Monitors Themes

COVID-19 Monitor: Staying safe and sidelined

I believe the market has been shrugging off mounting risks, climbing to positive territory for 2020 before faltering today. As discussed previously, I am avoiding the market as it is not adequately discounting risks. The market tends to trade on changes in newsflow rather than on levels, so it is not unusual for a market to rebound sharply on slight improvement in data. However, eventually levels do matter, and sharp distortions arise (such as a market in positive territory in the midst of a global crisis). One clue as to when the market has gone too far is when it reacts to not-so-positive data, like last week’s jobs report, in an excitedly bullish manner. It is a sign that bears have capitulated, and with positioning increasingly driving much of the market action, this serves as a signal that there is trouble for the market.

The primary risk not being adequately discounted is the potential for a resurgence in COVID-19 cases. Nearly every state has now reopened in some capacity, and yet, basically none of them have even met the criteria for reopening set by the CDC (or the Administration for that matter). And not surprisingly, we are starting to see cases bounce in many of these states.

With that in mind, I’m introducing a COVID-19 monitor in the form of a “bounce chart.” It basically shows the evolution of positive coronavirus cases as states reopen. You can access the monitor on either Daddy.Finance or Tabs.Live (our sister site). It is updated daily.

View the bounce chart.

Blurbs Themes

8 reasons to avoid the market

Normally, I prefer to tell a story with pictures, but I’m going to try something different and bullet out 8 top of mind reasons to avoid the market. Each one could be its own blog post. Comment if want me to elaborate on any.

  1. Coronavirus: This should be obvious; we have a market down only 5% YTD and the best performing index in the entire world despite the highest number of deaths. Large chunks of the economy are still shutdown, and with no clear entrance plan, there is no clear exit plan. Is there really no probability of it surging again, no probability of higher taxes, etc?
  2. Riots: Somehow the market rose today despite riots breaking out across the country. While my primary focus is on finance, I have for years studied global peace movements (my minor in college). One thing I know from all the literature and case studies – when protests intersect with force, the situation can spiral. Now, maybe this is not a high probability event (I don’t know; it looks scary), but the probability has risen. Yet the market was up today.
  3. The overall market volatility has been low. However, if we look at upticks vs. downticks intraday volatility, there is clearly tension; it’s like pulling on strings. I believe there are quantitative models (CTA’s, etc.) who are buying equities on dips. They lever up intraday (sometimes as much as 15x!) to mean-revert securities and markets. It leads to a lack of price discovery and creates tail risk.
  4. Consumer is still under extreme pressure. Leverage has risen. Businesses are closed in large parts of the country, and there has likely been a permanent change in behavior (e.g. will people really eat out as much in the future?). Again, consumer is 70% of the economy.
  5. Oil has been forgotten since it bounced back from negative territory, but $35/barrel still leads to significant pressure for E&P companies; many will not survive. This bounce just extends the inevitable.
  6. Manufacturing is still extraordinarily weak. China had a false start in their Purchasing Managers Index, which has since faltered.
  7. There are wild misconceptions about how if there is monetary activity, it props up assets, and you just buy the dip. Cycles are smoothed with strong monetary policy; they come at the expense of the future (it’s like personally borrowing to smooth through a rough patch). Smoothing a global economic collapse is a different story.
  8. There is too much money in the system. What this whole market action tells me is there is simply too much capital floating around with no place to go. So people revert to buying up equities. Step back, think about it – could you imagine a worse situation for the global economy and stock market back in December of last year? It’s a complete global halt, deaths, people in lockdown. Yet the market is down 5%; that seems disconnected from fundamental reality.

In conclusion, to me, there is bubble risk. When will it burst? What’s the trigger? Hard questions; no good answers. But I think if this real economic pressure continues, there will be forced liquidations on college endowments, pensions, personal retirement accounts, etc. This can counteract the CTA and quant buying activity described in number 3 above. And when they lose, with that kind of leverage, they can shrink rapidly and become less active in the market, unable to prop it up. So maybe that’s a trigger for the domino effect. But I wouldn’t touch a market shrugging off anything after a half an hour of incremental newsflow.

Monitors Themes

The Financial Health of Every University in the US

We’ve done an in-depth analysis of every university in the Unites States with a look at their financial health. You can access the monitor on either Daddy.Finance or Tabs.Live (our sister site).

Find Your University and see how it compares to others.

Some general conclusions:

Those with the largest endowments have had much stronger returns. We also break down the growth in endowments and find that for the largest endowments most of the growth comes from investment returns rather than contributions. For smaller endowments, a larger portion of endowment growth comes from contributions (so contributions do matter!).

With coronavirus throwing the state of classes into question, we look at who is open for in-person classes. We find that universities in weaker financial positions are more likely to be planning for in-person classes in Fall 2020 than those better positioned.

Lastly, new funding is badly needed. Nearly a third of universities cannot cover a year’s worth of expenses with their net assets (in the absence of revenues).

So Find Your University and click on the donate link to help support!

Monitors Themes

Introducing real-time pension monitor with Tabs.Live

We’re pleased to announce our first real-time monitor is now ready and can be accessed on either Daddy.Finance or Tabs.Live (our sister site). We’ll be adding more monitors soon.

What’s In This Monitor?

A snapshot of pension underfunding at the national, state and plan level. We show aggregate data on pension underfunding, funding ratios, number of states and plans underperforming etc. We also provide detailed state-by-state and plan-by-plan real-time data.

Why This Is Important?

As discussed in our prior post, the US has gone from fully funded back in 2001 to now under 70% funded, with the average American on the hook for about $5,000. The funding status of pensions is very vulnerable to market moves given aggressive target returns, and this tool enables people to monitor the status real-time.

Description Of Key Items

Underfunding: Gap between liabilities and assets, which is effectively debt.

Burden on Average Resident: The underfunding on a per capita basis. The underfunding will have to be made up in some way and constitutes a burden on taxpayers.

Funded %: This is the ratio of assets to liabilities. Basically it shows for every $100 owed to plan beneficiaries how money there is actually.

Target return: This is set by the plan as an investment return they need to achieve to fund their plans. On average, these are 7-8%.

Returns: Actual returns on the plans assets (which are invested in stocks, bonds, etc.).

Returns versus target: We show the actual returns versus the target. For example, if a plan has an 8% return target, but it has only returned 5%, it is underperforming its target by 3%.

Historical underlying data from Real-time calculations powered by Daddy.Finance.

Personal Finance Themes

You may owe $4,400 – Many states face financial pressure

Underlying data from

Provocative title, but it’s true. Public pensions are on average only about 72% funded, ranging from Connecticut at just 52% to South Dakota and Washington DC fully funded. This wasn’t always the case; in fact, back in 2001, the average public pension in the US was fully funded. However, a combination of (1) constant increases in raise benefits (liabilities have grown from about $2 trillion in 2001 to about $5.3 trillion), (2) the untenability of cutting benefits or raising taxes and (3) aggressive assumptions over 7-8% consistent asset returns in a period that encompassed the Financial Crisis. Sure, there have still been returns, but not enough to cover that liability increase. Harvard has a nice piece drilling into this.

As a result, we’ve reached the point, where the average American owes $4,400 in debt due to underfunded pensions (sorry Illinois residents, you actually owe $10,500 on average). It’s possible half of states have pensions they cannot cover. Unless those pensions are nullified (which is not possible in some states where its protected by the state constitution), this debt will inevitably have to be paid (via higher taxes). Several states face extreme budget scenarios.

And in the meantime, this is just one of many risks facing the market that has shrugged off a complete global economic collapse and inflated multiples higher than ever before. There are massive underlying issues like possible widespread municipal financial conditions that are likely to be exposed with the current economic climate. When they surface, these issues could impac the market. So again, I point you to the original piece cautioning on being invested in this market.

The states with the biggest problems are Illinois, Connecticut, Pennsylvania, Kentucky, New Jersey, Rhode Island, Hawaii, South Carolina and Massachusetts. We’ll go through some state level data below. If you are due a public pension as a state employee, you can review your specific pension plan’s underfunded status here. If you have a private pension, you should be able to inquire and find the funded status of the pension (discussed below) and the annual required contributions they need to cover the hole. Many of the private pensions also assume aggressive rates of return. Comment below if need help.

Below I show the evolution of funding over time so you can see how bad it has gotten, along with some state-level summary data. Note: We are being conservative here despite the shock factor. Assets are likely already down double digits in many states, and revenue has likely fallen further – we’re showing 2018 data.

Funding ratios

This is a simple calculation of a plan’s assets versus its liabilities. For example, if a plan has about $66bn in liabilities (benefits it must pay), but only $33bn of assets, it’s only about 50% funded. That’s actually a real example of Connecticut. For the US as a whole it’s 72%.

Underlying data from
Underlying data from

Pension debt

Any liability not covered by assets (uncovered liability) is basically debt that will have to be borne by taxpayers. In this Connecticut example, there’s a $33bn shortfall. They have about 3.5mn residents, so the average person in that state owes about $9,000. Notice the increase since 2001 for the US as whole (some states like Connecticut and Illinois look far worse).

Underlying data from
Underlying data from

Annual Required Contributions

This is a benchmark/industry term used when evaluating pension plans and refers to the amount of money a plan would need to contribute to cover the benefits it must pay out in a given years as well as to close the underfunded amount within 30 years. We take this relative to payrolls, and you can see it has climbed to almost 20% of payrolls from 5% in 2001. Again, this highlights the reluctance to step in front of a problem politically and to stop growing benefits (along with overly optimistic hopes of covering the gap with an equity market boom).

Underlying data from
Underlying data from

State summary

We show the funding ratio and the Annual Required Contributions and categorize states into bad, medium, seems ok. The bubble size represents the size of the plan in dollars.

Underlying data from

So take stock; I think there are massive underlying, systemic issues just like the housing crisis that have not yet manifested. The market is assuming the Fed just smooths us past a bump. But if underlying issues are exposed, it cannot be undone. Do not be fooled by the market and look to it for comfort because it is a feckless child.

Personal Finance Stocks Themes

Got beef? You may run out of meat; TSN favorably positioned

Underlying data from Bloomberg.

I previously wrote that there won’t be a toilet paper shortage and that oil storage won’t fill up. But I’m more concerned about the meat situation, where there may be a shortage coming in the next few weeks.

Slaughter rates are plummeting and prices are rising

What’s going on? Facilities around the country are reporting an increase in employee COVID-19 infections, leading to many plant closures, many of which are mega-size plants. Tyson closed Waterloo, Iowa, for example, which alone is 4% of the nation’s pork processing capacity. In total, Tyson has about 18% of capacity offline. Smithfield, JBS USA and others are closed as well.

And we’re seeing it in the daily slaughter rates reported by the USDA. Beef slaughter rates are down 31% and hogs down 20%, with the decline in the slaughter rates accelerating. As a result, beef wholesale prices are up 36% this year; as this continues they are likely to rise further. Also, this is the wholesale price; it’s possible the markup above this you pay as a retail consumer may make the increase even higher for you.

Exhibit 1: Slaughter rates fell sharply in April to down 31% for beef and down 20% for hogs

Underlying data from United States Department of Agriculture (USDA).

Exhibit 2: Zoom-in on daily slaughter rates for April-2020 shows it’s getting worse as we continue

Underlying data from United States Department of Agriculture (USDA).

Exhibit 3: Wholesale prices rapidly rising; beef cutouts up 36% this year

Underlying data from Bloomberg.

With fewer animals slaughtered, cattle and hog prices plummeting – this could lead to liquidation of the herd

With less effective slaughterhouse capacity given the shutdowns, fewer animals can be processed into finished meat. This means the slaughterhouses are demanding less cattle and hogs, which perversely, means the prices of a head of cattle or hog are falling. You will not see that benefit as a consumer; it goes to the meat processors (see below).

And those raising cattle and hogs will not see the benefit. In fact, they are on the verge of negative margins; the price for a hog has declined to about $50 from $80 recently. Smithfield and other growers of hogs may make the (hard) decision to euthanize the hogs. That would prolong the potential meat shortage even if slaughterhouses reopen because the grow-out of animals takes years.

Exhibit 4: Cattle and lean hogs prices have collapsed, putting pressure on growers

Underlying data from Bloomberg.

Do not rely on cold storage

Cold storage is a nice comfort, but the USDA hasn’t even released the data, which may indicate it is depleted. Even so, it’s just not that much in absolute terms; certainly not enough to feed a nation. Beef, for example, is about <2lbs per person. It only takes weeks to burn through these. This is not designed as a strategic reserve, but a simple mechanism to manage ebbs and flows. And that doesn’t include April-2020 as the USDA will not be releasing the next data until May 21, 2020, electing to skip the April-2020 release.

Exhibit 5: Cold storage data is delayed, but focus on the absolute values of the inventory, which are not high on a per capita basis

Underlying data from United States Department of Agriculture (USDA).

Already had a pending shortage due to African Swine Fever supply shock

This is beyond the scope of this post, but before coronavirus, there was African Swine Fever (ASF), which wiped out about 50% of Chinese hogs. It takes years to regrow them. This means, we started the year with a 5-15% global negative protein supply shock even before the above dynamics. In response to the ASF, US producers began to accelerate exports. So you have not just a US supply shortage, but a global one as well. See here for more details.

Meat producers like TSN (Tyson) beneficiaries

Meat processors buy cattle and hogs and slaughter them. They earn the processing margin, or the spread between what they pay for the animal and what they sell it wholesale (the cutout price). If they offer prepackaged foods, they may get a markup beyond that.

Exhibit 6: Processing margins for beef and hogs have exploded upwards

Underlying data from Bloomberg.

Let’s just quickly take TSN. They have lost 18% of their production capacity. But the beef packer margin is up from $37.20/head at the start of the year to $696.40/head at present. With that type of margin expansion, you could lose 95% of your production and still be better off. Now, there are still fixed costs burdens, so it’s not quite that extreme, but they are an obvious beneficiary.

Again, a reminder – oil has imploded, and while it will be volatile, marginal producers need to go bankrupt. And the consumer (70% of the economy) is under pressure already, and will be moreso with rising food costs.

Blurbs Followups Themes

It is unlikely we run out of oil storage capacity but that is not the point


I’ve received a few questions offline from people noting they have seen headlines of energy producers reducing their capital expenditures (capex) or cutting them entirely in response to the lower prices, and wondering whether or not that is sufficient to balance the market, and if so, wondering if that means the coast is clear.

Oil markets are complex, and we’d need need pages to properly answer this good question. But we’re not making an oil call here. What we’re saying is A) cuts thus far have been insufficient for a decline in oil production; B) companies losing money and facing ballooning debt with breakeven economics well above current levels will not necessarily proactively cut their production as that would ensure their demise; they will act as options and hope for a turn, which when not achieved, may force them to shutter; we have not seen that; (C) When that happens, the market will rebalance, and that does not mean things are okay; what it means is that supply finally fell in response to a 30% demand decline (supply and demand rebalanced the hard way). We will then start to see the knock-on implications for other companies indirectly linked to oil, and it will likely not be benign. That’s the main point.

Oh, and along the way, we will not likely face a storage shortage because there will be a (painful) response. But that’s a distraction – the main point from the previous post, is that oil drives a significant portion of the US and without an active consumer, there is no offset to this massive pressure.

Observations and details

  1. Capex cuts are misleading: Headlines abound of energy companies slashing capex. This is misleading for a few reasons: (A) Energy companies have cut capex for years while growing production (capex fell 21% from 2010 to 2018 while production doubled). This is possible due to movement to new formations and horizontal drilling. Beyond our scope, see here for more info. (B) Energy companies already had a decline of 13% at the beginning of the year in 2020 capex vs. 2019; we are now at 22%, so it’s a 9 percentage point increase in the cut, not a fresh 22% cut; (C) There is sustaining capex and growth capex; sustaining capex is the capex to sustain the existing production; growth is investment to expand it. Much of the incremental cuts have been to growth projects, not existing production (perhaps I’ll break this out in a separate post); (D) The big boys, who are better positioned, have cut less than the small players; for the average company, 2020 guided capex is 29% lower than 2019; in total, it’s 22%. See Exhibit 1 showing capex declining with production rising, Exhibit 2 for a rundown of cuts by company, and Exhibit 3 showing a scatter of cuts by size of company with cuts skewed in direction of smaller players
  2. Small players are cutting where they can, but with breakeven economics at least $30/barrel no matter what oil play, they are reluctant to cut existing production. Exhibit 4 shows breakeven by play; Exhibit 5 shows continued oil output still flat at prior year levels (we have cuts in growth, not a decline in production).
  3. Small players may fold. Cash flows are negative. Debt is at all-time highs. Capital markets will be reluctant to issue debt (even at a high yield) to fund distressed oil companies. As they hemorrhage, eventually they may run out of options and option value. Exhibit 6 shows the median debt for high yield companies is up 300% since 2008 and for investment grade companies, it’s up 91%. I’m not bothering to show it vs. cash flow as cash flows are largely negative.
  4. We will likely not run out of storage capacity. According to the Energy Information Associate (EIA) the US has about 653mn barrels total storage capacity, with 372mn barrels already occupying those refineries and tank farms, or 57% of the storage capacity. That leaves about 280mn barrels of remaining capacity. Over the past three weeks, inventories have been rising by about 16mn barrels per week. At that rate, with no supply response, we run out of capacity in 17.5 weeks, a math exercise that has sent off alarm bells. However, we produce about 13mbpd (millions of barrels per day), or 84mn barrels a week. You only need to see a 17.5% reduction in output to stop growing the inventory. Even if it’s just a 5% reduction, that extends the window to 24 weeks; a 10% cut would push this to 40.5 weeks. Exhibit 7 illustrates this.
  5. The point is eventually supply-demand dynamics in oil will rebalance. And that does not mean everything is peachy. It means production fell in response to weak demand, and this is when you will the knock-on effects of reduced oil production on other industries. That’s the point of this post and the original post on caution for market positions. Exhibit 8 is a reminder.
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Blurbs Followups Themes

The hard oil reality and its broad ramifications


I previously wrote about oil and the consumer as the twin engines of the economy in a recent post “Why I dumped all my holdings…”, noting both are sputtering.


Both engines are now in full fail mode, with consumer activity shrinking by the most in history, and oil experiencing its worst-ever decline with some parts of the futures curve in negative territory.

Quick note on negative oil: This is exactly what one should see in the oil market, and it is not surprising. There has been an unprecedented negative demand shock, which has led to output exceeding storage capacity. When that happens, an energy producer has three options: (1) Shutdown; (2) Burn the oil off, dump it in the ground or dispose with it, all of which will incur environmental costs; (3) Pay someone to take responsibility for it. Option 1 has not yet largely occurred because Energy and Production (E&P) companies are facing extreme balance sheet risk, and at this point, they are options on oil; if they shut down, they are just very likely bankrupt, whereas if they wait it out, maybe the price will rise and can stave off bankruptcy. Perverse incentives with shutdown economics only triggered by bankruptcy. We saw this in the coal sector a couple of years ago (perhaps the subject of a future post). Option 2 and Option 3 are related; if you have to pay to dispose of the oil, you might consider offering the oil for negative cost.

Technical note: The Monday decline to negative $37/bbl for West Texas Intermediate (WTI) was somewhat technical in nature, driven by contract expiration (beyond the scope of this post, see here for more details) and will not stay in such deep negative territory (the rest of the futures curve already reflects this).

But the point remains, oil is in dire straits, and we have not seen capitulation in the form of bankruptcies from E&P’s. First, we will see growth capex cut, then second we will likely see bankruptcies. This remains a massive headwind to the market.

Why this is a massive headwind to the market

As I wrote in a previous post, “The market is a feckless child…”, the market is ignoring very real problems in the economy and myopically rising on continued stimulus hopes and prospects for the economy to reopen. There is nothing like the shock factor of imminent bankruptcies to wake the market up.

Most importantly, the sharp decline in oil has massive knock-on ramifications for large portions of the US economy. It is not simply the case that oil is correlated with other sectors; it directly drives large portions of the economy as the US is net long oil and when production and spending slow, derivative sectors, such as industrials, will experience negative demand. And in the present climate where the consumer is absent, they are not experiencing the benefit in the form of lower input prices (usually a partial offset and a strong consumer compensated in 2015).

It’s not just Industrials; there are numerous ripple effects to many sectors. Rather than list them, here’s a look at the number of companies citing oil in their earnings calls over time. The dotted box shows the 2014/2015 period when oil fell from $100/bbl to $40/bbl. Notice the number of companies citing oil (for the most part as a headwind). That’s almost half of stocks in the S&P 500 off of which this study is based. Basically every sector showed an increase in this topic on the calls (exception being energy where it was unchanged as they always talk about oil).


As another confirmation of oils increasingly important role on the economy, correlations have generally fallen in recent years (which is not unusual in a rising market). But not for oil; oil’s correlation to various sectors has risen.


Things need to get worse before they get better

We likely need to see massive cutbacks in E&P capital expenditures to reduce supply, but that’s likely not enough. Bankruptices probably will occur, and demand needs to return and consumers need to spend, but that seems very far from happening. Remember, one clue to when this will happen is when school’s reopen, and that does not appear imminent. See the exhibit in “The market is a feckless child…” for a look at school closings nationally.


So if you haven’t yet evaluated if you can withstand a precipitous and long market drop before recovery and noted the unique challenges this market faces, now may be a good time. Here are some thoughts on that.

Blurbs Themes

The market is a feckless child and school is out

I’m introducing the short blurb with this blog post.

Many people are under the impression that the rapid recovery in the market is an indication that things are fine and will be fine, and they missed an opportunity to buy a dip. Here’s a sample of someone presenting that view.

I’d disagree with this for three main reasons:

(1) Anyone looking to the market for confirmation is doing it backwards. In my early days as an investor, I thought the market was the ultimate barometer of truth and viewed it as “right” no matter what; I thought that if one were on the wrong side of a stock (or market broadly), one needs to take a lesson from the market and understand where they are wrong. Experience has taught me this is just dead wrong. The market (and stocks) are prone to tantrums and irrational thought. Be a parent, have some conviction that you know what is right and don’t take your lessons from a child.

(2) We have seen an unprecedented recovery in the financial markets in the past three weeks, far faster than normal. For reference, it took 231 trading days for the market to recover 25% off the trough levels in the 2008-2009 crisis. In 2020, it’s taken 23 days. It took 327 days to recover 50% in 2008-2009. In 2020, it’s taken 38 days. That’s just very fast, arguably too soon, with an economy that is set to see a 40% decline in GDP. Just look around you – everything is shuttered, and as I noted in my post, “Why I dumped all my holdings…”, the consumer is 70% of the economy and most of its growth; that engine is clearly in full fail mode, it is not going to turn around anytime soon (regardless of a turn in the second derivative of Covid-19 death rates), and all datapoints from here on out may deteriorate (or show transitory improvement then deteriorate) (just look at today’s retail sales, industrial production, etc.).

(3) The massive recovery in a short window, when we may not have even seen the true trough, reminds me of a feckless child erroneously applying faulty logic, often from prior examples. But the present situation is not similar to the past; it is its own animal. If you’re taking your cue from the market that the economy will just turn back on immediately, first note that the VIX (volatility index) is at 40%; we’re bound to see wild (silly) swings in the market. Second and most importantly, look at school closings as a barometer. The vast majority will not open until September. Think about how much revolves around that. I don’t believe you see the switches turn back on until school is open.

S&P 500. Underlying data from Bloomberg.
VIX index is above Financial Crisis levels; you should see moody swings.
Fun Personal Finance Stocks Themes

Toilet Paper Economics: You can now stop buying TP and may want to stop buying TP stocks

The Toilet Paper Curve

Uses Nielsen weekly TP sales data and Statista data on per capita consumption.

The empty shelves and scarcity of toilet paper (TP) we are witnessing are not frenzied consumer buying, but rational behavior. It’s not obvious, but we consume a lot of toilet paper when we’re at the office/jobsite (where we spend a lot of our day). With quarantines in place, this means you use more toilet paper at home – 40% more, in fact, per Georgia Pacific (large TP producer). Thanks to Will Oremus at Medium for cluing us in on this.

So, a key driver of the surge in pandemic-buying is we all began to overnight basically consume 40% more TP. The second driver is that Americans typically hold about 2 weeks of TP inventory at home (so you don’t have to run out and buy the bulky packages or have them delivered so frequently). Recent trends suggest with the uncertainty/desire to leave the house less, people are targeting about 4 weeks of supply. This seems like rational behavior.

How does the data stack up? When we model actual TP demand in the recent period and compare it to what we should see if people are consuming 40% more TP and seeking to expand their in-home inventories to 4 weeks from 2 weeks, it seems like the American consumer has done a fantastic job. So good job everyone.

When does it stop? Right now, we estimate the average person is sitting on 3.85 weeks of supply (assuming the increased consumption rate) versus the targeted 4 weeks – pretty darn close. Now, retailers’ inventory is depleted, and it takes time to convert the commercial production lines at TP plants to domestic use (office TP comes in giant rolls and are thinner). Given this constraint and assuming quarantines remain in place, we model that TP in-home inventory will dip to ~3.3 weeks in May-2020 from 3.85 weeks currently as we wait for this converted capacity to come online, then gradually rise to 4 weeks in July-2020. Importantly, the TP curve above assumes the quarantines remain in effect all year; if they end, consumers shift back to consuming some TP in office and lowering inventories, and we’ll see a decline in purchases sooner.

So, we’re close, but people will look to replenish their inventory, and it’ll take some time to get to a full average 4 weeks of in-home inventory. But you’re not going to run out.

Which countries use the most TP and which have sold the most recently

Americans consume more TP per person than any other nationality

TP-usage is correlated with how developed is a country, so it’s not surprising that we see the U.S., Germany, U.K., and Japan at the top of the list. But what is surprising is French people use half the amount of TP as Americans. This could be because of bidets. If you want to learn more (I don’t), here’s a BBC article on the topic.

Data from Statista.

Italy has seen the largest increase in TP purchases

Not surprisingly, countries hit hardest by the pandemic have seen the largest increases in toilet paper purchases, especially highly developed countries where the consumer may be more financially able to stockpile. What is surprising, however, is the French have stockpiled the least despite quarantines in place. Maybe since the bidet is infinite capacity, they don’t need to? Again, check out the BBC article, and maybe add a comment below explaining it (but I don’t really want to know).

Data from Statista.

A brief history of TP

For those interested in the 1973 Great Toilet Paper Scare, here’s an archived New York Times article on the topic…because history is important.

Key items from a passionate Orlando local reporter.

May want to stop buying TP stocks (WMT, PG, KMB) just for TP exposure

People react to crises in different ways. I have made the decision to exit the market entirely as I view this as such a shock to the system that conventional wisdom is out the window. Here’s my post on that.

Others have sought to strategically profit from stocks, including TP stocks, which may benefit from the crisis. I have no moral problem with that whatsoever, but I think it’s mistaken: First, the shortage is largely over – people have already built inventory; it’s prudent to get in front of news, not follow on after; we already have March-2020 Same Store comps data. Second, it’s not clear they even benefit (they may even be harmed) TGT and DLTR both had negative March-2020 sales reports despite the stockpiling as their discretionary, higher margin products are not moving off the shelves (people are buying essentials like TP and holding off on other purchases). One could argue that WMT is less discretionary than TGT, or that it’s better to own upstream TP producers like PG and KMB, but I believe this is trumped by the fact that overall TP consumption is not changing; maybe it’s front-loaded to last quarter and this quarter, but it will not change annual sales, and we’re already hearing companies talk about the costs associated with converting manufacturing and expediting shipments are rising; balanced against this is they are reducing SKU’s and mass producing essentials (which can lead to efficiency gains) and in some places, they are the only ones still open for business (e.g. more market share).

Overall, I think it’s too obvious a trade, we’ve passed the stockpiling window, annual consumption is unchanged, the stocks have already risen (outperforming the XLP staples group), and the cost side of the equation is far from clear. Now, if you want to own these stocks as a hiding place given strong balance sheets and a semi-defensive staples sector or if you know them really well and have reasons to own them, go ahead by all means (though I’d be curious why them and not the XLP), but you may want to stop buying them for just TP and wipe the stocks slate clean, lest you feel the burn (intended as a possibly inappropriate pun).

Data from Bloomberg; stocks indexed to 100 at start of year.

On a more serious note…

There are some who did not have the ability to stockpile TP; we’re talking averages here. If you want to help those less fortunate source some TP, check out

And that’s a wrap.