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The COVID-19 Recession: Woozle's Visual Guide for Investors

The global impact of the coronavirus has far stretching implications for the global economy and markets. The disease is now reported in more than 85 countries with more than 95,000 cases and 3,200 deaths recorded. Yet these cases might just be the tip of the iceberg with many more cases circulated undetected. We run through the good, the bad, and the ugly of the virus and it's long-term implications.

 

 

 

 

 

There were 43-89 million cases of H1N1 "Swine Flu" in 2019. In 2009, the H1N1 influenza virus more commonly known as Swine flu was reported in more than 214 countries, with c.19k deaths and between 43-89 million cases!

 

COVID-19 is insidiously more effective & serious than Swine flu. COVID-19 spreads more effectively than H1N1 through airborne transmission and has 2x the incubation period. Unlike H1N1, we have no antibody defense for this strain and the purported 1-4% death rate would be the most deadly in the last 100 years.

 

Global healthcare systems are seriously under prepared. COVID-19 does not cause immediate or dramatic illness in most cases when contracted so can transmit easily undetected. Around 10% of cases require hospitalization and ventilator support - a major problem for global healthcare systems. It's estimated 10x as many cases are undetected.

 

Mass public quarantines aren't viable outside China. Incredibly China has placed a social distancing protocol or quarantine on almost 1.5 billion people, many of whom have not left their home for 6 weeks other than to buy essentials. Cases are falling but this is inevitably temporary and unworkable in EU & US. This buys time but economies meanwhile will be decimated.

 

Delay not contain: expect large scale event cancellations & on-going business disruption. China's unique brand of social distancing and self-imposed isolation is all but impossible outside of compliant populations or small dictatorships. Expect to see large scale events cancelled while supply chain issues reek havoc on businesses globally.

 

US GDP is driven by consumer spending but virus fears are denting economic prospects. More than 70% of US GDP growth is driven by consumers spending on goods and services. The speed and scale of the virus cases being reported globally is causing business disruption and weaker consumer spending as people spend less time with each other. Airlines, hotels, restaurants, and manufacturing are already taking a substantial hit.

 

SME'S drive >50% of GDP; Cash flow issues are likely as fixed-costs hit balance sheets & profits as revenues dive. More than 55% of US employment and 52% of US GDP is driven by small and medium sized businesses with most other economically developed countries showing the same if not greater reliance on smaller companies. While PLC companies might have the balance sheet strength to weather weaker revenues, most SME's have high fixed costs and will not be able to last a protracted decline in spending.

 

Corporate Debt is Higher as a share of US GDP than it's been in 30 Years! Debt itself is not a major problem. But what the recessions of 2001 and 2008 tells us is that a crash in asset prices or housing can have nasty impacts on global economies when businesses, governments, and consumers are over leveraged. Today, non-financial corporate debt is the highest it's been over 3 prior stock market peaks and subsequent recessions. Assuming COVID-19 hits revenues, this might spark huge asset deflation, profit declines, and inevitable defaults!

 

More than 1/3 of the planet have negative interest rates, record low rates have driven asset price bubbles globally as investors search for yield / returns.

 

Global central banks are in uncharted territory & running out of ammo. Rates have no where to go. Will further cuts get us out of a recession?

 

A quick, coherent, & unified political & fiscal response is needed but are we likely to get one from a Fractured Europe & polarized/domestic focused governments?

 

China is the world's biggest manufacturer; major disruptions to global supply chains & weak consumer sentiment will heavily hit global corporate earnings.

 

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