Structural breaks are a b*tch. Just ask this guy.*
He engages in ‘retail arbitrage.’ Buying up goods from various sources, typically retail stores and reselling them online at Amazon (or eBay) to make a profit. A reasonable, if time-consuming and risky way to make money in normal times. Here’s the problem: he’s now stuck with a bunch of hand sanitizer and face masks, because online marketplaces won’t allow him (and others) to re-sell these now vital goods at a mark-up. From Jack Nickas’ New York Times article:
“It’s been a huge amount of whiplash,” he said. “From being in a situation where what I’ve got coming and going could potentially put my family in a really good place financially to ‘What the heck am I going to do with all of this?’”
Structural breaks do that to people. They represent a fundamental change in how some system works. Structural break is a term used in statistics. Specifically when it comes to time-series data:
It’s called a structural break when a time series abruptly changes at a point in time. This change could involve a change in mean or a change in the other parameters of the process that produce the series.
Being able to detect when the structure of the time series changes can give us insights into the problem we are studying. Structural break tests help us to determine when and whether there is a significant change in our data.
In the broad scheme of the coronavirus, the fate of retail arbitrageurs will be small potatoes. All sorts of other data are now in flux. There are going to be big changes to society, the economy and markets that live on long past the end of coronavirus and our current fears. As Josh Brown at the Reformed Broker writes:
In three years, we’ll have more vaccines, better preparedness for epidemics and all sorts of lessons as business owners, investors and citizens under our belts. Some things will have gone back to how they were. Some things will have changed forever. But life will go on.
Trying to predict out a month, let alone a few years at this point in folly. Only in hindsight will we be able to make sense of it all. As Morgan Housel at Collaborative Fund writes some businesses and organizations will hit “absorbing barriers” and will not be around to see the recovery. Hopefully we will learn important lessons from these endings that will allow some new beginnings to occur in earnest.
