Stock Investors Ignore Corona Threat… Should You? - a podcast by McAlvany ICA

Stock Investors Ignore Corona Threat… Should You?



Will Coronavirus be blamed for the global recession?

Apple is largest contributor to S&P 500 Gains - That could reverse to largest losses.

World GDP growth at 29 year lows in spite of flood of artificial liquidity.



 



The McAlvany Weekly Commentary

with David McAlvany and Kevin Orrick



Stock Investors Ignore Corona Threat… Should You?

February 12, 2020



"Now you see on display the connections between travel, connections between supply chains, for Apple, for all of your tech industry, for many of your hard manufacturers here in the United States and around the world. You see the world as one complex system. Change the flow of the interactions in a connected world and there are significant effects, not all of them positive."



 - David McAlvany



Kevin: David, sometimes looking at the news, it’s really hard. We have an awful lot of sources. Back in the old days, we had three networks, and even if we were getting a narrative that might have been massaged, most of us shared in that narrative. Now we have Internet, and we have all different sources of that information. And so this morning, in relation to the coronavirus I was talking to a man that I know. I meet with him on Tuesday mornings with a number of other men. And I asked him, “You have a manufacturing company in China, and you’re over there about every six weeks.” His wife is Chinese and just got back. She quarantined herself for two weeks and it looks like she is fine. But my question was, “How serious do we take the coronavirus?”



David: We are left at an interesting place because here we are, a small town in the mountains of Colorado, and it seems like it would be a bubble. In our neighborhood the doctor comes back from vacation. He has been in Thailand for two or three weeks, they stopped in China for three to four days, his daughter gets off the plane with flu-like symptoms. Local doctor is back to work, daughter is quarantined for a couple of weeks in the same house. But again, how close do these things get? Well, it was just the flu, it wasn’t coronavirus. But you realize how interconnected the world is. And as we look at asset markets, we see that there are judgments made about the state of affairs, so we are left to judge the judges.



Kevin: Actually, you can look at how things are being judged in the markets, hopefully, by the price. That’s what free market is. The pricing is who is judging what, going what way?



David: What I mean by judging the judges, this goes back to Keynes, how he described the markets, which is like a beauty contest, not that we are choosing who is the most beautiful contestant, but you’re betting on how the judges will vote. So we are left to judge the judges and we wager on the opinions of others. That’s that nature of the markets. And today’s challenge is the divide between the fixed income investor and the stock market speculator. So both are a part of the collective judgment on where markets go next.



And with reference to the coronavirus, you have global economic implications of a virus, and there is a divergence of opinion. In the treasury category, you have yields which have been coming down. So buyers are pushing yields down, prices of bonds are going up. Gold, too, is holding up very well as a safe haven. That is in contrast to your industrial metals, which show the real concern, as well. Copper is still above its 2016 lows, but it has traded in recent weeks in its longest losing streak since 1971.



Kevin: That sounds like it is signaling recession, at least for the industrial metals.



David: So to recap, you have safe haven bonds. They are attracting buyers even as industrial commodities in the energy markets find sellers.

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