After last week and the beginning of this week, I think it is a good time to address the world-wide gorilla in the room—Coronavirus, or COVID-19, as it is now officially named. Monday and Tuesday were horrible days in the markets as many people (and algorithms) panicked out of equities and moved to cash or Bonds. We will not panic here.
Let’s look at the good news first. The outbreak seems to have peaked about ten days ago on February 17 at 58,747 active cases. As of this writing, the number of active cases stands more than 10,000 lower at 48,151. The virus seems to be on the wain. Unfortunately, we are probably not out of the woods yet.
The bad news? The death rate from the virus is pretty high, between 2% and 3%, and as of today, the total deaths are 2,770—mostly in China. The death rate due to COVID-19 outside of China is about 1%–inside a little over 2%. Perhaps the worst news this week is that the virus seems to be creeping outside of China. But still, of the entire 80,828 cases identified, only 2,755 were outside China. And here’s an oddity—the third largest “country” for infection, is the cruise ship, Diamond Princess with 705 cases and four deaths.
Inside the USA, we have had 57 confirmed cases, of which six people have recovered, and nobody has died. Our problem here, as it is every year, is the common flu. For the 2019 to 2020 flu season, we have had 15 million reported cases and 8,200 deaths. (More cases, but much lower death rate.)
These numbers are a bit unnerving, but remember, we humans are only here for a finite time. We act as if we’re going to live forever, but we are all going to leave this world. Just in two months this year, the world has already had over 9,100,000 deaths. Luckily for humanity, we are replacing our deaths with over 21,700,000 births. Our population on planet Earth is 7,767,000, and it’s steadily moving up, but it is only 6% of the human population that has ever lived (around 106 billion people.) Look at it this way, we better off than 94% of all the people who have ever lived.
Now, onto the economic impact of COVID-19. We can certainly expect lowered earnings for many sectors and companies in the first two quarters of 2020. It is not hard to imagine a negative impact on airlines, cruise ships (see Diamond Princess), and anything related to travel. If you sell things to China (as in Apple) you’re going to have reduced sales for sure since much of the Country is on lock-down. And let’s face it, CEO’s, chained to quarterly performance as they are, will take this opportunity to throw in any lurking bad news and blame it on COVID-19.
Here in the US (still the largest economic driver in the world), we still have strong consumer demand for, well, just about everything. And since many of the things we buy come from China or China-related supply chains, we will probably begin to see declining inventories. Supply disruption is going to be felt soon and should last at least for the first half of the year.
However, the producers and factories in China did not disappear—they are still functional and ready to go, albeit operating at 50 to 60% efficiency. But this means it won’t take long to ramp up production when the fear has subsided. Plus, many US companies have been moving their supply chains outside of China due to tariffs, so the impact today is not as bad as it would have been two years ago.
There has been no appreciable reduction in employment in the US, and the consumer is as strong as it has ever been. Reduced inventories and the resultant higher prices, hysteria over COVID, and the upcoming 2020 elections all contribute to uncertainty. These factors and more should help increase personal savings rates, debt reduction, and better personal balance sheets.
In sum, corporate America will surely have reduced quarterly earnings—some sectors will have it much worse than others. And of course, our investments will be affected by this. But we are investing for the long run. This part-time break in the market’s relentless march upwards gives us an excellent opportunity to rebalance and/or reinvest into our positions at better prices. Additionally, I think we are going to see a giant wave of pent-up demand by the world’s consumers. When that wave reaches its crest and breaks, we will be happy to have been fully invested in our diversified portfolio of those publically traded companies.
Stats obtained from the website: https://www.worldometers.info/coronavirus/
