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Coronavirus Threats to My Health & Portfolio

Tuesday, February 18, 2020

The media – in all its forms – has relentlessly subjected us to news of COVID-19, the name of the disease for what had been called only the “novel coronavirus” for the last month. As with news in general, little middle-of-the-road reporting is being done.*

Pandemic?

Notice how often you see the COVID-19 routinely called a pandemic. It may comfort you to know that it is not a pandemic. It is an epidemic.

The difference is the degree of spread. Within China (or any one region), such outbreaks are epidemics. They affect that region.

Pandemics are more widespread, sustained transmission outbreaks. The isolated cases we see now in places other than the Wuhan area are not outbreaks. Though COVID-19 has the potential to – may even be on the verge of – becoming a pandemic, it is now an epidemic.

Risk

It's fair to say that risk remains – based on the rising number of cases and cautious commentary provided by health agencies and companies. From a scientific perspective, the jury’s still out on how serious this may become outside of the site of the outbreak’s onset (i.e., China’s epidemic).

There are two aspects of concern within that statement.

  1. How serious is the disease? ... often bluntly asked as, “Am I going to die from this?
  2. Why does (should) the stock market care about CoVID-19?

Your Health

As to your imminent demise, the data we have to date suggests

  1. It does not look like a repeat of the Great Influenza Outbreak of 1918, despite this being a popular media topic.* (Yes, there are some similarities, but there are many more differences.)
  2. It may still be contained regionally and treated, endured or perhaps even eradicated within those regions.
  3. Additional incidents of infection in other areas may arise, from people who had traveled before the outbreak had been identified or made public. However, prompt identification and response to isolate those exposed can contain those incidents.
  4. There is a flurry of activity attempting to a) find effective existing drugs, b) develop new drugs and c) create vaccines to treat or prevent the disease. With the exception of using existing drugs, it will take from a few months to over a year to get new products.
  5. As it stands now, risk of getting COVID-19 in the US – that is, your risk here – is very low.
  6. The best defenses against coronavirus (COVID-19 or common colds), the flu and many other viruses – are 1) washing your hands and 2) not touching your face.**

Your Portfolio

Having allayed immediate fears for our health, let’s turn to the potential economic consequences of the COVID-19 epidemic and potential pandemic. These are why the stock market cares (or at least, “should care”) about the coronavirus. Economic consequences from COVID-19 will affect various companies and their stocks.

Here we are again dealing with what is and what may be. Last week, the stock market seemed assured that COVID-19 will abate, apparently before any significant economic consequences occur. Is this naïve?

What We Know

60 million people are quarantined

Travel is restricted

Many airlines have stopped all passenger traffic

Shipping has been severely curtailed

The part of China at the center of the outbreak is a manufacturing hub for the world economy. It has been shut down for weeks and is having trouble reopening. Moreover, it is an integral part of the supply chain for the world, not only for US companies. As we noted in a Market in a Minute, Hyundai had already shut down a plant in South Korea in early February because it could not get parts that are usually sourced from China. You’ll recall we discussed Disney theme park, Apple store and Starbucks closings in China.

What May Come To Pass

Many companies – here and globally – face potential disruptions. As with the disease’s spread, it’s too soon to know exactly what will happen. However, widespread supply shortages could mean lost sales. That would mean lower revenues and earnings … and that will likely mean lower stock prices.

Lost demand also looms. People in China (even beyond the outbreak area) are not shopping, dining out, going to movies or even out to gamble. This is lost business. The dreadful results coming in from the Macau casinos in are an example.

Moreover, if you need a refrigerator, you’ll still go buy that refrigerator a few months from now when things settle down. You won’t go eat three or four months’ of missed restaurant meals, go see the missed movies or (we hope) catch up on that missed gambling. How many extra people can a Disney Theme Park cram in once people go out again? We haven’t been to one in decades, but we seriously doubt many more people could have been stuffed into that one.

Summing It Up

These are the potential consequences of the current state of COVID-19. We would be remiss if we didn’t add that these could become significantly worse if containment measures are not successful and the disease spreads.

Nonetheless, the global markets have surged. Except for occasional days (sometimes only hours) of negative reaction when disturbing coronavirus headlines caught its attention, markets have simply shrugged it off.

Given all the unknowns, particularly those around containment, we are still in the “hope for the best but prepare for the worst” camp.

 

* We attribute this to the media’s modus operandi – “we’ve got to attract more eyeballs.” Roughly translated, this is “the more spectacular our stories, the more viewers/readers/listeners we get. The more we get, the more we can charge to advertise. The more we charge to advertisers, the more we make.”

**Note that the masks you see most people wearing are essentially useless. They catch particulates, but viruses are so small they can pass right through. Protection against viruses needs special, tight sealing and virus-filtering masks … considerably more uncomfortable and costly. Doubt this? Consider the high number of (and still rising) cases aboard the quarantined cruise ship. Those quarantined on board  all wore masks. Yet, the ship had the most COVID-19 outside of Wuhan! Ten additional cases were found in “healthy” Americans upon transfer from ship to a plane home.

by Rich and Sheila Jamison

 

 

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