Wednesday 26 February 2020

Corona virus finally breaks through

Market performance chart

So the Corona virus has hit the World stock the markets as the bears have exepcted it too for a while.

I have been travelling a lot of late (hence no posts - thanks Nick Drew!) and my twitter and other feeds have long been full of doom-saying Hedge fund managers who have bet bit against the world markets and gone long gold.

They have been rewarded at last with the spread of Corona Virus. Actually, sad as it is the economic hit is already much worse than people realise. China, a huge chunk of the physical global economy in its hands now and much of this has shut down. Electricty demand in China is down by 2%  - but this is a big chunk of the industrial output. This will affect supply chains aroudn the world and of course the oil price as demand sinks for energy.

We can only hope that the virus is controlled by the heavy handed approach of the Communist party. other Countries seem less concerned, the Iranian health minister was interviewed on live TV yesterday whilst sick with the virus.

Even, with control, it seems the Virus will push the world into the recession that has been in the works for a long time. Perhaps by bringing it on early it will be less steep than expected, perhaps too a recession will concentrate the minds of the EU and UK on reality of the need for a deal on trade rather than the current round of grandstanding.


hovis said...

Genuine question - you believe the recession is early CU?

jim said...

At some point governments are going to lose control of CV. They will have to let it rip. Their problem is making the transition from 'woo woo this is highly dangerous', to 'relax, its just flue, spend 3 days in bed'.

This disease looks likely to kill off the same people normal flu kills off every year, so it will be surprising if the overall death rate goes up all that much.

A bit of expectation management is what is needed, otherwise the woo will endanger far more people.

E-K said...

So which of the Unslickers bought gold ?

CityUnslicker said...

Hovis - it is hard to say what is early in the mess of an economy we have gloablly with QE and China printing as mch as it can without a care in the world. Who knows what is real or what the real business cycle is?

E-K - no spare cash for me and as usual am heavily invested in moonshots that always take the worst pasting in a stock market fall!

Jim - I find it interesting how much of a global scare this is causing, becuase as you say, it seems pretty ordinary for a bad flu.

Anonymous said...

CU, depends by what you mean by a bad flu. The current mortality rate appears to be similar to that of the 1918 Spanish flu which killed an estimated 40-50 million people worldwide.
Obviously not a large number as a percentage of the world population but not great if you're in your seventies or eighties as the oldest seem most at risk of death.
The transition from scary disease to 'don't worry' will happen according to infection rates, the goal is to defer peak infection until the summer months when the NHS can best cope, but not do too good a job as to defer it until the following winter.

Raedwald said...

The numbers are critical in risk management as far as I can see

1. Transmissability - R0.
Estimates are that Covid-19 has a R0 of 2.3 or greater, which is very infectious. It seems to spread in 3 ways
a - from surfaces or organic contact (e.g. public transport grab rails)
b - In large droplets from coughing, sneezing or spittle
c - airborne, humidity dependent

a and b can be mitigated by behaviour modification
c is the Spring tail-off; Covid, like influenza, seems to like cold air that holds little water vapour. Warm air with higher vapour content inhibits it - hence seasonality.

FFP2 and FFP3 masks are effective against b but not c.

The R0 for pandemic flu means about 40% of people can get away with not contacting it. For Covid, this may be reduced - I've seen estimates for 80% of the population being infected, only 20% escaping.

No doubt someone is turning this into a financial algorhythm, but it doesn't bode well.

On gold, yep, those that bought specie in 2015 will be OK - but just wait for all those who put their money into gold funds to ask for their actual gold. There are strong suspicions that much of it doesn't actually exist.

Matt said...

So, roll the dice time. Sell out like the rest of the sheep (potentially crystallising losses on a rise) or push through and hope it blows over?

jim said...

Buy while the cannons roar, and hope you live.