WHEN THE U. S. HAS A COUGH THE REST OF THE WORLD CATCHES A COLD – WHAT HAPPENS WHEN CHINA HAS A CORONAVIRUS?

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I had planned to post a blog this week on how to select and purchase individual stocks.  After watching the news this week, I decided to delay that blog and recommend a delay for NEW investors that wish to start for the first time investing in individual stocks.

 

CERTAINTY

Buyers and sellers of stocks like one thing – CERTAINTY.  Certainty allows stock investors to {sometimes} accurately determine the direction of stocks based on facts and data.  When uncertainty enters, all that goes down the drain. The biggest fear – BLACK SWAN  events. {Why is the color black ALWAYS the bad thing!}

 

BLACK SWAN EVENTS

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A black swan financial event is an extremely negative event or occurrence that is almost impossible to predict. This week we learned the coronavirus has begun to spread more significantly than we thought to other countries.  My experience working in China, their facts are often misleading if not downright lies.

 

RECENT BLACK  SWAN EVENTS 

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BLACK {Here we go again!} MONDAY – 1987

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On October 19, 1987, the Dow shed 22% in a single day, ending a five-year bull market. “Experts/Talking Heads” are still in disagreement about what caused the crash.

 

TERRORIST ATTACK WORLD TRADE CENTER – SEPTEMBER 11, 2001

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On the first day of NYSE trading after September 11th, the market fell 684 points, a 7.1% decline, setting a record for the biggest loss in exchange history for one trading day. At the close of trading that Friday, ending a week that saw the biggest losses in NYSE history, the DOW JONES was down almost 1,370 points, representing a loss of over 14%. The S&P 500 INDEX lost 11.6%. An estimated $1.4 trillion in value was lost in those five days of trading.

 

THE TECH BUBBLE CRASH – 2000

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The 1990s were a period of rapid technological development, and the commercialization of the internet caused wild unsustainable valuations of internet-based companies.  Due to human greed, investors poured their HARD-EARNED money on anything with .COM after its name.  Majority of these new companies had zero profits, erratic revenue and idiots managing the firms.

In March 2000, large investment houses began placing sell orders on their tech stocks, causing a panic that led to a 10% drop in the market within a few weeks.  By 2001, the majority of new tech companies – no longer propped up by investor money – disappeared from existence, causing BILLIONS of dollars of investors money to go to zero.

The Lesson Learned: Had investors taken more time to assess the fundamentals, management, moat, and other factors of these companies rather than blindly hoping {NEVER A GOOD STRATEGY) they were investing in the next big thing, much of the pain of the tech bubble bursting could have been avoided.

 

The Housing Market Crash – 2008

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Over the course of 2008, the Dow fell almost 34%, and it wasn’t until early 2009 that it began to climb again.  It was the real estate market that led to this collapse.  Following the collapse of the real estate market, the stock market quickly collapsed.

GLOBAL FINANCIAL IMPACT OF CHINA CORONAVIRUS IS UNKNOW – 2020

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“It is unknown what the short- or long-term impact of this virus will be.”  Or if it is even a black swan event.  “But it does have the potential if the disease starts to rapidly spread across the world.  A pandemic is no longer a scientific tail-risk. It is fast becoming the central risk.”  “The US Defense Department’s Joint Staff has already activated its pandemic plan, ordering all services to brace for “widespread outbreaks” of the virus, according to Military Times.”

 

“The immediate economic concern is how the progress of the disease and efforts to manage it hurt Chinese citizens and companies, which affects the U. S. directly (supply chain disruption, loss of critical supplies, damage to companies that do a lot of business in and with China) and indirectly (the hit to global demand).” 

 

Many Americans are unaware, up to 90% of U. S. prescription drugs are now manufactured in China.  This stupid, money saving decision is placing our citizens health at risk as many Chinese manufacturing plants are closed and the possibility of contamination risk is significantly higher.

 

The US has effectively blocked flights into and out of China which is negatively impacting airlines projected profits. U. S. companies such as Google, Abbott, etc. are canceling global meetings scheduled to be held in the U.S.

If fear in the U. S. spreads many citizens will stop flying and traveling.  All the above will negatively impact, air transportation, hotels, casinos etc. 2020 revenues and profits.

 

If you compare today’s outbreak to China’s 2002-2003 SARS outbreak there are many significant differences  that must be considered. “SARS was easier to contain because China was much poorer than, so Chinese traveled less. SARS high fatality rate (nearly 10%) also likely resulted in citizens taking social distancing measures of their own, in addition to official ones. Experts in China also claim the government was faster to address the contagion then. One result was the successful identification of “supertransmitters,” which was a considerable aid in containment.”

“Economically, China was vastly smaller in global GDP terms. It had just been admitted to the World Trade Organization and  was only beginning to become integrated into global supply chains. And the timing of SARS worked out to be better too. Its major outbreak took place later in the year, as opposed to during a peak travel time. The coronavirus has already surpassed SARS in number of deaths and number of confirmed cases.”

 

“Regions making up two-thirds of Chinese GDP have been closed since late January 2020. It appears that few people have actually returned to work this week…The Guangzhou authorities have ordered plants to remain closed until early March in large parts of the city with warnings of ferocious penalties. Apple supplier Foxconn has yet to restart its core iPhone plants in Zhengzhou and Shenzhen. Just ten percent of its workers have turned up. Caixin reports that Foxconn may wait until March before restarting…..Hyundai, Kia, and Ssangyong have had to shut their car plants in Korea for lack of components. Nissan has closed two assembly lines in Japan.“

Many U. S. companies such as Apple and Amazon are feeling this interruption to their supply chains.

 

CONCLUSION

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CORONAVIRUS is creating uncertainty. Because of this uncertainty, now is not the time for NEW investors to invest in individual company stocks.  I am continuing routine investments into 401K’s and IRA contributions.  I may hold more contributions in cash, until more reliable data is developed and released indicating the worse of this virus is contained and controlled. As I am not smart enough to time the market, I will not pull existing investments into cash.  Because I will have no idea when the best time is to go back into the market.

Now is NOT a time to panic but is a time for caution and reassessment of the fundamentals, management, and other key factors of companies.

REFERENCES

https://www.nakedcapitalism.com/2020/02/more-concerns-about-chinas-coronavirus-economic-and-political-downside.html

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ABOUT ME

 

I am a proud nerd (as my beautiful wife and daughter have told me) investment and finance blogger, with a NC State, Chemical Engineering, University Rutgers, MBA and Harvard University, Advanced Management education.  I left corporate career because I had a desire for making a difference as a speaker and writer, to help others. I was blessed to be coached and mentored by strong women and men in both my family and professional life.  It is my time to serve and give back.

DISCLAIMER

 

I started my first business at ~13 years of age (small but brilliantly created plant nursery). I am a successful investor in stocks, options, real estate and happy to share my personal finance and investment lessons learned with you.  However, I am NOT a licensed financial advisor.  Please do not construe my suggestions on this blog, as recommendations for your personal situation.  For individual finance advice please seek your own licensed CPA or fiduciary financial advisors.  

I write this weekly blog to make an impact by reaching an audience and demonstrating the need for financial literacy. I will help you get there.

 

 

 

 

 

Powers Investments Management, LLC

This blog will provide, information and simple strategies, that will assist you to achieve YOUR financial objectives and long term targets. For over 30 years, I solved multi-million dollar problems, for Fortune 10-250, companies. My formal education includes: Business, Finance and Chemical Engineering {Problem Solving} at: Harvard, Rutgers and North Carolina State. And an additional 30+ years, managing my family’s investment decisions. I currently manage/advise people with net-worths ranging from the tens of thousands to several million dollars.

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