many doctors think so. Lessons from other countries seem to reinforce the effectiveness of a quarantine; however, I expect a legal challenge to state quarantine before the pandemic is over. The shelter-in-place mandates are too broad, too economically damaging, and are attached to no exit criteria.

When these laws are challenged, what will the Supreme Court rely on? Korematsu?

**To provide some hope to our hypothetical character at the beginning of the post, Korematsu did come up during the Trump presidency in the exact way she anticipated. In a time where many fear the degradation of minority libraries, the U.S Supreme Court condemned Korematsu in 2018 to demonstrate societal progress.

Observations, Prediction

COVID-19 and the Election

pollywannamath

Coronavirus could cost Trump the election, Goldman Sachs warns. Goldman’s argument is that widespread Coronavirus will depress U.S growth and voters will look for the Democratic party to improve economic outlook in a recession:

“If the coronavirus epidemic materially affects US economic growth it may increase the likelihood of Democratic victory in the 2020 election,” Goldman Sachs analysts led by Ben Snider wrote in a report published Wednesday night.

Shockingly Goldman is looking at Coronavirus as an economic shock, rather than a social one, and is coming to the wrong conclusion. Broadly, I see two scenarios where Coronavirus actually helps Trump win re-election in November:

  • COVID-19 ran its course, no longer poses a health concern, and the markets are recovering.
  • COVID-19 caused school closures, healthcare shortages, panic and death in the elderly population, and the country has not yet recovered from the social and humanitarian tolls of the virus.

In the first scenario, Trump will point to his leadership as the singular reason that the United States recovered and will craft a narrative that the democrats would have lengthened a recession and ruined the healthcare system. He will contrast the health outcomes of United States with China, or Iran, and claim that the “socialist” Democrats would have turned the country into the modern-day Soviet Union. I predict that his messaging will be effective enough to cement support from the elderly, and will pick up moderate independents who are wary of the Democrats leftward trajectory.

The second scenario will play out politically like a war or a natural disaster. In this scenario, Trump’s right-wing ideas will spike in popularity and Americans will look for  consistency in political office. It is worth noting that no sitting president has lost re-election during wartime. Trump will point to his warnings and actions against China, and his proposed travel bans, to claim that he was prescient on the risks of outside actors. Trump will play on the fears of at-risk or unwell Americans, and cast the Democrats as un-American.

Does that mean that there are no scenarios that help the Democrats? I think there is a third, relatively likely scenario:

  • COVID-19 spreads through the US and lingers without causing hysteria. Trump’s administration mismanages the outbreak and independents reasonably believe that a Democratic administration would have been better suited to handle the outbreak.

In the third scenario, it does not matter if the virus was actually mismanaged or if the Democrats could have done a better job. What matters is that independents and moderate Republicans believe that Trump mishandled the situation (his Twitter makes that somewhat likely.

COVID/Trump Timeline for further enjoyment.