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The virus as supply shock. Stocks are cratering, again

Markets opened strongly this morning and then fell and fell. My portfolio is now down. The Dow, the S&P and the Nasdaq are now down over a percent. Stocks are cratering.

Frankly, I don’t like where this is going for two reasons — the supply shock and the asymptomatic carriers. Keep reading:

The New York Times has a piece:

Wall Street Is (Finally) Waking Up to the Damage Coronavirus Could Do
The financial world is realizing how different this is from a trade war or other recent economic hiccups.

It contains these two important paragraphs:

The economic effects of coronavirus would act as a “supply shock,” reducing the productive potential of affected nations for reasons unrelated to the forces that more traditionally shape economic results like monetary policy or fiscal policy.

Put differently: Lower interest rates won’t make a sick person well, or give public health authorities confidence that businesses can reopen. All they can do is lower borrowing costs and help encourage businesses and consumers to spend and push financial market prices higher.

Read the Times piece here.

The goal worldwide is to stop virus’ spread. This is proving increasingly difficult. We now know there are people carrying the virus who are asymptomatic. That means they don’t show any symptoms and they can pass the virus on to the others — many others. This is very worrisome. The “good news” is that most people who get the virus will recover.

Reader Bruce Curley passed on a couple of YouTube links which are very helpful to understanding what’s going on. I recommend you watch them.

From the Atlantic magazine comes this article:

You’re Likely to Get the Coronavirus
Most cases are not life-threatening, which is also what makes the virus a historic challenge to contain.

The article contains this:

This virus is unlike most that capture popular attention: It is deadly, but not too deadly. It makes people sick, but not in predictable, uniquely identifiable ways. Last week, 14 Americans tested positive on a cruise ship in Japan despite feeling fine-the new virus may be most dangerous because, it seems, it may sometimes cause no symptoms at all.

The Harvard epidemiology professor Marc Lipsitch is exacting in his diction, even for an epidemiologist. Twice in our conversation he started to say something, then paused and said, “Actually, let me start again.” So it’s striking when one of the points he wanted to get exactly right was this: “I think the likely outcome is that it will ultimately not be containable.” …

Lipsitch predicts that, within the coming year, some 40 to 70 percent of people around the world will be infected with the virus that causes COVID-19. But, he clarifies emphatically, this does not mean that all will have severe illnesses. “It’s likely that many will have mild disease, or may be asymptomatic,” he said. As with influenza, which is often life-threatening to people with chronic health conditions and of older age, most cases pass without medical care. (Overall, around 14 percent of people with influenza have no symptoms.) …

Italy, Iran, and South Korea are now among the countries reporting quickly growing numbers of detected COVID-19 infections. Many countries have responded with containment attempts, despite the dubious efficacy and inherent harms of China’s historically unprecedented crackdown. Certain containment measures will be appropriate, but widely banning travel, closing down cities, and hoarding resources are not realistic solutions for an outbreak that lasts years. All of these measures come with risks of their own. Ultimately some pandemic responses will require opening borders, not closing them. At some point the expectation that any area will escape effects of COVID-19 must be abandoned: The disease must be seen as everyone’s problem.

For the Atlantic article, click here.

The bottom line

I do not want to panic. But there are going to be an awful lot of companies in coming weeks issuing warnings and  reporting much lower earnings.

I do not believe today’s lower stock prices are a great “buying opportunity.”

If you’re uncomfortable, take a little off the table. I am.

See you tomorrow. — Harry Newton

  • Hugh

    Harry, do you really think the upside potential of this market exceeds the downside risk given we are at bubble levels with a pandemic possibling decimating the world economy? If not why not sell at least 1/2 your holdings, go to cash and look forward to much better values to by back in?

    • Mike Nash

      UH, because he’d be looking at a fortune in taxes; that most of these “pandemics” turn out to be buying opportunities; that when you consider historically low interest rates the market is basically fairly valued…you sure are not much of a thinker, are you?

      • Hugh

        Thanks Mike. I love this Blog cuz I learn so much. Like it never occurred to me that Harry would like to eliminate his capital gains by riding the market down. On second thought it still doesn’t occur to me, but as you say I may not be much of a thinker (like you?)ūüėÉ. Are you an “always buy the dip” investor. Do markets never go down 50%? Don’t you believe in cycles. Couldn’t it be that we are overdue for a downturn in the market given its ,great age and with high p/e’s and Covid 19, And with the Fed having shot its wad (creating the low interest rates you mention) couldn’t this downturn be an even bigger one? I sure don’t know, but I think it might be worth thinking about and maybe taking money off the table as Harry suggests and maybe more than just a little. Oh, I do agree with you that this “pandemic” could turn out to be a buying opportunity but not yet while the pandemic is growing and the market hasn’t fully corrected.

  • Mike Nash

    My personal physician said up to one-third of the population of New York City could be wiped out by coronavirus. This is worst case scenario. I said to him, “I don’t care; I’m not a fan of New Yorkers” and we both had a good laugh. But mind you, as a common port of entry for travelers from South Korea, China, Italy, etc., the contagion will hit New York much harder than the rest of the U.S.