The Coronavirus – Is the Panic Justified?

Scary pictures like this adds to the panic (WDBJ7)

This is not the kind of thing I talk about here. But it is on my mind a lot - as I’m sure it is on just about everyone else’s. And it affects us just as much as it does everyone else. So here goes.

It’s really amazing what kind of damage the microscopic little virus known as Coronavirus can do. Not so much to our health. But to the health of the American – and even the world economy. Unless you are living under rock somewhere on Mars - this virus has been the major story of the week.

With respect to our health, the biggest problem is that this virus is very contagious and spreads very quickly. People that get it do not have any symptoms at first - for as much as a week (if I understand correctly). Nevertheless they are still contagious - making it virtually impossible to know how and from whom they got it - as well as not knowing who and how many people they spread it to. Adding to the anxiety is how quickly and widely it spread outside of its original source in China. Some people have died from it. The scare of a worldwide pandemic is real. As one official at the CDC said, it’s not a question of ‘if’. It’s a question of ‘when’ it will arrive here in large numbers.

On the plus side, this virus seems to be not much worse than the flu. The health of most people that have gotten it has been restored after their virus ran it’s course. The relatively few that have died were mostly people whose health was already compromised via another illness or advanced age. And although one CDC official predicted the inevitability of it happening here - another CDC official says that it hasn’t happened in any significant number and there is no need to panic, or change our behavior.  The US government has done a pretty good job of containing the situation here, so far.

The bigger problem in my view is economic. The Coronavirus has affected worldwide commerce. A lot of foreign markets have all but disappeared. People there are staying home and not buying or selling anything.  Goods manufactured in China and other countries affected by the virus are practically at a standstill. Which means that corporate profits will be negatively affected. This has panicked investors and the stock market has been in virtual free-fall for about a week!

Those of us that have investments in the stock market have taken a serious hit over this time. The most seriously affected are the elderly that rely on investment income from financial instruments like a 401K or an IRA - are really hurting.

This may be one of the scariest events to hit the world economy in my lifetime...perhaps even since  the stock market crash of 1929. I believe it has already surpassed the 2008 market crash that set off a recession.  A lot of records have been broken. In negative ways.

I could easily be wrong, but my gut feeling is that this too shall pass. And the free-fall the stock market is going through now will eventually be reversed. In this case too, it’s not a question of ‘if’ but a question of ‘when’. That’s because the fundamentals of the economy have not changed. There are no underlying financial issues hurting the market now like there was back in 2008 and 1929. The downturn is entirely generated by panic. Once the panic subsides, there will be a lot of bargain hunters buying stocks in quality companies at well undervalued prices. Even though  (as mentioned) the bottom line of those companies will have been hurt, they will recover.

Another casualty of this virus may be the President - depending on when the economy will recover.  His major achievement is the unprecedented economy he has presided over. Until about a week ago, the stock market was reaching record highs every day. Like a speeding bullet. 

Unemployment was a record low levels - even for minorities. And consumer confidence was higher than ever.  The Democratic party in disarray - with the reasonable possibility that a Socialist would be Trump’s opponent. Meanwhile Trump’s approval rating  was the highest it’s been since he took office. He was therefore likely a shoe-in to win re-election in November. It is a well known truism that people vote their pocket books.  

If the economy does not improve, that truism will not change. People will vote out the person presiding over the downturn for the same reason. Even though it won’t be his fault. That is just the nature of things. 

If that means that Bernie Sanders will be the next President, that will make what’s happening in the stock market now look like child’s play.  And the US will get the revolution that Sanders has been promising. 

Who knows? …we may end up having the same literacy rate as another Socialist country:  Cuba. Along with all the other great things they have.

If things don't improve by November,  I hope that those people who might react by blaming the President and voting him out - realize that the alternative will hurt the pocketbooks a lot more that the current President. And not elect a Socialist to fix the problem.  Because he surely won’t.