02-27-2020, 02:09 PM
(02-27-2020, 01:58 PM)Otter Wrote: Still not buying anything, dividends to cash, and watching my puts.
I am concerned that, if analogizing to prior downturn charts, we are closer to the Q1/Q2 2008 initial dip than the March 2009 lows.
Pandemic all but certain at this point. Highly infectious virus (R0 values as high as 6 estimated by a recent Los Alamos National Laboratory study funded by DARPA). Unchecked spread in South Korea and Italy, Germany's health minister saying an epidemic there is underway. Evidence of community spread in the U.S. (California case announced yesterday went untested for 1 week after being hospitalized, is on a ventilator, and patient had no known travel history or ties to other infected persons). With epidemiologists estimating 60-80% of global population becoming infected in a pandemic scenario (now highly likely), 15-20% of all infected developing pneumonia, 3-5% requiring ICU care, and ~2% mortality rate, those statistics don't augur well for global economic performance (it's around 100,000,000 dead globally, and so many people needing hospital/ICU care that most countries' health services will be overwhelmed).
By the infection numbers, South Korea and Italy are where China's Hubei province was in early/mid January, before things got really bad there and the Chinese government quarantined over 700 million people. Iran's reported death numbers are so high, and so many infected travelers have been detected after leaving Iran, that unless they just happen to have a far deadlier strain of the virus, it is likely that they have thousands (if not tens of thousands) of unreported infections.
I just can't see buying into this market at these levels. This is not your typical business-cycle downturn, but a serious external risk that was not accounted for well in advance by business. Current revenue/earnings warnings and suspension of guidance are probably just the tip of the iceberg. Economic models don't have a good past event to use as a baseline. The pathogenic characteristics of prior outbreaks (MERS, Ebola, H1N1, SARS) were markedly different. SARS and MERS are far deadlier than the new SARS-CoV-2 virus, but are far less contagious, and those outbreaks have been easy to contain and did not pose a serious risk of global pandemic (SARS killed a grand total of 774 people). H1N1 (Swine Flu), while somewhat contagious (R0 value of 1.4-1.6, so less than even the lowest estimates for SARS-CoV-2), was only marginally more deadly than seasonal influenza. Mortality rate of SARS-CoV-2 is estimated 10x-20x higher than seasonal influenza, per epidemiologists (who have accounted for the fact that a substantial number of mild cases have likely not been detected). Ebola was a non-event outside of Africa, and it is fairly straightforward to put controls in place to stop the spread (it is transmitted almost exclusively through infected bodily fluids, and not via aerosolized transmission like SARS-CoV-2).
If you think the market has been panicky since Friday, imagine what it will be like if millions suddenly have pneumonia and require ICU-level care, in a country that has a grand total of ~930,000 hospital beds and 20,000 ICU beds. Nowhere close to that number of beds is actually available on any given day, and patients with COVID19 infections have to be isolated from all other patients in a facility, otherwise the other patients get infected. Italy had this problem with a case going undetected in a Hospital, spreading the infection to numerous other patients and healthcare providers, and that is how they initially detected the outbreak there. There is no vaccine, and there won't be one, at the earliest, for roughly a year. Some early attempts at a SARS vaccine ran into huge problems, as the trial vaccines caused test animals' immune systems to overreact, killing them. There is still no SARS vaccine for that coronavirus 17 years later, despite a fair amount of effort. Humans have no inbuilt immunity to this new infection, as they do to seasonal influenza (mortality rate of 0.1%).
I'm content to sit on the sidelines and see how this plays out. If I am wrong, I can close out my put options and put dividends/cash back to work in the market. If I'm right, I think a 2008-2009 scenario is not out of the question. The objective indicators should be pretty clear in the coming weeks. It's not like I'm statistically likely to miss out on a sudden doubling of the market from close to all-time-highs in the same time period.
I agree with your thoughts, I think this is the start of a fairly big correction.
The worldwide economy is going to slow significantly for at least the first half of the year. Auto stocks, airlines, travel companies, oil & gas, and others are going to be impacted bigly.
I keep seeing people buying Ford, but I think it's in a world of hurt in the coming weeks/months.