I am writing this on March 18, 2020, and it almost seems as if the world is coming to a halt.
Schools are closing, businesses are closing, events are being canceled, there is panic buying of food and above all Toilet paper (what the hell is up with that?), people are sheltering in place. It seems like everyday life is grinding to a halt.
So what is the cause of all of this Panic? A virus called COVID-19. Okay so what is COVID-19?
COVID-19 is a respiratory illness that can spread from person to person. COVID-19 is a new strain of the coronavirus which has been around for almost 60 years.
The first case of COVID-19 occurred in China on November 17, 2019, but Chinese authorities did not acknowledge the new virus for several weeks. And Chinese authorities did not publicly concede there was human-to-human transmission until January 21, 2020, when there were already approximately 400 cases.
Fast forward to today and there are over 81,000 cases in China, over 7000 cases here in the U.S. and almost 210,000 cases worldwide. Thankfully new cases in China have been slowing since the peak on Feb. 12, 2020, but for most of the rest of the world the number of new cases is still increasing. I realize that it is still early in this outbreak but if we look at the number of cases versus the world or country population the number of cases is still minuscule. The number of cases to date is only 0.0027% of the world's population and here in the U.S., the percentage is 0.0021%. The fatality rate in people who have symptoms of the disease is estimated to be about 1.4% which is higher than the common flu virus but for the majority of people, the symptoms will be fairly minor.
So the reason that I am asking if we are overreacting is because of the effect this outbreak is having on the U.S. and global economies. The U.S. stock markets are down from the peaks in February to their lows today anywhere from 28.5% to 32.5%. The oil market is getting absolutely crushed which is down from its peak in January about 64%. Bond yields are now at historic lows and even the price of gold which initially was rising is now falling. As a result of people being afraid to travel the travel industry is in the process of being destroyed. The airline industry has seen many flights being grounded and huge staff layoffs. Some analysts are saying that if this lasts more than one or two quarters the airline industry may never fully recover. The impact on the cruise industry seems to be even worse, the viral outbreak has become an existential crisis for the industry. All of this combined threatens to push the U.S. and global economies into a recession at best and possibly even as a worse case into a depression.
So what I am asking is are the actions being taken here in the U.S. and around the world Justified? And if so at what cost? I wrote an article (link below) back in September of 2018 about if another financial crisis was on the horizon. My concerns at the time were the dangers of mounting U.S. corporate debt and what type of an event could push the economy into a recession which could then lead to another financial crisis. One of the events I mentioned was a black swan event, my worry now is that this outbreak could well prove to be that event. Like I said earlier it may be way too early to make assumptions about how bad COVID-19 might get relative to a regular flu outbreak or if the steps we are taking are too drastic. But I still have to wonder in the end what the cost of all of this is going to be, in lives, in jobs and how much damage this is going to do to the U.S. and global economies.
I hope everyone stays safe and healthy.