In today’s Money Weekend…the data isn’t propaganda or ‘spin’…stay away from this lot…if you missed the first wave, don’t jump in now thinking they’ll boom again…and more…
If you had a read of Thursday’s Money Morning, hopefully I put some of this ‘crisis’ into perspective.
Considering the economic devastation imposed by the government, you’d expect mass graves and bubonic plague-style obliteration of the population.
Instead the net loss of lives compared to normal is around 20. That’s when you factor in the coronavirus deaths and reduction in lives lost on the roads since the start of the year.
What’s also worth considering is when you look at the demographics of the virus, it’s quite ‘ageist’.
The data isn’t propaganda or ‘spin’
Data from the Office for National Statistics (ONS) here in the UK presents some eye-opening stats.
According to their numbers to 16 April 2020:
- Zero people have died from coronavirus under the age of 15.
- Total deaths of the working age population (16 to 64 inclusive) is 1,704.
At the end of 2019, 41.38 million people in the UK were aged between 16 and 64.
Thus, to 16 of April 2020, 0.0041% of the working age population had died from the coronavirus.
Of course, the expectation is that number will tick higher in the next couple of weeks. Albeit nominally, as the death rates have plateaued and are expected to drastically reduce.
The reason I use the UK’s stats is because the ONS is very good at updating figures. Also the situation in the UK is said to be ‘dire’ and ‘devastating’ with regard to the coronavirus.
And I don’t dismiss those who have died from it having a devastating impact on their families.
I just find it hard to reconcile these sorts of numbers with the economic response from government and central banks.
Also while those are UK numbers, it’s clear to see that the numbers would be even more eye-opening in Australia, where today the coronavirus death toll stands at 76. And we know that it is worse the older you get.
And according to the Australian Bureau of Statistics, at 30 June 2019, 65.4% of the population was of working age. With an estimated population of around 25.3 million people, that means around 16.54 million Aussies are of working age.
Now even if all those deaths were of working age people (which I’m confident they aren’t), that would mean 0.000459% of deaths of the working age population in Australia.
That’s an improvement over the UK to a factor of 10.
Maybe it’s just me?
But don’t you find those numbers hard to reconcile with unemployment ready to spike to over 10%, $261 billion in economic stimulus, and lockdown of the population with no clear end in sight?
I’ll leave it to you to make up your own mind on that.
What we are faced with however is a delivery that’s as terrifying as a Brett Lee bouncer at the WACA.
Regardless of the stats, regardless of the reaction to the virus, we have a very volatile, uncertain, and strange market.
The perfect example of the weirdness was WTI crude oil prices heading into negative territory this week. You’ve heard enough about that already I’m sure, so I won’t talk about it much more.
But it shows you that we’re hitting historic mark after historic mark thanks to this global crisis. Unemployment spikes, PMI crashes, market crashes…even Hollywood box office takings have been $0 for weeks now — which has never happened before.
As I say, historic times.
Which means in the midst of these weird, historic times, what should you do with your investments? Well, when it comes to stocks, I’d be stockpiling cash right now, but with the hammer cocked and ready to fire at a moment’s notice.
I think people are fast wising up to the fact that the virus crisis isn’t the real crisis to worry about. It’s now an economic crisis caused by political ineptitude and mainstream media hysteria.
This creates an ongoing disjoint between truth and perception.
And that creates pockets of opportunities. But it also creates pits of disaster. That’s why it’s equally as important to stay away from the duds as it is to pick out the winners.
Stay away from this lot
Now, there will clearly be some areas of opportunity, which we’re seeing in technology companies mainly right now. Those that are able to tap into remote working/education and connectivity during this lockdown are doing well.
But that doesn’t mean you should dive in headfirst.
In fact, these may be precisely the kind of companies to steer well clear of.
If we come out of lockdown and return to normal operations, then all these online providers are going to find a swift and dramatic fall in user numbers.
The thought that all these new users will be ‘sticky’ and hang around, I think is false.
Think about a company like Zoom. They offer a free service. It has limitations because of that. And for the more comprehensive version you have to pay.
And with tens of millions of new users since lockdown, the company has gone bonkers. But as soon as lockdown comes off, those users are going to drop off, uninstall, and stop using Zoom.
Likewise the world’s schools aren’t going to swiftly move to ramp up online education services. In fact, what we’ve learnt more than anything during lockdown is the importance of physical school for kids.
Learning from home, while occasionally OK, deprives them of the key social contacts needed for healthy development. Remote, online educators might be doing well now, but perhaps it’s one to keep well clear of should the lockdown come to a swift end.
Likewise the biotech sector has been booming. This is somewhat reminiscent of what happened during the Ebola outbreak back in 2014. A huge number of biotech companies all working on the Ebola vaccine (or claiming to be working on it) shot up like a rocket. Along with them were all the personal protective equipment (PPE) makers.
But out the end of a crisis like that, and like this, the duds are quickly uncovered. And the bulk of them crashed. I’d expect the same this time around as well.
Not everyone is going to have a vaccine. And even if they do, there’s a good chance one of the big biotech companies will have a cheaper and more effective one.
And the need for PPE? Well, we’re not all going to be walking around with N95 masks and gowns as we commute to work. Not long term anyway. While the odd household might stock some for the next pandemic, the reality is most of them will be shifting gear at a fraction of the pace they are now.
Biotech and PPE makers, they’ve run their race already. If you missed the first wave, don’t jump in now thinking they’ll boom again. The more likely outcome is they won’t, and you’ll be chasing that stock as it plummets lower.
And finally, supermarkets. Yes, they saw a huge uptick in sales as people freaked the heck out as lockdown was impending. And they’ve continued to see strong sales during this crazy time.
But again, once we exit lockdown we’ll quickly realise the need to stockpile seven years’ worth of Quilton or Sorbent is ridiculous. And as things return to normal, so will their mediocre numbers.
If you can avoid the pitfalls, seek out the winners, and manage your capital during this crazy time, you’ll do OK. It’s weird, wild, and a little frustrating. But ultimately, the show will go on and we’ll look back on all this and wonder why the heck it got as bad as it did.
Fortunately, if you play your shots right it won’t matter to you either way. You’ll have made a packet from the market and have played it perfectly right.
Editor, Money Morning
PS: In this free report, Money Morning analyst Lachlann Tierney reveals two assets set to benefit as the ‘corona crisis’ worsens. Click here to claim your copy today.