Coronavirus is coming to the United States.
“It’s not so much of a question of if this will happen anymore,” Nancy Messonnier, Director of the National Center for Immunization and Respiratory Diseases (NCIRD), said in a Wednesday briefing, “but rather more of a question of exactly when this will happen.”
Immediately after the NCIRD briefing was released, the stock market sold off for a third day in a row.
“We are asking the American public to work with us to prepare, in the expectation that this could be bad,” Messonnier added.
Coronavirus is already a full-blown crisis in multiple countries outside of China. There are empty store shelves in Italy, lines for masks in South Korea, and a sudden spike of reported deaths in Iran.
Based on data collected by Johns Hopkins University, the coronavirus death toll as of this writing is 3.4%. If that percentage holds, the mortality rate will be higher than the infamous Spanish flu outbreak of 1918.
A big part of the problem with coronavirus (or COVID-19), is the mix of mild and severe reactions.
If someone contracts the virus, the odds are roughly 80% that the symptoms will be mild. But that leaves a 20% chance of hospitalization, and from what we know so far, a higher than 3% chance of death.
The “80% mild” characteristic explains why the virus has gone global. Being infected is either a low-level annoyance or a deadly health emergency; there isn’t an in-between.
And because 80% of carriers have mild symptoms — or, for an unknown period, no symptoms at all — it is easy for carriers to move about in public without knowing they’re infected, until and unless the symptoms start to worsen.
That is why cases are springing up in more than two dozen countries outside China. We are also finding out about underreported or asymptomatic cases that were simply missed before.
As of this writing, the World Health Organization (WHO) still refuses to label the coronavirus a “pandemic,” a term for global disease outbreaks. WHO is hesitant to apply the pandemic label on the grounds of not wanting to scare people.
But with dozens of countries reporting cases, WHO’s foot-dragging looks increasingly foolish. This is true even more so because so-called “pandemic bonds,” issued by the World Bank, are just a single death away from triggering a nonpayment clause.
In 2017, the World Bank issued $320 million worth of pandemic bonds. The bonds were designed to raise money in the event of a global outbreak.
The idea was that, as long as no pandemic occurred, investors who bought the bonds would receive regular interest payments. But if the official conditions of a pandemic were triggered, the $320 million raised by the bonds would not be paid back, and would instead be used to help fight the infection.
According to the payout rules for World Bank pandemic bonds, an infectious disease has to cross an international border and cause at least 20 deaths in a country other than the origin country. This is the official “pandemic” threshold, with contractual financial consequences.
To that end, Iran is reporting 19 deaths as of this writing. With just one more instance, pandemic conditions will be met.
Alex M. Azar II, the secretary of Health and Human Services, gave testimony to the U.S. Senate on Tuesday, Feb. 25. “We cannot hermetically seal off the United States to a virus,” he said. “And we need to be realistic about that.”
Hopefully, the impact within the U.S. will be mild. As of this writing, there are only 57 reported American cases, with 40 of those related to a cruise ship docked in Japan. But as the NCIRD has pointed out, we simply can’t know how bad this will be.
One of the best ways to track the coronavirus is via the Johns Hopkins Global Cases dashboard, which you can access via this link. There is also a mobile version, which you can access here.
The desktop version shows a bubble map of outbreak intensities all over the globe, along with a running tally of total cases, confirmed fatalities, and confirmed recoveries. You can click on the data breakout by country or region to navigate the map.
For equity markets, the main question is one of economic impact. Business threats include supply chain disruptions, reduced consumer spending, and drop-offs in travel activity and general business activity.
For the United States in particular, the economic fallout tab is a big unknown. It depends on how hard the coronavirus will hit, which is hard to know; how long outbreak conditions will last (whether weeks, months, or longer); and most unknowable of all, the level of psychological impact.
As a general rule of thumb, panic is rarely a good idea, but risk management is always a good idea. Keeping that in mind, it makes sense to be aware that this could get worse — while holding out hope that it doesn’t — to avoid being blindsided if worse scenarios come to pass.
In terms of portfolio holdings, it’s also a great time to refamiliarize with TradeStops, and to do a general check of risk levels and exposures in portfolios. Companies and industries directly impacted by coronavirus fallout could bounce back quickly if the U.S. gets an “all-clear” relatively quickly; but if a darker scenario plays out, they could have a great deal further to fall.
