The markets today are acting like: “What coronavirus?” as the major indices bounce about 1%.
Oh, and then there’s Tesla TSLA TESLA(!) up another [checks screen, rubs eyes, doubles checks screen] 20% today and up more than 250% from where we loading up on it as my favorite pick just nine months ago.
But let’s focus on coronavirus, especially since the market isn’t focusing on it today.
First of all, every night for the past week or so, my daughter Lyncoln has been praying for everybody affected by this terrible epidemic and so do I.
But my job is analyze the economy and the markets and to try to invest accordingly, so let’s the economic and potential market ramifications of this disease’s break out.
There’s been a few hundred people who have been confirmed to have died from the Wuhan coronavirus. There are about 20,000 confirmed cases. Since it seems some people might have or have had coronavirus but haven’t gotten terribly sick with symptoms, there are probably what, maybe 10x or more, as many cases as the confirmed number? Which means that this disease is probably not very deadly as of now. But it also means that there are more people contracting coronavirus everyday by a larger factor than reported and that it’s probably getting worse right now.
So I’m not sure I’m ready to panic about the global health implications from the Wuhan coronavirus just yet. But neither would I say it’s nothing we should worry about.
It’s the economic ramifications that we should definitely should worry about. Because right or wrong, all the economic losses of travel, spending, meetings that comes from all the China-related economic activity that’s ground to a halt are real.
The markets usually try to look past near-term disruptions, but I’m not sure it will this time in part because we don’t know how long these near-term disruptions from the lockdown in and out of China will last. But more to the point, China’s not in a strong economic and political positioning to handle even a short-term economic downturn if it’s sharp enough. Moreover, all those global companies, especially US-based, that have been trying to figure out new supply chain alternatives to buying from China, have more motivation than ever to get their supply chains moved. This isn’t the first and it probably won’t be the last time that the world has to deal with new, scary diseases that were borne out of China. And it’s not a terribly bad business decision to try to avoid the next one by having alternative supply chains in as many ways as possible.
Is it possible that, regardless of the long-term economic impact from the Wuhan coronavirus, the current communist regime in China under Xi becomes liable for turnover? People in China and outside of China are angry at the regime there for not having done something earlier to stop these live/dead exotic animal markets where these diseases are developing. People in China are angry and are not accustomed to being widely discriminated in the way they probably are the world over right now as people fear interacting with Chinese-speakers even in the melting pot subways of NYC.
These are real political and economic potential Black Swans from this Wuhan coronavirus combined with the US-China Trade War and the economic slowdown in the EU.
The question for us as investors is whether or not the markets will look past all of this. Or if the increased risks of a global pandemic, a China recession and political change at the top of the world’s second largest economy are real enough to impact asset prices.
I continue to prefer caution over aggression right now. I’ve raised cash, added hedges and cut some positions in the past couple weeks.
On that note, I am going to move on from First Solar here by selling all of it. The more work I do on the sector, the more I want to own SEDG and none of the other names. I’d love to find another good solar name or two at a fair price to add to the portfolio, but I don’t think First Solar is it and I want to raise more cash.
This way I am ready for either more rally with room to trim more or I am ready for a pullback with room to nibble more and cover some hedges. It’s not like I think the US itself is about to turn into a recession or that the markets are headed for a crash (two things that don’t always happen at the same time, of course). But it’s like last year when I was looking at TSLA at $230 or QCOM at $55 or TSM at $30 etc, and I was pounding the table on those and other names to buy.
Last week, as everybody was highfiving me in the chat room, I’d noted:
“One of the many lessons I’ve learned over the years that I’ve been writing about my trades in public is that whenever people are congratulating me on all our success, it’s often a good time to take some profits. On the other hand, you’ll see me get wildly bullish whenever people are mad at my picks! LOL but not LOL.”
If you haven’t trimmed or hedged or raised much cash yet, you still have a chance. It’s always better to sell when you can and not when you have to.
I’m headed to NYC tonight. I’ll be on Fox Business around 2pm ET on Wednesday. I’ll be back in the office Friday morning and let’s do this week’s Live Q&A Chat then.
Until then, Stop. And then to the moon! (See pic.)
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