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Coronavirus Shakes Markets—Likely Temporarily

Coronavirus Shakes Markets—Likely Temporarily



Last week’s change in the outlook for the spread of the coronavirus shook the markets, making it important for investment managers to provide clients with their analysis of the likely implications from a societal, market, and portfolio perspective.

In short, we do not expect the outbreak to lead to any long-term, structural, permanent change to either supply or demand. Governments are likely to stimulate, using both monetary and fiscal tools, as they have proven happy to do over the last decade.

We expect a resumption of economic growth and the forecasts predicted at the beginning of the year, albeit with low near-term visibility, and not likely until the second quarter or later.

Thus, our portfolio positioning is largely unchanged, and we are actively seeking buying opportunities during this period of dislocation.


The new coronavirus, officially known as SARS-CoV-2, and the disease it causes, officially known as COVID-19, were first detected in Wuhan City, China, in December 2019. It has now spread to more than 50 locations around the globe, infecting more than 80,000 people and causing around 3,000 deaths.

While the majority of confirmed cases are in China, in recent days we have seen an increased spread in other countries, primarily in South Korea and Italy.

This caused the World Health Organization (WHO) to increase its risk assessment for the rest of the world from “high” to “very high.” Given this development, it is fair to assume that we will see the virus spread in the United States in the near-term.

However, we do not see evidence that the virus is spreading freely in the community, and the WHO has not defined it as a pandemic. If the WHO labels the COVID-19 outbreak a pandemic, efforts will automatically switch from prevention to focusing entirely on caring for sick people. We are not there yet.


A new viral outbreak, such as COVID-19, naturally causes fear. In the early stages, the characteristics of the virus are unknown. We don’t know how it spreads or who it will infect, and we don’t know the social and economic impact.

But over the past few weeks, our understanding of the virus has increased tremendously. Now, more than two months after the virus first appeared in Wuhan, we have a large number of cases and studies from which to draw some conclusions.

While COVID-19 is a coronavirus genetically similar to SARS, which originated in China’s Guangdong province in 2002, or MERS, which originated in Saudi Arabia in 2012, the disease patterns are very different.

The infection rate of COVID-19, which is based on data from Chinese health officials, is relatively low, ranging from 0.9% to 4.8%. This is significantly higher than SARS and MERS (which only infected 8,000 and 2,500 people, respectively).

However, it is much lower than the swine flu (H1N1), which caused a pandemic in 2009-2010. The swine flu had an infection rate of 20% to 25% and caused more than 60 million cases and 12,469 deaths in the United States, according to the Centers for Disease Control (CDC).

To put that in context, the seasonal flu caused 61,000 deaths in the United States in 2017 and 2018 despite vaccination programs.

Once infection sets in, both SARS and MERS have a significantly higher mortality rate (9.6% and 34.4%, respectively) than COVID-19. According to the WHO, the mortality rate for COVID-19 is 2% to 4% in the Hubei province and 0.7% in other parts of China.

The increased rate in the Hubei region is likely the result of the local medical system being overloaded by the high number of cases in the province. It is therefore fair to believe that the overall mortality rate is around 1%.

We think it is reasonable to assume that the spread of COVID-19 will start to decrease in April or May.

We also know that 80% of people infected with COVID-19 experience only very mild symptoms. Of course, there are downsides to that—namely, it probably has increased the spread of the virus as infected people have not sought medical care.

Disease Outlook

While it is impossible to say exactly when COVID-19’s spread will peak, it is fair to believe that it will follow a similar pattern as other respiratory viruses, including seasonal coronaviruses and flu viruses.

Seasonal coronavirus (of which there are four spreading in the United States right now) have a very distinct pattern; we usually see an active spread from November to April or May, followed by very low activity from June to November. The chart below illustrates. The seasonal flu follows a similar pattern.

We therefore think it is reasonable to assume that the spread of COVID-19 will start to decrease in April or May. This should prompt a return to any normal societal activities that were curtailed by the virus.

About 14% of people who contract COVID-19 develop severe symptoms and 6% become critically ill. Patients who develop severe symptoms are generally elderly and/or have co-morbidities, such as cardiovascular and respiratory disorders. These patients are naturally at higher risk due to immune deficiencies and a higher disease burden.

This stands in contrast to MERS, which severely infected healthy people at their peaks of lives, when their immune systems were strongest. Fortunately, MERS had a very low rate of infection, and at the peak of the outbreak in 2012, only 2,500 people were infected.

We do not in any way want to diminish the individual suffering these diseases have caused, but want to stress that on a societal level, we believe the implications of COVID-19’s spread are likely to be more in line with or less than what we experienced during the swine flu outbreak in 2009 and 2010.

Economic Outlook

The sharp selloff in the global financial markets last week suggests that a sharp deceleration of economic activity is becoming the base case.

The expectation for monetary policy response also moved quickly. Fixed-income market participants are now expecting the U.S. Federal Reserve (Fed) to cut the federal funds rate by at least 75 basis points this year.

The financial markets have moved to price in a global recession as attempts to limit COVID-19’s spread are likely to involve a severe curtailment of economic activity.

We expect economic activity to remain depressed in March and April, with a sharp rebound beginning in the second half of the second quarter.

For now, we expect economic activity to remain depressed in March and April, with a sharp rebound beginning in the second half of the second quarter.

There will likely to be a permanent loss of output and corporate earnings relative to expectations at the beginning of this year. We expect losses to be concentrated in travel, daily consumables, and associated services, as these are most likely to be foregone.

At the same time, China is slowly returning to work. For example, in the automotive industry, major global original equipment manufacturers (OEMs) are reopening plants outside of Hubei province (according to J.P. Morgan, HIS Automobile, and newswires), and housing transactions are resuming.

Importantly, J.P. Morgan’s Big Data Shipping Index (BIDSI) suggests that domestic shipping volumes have essentially recovered to pre-epidemic activity levels.

China’s resumption of economic activity is crucial for global supply chains, and because many factories appear to have enough inventory to maintain production through the first quarter, disruption to global industrial production from China’s shutdown may turn out better than feared.

Meanwhile, Chinese authorities have implemented measures to ensure adequate financial liquidity provisions and other support to minimize firms’ financial hardship from the coronavirus quarantine. Economic policy makers around the world are also likely to support their domestic economies with additional liquidity provisions in the near term.

A sharp but transient decline in economic activity, together with additional liquidity provisions, leads us to focus on a sequential rebound in economic activity starting in early summer, if not sooner. Financial markets are likely to stabilize well before that.

Investment Implications

Before the outbreak, we expected the economy to continue on its pace of positive (albeit restrained) growth, supporting a continuation of our current positioning. We believed safe havens or crowded (and expensive) defensive trades would likely give way to more attractively valued cyclical industries and companies, as well as broader market participation.

We started to see this play out during the fourth quarter of 2019, where valuation as a factor was the dominant force driving investment returns, reversing course from the previous nine months. As we moved into 2020, optimism around a further cyclical expansion continued.

This led us to a strong preference for companies that demonstrated structural growth advantages, in contrast to the market, whose exuberance was evidenced by a sharp move higher in speculative shares and significant multiple expansion in software and semiconductors.

We were likely due for a pause, and the COVID-19 outbreak was just the event to tip market sentiment.

Thus, we were likely due for a pause, and the COVID-19 outbreak was just the event to tip market sentiment.

It has created meaningful uncertainty about the trajectory of global economic activity, impacting both aggregate demand and numerous supply chains.

Additionally, global crises (specifically those related to healthcare) and the unknown nature of the virus are particularly frightening. They play on our emotions.

All of this has combined for a major reversal of sentiment and a market correction—but given the transient nature of the situation, our outlook and portfolio positioning is largely unchanged, and we are actively looking for opportunities to add value during this period of dislocation.

Ken McAtamney, partner, is a portfolio manager on William Blair’s Global Equity team. Olga Bitel, partner, global strategist, and Camilla Oxhamre Cruse, Ph.D., global equity research analyst, contributed to this post.

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Von Der Leyen Speech Suggests Russia Dropped Nuke On Hiroshima 

Von Der Leyen Speech Suggests Russia Dropped Nuke On Hiroshima 

Von der Leyen just said what?…

This past Wednesday, President of the European…



Von Der Leyen Speech Suggests Russia Dropped Nuke On Hiroshima 

Von der Leyen just said what?...

This past Wednesday, President of the European Commission Ursula von der Leyen delivered a speech before the 2023 Atlantic Council Awards in New York, where she sounded the alarm over the specter of nuclear war centered on the Russia-Ukraine conflict. But while invoking remembrance of the some 78,000 civilians killed instantly by the atomic bomb dropped on Hiroshima at the end of WWII, she said her warning comes "especially at a time when Russia threatens to use nuclear weapons once again". She  actually framed the atomic atrocity in a way that made it sound like the Russians did it. Watch:

There was not one single acknowledgement in Von der Leyen's speech that it was in fact the United States which incinerated and maimed hundreds of thousands when it dropped no less that two atomic bombs on Japanese cities.

Here were her precise words, according to an Atlantic Council transcript...

You, dear Prime Minister, showed me the meaning of this proverb during the G7 summit in Japan last year. You brought us to your hometown of Hiroshima, the place where you have your roots and which has deeply shaped your life and leadership. Many of your relatives lost their life when the atomic bomb razed Hiroshima to the ground. You have grown up with the stories of the survivors. And you wanted us to listen to the same stories, to face the past, and learn something about the future.

It was a sobering start to the G7, and one that I will not forget, especially at a time when Russia threatens to use nuclear weapons once again. It is heinous. It is dangerous. And in the shadow of Hiroshima, it is unforgivable

The above video of that segment of the speech gives a better idea of the subtle way she closely associated in her rhetoric the words "once again" with the phrase "shadow of Hiroshima" while focusing on what Russia is doing, to make it sound like it was Moscow behind the past atrocities.

Via dpa

Russian media not only picked up on the woefully misleading comments, but the Kremlin issued a formal rebuke of Von der Leyen's speech as well:

In response to von der Leynen's remarks, Russian Foreign Ministry spokeswoman Maria Zakharova accused the European Commission president of making "no mention whatsoever of the US and its executioners who dropped the bombs on populated Japanese cities."

Zakharova responded on social media, arguing that von der Leyen's assertions on Moscow's supposed intentions to employ nuclear weapons "is despicable and dangerous" and "lies."

Some Russian embassies in various parts of the globe also highlighted the speech on social media, denouncing the "empire of lies" and those Western leaders issuing 'shameful' propaganda and historical revisionism.

Tyler Durden Sun, 09/24/2023 - 13:15

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Saudi Arabia Sentences Schoolgirl To 18 Years In Prison Over Tweets

Saudi Arabia Sentences Schoolgirl To 18 Years In Prison Over Tweets

Via Middle East Eye,

Saudi Arabia has sentenced a secondary schoolgirl…



Saudi Arabia Sentences Schoolgirl To 18 Years In Prison Over Tweets

Via Middle East Eye,

Saudi Arabia has sentenced a secondary schoolgirl to 18 years in jail and a travel ban for posting tweets in support of political prisoners, according to a rights group.

On Friday, ALQST rights group, which documents human rights abuses in Saudi Arabia, revealed that the Saudi Specialised Criminal Court handed out the sentence in August to 18-year-old Manal al-Gafiri, who was only 17 at the time of her arrest.

Via Reuters

The Saudi judiciary, under the de facto rule of Crown Prince Mohammed bin Salman, has issued several extreme prison sentences over cyber activism and the use of social media for criticising the government.

They include the recent death penalty against Mohammed al-Ghamdi, a retired teacher, for comments made on Twitter and YouTube, and the 34-year sentence of Leeds University doctoral candidate Salma al-Shehab over tweets last year.

The crown prince confirmed Ghamdi's sentence during a wide-ranging interview with Fox News on Wednesday. He blamed it on "bad laws" that he cannot change

"We are not happy with that. We are ashamed of that. But [under] the jury system, you have to follow the laws, and I cannot tell a judge [to] do that and ignore the law, because... that's against the rule of law," he said.

Saudi human rights defenders and lawyers, however, disputed Mohammed bin Salman's allegations and said the crackdown on social media users is correlated with his ascent to power and the introduction of new judicial bodies that have since overseen a crackdown on his critics. 

"He is able, with one word or the stroke of a pen, in seconds, to change the laws if he wants," Taha al-Hajji, a Saudi lawyer and legal consultant with the European Saudi Organisation for Human Rights, told Middle East Eye this week.

According to Joey Shea, Saudi Arabia researcher at Human Rights Watch, Ghamdi was sentenced under a counterterrorism law passed in 2017, shortly after Mohammed bin Salman became crown prince. The law has been criticised for its broad definition of terrorism.

Similarly, two new bodies - the Presidency of State Security and the Public Prosecution Office - were established by royal decrees in the same year.

Rights groups have said that the 2017 overhaul of the kingdom's security apparatus has significantly enabled the repression of Saudi opposition voices, including those of women rights defenders and opposition activists. 

"These violations are new under MBS, and it's ridiculous that he is blaming this on the prosecution when he and senior Saudi authorities wield so much power over the prosecution services and the political apparatus more broadly," Shea said, using a common term for the prince.

Tyler Durden Sun, 09/24/2023 - 11:30

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Biden To Join UAW Picket Line As Strike Expands, Good Luck Getting Repairs

Biden To Join UAW Picket Line As Strike Expands, Good Luck Getting Repairs

Authored by Mike Shedlock via,

In a symbolic, photo-op…



Biden To Join UAW Picket Line As Strike Expands, Good Luck Getting Repairs

Authored by Mike Shedlock via,

In a symbolic, photo-op gesture to win union votes, Biden will head to Michigan for a token visit.

Biden to Walk the Picket Line

Taking Sides

CNN had some Interesting comments on Biden Talking Sides.

Jeremi Suri, a presidential historian and professor at University of Texas at Austin, said he doesn’t believe any president has ever visited a picket line during a strike.

Presidents, including Biden, have previously declined to wade into union disputes to avoid the perception of taking sides on issues where the negotiating parties are often engaged in litigation.

On September 15, the day the strike started, Biden said that the automakers “should go further to ensure record corporate profits mean record contracts for the UAW.”

Some Democratic politicians have been urging Biden to do more. California Rep. Ro Khanna on Monday told CNN’s Vanessa Yurkevich that Biden and other Democrats should join him on the picket line.

“I’d love to see the president out here,” he said, arguing the Democratic Party needs to demonstrate it’s “the party of the working class.”

UAW Announces New Strike Locations

As the strike enters a second week, UAW Announces New Strike Locations

UAW President Shawn Fain called for union members to strike at noon ET Friday at 38 General Motors and Stellantis facilities across 20 states. He said the strike call covers all of GM and Stellantis’ parts distribution facilities.

The strike call notably excludes Ford, the third member of Detroit’s Big Three, suggesting the UAW is more satisfied with the progress it has made on a new contract with that company.

General Motors plants being told to strike are in Pontiac, Belleville, Ypsilanti, Burton, Swartz Creek and Lansing, Michigan; West Chester, Ohio; Aurora, Colorado; Hudson, Wisconsin; Bolingbrook, Illinois; Reno, Nevada; Rancho Cucamonga, California; Roanoke, Texas; Martinsburg, West Virginia; Brandon, Mississippi; Charlotte, North Carolina; Memphis, Tennessee; and Lang Horne, Pennsylvania.

The Stellantis facilities going on strike are in Marysville, Center Line, Warren, Auburn Hills, Romulus and Streetsboro, Michigan; Milwaukee, Wisconsin; Plymouth, Minnesota; Commerce City, Colorado; Naperville, Illinois; Ontario, California; Beaverton, Oregon; Morrow, Georgia; Winchester, Virginia; Carrollton, Texas; Tappan, New York; and Mansfield, Massachusetts.

Contract Negotiations Are Not Close

Good Luck Getting Repairs

Party of the Working Cass, Really?

Let’s discuss the nonsensical notion that Democrats are the party of the “working class”.

Unnecessary stimulus, reckless expansion of social services, student debt cancellation, eviction moratoriums, earned income credits, immigration policy, and forcing higher prices for all, to benefit the few, are geared towards the “unworking class”.

On top of it, Biden wants to take away your gas stove, end charter schools to protect incompetent union teachers, and force you into an EV that you do not want and for which infrastructure is not in place.

All of this increases inflation across the board as do sanctions and clean energy madness.

Exploring the Working Class Idea

If you don’t work and have no income, Biden may make your healthcare cheaper. If you do work, he seeks to take your healthcare options away.

If you want to pay higher prices for cars, give up your gas stove, be forced into an EV, subsidize wind energy then pay more for electricity on top of it, you have a clear choice. If you support those efforts, by all means, please join him on the picket line for a token photo-op (not that you will be able to get within miles for the staged charade).

But if you can think at all, you understand Biden does not support the working class, he supports the unworking class.

Tyler Durden Sun, 09/24/2023 - 10:30

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