Last summer when we were making larger shifts in your portfolio allocation, we explained that we wanted more US stocks vs international. Our reasoning was that, when we get a cold, the rest of the world gets the flu. Fast forward from last July – I never thought the whole world would get the flu, but here we are.
By now, I’m sure you’ve heard of the Corona virus, and that the people most affected by it are the young, the sick and the old. And, it seems that the areas where it’s hardest to contain the virus are third-world countries where medical response is lacking. Just turn on the news.The question on everyone’s mind is, is this the black swan that throws the US into the next recession? I have no clue. But I can tell you that the volatility of the last few days is happening because Wall Street hates uncertainty. So far, the Corona virus has proven that it can’t be put in a box, despite the government trying to do just that. So, it has spread. Cue the Zombie Apocalypse.
Will everyone run for the hills? Will baseball be cancelled? Will Disneyland shut down? If this outbreak comes to that – basically preventing people from congregating anywhere, for any reason – then yes, we’ll have issues. This is a consumer-driven society, and we need people to spend money on dining out, travel and leisure, and consumer goods and services. But, while you’re quarantined in your house waiting this out, there will still be Amazon, Google, Facebook, and Netflix, right? Plus, isn’t the world moving toward a time when everyone works from home? Maybe this will push that trend along faster. You never know. Maybe the world isn’t ending – it’s just changing.
But, on the other hand, if the Corona virus plays out like the SARS and H1N1 scares before and it’s controlled, then this is not a black swan. It’s another media freak-out, no different than everyone running out to buy bread and milk each time it snows, unfortunately with a loss of life for some.
For those of you who’ve come in for quarterly meetings during the last six months, we have completed a Chinese fire drill for your portfolios, and some of you have decided to reduce your equity exposure and market risk. That’s fine.
Others of you have said, hey, I’m funding my work retirement plan and won’t need that money for many years. This may prove to be yet another buying opportunity for you to invest at a better price than you could have gotten last Wednesday.
I’m sure some of you are also thinking, what if this is drawn out and lasts for months? That’s a valid concern, and I won’t try to refute that possibility. But, I do think the brains in the stock market will be able to figure this out and price it into the market. As the world wraps itself around what this virus is and creates systems and processes to truly manage and contain it, or even find a vaccine, it’s my belief that the markets will become forward-looking again towards better days, not the end of mankind.
Will there be investing and supply chain issues from a China shutdown? Yes. Foreign travel bans will create quarterly earnings hiccups. Will we miss things here that we usually get from China? Absolutely. However, I want you to know that we are being attentive to this situation, and we are always here to answer your questions and have a conversation about the current goings-on. Just give us a call. We are taking this seriously, and looking for any buying opportunities that may arise.
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