I originally thought about titling this post “Obligatory Coronavirus Post” but then realized it isn’t really obligatory, is it?
I’m watching the news, articles, reactions, and memes about COVID-19 with fascination.
In early January[1] I saw a few memes like this one:
I laughed, upvoted, and then forgot about them.
Then on January 11th the first coronavirus death was recorded, and within a few weeks the new virus was sweeping the world (figuratively and literally).
It’s shaken the stock market, emptied grocery stores of toilet paper, and gripped our collective conscience like few other things have in recent memory.
During this time I’ve read various arguments on both sides of the “stocking up on masks and TP” debate as well as stock market and supply chain effects; this made me review my recession indicator dashboard and dividend investing strategy with some caution.
As I’ve gone through these topics, I wondered if we’re on a similar path to a broader economic recession in ~1 year as we saw in 2007-2008.
That is, it won’t be the virus that directly causes a financial crisis, but the ripple effects that surface after, when the economy is weakened- just like how the housing market’s decline set the stage for imploding derivatives and banks later on.
To illustrate: there are reports that shipping is decreasing, and areas that are heavily dependent on shipping could lay off workers since there are fewer things to unload. That ripples across the supply chain; e.g., truckers have less work since there are fewer things to ship from the boats, and other workers have less to do since they aren’t receiving shipments from the truckers, so all of the workers spend less on cars, food, clothes, etc. which results in lower demand and therefore lower profits at the companies that make those goods, so more layoffs happen and then the cycle continues…those who are laid off miss payments, loans default, and highly leveraged assets become unstable.
I’m not saying this to panic or get you to panic; instead, I’m trying to look at things logically, in part based on books I’ve read about the what lead up to the financial crisis and trying to prepare for what may happen now.
I’ll note that this time around the Fed has eased quickly (compared to 2007/2008), however given their accommodative policy over the past decade I do wonder how much that will help by itself…so prepare for more QE perhaps?
[1] The timestamp of this meme is January 4th. Uncanny.