We continue to monitor developments in the outbreak of the COVID-19 coronavirus. Traders, speculators, and even some investors who have taken on too much risk are clearly in panic mode.
Panic and portfolio management are like ammonia and bleach. Mix them, and you create a toxic brew.
Preparation is the key to keeping calm during a market rout. Investors with balanced portfolios are in much better shape than those who are leveraged and long all-stock portfolios.
We continue to monitor the coronavirus and the corresponding economic fallout carefully. We aren’t doctors or virologists, but simple data analysis can provide some insight that is difficult to get from cable news networks.
What do the Data Say about the Coronavirus?
Below are the daily growth rates for cases and deaths for the last month. South Korea has the most encouraging case numbers. The growth rate of cases has petered out. South Korea has also tested widely, which is likely why the country has the lowest fatality rate of the seven countries listed at 0.8%.
Italy’s numbers have been the most troubling, but the growth rate of new cases seems to be slowing there as well. We added a two-day growth rate as Italy had a reporting problem on the 10th which skewed the numbers. We’ll need to see more data to confirm that trend, though.
Germany, France, the U.S., and Spain are still in the exponential growth phase. We anticipate many more cases to come in the United States.
The major problem, as we see it, is that nobody has a high level of confidence in the reported fatality rates. South Korea has a low fatality rate, while Italy has a fatality rate that is off the charts.
We don’t know where the numbers will settle, but if you want to take the optimistic position, the H1N1 pandemic in 2009 offers encouragement. Morningstar reports that when H1N1 first appeared in early 2009, initial fatality rates were estimated at 9-10%. Still, by June, that fatality estimate had fallen to 0.40%, and then an extensive study performed later found the actual fatality rate was .04%. Even the lower June estimate was 10X the actual number.
If you take the 2-3% fatality number the press is circulating, and divide by ten, you get a 0.2% -0.3% fatality rate—about 2X-3X more deadly than the seasonal flu.
Would companies tell employees to stay home, and would the NBA cancel its season if they knew today that the fatality rate was 0.2%-0.3%?
That’s not a prediction that coronavirus will end up being less deadly, but the possibility is there.
In the meantime, businesses have no choice but to deal with the economic fallout. Italy has decided to close all shops except grocery stores and pharmacies. Events all over the United States are being canceled, and travel restrictions have been implemented globally.
We will continue to post updates on the coronavirus as new data is made available.