Worried About The Coronavirus Impact On Markets?

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At the end of 2019 after the Portugal Chautauqua, we decided to fly over to Asia to spend the winter months escaping the snow and chilling out on the beach. We’ve been to Asia before and loved it, but this time something was different. In the middle of December, we started hearing about a mysterious flu-like disease coming out of Wuhan, China. Little did we know that we were witnessing the start of the coronavirus epidemic that would eventually spread all over Asia, and then even beyond that.

This isn’t the first time we’ve ran into news events during our travels. The first time we were in Thailand, there was a terrorist bombing of the Erawan shrine in Bangkok. And when we were in Kuala Lumpur, terrorists had issued a direct threat against the city. But in those incidences, rather than flee in terror, we chose to take normal precautions but continue living our lives just as millions of people in those countries do every day.

So rather than leave Asia, we chose to stay. It’s a decision we still don’t regret, but as a result we got to see the coronavirus crisis unfolding right before our eyes. And this is what we saw.

The Coronavirus Paranoia Is Everywhere

In those past incidences, while people on the ground were definitely concerned, the impact was mostly relegated to hushed conversations around a coffee shop. Yes there might have been terrorists running around Kuala Lumpur, but nobody expected that they personally would run into them, and even if they did, there was very little they could do to avoid such a chance encounter. Nobody stopped living their lives or changed their behaviour in a major way just because some undefined bad thing could potentially happen.

The coronavirus is different. Everyone’s talking about it, everyone’s constantly checking the latest infection numbers, and news travels fast.

As soon as a new transmission is reported in whatever country we’re in, people flock to the pharmacies and buy up all the face masks and hand sanitizers. We were lucky to snag some face masks ourselves, but it’s been weeks since we’ve seen hand sanitizer in pharmacies, and we’ve basically given up asking because the answer is always the same.

And we’re also seeing temperature checkpoints everywhere. Especially in Singapore, on a typical walk through the city we would have our temperature scanned either by IR cameras or with ones of those nifty laser thermometer things at least 4 or 5 times a day.

They are taking things super serious over here, and no wonder because…

A Coronavirus Outbreak Means Travel Restrictions

For most the outbreak, the most visible travel restrictions have been put on people from China and related territories (Hong Kong, Taiwan, Macau), and what’s notable is that those restrictions apply even to people just transiting through those airports. Which effectively means once a country gets put on a travel restriction list and you’re in that country, you’re essentially trapped there until this whole coronavirus crisis is over.

So for nomadic people like us, we have to be super on top of what countries have cases so we can get out before it gets really bad and we get trapped. Before, that just meant staying out of China, but now other countries are starting to get added to the banned list like South Korea and, bizarrely, Italy.

We’ve gotten pretty lucky so far, but it’s definitely playing geographic arbitrage on hard mode. However, it’s been interesting because wherever we do go the locals here have been super welcoming, because…

The Tourism Industry is Getting Hammered

Richard Branson has a famous saying that in order to become a millionaire, simply become a billionaire first, then start an airline company.

Whenever any disaster or major geopolitical event happens in the news, no matter what the tourism industry gets hit first, and hit hardest. And in Asia right now, the impact is enormous.

For people in the West, you may picture Chinese tourists as the odd gaggle of older people piling off buses around monuments like Mount Rushmore, but for South East Asia, Chinese tourists are an economic tsunami of money. Last year, Chinese tourists spent over $250 BILLION dollars, and as such many countries in SE Asia have reconfigured their entire economies around this influx of money. In places like Thailand you’re now more likely to see shops advertise in Mandarin than Thai.

That money has now dried up, and the impact has been huge. Before we left Thailand, the normally bustling beach towns were completely emptied out, and economists are now projecting that some of these countries are going to fall into a recession because of it.

The importance of the Chinese can best be summed up in a story. While in the West, we’re starting to see incidents of xenophobia and racism directed against anyone of East Asian descent, in Asia it’s been the opposite. In Thailand, when a taxi driver who was ferrying Chinese tourists caught the coronavirus, he was quoted in the news as saying “I never have a bad feeling about tourists or Chinese people. They are fellow humans. Tourists provide me with a living so I can support my family.”

Rather than a sentiment of “Chinaman, go home,” we saw signs in stores saying “Get Well Wuhan, and Please Come Back Soon!”

It’s a…different environment.

We Are Closer to a Cure Than You Think

This hasn’t really been reported all that much in Western media for some reason, but in Thailand this was big news, because in Thailand, the doctors seemed to have stumbled on an effective treatment for the coronavirus.

In early February, a 71-year-old tourist from Wuhan became ill in Bangkok and was hospitalized in the ICU. As her condition worsened, Thai doctors pulled what can best be described as a medical Hail Mary and put her on an antiviral drug cocktail meant for HIV patients. To everyone’s surprise, within 48 hours she was cured. Intrigued, they tried the same treatment on another patient and they too recovered.

As Coronavirus spreads, Thai doctors Discover a Promising Treatment

~~ Ecowatch.com

As the crisis has continued, doctors in Thailand have continued experimenting and improving this treatment, dubbed by the local media as the “Thai Cocktail,” and have basically been able to treat every serious case of coronavirus they’ve encountered. While the infection rate and death count continues to climb around the world, Thailand’s death count stands right now at zero.

So we know how to cure it. The issue is that Western regulators haven’t caught up yet.

But they are working on it. The success in Thailand has caused US drug companies to fast track human trials to figure out which antiviral in the so-called Thai Cocktail did the trick, and how effective the treatment actually is on a larger scale. Testing has already begun in the US on the people evacuated from the Diamond Princess.

The US has started human testing of a drug to treat the novel coronavirus

~~ CNN

Is It Time To Panic?

In short, probably not. The coronavirus is no picnic, but this is not the world-ending pandemic that the media seems to want to portray it as. And while containment efforts around the globe have been, shall we say, a mixed bag, the development of an effective treatment appears to be right around the corner. Maybe this is the eternal optimist in me talking, but despite the alarming spread of the virus in Europe and the Middle East, coronavirus cases in mainland China have started to slow. Once this treatment gets properly tested and rolled out worldwide, I think we’re going to see the beginning of the end of this pandemic.

Don’t tell that to investors though. Over the past week, global stock markets have been hammered, with the Dow Jones suffering it’s all-time biggest single day loss of 1200 points on Thursday as the crippled Chinese economy impacts global supply chains for everyone from Apple to Volkswagon.

So what’s a stock investor to do? Well, if you’re still in the accumulation phase of your FIRE journey, this is a massive buying opportunity for you. Everyone who’s been emailing me for weeks whining about how overpriced the market has been now has the opportunity you’ve been waiting for.

And for retirees like us who need that money to live? All I can say is thank goodness I’ve set up my Yield Shield. Because I no longer depend on capital gains to fund my living expenses, I really don’t care about the stock market plunges at all. As long as I can live off my yield (and my cash cushion), I’m not worried at all.

How about you? Are you worried about the coronavirus outbreak? Do you think it will cause a global recession? And if so, are you planning on doing anything about it? Let’s hear it in the comments below!


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65 thoughts on “Worried About The Coronavirus Impact On Markets?”

  1. Currently in Ko Lanta. Definitely less tourists than a couple weeks ago. And mostly Europeans now. Chiang Mai was pretty much out of hand sanitizer and face masks. I’m trying to keep my powder dry, but I couldn’t help buying a bit of VUSA today. Will by more as this progresses.

      1. Ok, so what will be your buy in point, as markets climbed today? I am sure if I read back thru your investment course I could figure it out, but I’m too lazy, so I am just curious, how does a person know when to convert funds from cash to equities?

        I can see a new post here… Buyin on the Dip ? The R word is being spoken more and more, especially with Canada following suite with a 50 point drop in interest rates this morning.

        cheers

  2. You are so right. This is the time to buy. Although it’s depressing to see my investment account lately, on the upside, I can pick up more of those cheap stocks/ETFs. I wish I had more money to invest on a time like this.

  3. Last November I reallocated $50k from VTSAX into VBTLX. If the market drops another 5% or so in the next week, I’ll probably shift it back. But we’re an easy ten years out from even thinking about drawing down.

    What am I doing? I’m applying for a more lucrative position with a brighter future within my company, once my professional editor wife puts the finishing touches on my resume. A five-figure raise would allow us to not only max out our retirement vehicles but also put after-tax dollars into some Vanguard funds so we won’t have to bother withdrawing tax-advantaged assets. 😀

  4. Great article!
    For those of us still in accumulation phase (or at least 0% SWR) or have implemented the great Yield Shield strategy from your book, this is a great buying opportunity or an opportunity to flex those “stay the course” muscles.

    Those who are on the FI path are also probably enjoying the additional resilience that FI offers – less worry about Coronavirus-related income loss if workplace is shut down, time to prepare, and ability to maintain immune system through proper rest, diet and exercise.

    Now back to our regularly scheduled lives…

  5. We are able to completely live off dividends, so the market drop is not a huge concern. In fact during this drop a few of our major holdings have announced dividend increases!
    Wish we had more cash to pump more in, but at least we can get a small amount in via dividends.

    In Spain now where the number of cases have started to climb slightly, not an outbreak as most cases are connected to Italy.

  6. I’m not worried about this correction, and I can never resist a sale on securities, so I bought in this morning. I had just pulled some of the money out of stocks to buy bonds and make my portfolio more conservative. Bonds have gone up since I bought in so I got to sell those at a profit. I love it when that happens! Ill rebalance when the market goes back up. I don’t think it will be long.

  7. “”Well, if you’re still in the accumulation phase of your FIRE journey, this is a massive buying opportunity for you. Everyone who’s been emailing me for weeks whining about how overpriced the market has been now has the opportunity you’ve been waiting for.””

    I am still 15 or so years from retirement.

    This week I have bought a couple more shares of individual dividend stocks (UPS, Kroger, Shell, Kraft, Southwest, etc…) on Robinhood to take advantage of the downturn. I have a portfolio of 10 or so different stocks, and the profile is under $5k total as it’s my “fun” money, and individual stocks are fun for me.

    However, I am still not seeing VTI lowering THAT much for my Vanguard 3-fund portfolio. I purchased VTI for $145 today. But I purchased it for $119 just 2 years ago. I would love to dump money into my VTI/VEU/BND right now, but I’m just not seeing the dip to be that massive.

    What is everyone doing to take advantage of this temporary downturn? What SHOULD I be doing to jump on board to this massive buy opportunity?

    Thanks!!

  8. Jeremy will get hammered, but not me, I don’t buy the “time to buy” thing, well because it is still timeing the market. 2009 – 2020, Eleven years of a Bull market, we are due for a correction, so you should have already been prepared for it. All it needed was an excuse and now we have it. For the last 3 years i have been rebalanceing into non Equitys, keeping my Dividend fund, and even found out that my direct investment account will allow me to buy RBC D series bond funds, with no commission. What you need is a strategy to find the bottom of the downturn/Recession, if it happens… I use the 6/3 method. both the 3 month, and 6 month average of the market must be in positive or stable territory before committing back to Equities… and then, only after a 25-30% drop… else just keep balancing.

      1. Yes, in a way but it builds in some restraint. Instead of looking at a static market drop of 10, 15, 20% before making a 100% move into equities, at least you hold off until the short term (3month) and longer term (6month) is stable. And then instead of one big purchase, you average it out. And only to bring your accounts back into your proper Balance.

        The other method would be just keep your Finances balanced at a 60/40 split, and if a recession happens, rebalancing takes care of it…

  9. I needed your calming voice (as well as JLC!). Appreciate this! Thinking about putting all my future contributions into my large caps until this subsides (FSKAX)

  10. This is the only positive piece I have read thus far in terms of a coronavirus update, so thank you. I know to hold steady with my stocks and not pull the plug while things aren’t low. Wish I had cash to buy more…but unfortunately I did that one week before the fall began. Oh well.

      1. I keep a plastic handle jug o’ vodka in the door of the fridge for making pie crust (it inhibits gluten formation better than water, the pie crusts are flakier, it’s worth it). The stuff costs like eight bucks. It isn’t exactly “good vodka”; it’d be great for sanitizer duty. 😉

  11. Great, informative article. Please stay as safe as possible! I was already 50% cash in my “fun money” account. Bought CODX at $2…now over $15! Bought APT at $5….now $25! Got in and out of some CV related stocks and mostly made out well. Also bought CAT and DIS…will get more next week as this Market goes down a few more days. Good luck everyone!

  12. It’s interesting that you haven’t seen any negative attitudes towards Chinese travelers. I’m “nomading in hard mode” in Vietnam and have seen a few signs from businesses refusing to accept Chinese customers, including a coffee shop and a hotel. That was mostly in the North though. Central Vietnam seems a little more chill about it.

    Best of luck out there!

  13. The 12% hit we’ve seen thus far is from initial panic. Earnings for Q1/Q2 will be hit, which we’ll start to see in late April and into June, and this isn’t currently priced in……looking at possible 20% to 40% haircut on S&P 500 (from recent 3300-ish high) by mid-Summer. Throw in election volatility and we could see a 50% haircut by mid-Fall…

    …or, we could all wake up next week and everything returns to normal as if nothing ever happened……who really knows ?

  14. I was in Thailand when the outbreak really kicked off in January. I came back to China mid February and have started working and living as normal – mostly. Masks everywhere, temperature checks and signing into any buildings you enter.

    With all the intense containment efforts in China, I’m starting to think this is one of the safer places to be soon. At least outside of Wuhan.

    Been working none stop with having to be at home whenever not at work. Loving this downturn with all the sale prices!

    Teaching ESL (online currently for most) in China is still a great hustle 😀

    Colby @ That Charles Life

  15. We’re just four months from retiring! Fortunately, we have a five year cash cushion in place so we’re not too concerned. My wife has stocked our freezers and cupboards to breaking point. We have half a dozen large bottles of hand sanitizer (I’ll be posting three of them on eBay at $1,000 each). So, I guess we’re as ready as we can be.

    Thank you Millennial Revolution for opening our eyes to the ‘cash cushion’.

  16. I’m kinda curious to know what’s the best time to rebalance the portfolio from fixed income to equities. With equities at around -10% or so, I’m getting tempted but it still seems early. Should it be when it hits -15%? -20%? Bryce, what are your thoughts?Anyone else have a thought on this, please chime in.

    1. Look for stability over a 6 month period, decide the balance you want to achieve, then dollar cost average your purchases over a 6 month period. I usually do 6 equal purchases but will allow a hold off if the market is declining. This worked great in 2009.

      Never, Ever, buy down. I got killed in the Dot Com bubble.

  17. Interesting post, thank you.

    I think the issue with relying on a dividends during these times is that there’s a very big chance that they will fall.

    If people aren’t spending as much money on travel, services, eating out, goods, etc…, then companies aren’t taking in cash, which means that they either can’t pay a dividend or that they will need to cut their current dividend.

    This literally applies to everything;
    – fewer people heading out for social events means less cash to distribute for owners of cinema chains, restaurants, sports events, etc…;
    – Less travel means fewer tourists, which means local rents go down as supply increases, REIT dividend yields therefore go down.
    – Even the online-only players, eg Netflix, will be affected as if workers aren’t being paid, then these companies are at risk of losing their repeat customers, therefore less cash, less dividend payments (NB: I am aware that netflix does not pay a dividend).

    You might be lucky with government bonds right now, but they will be increasing in price and they don’t really pay out much these days.

    So nearly EVERYTHING is at risk – capital increases & dividends.

    As for there being a “cure”, I believe that trials for whatever is being worked on are expected to take place no sooner than June at the earliest, but then those trials need to give positive results, then mass production needs to take place. That specific resolution therefore seems an awfully long time away. But to be honest, I’m no scientist so what do I know?

    As an investor myself I have taken my own precautions, but it did not involve buying more or relying on dividends. I of course have no idea if that’s the correct solution.

    Good luck to everyone out there!

    1. Dividends didn’t get materially cut during 2008/2009, and that was when the US was the epicentre of the disaster. This time, the US is NOT the epicentre of the disaster, so US companies should be shielded enough to withstand the impacts.

      1. Hi Wanderer,

        I had a quick search on the history of dividends during 2007-2009 and from what I can see there was indeed a spike in dividend “yields”, which was caused by a crash in prices.

        Entering 2009-2010 the dividend yields then dropped to mirror the preceding share price falls.

        An example:
        1 – So imagine your share is worth $100 and pays a $10 dividend, the yield is 10%

        2 – If the price crashes to $50 and still pays that $10 dividend, then the yield is now 20%.

        3 – That might sound great, but your capital is significantly down and after the Crash it took many years for prices to recover and capital to be recouped.

        4 – It’s also worth pointing out that if there’s less cash in the economy, then it is inevitable that the $10 dividend might subsequently drop to something more reasonable, such as $5 (so back to a 10% yield).

        This is what happened between 2007-2010.

        I’ve no idea what will happen this time, but I think it’s important to recognise that if a share or REIT or whatever is yielding a high dividend, it “usually” (not always) entails a higher underlying risk.

        1. Spot on with this assessment on div stocks. they are as volatile as equities and don’t belong under a fixed income type of grouping for stability

  18. I compare things to what I know. A normal event, assault attack or whatever people can see and have some feeling they can effect the outcome so it’s scary but manageable.

    Something like a outbreak/pandemic is like walking across a minefield. Most likely you would be fine but the unknown and the knowledge of the danger gets in people’s heads because they feel zero control and begin to panic.

    As far as the markets, magnify the panic and add it computer modeled trading and you have uncontrollable sell offs.

    It’s a heck of a good time to buy if you have the money in my opinion. People will get better eventually and the spread will reduce. Once that happens all of the business that was slowed will open the floodgates and push forward.

    Essentially your putting money on the idea others want to make money running a business. Unless the concept of success goes away the market will always grow because people have an internal desire to succeed.

    Just a daily thought.

    1. Exactly. Chad, your perspective is always greatly appreciated.

      Unless humanity gets wiped out (it won’t), people are eventually going to get better. And then there’s going to be wave of pent-up demand as people go back to normal and that’s when markets will rebound.

  19. I’m curious if everyone was buying back in September when the S&P was at the same value it is now? All the media at the time was saying stocks were crazy high as the bull kept charging, so if the market has corrected the clock back six months do we still think the prices are high?

    Something to think about.

    Personally I was buying then and I’m still buying now. I’ve been buying as the market marched upwards these past couple of years, so a dip will get me some dollar-cost averaging. Of course I have the time horizon to weather such storms.

  20. Well, much as I always believe that “pandemics” are actually due to the news trying to distract us from something else that’s going on, I was getting a bit worried because…how could you not? But it helps a lot to know that there’s already a cure. Hopefully that will spread soon, too!

    I wish I had a bit more money to take advantage of the dip. Ugh, so frustrating.

    1. Yup. Thailand, Singapore, and Vietnam have all done a surprisingly good job of handling this outbreak despite being so close to China. South Korea and Iran…less so.

      1. Don’t just look at the high infection numbers. The reason why Korea has such a high figure is in large part because it is actually testing waaaay more people than any other country (near 200k tests conducted, compared to US which only had done 500 tests at the start of this week). I imagine there are many undetected cases especially in developing countries which don’t have testing capabilities/resources (Philippines and Indonesia, India, looking at you). Really have to factor that when more tests done will of course = more positive infections. From that standpoint, Korea is actually doing a fab job.

      2. I wouldn’t call it good job yet since it’s just beginning of pandemic and most of countries don’t even have proper test kits yet. Most of infectious disease expert are saying the peak is still 10-12 weeks ahead. Also, it’s dream talk if you think we have a cure for this virus.

        I think we need to have a look at how many testing is done if we want to have a good analysis about the situation in each country.

        https://www.worldometers.info/coronavirus/covid-19-testing/

        Like ‘basketcase’ said, the country like South Korea is doing fantastic job testing mass population and successfully managing the number of new cases.
        If you don’t do testing, you don’t have a case and that mean you don’t have a death related the virus. That’s a recipe for disaster.

  21. The latest count is one death in Thailand. Supposedly, that person had denge fever too so who knows.
    I suspect the case count is much higher too. Probably not too many test kits available there. It’d be great if the cure really works. We’ll see how it goes.

    The run on hand sanitizer has started after we got 2 cases in Oregon. I went to the grocery store yesterday and the soap shelves were almost empty. I should pick up some extra hand sanitizer while we can.

    1. They were actually able to get him treated to the point where he tested negative for COVID too! Apparently the damage already done to his organs from both COVID and Dengue was too much for him. Poor guy…

  22. with respect, I’d suggest leaving declarations of a cure to health professionals directly involved instead of spreading false hope based on a layman’s speculation.

    1. I agree. The statement “So we know how to cure it. The issue is that Western regulators haven’t caught up yet” is completed unwarranted. I don’t blame doctors in Thailand for trying a variety of treatments but as a mentor of mine once said, “the plural of anecdote is anecdotes, not data”. At best this is a treatment regimen to explore but more than likely this is just a financial blog committing the old post hoc ergo propter hoc fallacy we see in medicine all the time.

  23. I am a Caucasian American and I’m not afraid of Asians, or I would have to be scared of my own husband and kids who are part Chinese. Anyways, he has never been to China and many Asians are born here, and if they traveled here they had to make it through temperature checkpoints… Anyways I’m not scared of my asian neighbors either. My husband’s spirit guides told him in dream to have us take lots of tumeric to keep from getting sick. They called it the “king of herbs” I would like to point out that we have a responsibility to not buy things made by people who are overworked and live in overcrowded conditions. It has become increasingly important to value human lives with our dollars, if that means thrifting or paying for fair trade. We need a culture that values human life and never lets people work when sick or go to school sick and gives sick pay.

  24. Thanks for this post, really appreciate what you guys do! Question, I really wanted to take advantage of the sales and buy some VTSAX or it’s ETF counterpart VTI but been stocking up on cash 💵 so I have 1 years worth of expenses, only have 4 months max at this point. I have a steady job. Will appreciate your input very much. Be safe out there guys!

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