Putting things into context

Feb 04, 2020 | Jeremy Goldfarb


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There is no doubting the mass panic that the Wuhan Coronavirus is generating globally. I heard on CNBC this morning, discussion about US level preparedness for a pandemic arriving on its shores. I am not here to argue the merits of the panic or otherwise.After all, humans naturally fear the unknown, and for most of us common, non-medical folk, the epidemiology of viruses is unknown to us.

 

What I am here to do is 2 things:

1- offer a little bit of context with respect to the outbreak

2- discuss the economic impacts of the outbreak regardless of context

 

context

The flu (yes, the regular flu -- get your annual shot) is a notorious killer. It is estimated by the CDC that the flu kills an average of 56,000 people a year in the US. It's a tough number to isolate as many cases go unreported, however the impact is undeniable. In 2018, the flu killed a whopping 80,000 people! Similar to Wuhan CV, the flu preys on less robust immune systems and that is where the problems happen.

 

Economic Impact

Fewer flights in and out of China. Locked down cities. Reduced business activity. International brands shutting down operations temporarily in China.

 

All of this will lead to reduced global economic activity and the extent to which these disruptions impact the economy will only be known once the virus is contained. The short answer to this is: there will be economic impact, and it will not be good. Any long term threat that I can come up with, would be the drop in activity putting the economy into "stall speed", which in turn leads to a mini-recession. Bad news has a tendency to snowball.

 

So there you have it, and now we wait. As investors though, you should still have an eye towards your overall return objectives and time horizon. If you plan to use your invested funds at any point in the immediate future, these consideration are real for you. Longer term.....less so.