I’m posting this from an undisclosed location, as I’m out kicking rocks on behalf of subscribers to The Independent Speculator. Getting here meant sitting for hours in a sealed aluminum cylinder with wings, breathing the same air as hundreds of fellow passengers. It also meant touching doorknobs, handles, seat buttons, and countless other objects handled by others. I had to hand my passport to airline employees, customs officials, and security personnel who spent the day within sneezing range of the thousands of people they serve.
Normally, I just take some vitamin C and don’t worry about this sort of thing.
But I have to admit that with the 2019-nCoV outbreak spreading from China, I was tempted to just stay home. The latest figures as I type include about 3,000 cases and 81 dead.
If this company research weren’t so pressing, I would have cancelled the trip.
As it was, I’ve never seen JFK’s international Terminal so deserted. I was able to walk up to the check in counter and sail through security and boarding with only a handful of people in front of me.
The new coronavirus seems less deadly than the SARS outbreak of 2002 or the MERS outbreak of 2012. That’s very good news. But it’s still early in this episode. Authorities don’t know how contagious it is, how many ways it can be transmitted, and a host of other things. If this thing were half as deadly as SARS but spread five times faster, it would get very bad.
What we do know is that cases have been reported in the US, France, Thailand, South Korea, Vietnam, Singapore, and more countries. It is spreading fast.
This could be the long-awaited black-swan event that sends gold and silver soaring—but I sincerely hope not.
I don’t want to get rich on the basis of something that kills a lot of people. That aside, frequent travelers like me are vulnerable. Who’s to say I won’t get dead instead of rich?
That’s an unanswerable question.
What is evident now is that this will have a significant impact on the Chinese economy, and hence the world. The higher oil, copper, and iron prices I’ve written about recently have already gone into reverse.
In my January 18 weekly Speculator’s Digest, I wrote:
I bring this up because I do see a new data that could signal a bullish trend for industrial minerals ahead… Note that I said “signal,” not “prove…” Any one of these indicators could evaporate in a flash.
My bottom line was that I want to focus on finding more great gold and silver speculations—especially silver—not copper, iron, or other industrial minerals plays. I’m sure glad now that I was cautious.
Flash forward a week…
It’s important to understand that the new outbreak doesn’t have to be as devastating as SARS to have a powerful economic impact. People aren’t waiting to find out how bad it is; the news is full of reports of folks cancelling travel plans. Hotels, airlines, and other travel-related businesses are taking a big hit. And that has oil on the retreat as well. All sorts of businesses in tourist destinations are obviously in the crosshairs, but what ails them will affect their suppliers, creditors, and others.
I saw this first hand as I travelled over the weekend.
I searched for data on the economic impact of past outbreaks, but a comprehensive summary didn’t turn up. I found a 2005 study that estimated about a 9.2% GDP growth reduction in China and similarly strong impacts on other Asian economies if there were another outbreak in 2006. A more recent simulation projected a 0.7% decrease in global GDP if such an outbreak reaches pandemic levels. It also predicted 65 million deaths, if the virus proved resistant to vaccination.
Could US investors shrug something like that off? Marketwatch published an article showing that past outbreaks rarely sent the S&P 500 lower over the following six and twelve months. But the S&P 500 isn’t the world—and the world is more interconnected and interdependent every year.
I can’t tell you what the total economic impact of this outbreak will be. Since there’s still so much we don’t know about this virus, any current estimate would just be a guess.
What I can tell you is that there’s going to be a huge cost. With some winners and a lot of losers. That’s already baked in the cake.
I’m reminded of something James Burke said in his groundbreaking magnum opus, Connections. He made the case that the Black Death that so ravaged Europe in medieval times was the very same historical force that resulted in the Renaissance.
How?
The survivors inherited a lot of money. Wealth became concentrated among fewer people—and they spent it. They invested it. They fostered scholarship with it. They rebuilt the world with it. This response was one of the greatest economic, cultural, and artistic megatrends in all of history.
Problem is, we had to go through the Black Death to get there.
So no, I don’t want this outbreak to get worse. I truly hope Chinese efforts to quarantine affected populations and other preventative actions taken around the world stop it—and fast.
We’ll find out soon enough.
Meanwhile, I’m sticking with the strategy I’ve already outlined for 2020: focus on precious metals, especially silver. I’m keeping my “swing for the bleachers” bets on uranium for diversification. I’ll come back to industrial metals when I’m sure that trend is on a solid, upward track.
That’s my take.
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