Economic implications of a SARS/Coronavirus outbreak

[Chronos-Plutus]

Yeah this is how I got hosed last week with BA - a double digit swing in a single day is just absurd.

As I've said in the other thread though, most of the AU stuff actually has solid fundamentals so it's not the wipeout it appears to be.

As I said previously, buy into it.

USA is very different and heading for a 2nd wave (which despite the news carryon, AU isn't) and I've parked everything I have there in stay at home stocks - zoom, ebay, paypal, amazon, cisco. The only other stuff I'd touch with a bargepole would be intel/amd/nvidia. MAYBE microsoft.

I generally focus on the materials and energy sector; I have already selected the stocks that I will buy into, and just have to be patient for them to drop.

The 2nd wave in the USA and China will impact our markets.

 

[over9k]

Oh no doubt. But the fundamentals are ok here (in fact, china produces steel flat out even when there isn't a market for it and just dumps it in their storage yards. and then in their sports stadiums when the storage yards get full), unlike in the U.S.

A second wave in USA isn't going to effect australian domestic air travel much, for example.

 

[waterbottle]

Yeah this is how I got hosed last week with BA - a double digit swing in a single day is just absurd.

As I've said in the other thread though, most of the AU stuff actually has solid fundamentals so it's not the wipeout it appears to be.

As I said previously, buy into it.

USA is very different and heading for a 2nd wave (which despite the news carryon, AU isn't) and I've parked everything I have there in stay at home stocks - zoom, ebay, paypal, amazon, cisco. The only other stuff I'd touch with a bargepole would be intel/amd/nvidia. MAYBE microsoft.

Interesting, why maybe msft?

You're probably the first poster I've read who didn't think MSFT was heading for above $200.

Personally I'm out of US markets altogether -way too volatile with 8%+ swings on airlines and financials. Then there's the risk of USD continuing to fall, which only takes away from any gains when adjusted for currency

 

[Chronos-Plutus]

Oh no doubt. But the fundamentals are ok here (in fact, china produces steel flat out even when there isn't a market for it), unlike in the U.S.

A second wave in USA isn't going to effect australian domestic air travel much, for example.

At the moment I see fundamentals are good for tech stocks, okay for energy and materials, bad for banking and finance, and terrible for airlines and tourism. However fundamentals go out the window in times of market panic, as everything gets sold when extreme fear kicks in because people worry and they go straight into cash to protect themselves.

Also, a significant portion of shareholders are American investors that make up the top ASX companies.

 

[over9k]

Interesting, why maybe msft?

You're probably the first poster I've read who didn't think MSFT was heading for above $200.

Personally I'm out of US markets altogether -way too volatile with 8%+ swings on airlines and financials. Then there's the risk of USD continuing to fall, which only takes away from any gains when adjusted for currency

You can see that microsoft has flatlined since early may. I'm not convinced that MS teams is going to lay waste to zoom in the same way that onedrive did with dropbox as zoom's so versatile and easy to use - you can use it on any platform on any device from anywhere - pc or mac, desktop or laptop, laptop or phone, android or iphone, so on and so forth. You can have private convo's, large scale public streams, or anything in between. It's encrypted for privacy if you pay for it and it's free to use unencrypted which gets the grassroots consumer hooked in the first place. You can talk to your family on your phone from the airport whilst they sit in their loungeroom or you can talk to your boss from desktop to desktop. No matter how you try to use it, it'll work. It's the AK-47 of video conferencing.

MS and steve ballmer's biggest failure imo is a lack of successful windows phone. If microsoft had a real competitor to the iphone that they could integrate with teams and teams' video conferencing, I'd be thinking very differently.

Slack however is the one that I think they ARE going to hose though as getting the chat, live editable documents etc all integrated with microsoft office would (will) result in ms teams being sooo much easier to use than having to pump everything through a 3rd party app like slack. You'll see its Q2 revenue was waaaaay off estimates and it just fell off a cliff after the 3rd of june. I'm not expecting much if any improvement tbh.

All this is not to say that I'm against microsoft, I just think there's going to be more of a bounce to be found elsewhere. MS would be the lower risk/lower return chunk of your risk appetite.

It's the massive spike in apple's price that would have me very very worried if I was holding it. MS, not so much.

BA I'm trading a small amount trying to pick the (ridiculous) volatility. The only spikes I see are the 737 max certification later this month and positive jobs data on the 3rd of july, which is now looking iffy. Other than that, I'm expecting a bloodbath.

 

[over9k]

Chronus-plutus: I'm in total agreeance with your analysis. The one wildcard you forget with banks is stimulus though - there's no way that, this time, the powers that be are going to do anything other than act waaaay early with a shitload of cash if any of the major banks even look jittery.

I'd say that retail is actually ok but it's more e-tail than retail. A lot of stuff is actually up on account of people buying things to do whilst they're stuck at home. The major difference is that *everything* is being ordered online now, hence ebay, paypal, amazon, being through the roof.

 

[Chronos-Plutus]

Chronus-plutus: I'm in total agreeance with your analysis. The one wildcard you forget with banks is stimulus though - there's no way that, this time, the powers that be are going to do anything other than act waaaay early with a shitload of cash if any of the major banks even look jittery.

I'd say that retail is actually ok but it's more e-tail than retail. A lot of stuff is actually up on account of people buying things to do whilst they're stuck at home. The major difference is that *everything* is being ordered online now, hence ebay, paypal, amazon, being through the roof.

Absolutely; look at Kogan, that's a winner right there.

True; the banks will not be allowed to fail by the government, however I see a tsunami of non-performing loans which will seriously impact bank performance.

 

[over9k]

Do you follow AU e-tail? I'm curious as to why the divergence between kogan & jb hifi. I would have thought they'd parallel each other?

 

[Chronos-Plutus]

Do you follow AU e-tail? I'm curious as to why the divergence between kogan & jb hifi. I would have thought they'd parallel each other?

I don't really; it is strange that Kogan is up ~80% over JB Hi-Fi.




The shares on issue are close for the stocks with JBH 114.88m and KGN 94.8m, with JBH's market cap around 4 times that of KGN's; JBH is carrying ~$1.1 billion in debt where as Kogan is just carrying a few million, JBH's debt isn't anything to worry about looking at their EBITDA ~$543.6 million. In saying this; the capital structure of KGN is much more favorable and less risky.

On the point of difference between the 2 entities:

- JB Hi-Fi's products are more appliance and technology based relative to Kogan; as such Kogan has a larger product range.
- Kogan sells their own product lines along with other brands.


So; with the minimal research I have done, I can only put it down to the low number of shares on offer and a few big fish buying up the stock thinking it is the next Amazon. Please forgive me if my numbers are wrong as I just used Yahoo Finance and the ASX; as I couldn't be bothered to log into my accounts. I haven't read through the annual reports, financial reports and announcements either.

I focus on materials and energy because it is such an exciting and adventurous sector for me. I enjoy reading and researching annual reports, financial statements, foreign news within this sector; that's why. Tech and retail is too boring me.

 

[basilio]

I'm wondering at the overall economic effect of the COVID 19 crisis on international money markets.

We have simultaneous collapses of economic activity across the globe with consequent flows on for trade , debt repayments and solvency of many companies as well as governments. There are already countries reneging on debts as a result of this pressure. And we are only 3-4 months into the crisis.

So how long can everyone keep dancing ?

And what happens when the music stops ?
https://edition.cnn.com/2020/05/17/investing/stocks-week-ahead/index.html

 

[Garpal Gumnut]

I'm wondering at the overall economic effect of the COVID 19 crisis on international money markets.

We have simultaneous collapses of economic activity across the globe with consequent flows on for trade , debt repayments and solvency of many companies as well as governments. There are already countries reneging on debts as a result of this pressure. And we are only 3-4 months into the crisis.

So how long can everyone keep dancing ?

And what happens when the music stops ?
https://edition.cnn.com/2020/05/17/investing/stocks-week-ahead/index.html

I believe @wayneL has posted on this along the following lines. ( I cannot find the post ).

The governments internationally are just printing more money basically. The idea I believe is to keep the share market up until employment returns and tax revenues improve.

It seems odd. If it doesn't succeed we are headed for the mother of all busts where no asset will have any value, bar gold of course.

Out there be monsters.

gg

 

[basilio]

).
The governments internationally are just printing more money basically. The idea I believe is to keep the share market up until employment returns and tax revenues improve.
gg

I'm sure this observation has crossed many minds. There is an excellent analysis on the ABC website which hammers home the point about totally unrealistic stock markets being inflated by trillions of dollars of government funds.

The secret behind the booming stock market in the face of the coronavirus crisis
Forget everything you've ever learned about the economy and the supposed link with financial markets.

Just three months into what the Bank of England describes as the deepest and sharpest downturn in centuries and stock markets are on a tear, galloping back towards record levels at breakneck speed.
Investors, many of them new converts to the cargo cult, are overlooking the hit to corporate earnings that has yet to play out, the potential housing market slump and spending blow from a lengthy period of elevated unemployment or the many geo-political risks building, particularly between China and the West.

Instead, they are pricing in a swift and almost perfect recovery based upon the presumption that maybe, just maybe, there'll be a vaccine that will suddenly rid the world of the pandemic that has created so much pain and hardship in such a brief space of time.

Or maybe, the whole thing is just an illusion.

For when it comes to finance, free markets have become captive to central banks, which now are pouring trillions of dollars into the global economy each month to fabricate a recovery.

It's cash that's being created out of thin air.

And a huge portion of it is being poured straight into stock markets regardless of what is happening out there in the real world.
www.abc.net.au/news/2020-06-15/secret-behind-booming-stock-market-recession-coronavirus/12354308

 

[qldfrog]

I don't really; it is strange that Kogan is up ~80% over JB Hi-Fi.

View attachment 104819


The shares on issue are close for the stocks with JBH 114.88m and KGN 94.8m, with JBH's market cap around 4 times that of KGN's; JBH is carrying ~$1.1 billion in debt where as Kogan is just carrying a few million, JBH's debt isn't anything to worry about looking at their EBITDA ~$543.6 million. In saying this; the capital structure of KGN is much more favorable and less risky.

On the point of difference between the 2 entities:

- JB Hi-Fi's products are more appliance and technology based relative to Kogan; as such Kogan has a larger product range.
- Kogan sells their own product lines along with other brands.


So; with the minimal research I have done, I can only put it down to the low number of shares on offer and a few big fish buying up the stock thinking it is the next Amazon. Please forgive me if my numbers are wrong as I just used Yahoo Finance and the ASX; as I couldn't be bothered to log into my accounts. I haven't read through the annual reports, financial reports and announcements either.

I focus on materials and energy because it is such an exciting and adventurous sector for me. I enjoy reading and researching annual reports, financial statements, foreign news within this sector; that's why. Tech and retail is too boring me.

Kogan is ecommerce, jbhifi a modern harvey norman selling mostly crap.look at their catalogue they have stores employees old model.never understood the share market fascination.
Obviously pushing a bit but that is my view.
Get a jbhifi catalogue and read it, you will get my point
Overprice Chinese s..it, Kogan is just well priced Chinese s..it

 

[basilio]

This observation by Chronos-Plutus from another thread deserves a closer look

The reports out of China are a significant cluster has just come out of a Beijing seafood market and their government is adopting wartime measures to go into lockdown now: "Beijing is reintroducing strict lockdown measures and rolling out mass testing after a fresh cluster of novel coronavirus cases emerged from the city's largest wholesale food market, sparking fears of a resurgence of the deadly outbreak."(https://edition.cnn.com/2020/06/15/asia/coronavirus-beijing-outbreak-intl-hnk/index.html)

If you check out the CNN story there is no doubt the Chinese government is taking this outbreak deadly seriously. A few implications in my mind.

1) The Chinese see COVID 19 as a deadly serious threat to their community and economy. They will do whatever it takes to isolate and contain the virus because in their experience the consequences of letting it rip are unacceptable.

2) If the Chinese view is realistic there is absolutely no absolute room for complacency in staying on top of the situation. There seem to be comments from the US which say "we're back in business" and "to hell with COVID 19". Essentially just live with it. We are seeing this philosophy in Brazil. We know many European countries are starting to reopen. The question is whether any of these countries have the will and capacity to tackle serious new outbreaks ?

3) Is it possible we are underestimating the impact of uncontrolled spread of COVID 19 ? In the context of this thread what impact will that have on our economies?

 

[over9k]

Brazil is absolutely screwed. That entire country is going to get it. The deaths will be in the millions.

Half of europe is broke and the other half is flush so you'll have to be more specific RE: euro countries.

Yes, we're underestimating it massively. Again, think back to exponentials - a starting point of A with 5x the infection rate of B will spread much faster than 5x that of B.


It's market irrationality that has me worried - just look at the asx tanking today in response to an outbreak in china, even on things that really have nothing to do with china at all. Hence the volatility over the past couple of days just being absolutely nuts.

 

[Chronos-Plutus]

Brazil is absolutely screwed. That entire country is going to get it. The deaths will be in the millions.

Half of europe is broke and the other half is flush so you'll have to be more specific RE: euro countries.

Yes, we're underestimating it massively. Again, think back to exponentials - a starting point of A with 5x the infection rate of B will spread much faster than 5x that of B.


It's market irrationality that has me worried - just look at the asx tanking today in response to an outbreak in china, even on things that really have nothing to do with china at all. Hence the volatility over the past couple of days just being absolutely nuts.

It's not looking good: Dow Futures are down ~2.19%, we might see another serious plunge this coming trading session.

 

[qldfrog]

@over9k: Brazil: death in the millions...Seriously?
Brazil population:210M so you mean 1 percent or more of the population dying?
If you take Italy:some of the oldest population in Europe:This is where the virus is at

If taking asymptomatic case, mortality rate is around 0.7%,
among people tested and treated worst is 1.4% for older population(cruise ship: passengers..the young crew mostly ok)
, definitively a worst case scenario:
going worst case with known data , with 60% population affected (not realistic either) and ALL of them being symptomatic, we would get
210*0.6*0.014: so 1.7 Million...Can we agree that this will not happen?

Have you put money in shorts, are you scared yourself, honestly why spreading these figures???
And if Brazil is so f***ed, our market should be on steroid with all the minerals Brazil will not produce, the AUD should go stellar
So let's go back to the bounce,

 

[over9k]

Brazil didn't contain the virus at all. Then factor in its healthcare (or lack thereof) and all those high density slums full of people living both right on top of each other and who are too poor not to work...

AU mining stocks ARE on steroids - look at FMG/RIO/BHP. The smart money figured out the obliteration of brazil weeks ago. I was actually late to the party.

 

[qldfrog]

Brazil didn't contain the virus at all. Then factor in its healthcare (or lack thereof) and all those high density slums full of people living both right on top of each other and who are too poor not to work...

AU mining stocks ARE on steroids - look at FMG/RIO/BHP. The smart money figured out the obliteration of brazil weeks ago. I was actually late to the party.

My only problem is the exaggeration you post and you linking it to the market
No we will not see millions: aka more than 2m deaths from the virus in Brazil
So miners are booming because of virus ?
Do you see my point.anyway, if last night in US can not show you my point, nothing i can add.
We all agree on volatility induced
Being out of market is not silly and can be a good option.i am away travelling for a week and considering exiting my daily systems as i can not follow them properly while on the move and enjoy the trip.
Lifestyle choice, not economic one

 

[sptrawler]

Interesting article on the spending patterns during the virus outbreak.

https://www.theage.com.au/business/...als-differently-to-women-20200614-p552he.html
Reflects what we have been saying, that only certain sectors of the economy have been hit badly. There are a couple of good charts in the article.
Must admit Australia has managed all this extremely well.
From the article:
A spending tracker developed by AlphaBeta and illion, based on the behaviour of hundreds of thousands of consumers, shows discretionary spending had recovered to be just 1 per cent below the pre-pandemic norm in the first week of June, the strongest result since the onset of the crisis.

Dr Charlton said the spending surge by those receiving early super withdrawals has been an important contributor to the rapid improvement in discretionary purchases since late April.
Overall spending, including both essential and discretionary, was 2 per cent below the pre-coronavirus norm in the first week of May 31 - June 6.