TOUGHER TIMES AHEAD? [Covid-19 info that indicates possible supply shock coming and maybe a demand shock after]

TOUGHER TIMES AHEAD? [Covid-19 info that indicates possible supply shock coming and maybe a demand shock after]

The Corona Virus (Covid-19) is all the news these days and the stock markets are railing from it. (They were of course in bubble territory, so thy were fragile and looking for a pin to prick them)

I found a company website named Capital Economics with some great graphs and insights into the impact of the virus.

China is reporting that case count is finally dropping, and if you can believe the numbers, that is very good. Cases in the rest of the world are going up and this is of course concerning. But China has the longest history with it and has learned how to contain and control the spread, and we still have to learn that. (It is good to see it can be controlled)

But lets look at how it is being controlled. First a look at road congestion in China. Here is a graph of several years, and you can see the result of Chinese New Year every year circled in RED on this graph. But look at 2020 and see it very slowly recovered. People have NOT gone back to work. 

How about passenger traffic in China. (Road, rail, flight and ship)

Now looking at container ships waiting to get into port.....remember, they plan for their New Year every year, but this year, they are not being allowed in. (compare that with the same rise in as prior year when a typhoon did the same...except that only lasted a short time)

Look at energy use as measured in coal use. This is a measure of their industrial engine and how it is running. Again, it never recovered as it normally has from the Lunar New Year.

Here is a graph that is a little better, and this is property sales. It is at least recovering a little, but still below typical trend. But this might indicate something good. Perhaps people are just not moving, but are still "doing things" and spending (storing) savings. (not paralyzed in fear perhaps)

What is the bottom line, who knows, but I would say China was greatly affected, and I think the rest of the world is now also. I think the Chinese output will be diminished, and I think this will lead to a supply shock to the rest of the world. My initial thought about a supply shock is fewer good to a non-changing demand which means price inflation. 

But if the rest of the world only now being affected, they might also get tied down to their houses, and their demand might slow. This might match the "delay" that might exist because of store goods stocking and transport times. But then that turns into a demand shock of sorts.

Either way, this will slow down world growth, and you can be sure this will affect particular businesses differently from others. So as an investor, I think "picking" companies might be more advantageous to just picking sectors and broad markets. There will be winners and losers.

Also, IMHO, even though I think interest rates will be pushed abnormally low by all the worlds bankers, debt will weigh more and more on those carrying it because revenues will be stunted. Companies and people will go bankrupt as their income flows are shrunk. (or at least their expected rise in % income increase is lowered)

I think it is a time to be conservative.....but how do you do that with rates held artificially low. If inflation rises, this will also be a tough road to navigate. This is the type of time that separates good investors from average. 

I once told my past department Manager Buzz Moran that I thought he was a great manager because our projects were well funded, well staffed and hitting the market to great success. He warned me NOT to weigh any management value in good times, because it is only in bad times that any manager truly gets tested. These might be some tough times.