Coronavirus and Stock Markets - Thoughts?

Weā€™ve got a some way to go, itā€™s quite early days and weā€™ve not seen similar infection rates to the Chinese experienceā€¦yet.

Once we get a sense of the true scale of economic disruption beyond Initial profit warnings and notices of missed earnings targets weā€™ll have a little more to go on.

I think the threat of recession is particularly real in economies where the fundamentals already point to slow or decelerating growth without the crisis of an emerging pandemic. Calling out China, ongoing disruption there could lead to profound supply side impacts across the world and will only compound the problem.

The population of china is 1.435 billion and in America its 329 million. We may not see the same impact in different countries around the world.

Healthcare system is also better in the USA and they are forewarned. However, supply chains are global so even if the virus remains contained in the USA, it still may have a major detrimental impact on the US economy.

From Barronā€™s:

The coronavirus has severely disrupted nearly every link in the global supply chain, from raw materials to components to finished goods, which could lead to curtailed production, product shortages, and financial stress across a range of industries. How manufacturing delays ripple through the economy isnā€™t so straightforward, however.

Tech companies, apparel makers, and industrial-equipment manufacturers are likely to be hurt most, given that they are most reliant on inputs from China and Southeast Asia. A prolonged delay in parts procurement not only would threaten corporate earnings, but could imperil companiesā€™ ability to make debt payments.

The healthcare system is worse in America and despite the warnings major government departments have been defunded. The average US citizen can not afford to get tested and go off sick from work due to a lack of healthcare, poor/no sick pay and no savings. If the disease is in the US it will spread faster than anywhere else.

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Emphasis my own.

If supply chains remain disrupted for a prolonged period it could potentially turn into a systemic risk given the very high levels of corporate debt; ~US$9 trillion in the US alone.
That being said I donā€™t think weā€™re anywhere near that yet.

I think the difference compared to past pandemics is the level of interconnectedness and reliance on highly complex supply chains upon which the global economy now relies. Iā€™m confident that supply chains are however able to adapt.

From a political risk perspective it just feels like this could be used to further the decoupling agenda that is taking root around the globe.

Good discussion about the importance of company fundamentals.

The value of doing research. We gotta invest time to do your bottom-up and top-down research.

Highly recommend to learn to calculate a companyā€™s debt versus its readily available funds. Donā€™t invest in companies with lots of debt (think capital intensive industries like mining, oil and gas) unless you know what youā€™re doing. Donā€™t invest in companies that financed acquisitions with lots of debt unless you know what youā€™re doing.

Hereā€™s an example of a company with large debt:

Also:

If youā€™re day trading and donā€™t care about fundamentals, good luck - you might get run over (I have - it was fun):

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For those who are wondering why there was a Gold sell-off on Friday and what the future will likely bring, excellent summary:

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Soā€¦ if those margin calls are not coveredā€¦ we may go deeper, right!?..

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A good detailed article for the next coming week for the stock market.

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Absolutely, there is a very real risk of this.

Some analysis about buying the dip in the FT

TLDR not yet!

Waiting for a receding tide to turn

Also buying the coronavirus dip would be bold

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It really isnā€™t.

The problems in the context of Covid-19 are:

  1. People avoid seeing the doctor even when sick because theyā€™re worried about the cost. This increases potential spread.
  2. When they do see the doctor, they have to meet strict conditions to be tested for Covid-19 by the CDC. Even if their doctors think they have it, CDC wonā€™t test if any conditions are missing. Can mean infected arenā€™t treated effectively, or are released back out to continue spreading.
  3. Trump has appointed Mike Pence to spearhead the US governmentā€™s response to Covid-19. You just have to look at his track record with HIV to see how badly qualified he is.

While individual doctors and hospitals may be very good and deliver excellent care on many levels, that doesnā€™t change the fact that as it stands, the US healthcare system is already badly compromised in terms of responding to Covid-19.

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Futures ticking up. FTSE 100 looking to gap up 2% :rocket:. Nice for those who bought last Friday! Corona virus priced-in or perhaps a coordinated central bank intervention? It wonā€™t be an easy rally as VIX is still elevated at 40+. For stability it needs to decay towards 20 or lower.

FTSE jumping over 2.5% already, we reckon this is going to be a pop and drop?

Or is there going to be a V shape recovery now the central banks look to be stepping in?

Only thing Iā€™m thinking is they can pump in all the money they want, it still doesnt ā€œcureā€ the virus :thinking:

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There was a green day last week, and look what happened afterwards. This is optimism on central bank action, but itā€™s not the bottom of the drop just yet in my opinion.

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Not going to lieā€¦I saw the 2% rise and bottled it! Bought the UK stocks of been keeping my eye on. Probably jumped the gun, but I hadnā€™t bought the dip at all and didnā€™t want to miss it. Will probably go again next week.

I donā€™t think itā€™s bottomed yet. However I donā€™t really mind if I miss buying the dip because Iā€™m wrong about that.

I think itā€™s better to miss it than to buy too early and then see another huge drop

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I dropped in an extra bit this morning aswell Benjamin. My thinking is if this is the start of the reversal Iā€™ve still captured a nice wee 10-12% discount.

Iā€™ve got a spare bit of cash Iā€™m just going to spread over the next fortnight and buy either on the way up, or on the way down should the markets reverse again.

That way I feel like Iā€™m hedged in both scenarios. Iā€™m investing for the next 20/30 years easily into the indexes so Iā€™m sure being wrong a couple of % on a dip wonā€™t be the end of the world :smile:

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I was surprised to see the markets up quite so much this morning as I donā€™t see this as the bottom of the dip. Iā€™ve not started buying yet and actually used this morning as an opportunity to sell a few things to increase cash on hand.

Still sitting approx 85% cash, waiting for my first round of buys - hope (for my sake) that Iā€™m correct.

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