<b>World wide panic. Effect on our stocks?

World wide panic. Effect on our stocks?

My daughter is in Beijing. She has sent videos of empty streets. Almost no pedestrians (everyone is sitting in their apartments, cowering), few cars on the road, universities closed although the holiday is over, stores closed, restaurants closed, apartment complexes barricaded with security guards and signs saying that “No one who has been outside the City will be allowed back in to the apartment complex.” (I kid you not! Lots of signs like that). People call out for deliveries of food but the delivery guy has to stay at the barricade and people have to go down to the barricade to get their order. In other words Beijing is shut down. I imagine much of China is like that. Chinese tourists are barred from most countries. International commerce around China must be hugely down. We have a worldwide and national maximum health alert. You can’t find facemasks in pharmacies in the US, although there are only six well-contained cases in the entire US, and zero in NY City, where they are also out of facemasks. This is a maximum panic!

Which companies will that effect and how will it affect our stocks? Especially if, (or when), it spreads. Remember, however, that this will all be temporary (six months maximum, I would think, for a viral outbreak like this).

Tourism will be way down. Hotels that cater to Chinese tourists (there are a lot of them) will see huge drop-offs in revenue, but hotels in general will be down, as well as all kinds of tourism. Decreased travel in general will also mean hotels will be down. Entertainment involving large gatherings of people will be down (concerts, athletic events, etc). Restaurants will see a drop-off as well. Airlines ditto. More home delivery will probably be good for Amazon, but retail in general will probably see a fall-off in revenue.

Our companies: Square might be hurt temporarily if farmers markets are closed or less attended, and retail in general down. Trade Desk might or might not be hurt by a slowing of retail (maybe why it was up so little this month compared to the rest of our stocks). Trade Desk is also trying to expand into China and that will come to a temporary halt.

I can’t see much, or even any, effect on Alteryx, Crowd, Datadog, Okta. Coupa might see new customers lag and anything based on total volume of underlying sales may decrease. Zoom may zoom, actually see a considerable benefit, as companies will prefer remote conferencing with no need for travel, and especially with no chance for contagion.

THIS NEXT PART IS OFF-TOPIC, SO PLEASE DON’T RESPOND TO IT ON THE BOARD. If you have something you just have to say, send me an off-board response.

How crazy is this panic? Well, 12,000 cases worldwide and 250+ deaths, comes out to a 2% death rate, and largely in people whose health was already compromised. The death rate may be less than that as there are apparently mild cases that don’t even get to a doctor. Spain’s first case reported this morning from the Canary Islands involves a German tourist who wasn’t even sick but just tested positive for coronavirus. This isn’t the Black Death folks, or Small Pox, or Ebola (which has a 50% to 90% death rate), or even measles which is much more contagious than any of them.

To put it in perspective, there are six cases of coronavirus in the U.S. and no deaths, and yet we have a maximum health alert. There were articles in the NY Times and Washington Post comparing coronavirus to Influenza, which in the last four months (the flu season so far), has infected in the range of 20 million people in the U.S. and killed in the range of 20 thousand people. Yes, you read that right, KILLED!

In the particularly severe 2017 flu season, there were 61,000 deaths in the U.S. from flu!!! Yes, 61,000!!! All these figures are U.S. alone. And it hardly gets a mention in the news, and nobody goes out and hoards masks, and no one worries about traveling, and lots of people don’t bother getting their flu shots. Granted, the death rate per infection is a lot lower than the 2% from coronavirus, but 61,000 deaths in the U.S. in a year is a lot to ignore and not get a flu shot.

Just compare that 61,000 deaths from flu in the U.S. with no outcry at all, with less than 300 coronavirus deaths in China (diluted into one billion, four hundred thousand people, four times the U.S. population), and you have to wonder whether the world is going crazy, or whether panic just spreads.

Best,

Saul

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How crazy is this panic?

I am an experienced emergency physician. Yes, as the relative numbers you provided illustrate, it’s an irrational completely overblown hysteria - similar to the ebola panic.

From an investing standpoint, it’s a buying opportunity for certain stocks.

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Unfortunately, we live in an age where the number of clicks an article gets determines how much money the author will make. It is much more lucrative to scare people with headlines that frighten them into clicking on articles than to give them boring facts. Flu=boring, it’s been around forever. New Virus= scary and unpredictable=more money.

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I asked for no on-board responses on this part of the post. We’ve had three so far. Any more will be deleted. On the other hand, posts on the effect on our stocks will be welcomed.
Saul

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Companies with manufacturing in China are also likely to be impacted e.g. Apple. (I think Apple already called this out.)

Similarly, retailers such as Amazon which sell many items made in China may also see some impact, (although probably not enough to affect their bottom line to any large degree.)

If this situation persists for months (which seems likely), then there may be some surprising impacts, given the sheer volume of goods now made in China.

(A friend works for a publishing company in London and they will be severely affected because many of their books are produced in China, usually to tight deadlines.)

Alex

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Saul asks: Which companies will that effect and how will it affect our stocks? Especially if, (or when), it spreads.

We’ve seen the “supply chains are shut down” and “whole cities, millions of people, are quarantined” articles.
Saul mentions that delivery PERSONS are stopped at barricades.

So, first: supply chains composed of automated processes, robot workers will be less affected?
Coming out of this, as supply chains are rebuilt… will more automated, robot manned chains be implemented?

One of the obvious problems (and noted in past crises) is that of supply chains restricted to the demographic areas with cheap labor. Will more automation and robots allow supply chains to move “back” to more expensive and more diverse locations?

Second: movement of humans: Delivery services via drone/robot? Would they be permitted passed the barricades?

What’s happening with Chinese stocks?
The three Chinese stocks that I surveyed (Alibaba, Baozun, Tencent) are “only” down 10% in the last month (last two weeks?).
Luckin Coffee is down 30% in the last two weeks.

Saul mentions ZM and more “work” via video/tele conference. That would seem a “given”, but will it benefit Zoom more than the incumbents? I found lots of mentions of conferencing, but no mention of the specific platforms being used.

Hmmm…?
:thinking:
ralph

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Here’s a tidbit I learned the other day, courtesy of Morgan Housel.

The 1918 flu pandemic infected 20%+ of the world and killed 50 million people worldwide.

And despite all that, the stock market was up that year.

Chart is here: https://twitter.com/David_Kretzmann/status/12233100755337011…

Of course, it’s just one data point. But the equivalent today would be roughly 1.5 billion people getting infected and 150 million deaths.

Hard to imagine that scenario happening today without stocks getting hammered, but 1918 proved to be a different story.

One of my takeaways is that when push comes to shove, companies (especially the great ones) adjust to their environments quicker than we’d often expect. And eventually their share prices will follow suit, even if it takes some shorter-term pain to get there.

Food for thought!

Foolishly,
David K

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Hard to imagine that scenario happening today without stocks getting hammered, but 1918 proved to be a different story.

1918 was the end of the Great War. The war surely left lots of people undernourished and medical services overstretched. Flu kills the old and the weak. During the past 100 years we have made some medical progress and people are better fed than ever before. I see no reason to fan the flames of panic.

Denny Schlesinger

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I can’t see much, or even any, effect on Alteryx, Crowd, Datadog, Okta. Coupa might see new customers lag and anything based on total volume of underlying sales may decrease. Zoom may zoom, actually see a considerable benefit, as companies will prefer remote conferencing with no need for travel, and especially with no chance for contagion.

I hit it! Zoom has zoomed today, up about 10% right now.

Saul

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“I hit it! Zoom has zoomed today, up about 10% right now.”

You did Saul.

As for my cloud names it’s the only one not taking it on the chin this morning as it looks like a rotation to safer names is happening. Not that we should care about one day moves right? :wink:

as it looks like a rotation to safer names is happening

You should have put “safer” in quotes, as those “safer” companies are the ones whose revenues will be crashed by the reduction in international travel, commerce and trade.

Saul

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Home delivery could benefit AMZN, WMT, TGT, COST, however supply chain disruptions might hurt the big importers even more.

Pharmas producing ARVs (anti-retroviral drugs) are up a tad (GILD, ABBV) but nothing to get excited about.

CLX (Chlorox) is up nicely but that’s partly due to a good earnings report.

As for our stocks, to some extent all boats float with the tide. In a severe market downturn they are vulnerable and investors will pile into safety. My concern is the sharp drop in demand for oil from China (and possibly other nations if an intense outbreak spreads) could kill heavily-indebted shale companies in the US who are not profitable now. What happens to their lenders? Add this to downturns in travel and hospitality (would you book a cruise today and risk 14 days of quarantine in a tiny cabin?), and the contagion we should fear is not viral but financial.

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Home delivery could benefit AMZN, WMT, TGT, COST, however supply chain disruptions might hurt the big importers even more.

Stitch Fix (SFIX)

As for our stocks, to some extent all boats float with the tide. In a severe market downturn they are vulnerable and investors will pile into safety. My concern is the sharp drop in demand for oil from China (and possibly other nations if an intense outbreak spreads) could kill heavily-indebted shale companies in the US who are not profitable now. What happens to their lenders? Add this to downturns in travel and hospitality (would you book a cruise today and risk 14 days of quarantine in a tiny cabin?), and the contagion we should fear is not viral but financial.

It happened with railroads, it happened with optic fiber. They went broke. Deep pockets bought the assets for pennies on the dollar. The debt was liquidated in bankruptcy. It could happen again with shale oil. So far your argument is good. This is the reason I stay clear of credit risk. But you have not explained how this would affect asset light SaaS businesses which currently are the bulk of Saul Stocks. My contention is that the stocks to fear are the ones that won’t bounce back.

Denny Schlesinger

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At the risk of continuing this slightly off topic, I heard a crazy story from a co-worker in Singapore. (This sort of relates to the use of ZM etc.) This story relates to work - not sure how much non-work related stuff is impacted.

If you go to a commercial building in Singapore (i.e., work), you get a “medical” screening entering the building. If you leave the building and return (i.e., lunch, to workout, a meeting in another office etc), you get another screening when you return to your office. You also get screened when you get to the other commercial building where your meeting is at. Running a bit of a fever or look sick (subjective to the screener to some extent) - you don’t get in.

Needless to say, physically going to other offices for meetings has basically stopped. Leaving for lunch, working out is now avoided if at all possible. People who can work from home remotely are just avoiding going in to work altogether and are just working remotely from home. Business travel has basically been cancelled. (Our firm prohibited all travel to China a couple weeks ago.)

Mike

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