Summary

• We had a great market in 2019 because we had no recession and there is no recession currently on the horizon.
• Smooth sailing ahead?… Not so fast.
• A new threat faces the market... the Chinese coronavirus outbreak and the potential economic disruption it may cause.
• We’ve already had a taste of this disruption in the oil market.
• A little perspective should help investors so keep calm and carry-on.

2019’s big concerns evaporate

Last week I attended an investment committee meeting for a small foundation for which, I serve as a board member. One of our members, a financial planner/ investment advisor, serves as a liaison to the street and his firm provides the committee with investment and economic commentary.

His report led with this answer to “why?” the market did so well last year, “No recession in 2019 and most likely not in 2020 either … and a trade war truce.” My question is since we have not had a “real” (in my opinion earnings’ recessions don’t count) recession in the past 10 years, why haven’t all years in the market been “bell ringers?” People (the media, talking heads, and pundits) have been calling for that “R” day of reckoning consistently over the same time period. On top of this, pre-Trumpian economics, we did not have trade wars. This, too, should have served to power the markets higher in those sometime, not-so-great market years we saw in the past decade.

Another thing about the so-called trade war with China and at some times the rest of the world I have to ask is just what was the impact on the U.S. or China? In China (poor China) the 2019 GDP still grew 6.1%. The US is forecasted by The Conference Board to only produce a paltry 2.3% number for 2019 vs 2.9% in 2018. Remember, too, China went on a voluntary path to curb its growth over 10 years ago. Prior to that they were chugging along at 12%+.

No Recession, No trade war … what could to wrong?

Questions, questions …

Last week (1/20/20) we began to see the media developing a potential “proximate trigger” … CORONAVIRUS FEARS.

Coronavirus Timeline Mainland China (12/30/19-1/25/20)

Oil has been pummeled over the past 3 weeks since the spike ($65.40) that occurred January 7, on the assassination of Iranian General Qassem Soleimani. This collapse occurred amid demand concerns, concerns that the coronavirus will put a crimp into Chinese economic growth, slowing continuing Chinese demand growth for oil against a backdrop of worldwide oversupply. West Texas intermediate closed Friday January 24, at $54.20.

“It isn’t China”

Priced for perfection, oil slides on fears coronavirus will hit demand: Kemp

Here are a few more alarming headlines

China coronavirus deaths rise to 17, heightening global alarm

Coronavirus claims 15 more lives in China; first three cases reported in Europe; first case reported in Australia; 2 cases confirmed in U.S.

Bottom line: this is scary stuff, especially if presented in a vacuum … without perspective … and it sells eyeball and attention span, and it may be the trigger for a real correction in an overbought market. Time will tell.

Investors need to operate with facts and perspective!

Here are the facts to the best of my knowledge at 6:00 PM CST, January 26. I will say the exact numbers on population and disease occurrence and mortality are approximations. Directionally they are correct.

World Population — 7,700,000,000

Chinese Population — 1,400,000,000

Wuhan China Population — 11,900,000

United States Population — 328,000,000

Confirmed Chinese cases — over 2700

Confirmed Chineses Deaths — 80

Confirmed cases outside of china — 40

To put a fine point on it these case and death numbers (unfortunate as they might be) are an infinitesimally small number versus world population, Chinese population, US population or Wuhan population.

Remember SARS (Severe Acute Respiratory Syndrome)? “SARS was also a coronavirus. That outbreak killed 774 around the world between 2002 and 2003, and SARS also emerged in a wet market.” (Business Insider provides a good recap of then and now).

SARS Virus in Orange

“Experts called SARS “the first pandemic of the 21st century,” since it spread across 29 countries. The disease hasn’t been seen in humans since July 2003.”

“So far, experts say, concerns that the Wuhan coronavirus is the next SARS are overblown. The two virus’ symptoms and origins may be comparable, but their severity is not.”

In the end the economic impact of SARS was a non-issue. It would appear that the current media frenzy over the recent iteration of a Wuhan coronavirus too may be ‘much ado about nothing.’

Bottom Line

It would seem a bit premature to be assessing the negative economic impact of this potential non-event but it sure does make fetching copy. None the less it could be the trigger for an overdue correction in a really strong secular bull market.

“Keep Calm and Carry On”

What do you think?