Economic implications of a SARS/Coronavirus outbreak

[Smurf1976]

I still think we'll push the -20% mark on the markets just due to narrative and fear but would be very surprised if it's not fully recovered within 12 months.

Agreed so far as financial markets are concerned.

In a broader sense, outside the markets, I do expect some lasting impacts though. The scale of the event is too big for governments and the management of various corporations to not at least try to be seen to have done something to lower future risk. What that will be I really don't know but it's too big to just sweep it under the carpet and ignore it I think.

 

[Smurf1976]

Although I find the reported numbers of infected in Japan as strangely low and not increasing with the same speed as we are seeing in South Korea and other parts of world which to me is a little suspect.

I see that France has now reached 100 infections.

I'm not French, only ever been there as a tourist, but I'd put a fair bit of faith in their numbers given they're a developed country and have no obvious reason why they'd want to hide it. Point being they're having a fairly rapid increase as are many places.

For the others, well Iran has ongoing tensions with the US and allies so I guess it's possible that their figures could be skewed either by lack of adequate medical equipment or by political factors. Possible, I can't prove it, just noting the circumstances there could create some difficulties.

South Korea and Italy both are reporting fairly large numbers and both presumably have the means to do it fairly accurately.

The good news though is that 48% of cases are now recovered including 11 out of 25 in Australia. Bad news = 2978 reported deaths including 1 in Australia so the death rate's at 3.43% globally.

 

[fergee]

I see that France has now reached 100 infections.

I'm not French, only ever been there as a tourist, but I'd put a fair bit of faith in their numbers given they're a developed country and have no obvious reason why they'd want to hide it. Point being they're having a fairly rapid increase as are many places.

For the others, well Iran has ongoing tensions with the US and allies so I guess it's possible that their figures could be skewed either by lack of adequate medical equipment or by political factors. Possible, I can't prove it, just noting the circumstances there could create some difficulties.

South Korea and Italy both are reporting fairly large numbers and both presumably have the means to do it fairly accurately.

The good news though is that 48% of cases are now recovered including 11 out of 25 in Australia. Bad news = 2978 reported deaths including 1 in Australia so the death rate's at 3.43% globally.

I am more inclined to trust the numbers from France and Italy as the structure of the EU makes it less likely for them to hide it conversely harder to contain too.

 

[brty]

Just for those that think this is not bad, not like the flu etc, a few simple numbers....

Australia has just 2000 ICU beds. Serious cases of Coronavirus are running at about 15% with 5% critical. You would need one of those beds if serious, and probably intubated and ventilated if critical, which is a subset of available ICU beds.

A city like Melbourne or Sydney would have about 400 ICU beds each. If each of those cities gets just 3,000 cases, ie less than 6 people in every 10,000, then all the ICU beds would be fully occupied. This would allow none for serious car accidents, heart attacks etc.

This virus is spread by aerosols and can be spread by asymptomatic carriers, plus it's possible to be re-infected like the Japanese tourist guide, and reports of it happening in China.

It is not the flu nor SARS, yet our health care administrators are treating it poorly. The health salon on the Gold Coast where the beautician brought the virus back from Iran, is a classic case of generals fighting the last war. They have tested and observed all the other staff at the salon to be clear of the virus (currently), but instead of putting them in quarantine, are allowing them to circulate. To me that is an unbelievably naive decision, given evidence coming in from all over the world.

When, not if governments realise they have been incorrect with their stance on this virus, they are likely to over-react IMHO, just like in China. Our hospitals will be swamped with a very small proportion of the population getting this virus.

The economic dislocation of this virus is already massive and likely to get much worse before it gets better. The peak of disruption is still probably weeks or months away.

 

[macca]

Just for those that think this is not bad, not like the flu etc, a few simple numbers....

Australia has just 2000 ICU beds. Serious cases of Coronavirus are running at about 15% with 5% critical. You would need one of those beds if serious, and probably intubated and ventilated if critical, which is a subset of available ICU beds.

A city like Melbourne or Sydney would have about 400 ICU beds each. If each of those cities gets just 3,000 cases, ie less than 6 people in every 10,000, then all the ICU beds would be fully occupied. This would allow none for serious car accidents, heart attacks etc.

This virus is spread by aerosols and can be spread by asymptomatic carriers, plus it's possible to be re-infected like the Japanese tourist guide, and reports of it happening in China.

It is not the flu nor SARS, yet our health care administrators are treating it poorly. The health salon on the Gold Coast where the beautician brought the virus back from Iran, is a classic case of generals fighting the last war. They have tested and observed all the other staff at the salon to be clear of the virus (currently), but instead of putting them in quarantine, are allowing them to circulate. To me that is an unbelievably naive decision, given evidence coming in from all over the world.

When, not if governments realise they have been incorrect with their stance on this virus, they are likely to over-react IMHO, just like in China. Our hospitals will be swamped with a very small proportion of the population getting this virus.

The economic dislocation of this virus is already massive and likely to get much worse before it gets better. The peak of disruption is still probably weeks or months away.

As she has proven to be positive then certainly anyone who spent extended time with her should be in quarantine, other staff should definitely all be in quarantine for 14 days

 

[IFocus]

So the risks going forward are supply and demand shocks, businesses going bankrupt due to no or falling cash flows, bonds becoming worthless, falling confidence, governments unable or slow to act.

Jobless to rise causing further pain.

Australian economy likely to show contraction for a couple of quarters in a low interest rate environment.

This could get messy.

 

[sptrawler]

IMO by now the Government will know what the virus is and will know whether it can be controlled.
At some point in the future, they will have to decide whether further control is pointless or worth the effort.
How far ahead that is, will decide how much of an economic impact it will have.
So when the control regime is relaxed, should give a good indicator as to which companies will be affected.
The relocating of several cruise ships to Australia, will save the ar$e of some travel agents, for now.
If one of those ships gets an outbreak, it is over and out for travel agents IMO.
Several other companies that can stockpile and have cash to carry the payroll will be fine, others that are relying on product sale cashflow will be caught.
So when the security procedures are relaxed is going to be paramount, to those who are hanging tough.
Sounds obvious, but cash at hand or redraw facilities, quoted in the last financial statements become much more pertinent.

 

[basilio]

So when the security procedures are relaxed is going to be paramount, to those who are hanging tough.
Sounds obvious, but cash at hand or redraw facilities, quoted in the last financial statements become much more pertinent.

I see your point..but I wonder ?

How far will a business go to stay solvent if it believes there are months of closure, supply chain problems whatever ?

Most of us know from experience there are a number of operations that just close up shop to drop creditors, bank debts and income tax liability. I wonder how many legit businesses will draw down accumulated savings and owners equity before pulling the pin ? Be interesting to see.

 

[fergee]

I see your point..but I wonder ?

How far will a business go to stay solvent if it believes there are months of closure, supply chain problems whatever ?

Most of us know from experience there are a number of operations that just close up shop to drop creditors, bank debts and income tax liability. I wonder how many legit businesses will draw down accumulated savings and owners equity before pulling the pin ? Be interesting to see.

I was talking to my brother in Adelaide last night and he said this summer has been really tough at the cafe he owns. I told him he should go talk to his land lord and negotiate a deal on the rent so as he can stay solvent if things really turn to custard. Yeah the landlord will lose out on some coin but he will keep a loyal tenant. The normal rules and expectations for business will go out the window a lot of SME's are cash strapped right now, everyone needs to pool together and take haircuts together to survive imo

 

[IFocus]

Public health will be the initial driver and containment is about slowing the progression not avoiding infection so health service cope in some sort of way.

At some point economics will be a consideration if it can be sold politically.

World wide all governments will have this conundrum.

I don't see anyway forward that isnt a wait and see game.

 

[barney]

everyone needs to pool together and take haircuts together to survive imo

Exactly what I was just thinking ….. I have no idea how to judge the pros and cons of said 'haircuts', but if the depth of this this problem is potentially as large as it is seems, early haircuts (although a massive up front expense to many businesses/countries in lost revenue) could amount to a fraction of what the final cost (not only financial) might be if we try and 'band-aid' the issue by trying to contain it with less than productive protections.

Its obviously too late to 'shut the world down' for a month or two … but go back a month or so and do that and the spread would probably be manageable now (unrealistic I know, but just trying to make a point)

How far do we (with a global concern in mind) let the problem progress before we decide down the track that we should have been more pro-active earlier to stop the spread?

I realise the above comments may be 'pie in the sky' thinking given the problem is global, but restriction of any problem is a hell of a lot easier when that problem is small and/or in its early stages.

The big question is of course … Is the problem still in the early stages Tough decisions may be required from here.

 

[Smurf1976]

I see your point..but I wonder ?

How far will a business go to stay solvent if it believes there are months of closure, supply chain problems whatever ?

Someone like Coles will tough it out for sure. They'll still have something to sell in the supermarkets even if a few specific items aren't available and for their other shops they'll sort something, grin and bear it, whatever.

Same in other industries. BHP or Rio Tinto won't go bust even if commodity prices do fall in a hole. Worst case they might shut some individual mines and put them on care & maintenance until things improve but the company will survive.

Small shops and small miners though, well they're a very different story.....

Point being the big companies like that are much better placed than the small ones.

 

[Dona Ferentes]

Look, I love the first world health system we have here. Once you get past ED, care is, in my experience, exemplary. But I recognise the cost constraints.

With the recent death in Perth, Australia's first ( he came off the Diamond Princess) the care over seven days was thus:
-Careflight from Darwin to Perth
-Hospitalised in isolation
- ICU isolationunit, in a negative pressure room

Dr Robertson said the man's family was also able to speak to him on Saturday night by phone or through the glass in the isolation unit before he died this morning. He said no members of the public had been put at risk by the man's diagnosis.

"He was identified very early on, when he was on the flight back from the Diamond Princess, he was put in isolation, he was transferred to us, and obviously placed in isolation on arrival. "He's been managed in isolation ever since … there's no risk to the general community or to staff.

"He was in a negative pressure room and then in intensive care and they were very confident that the protection equipment they were using was more than adequate

Just not sure how many the system can deal with. No wonder all attempts are to prevent it getting a hold. Wonder what the winter season will bring? (Coincidence that the virus started and spread Nov/ Dec in nth hemisphere?)

 

[fergee]

Look, I love the first world health system we have here. Once you get past ED, care is, in my experience, exemplary. But I recognise the cost constraints.

With the recent death in Perth, Australia's first ( he came off the Diamond Princess) the care over seven days was thus:
-Careflight from Darwin to Perth
-Hospitalised in isolation
- ICU isolationunit, in a negative pressure room

Just not sure how many the system can deal with. No wonder all attempts are to prevent it getting a hold. Wonder what the winter season will bring? (Coincidence that the virus started and spread Nov/ Dec in nth hemisphere?)

It is a natural time of year for flu to break out in he northern hemisphere. Until proven otherwise this was a natural occurrence just like all the plagues and viruses that have occurred in the millennia's before it.

I don think our(NZ&AUS) health care systems will handle this well, from what I have seen living in both countries, they will get maxed out very quickly.

 

[Smurf1976]

It is a natural time of year for flu to break out in he northern hemisphere. Until proven otherwise this was a natural occurrence just like all the plagues and viruses that have occurred in the millennia's before it.

In that regard probably a bit unfortunate that we're seeing relatively cool and wet weather in parts of Australia. Obviously there are many downsides to droughts and heatwaves but they do at least seem to discourage the spread of colds and flu so if we've got to have one sometime, well it's a shame it happened earlier rather than now if that makes sense.

I don think our(NZ&AUS) health care systems will handle this well, from what I have seen living in both countries, they will get maxed out very quickly.

I'm no doctor but my observation is that there's stuff all spare capacity in the system so even a modest increase in demand amounts to an emergency situation.

 

[fergee]

I'm no doctor but my observation is that there's stuff all spare capacity in the system so even a modest increase in demand amounts to an emergency situation.

There hasn't been much spare capacity for decades in NZ and Aus.

From what I have heard from the boys back home it has been the hottest driest summer for a long time.

caveat: I have had a couple beevies tonight before posting, truth be told

But I honestly think the difference between other countries and AUS/NZ is our spirit.

When some one has broken down on the side of the road we stop ask them if they're ok and give em a hand to fix their car or give them a ride to the gasey.

If some one trips and falls in the street we ask them if they are ok ok and help em up.

Our spirit of helping helping strangers like they were our kin is something I have never seen in my travels. It is unique to us and it makes us strong and it is why I think we will get through this blip in history better than anyone else.

ANZAC Forever forever ANZAC's

fergee

 

[Smurf1976]

978 reported cases in Iran now.

At this rate they're going to overtake Italy very soon and could well overtake South Korea too. Just a few days ago there were very few cases in Iran but it seems to be spreading extremely rapidly at the moment.

Also notable that there's now 117 in Germany so it's increasing quickly there too.

There's no chance of effectively containing this now. At best we might be able to delay the inevitable but that would require basically a global lockdown and I can't see that happening.

 

[MrChow]

U.S Flu season begins in about October each year.

History of when previous epidemics peaked in the U.S:

1918 Spanish Flu - November
1957 Asian Flu - October
1968 Hong Kong Flu - December

So the pattern seems to be accumulate latency then apply a mortality multiplier from seasonality later in the calendar year. Perhaps this thing won't be over until we circle back around to our end of Summer again.

Warmer regions seem to be escaping the brunt of Coronavirus at the moment - South America, Africa, Oceania, while Tehran (9 degrees), Seoul (3 degrees), Rome (13 degrees) are seeing the biggest spread.

 

[joeno]

The U.S would need 6000 deaths within 4 months just to match 1/10th of the annual flu season.

There seems to be a mismatch of human reaction to numbers in my interpretation.

I still think we'll push the -20% mark on the markets just due to narrative and fear but would be very surprised if it's not fully recovered within 12 months.

There's "what you'd like" and reality. Yeah the death toll is not huge. Even in China it's not huge. IMO they should've never quarantined people in China in the first place. Just let people do whatever they want to do. Cause sure as hell nobody else in the world is going as far with regards to their own populace. It's the fear, closing borders, closing schools, mutual mistrust and racism (dare i say that word if I'm not black/muslim). It's not a mild humanitarian crisis, a significant geopolitical crisis and a huge economic crisis.

 

[ducati916]

Businesses are clearly going to feel the impact. Due to their impaired Balance Sheets, they will tip the economy into another recession through bankruptcy.

In the US 97% of firms in S&P500 presented at least one metric of performance that was inconsistent with GAAP.

'Goodwill' accounting in S&P500 firms stands at $3.6T

Over 60% of Mergers were financed with loans that include 'add-backs', which allow firms to ignore inconvenient costs, through assuming the combined firm will make savings.

In the US 1/8 companies earns less than their interest payments (1/14 in 2007, BIS data). A recession (only 50% of the 2007/2009) could result in $19T of corporate debt being owed by these firms (40% of the total).

In Europe non-financial corporate debt stands at 110% of GDP (90% in 2007).

Remember the REPO fiasco last year? That was the warning sign that liquidity is simply not available at any price.

jog on
duc