FYI | Mar 17 2020
By Peter Switzer, Switzer Report
In preparing for today’s Switzer Report, I immersed myself in the data and issues that will turn this huge market sell off into a huge rebound. I also wanted insights that could make my assessment of when this market might turn more believable.
Right now, we’re in the eye of the storm and the media and social media platforms are going to make matters worse, which will add to volatility. This is the time for cool heads. The last thing I want anyone to do is to cash out and run to safety after the market is down 27%.
The market could fall more, sure, but you only have to sell your quality assets if you really need to, so before you make that decision, please consider what is influencing me.
Let me put my argument for not panicking and selling everything, in bullet points or bite-size nuggets. Here goes:
REPORTED GLOBAL INFECTIONS
As of 14 March, more than 148,000 people have been infected in more than 80 countries.
DEATHS
There have been over 5,500 deaths globally. Just over 3,000 of those deaths have occurred in mainland China. More than 71,000 people have recovered from the coronavirus.
DEATH RATE OF THE FLU
Seasonal flu typically has a mortality rate below 1% and is thought to cause about 400,000 each year globally.
SARS had a death rate of more than 10%.
THE VULNERABLE
11% of Australians, some 2.8 million, are aged 70 or more.
THE VACCINE
There is no vaccine for the new coronavirus, which means it is more difficult for vulnerable members of the population – elderly people or those with existing respiratory or immune problems – to protect themselves.
DOCTORS’ VIEW
About 80% of people recover from the disease without any special treatment. “If [you] have COVID-19, don’t be overwhelmed by it. By far and away, people are recovering well,” Prof/Dr William Rawlinson Prince of Wales said to the ABC.
“Most people with minor symptoms will be told to quarantine themselves at home, keep up fluids and take paracetamol to control their temperature. Australian patients have generally recovered in about four weeks,” Dr Rawlinson said.
HOW WORRIED SHOULD WE BE?
In the UK, confirmed cases were 1,140 by last weekend but that was out of 37,746 tests, which is a strike rate of COVID-19 of 3%! And given 80% are expected to recover, we are really being very cautious.
HARVARD EDUCATION VIEW
According to CDC (The Center for Disease Control and Prevention in the USA), there have already been up to 26 million cases of the flu this season, leading to hundreds of thousands of hospital admissions and up to 25,000 deaths. And this flu season has not been particularly severe.
THE ECONOMIC CONCLUSIONS
- “Overall, we see a weighted average hit of 1.5% to 2020 global GDP and 0.2% to long-run global GDP. We forecast a muted long-term impact because damage to productive capacity will be small, plus economic confidence should quickly return once the virus subsides.” (Morningstar)
- “Overall, we think the costs of coronavirus will mirror those of a milder pandemic. As we assume a lower death rate that primarily focuses on patients over the age of 65, we think there could be a significant short-term hit (1.5% of 2020 GDP) but minimal hits beyond, as the economy should be in position to rebound quickly.”
MY CONCLUSIONS
Provided these extreme measures to shutdown gatherings and many businesses with a virus containment approach works, and then infection and death rates start to fall in the USA and Europe over the next two-three weeks, as they did in China, then the stock market will rebound. Hedge fund managers will use this fear and loathing to make up for nearly a decade of losses. But if the virus can be contained (and summer in Europe and the US will help that), we should see stocks go higher.
Anyone talking Depression has a poor grasp on economics and what the combined muscle of central banks and global governments can throw at this short-term medical and economic challenge!
One final piece of good forecasting comes from the AFR’s Chris Joye, who can be unreadable for the normal person, but after worrying the life out of everyone telling us about global liquidity problems right now, which he warned about, he said the following…
“When all is said and done, markets will get what they want through signalling what is and is not acceptable. Order will eventually be restored. And this crisis will pass, probably within one or two months. Those that survive will face the investment opportunity of a life-time.” Go Chris!
AND FINALLY…
We don’t yet know how dangerous the new coronavirus is, and we won’t know until more data comes in.
Peter Switzer is the founder and publisher of the Switzer Super Report, a newsletter and website that offers advice, information and education to help you grow your DIY super.
Content included in this article is not by association the view of FNArena (see our disclaimer).
Important information: This content has been prepared without taking account of the objectives, financial situation or needs of any particular individual. It does not constitute formal advice. For this reason, any individual should, before acting, consider the appropriateness of the information, having regard to the individual’s objectives, financial situation and needs and, if necessary, seek appropriate professional advice.
Find out why FNArena subscribers like the service so much: "Your Feedback (Thank You)" – Warning this story contains unashamedly positive feedback on the service provided.
FNArena is proud about its track record and past achievements: Ten Years On
