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Virus Economics: When Markets Feel Poorly

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by John Brian Shannon

Fearing that the Coronavirus pandemic might affect their investments, perception became reality for investors in the world’s stock exchanges as markets see their biggest drop in recent years.


‘Money flees uncertainty’ – You’ve heard it before or read it in print

It vaporizes during civil unrest, it dissipates into thin air when politics goes awry such as when a national leader faces a coup d’é·tat, and it leaves without saying goodbye during natural disasters. In short, the thing we call “money” isn’t our friend at all, in fact, “money” (by which, I mean ‘investment’) is the most fair-weather friend we could have.

And that’s a good thing!

(I hear what you’re thinking, “Is Gordon Gekko writing this post? You know, the whole, “Greed is good,” thing and all that?) Hehehe.

No, Gordon Gekko from the movie Wall Street isn’t writing this post, I’m merely remarking upon what’s patently obvious in the global marketplace — that the de facto rule is that individual and institutional investors prefer stable and profitable companies and countries to unstable and less profitable companies and countries. Of course.

What it means on the ground is that organizations that prepare in advance for the ‘bad times’ are seen as more stable, and therefore a better long-term investment, and that’s where the money flees to during challenging economic times.

Which is why some countries have a AAA+ credit rating and others don’t. It’s why some companies have triple A credit and others don’t. It’s why some countries need IMF loans and others don’t.


Stayin’ Alive, Yeah!

Being prepared, means staying alive, even while your competitors are dying all around you. (Not literally dying; But that’s the kind of talk you hear on trading floors during the so-called ‘bad times’)

I say ‘bad times’ because, for prepared countries (and companies) there really are no ‘bad times’.

Prepared organizations sail right through recessions, depressions, war, civil unrest, natural disasters and more — precisely because they’re well managed and well-equipped to weather any sort of storm, whether it be political, economic, or even natural disasters that can strike without warning.

Any CFO knows that recessions occur every 25-years. They know their factory (or whatever) is located in a floodplain, or in an active earthquake zone, etc., therefore, long in advance of any of those events occurring, they create a ‘rainy day fund’ to carry the company through a catastrophic period with surprisingly little upset.

The reward for this kind of long-term thinking is that when disaster finally strikes (and it surely will, it’s just a question of when) your organization will carry-on with ‘business as usual’ even as your competitors are dying in the market. It’s called ‘building resiliency’ into your company (or country) and it’s a fine thing.

And that’s the time that your company can go ’round and snap those companies up for ten cents on the dollar. ‘Picking their bones’ as we used to say in the halcyon days of Carl Icahn, investor, corporate raider… and strangely enough… philanthropist. Cool, huh?

Anyway, ‘Fortune favours the prepared’ said Louis Pasteur, and he was right.

So it follows then, that countries that aren’t prepared for Coronavirus version 2019 (called COVID-19 now that it’s been officially named) aren’t going to sail through it unaffected.

Rather, it’s easy to see even at this early stage which countries have engaged in long-term thinking, and have long ago upgraded their medical capacities to handle pandemics such as COVID-19, and although some cases showed up on their healthcare systems they had the ability and the capacity to deal with those cases with immediacy.

And if there’s one thing that pandemic-type viruses hate, it’s timely diagnosis, speedy quarantine and effective treatment.

Consequently, those prepared economies will see little economic impact from COVID-19 or any subsequent mutation of the COVID-19 virus which is likely to be called COVID-20 if it occurs in 2020. And there’s always, always, a mutation eventually, however it’s almost impossible to predict when that mutation will occur. At that time, the treatment for COVID-19 won’t work on COVID-20 (or whatever that mutation gets named) or if it does work, it’s likely to be less than 50% effective. Just sayin’.

Again, those governments that believe in long-term thinking and have prepared in advance of the latest Coronavirus pandemic have already inoculated their economies against the worst of the problem, although they could still (secondarily) be affected by other countries whose economies may now suffer on account of not being prepared.

Therefore, it was the perception of investors who have themselves created the entire ‘Black Monday’ market devaluation by pulling their investments from the stock market. But if there are more countries that are prepared for and respond well to the Coronavirus threat, then today’s market recalibration will turn out to be nothing more than a blip on the year-end 2020 annual report.

But if it turns out that a majority of countries aren’t properly prepared to handle this Coronavirus pandemic then this market slide could last a long time and worsen as thousands more become infected.

And then what happens around November or December 2020 if a new, mutated COVID virus appears?

Just as the markets get back to normal, suddenly a newer and more virulent version of this virus begins to run through the world’s healthcare systems… will they be ready then? Let’s hope so.


More Pandemics are On the Way. So, Let’s be Ready Next Time!

One thing’s for certain. In this increasingly interconnected world, there will be more pandemics and perhaps much more deadly and with a more rapid onset than the COVID-19 virus.

In such an instance, only the countries blessed with leaders who aren’t afraid to make the big decisions (like closing their airports and even their land borders and seaports for 2-weeks to prevent millions more infections from occurring) will survive the next viral onslaught.

In the case of the COVID-19 virus (so far) it looks like the major economies have dodged a bullet, because it turns out that it isn’t the strongest virus, as it’s only able to kill the elderly and the infirm. However, future pandemics may not be as mild as this particular Coronavirus.

We need to get ready. We have so far failed this drill, but Western healthcare systems are quickly ramping-up to meet the present threat. Until governments begin to provide permanent ongoing funding to healthcare providers to help them get more efficient at capturing such viral threats, isolating those who are contagious, and effectively treating those who’ve been exposed to such contagions, we’re living on borrowed time.

Let us thank the medical professionals on the front lines diagnosing, isolating, and treating those people who’ve had exposure to the virus, and thank them for doing much in a short time, with only tepid support (at first) from Western governments. Bravo!


Bonus Graphic

Markets see their biggest drop in recent years as fears of the COVID-19 virus spreads.

Markets see their biggest drop in recent years as fear of the COVID-19 virus spreads.


 


5 Comments

  1. Tim Walker says:

    In regards to the year 2020, I was looking at articles regarding Marburg virus, and Ebola.

    Marburg virus has been discovered in bats in west Africa. (How do you quarantine bats?)

    Efforts to eradicate Ebola may falter due to money running out.

    It has occurred to me that we could have several different pandemics at the same time. Imagine overlapping pandemics of coronavirus, ebola, Marburg…the flue….

  2. Tim Walker says:

    With the travel ban, Donal Trump has-in effect-sought to quarantine continental Europe.

    On the local level, here in Seattle, gatherings of more than 250 people have been banned.

    Schools will be closed for the next 2-6 weeks.

    As for sports, teams will be playing in stadiums empty of fans.

    Coronavirus has infected a nursing home, so family members end up peering through windows at their loved ones within.

    Will coronavirus kill the cruise ship business? The first two voyages of the season have been canceled.

    One bit of good news-there is a vaccine in the works here.

  3. Hi Tim,

    Having been in various war zones in my life, I can tell you that it sometimes occurs that there are multiple epidemics happening at the same time, although these are usually localized and there isn’t too much crossover. But it does happen.

    With today’s highly interconnected world, I could well imagine a Zika virus epidemic, a Coronavirus epidemic and (God forbid) another Spanish influenza pandemic all occurring at once, and in several different countries.

    Even more terrifying is that these viruses continue to randomly mutate, which over time means that treatments can become much less effective.

    We are lucky to live in the Western world where (although governments are sometimes very slow to react at first) healthcare systems are highly developed and always win the contagion war, in the end.

    Let us hope that is ever the case.

    Best regards, JBS

  4. Hi Tim,

    I see that the head of the WTO is now referring to the EU as ‘the epicentre of the Coronavirus pandemic’ as there are now more cases in the EU, than in the rest of the world combined.

    That is because the EU was abysmally slow to respond to the Coronavirus threat.

    It’s typical of the EU to require 8-year’s worth of committees and subcommittees in order to get a single thing done, Meanwhile, whatever they were subcommitteeing about, no longer matters.

    Thank goodness for China’s quick response, for Trump’s quick response, and for Canada and the UK’s medium-quick response — although, all of those responses should’ve been even quicker.

    With a mortality rate of only about 2% this Coronavirus isn’t that big a monster.

    However, once it mutates in a few months or years, it may return with a 18% mortality rate (for example) and at that time, our present leisurely response would result in thousands or even millions of deaths.

    The governments and healthcare systems better be far better prepared next time, just in case the next virus wave has a higher mortality ratio.

    As always, very best regards, JBS

  5. Tim Walker says:

    Couple of quick comments:

    I have been looking at coronavirus threads at city-data.com. Just found out that the Canadian government will be banning non-essential travel across the U.S.-Canadian border.

    Earlier this week in Seattle volunteers were inoculated with an experimental vaccine.

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