Quick… run away from your screen!
I’m about to sneeze.
If you were here, then I’m afraid I’d have bad news…
You’ve probably just caught my disease.
I am just kidding. And, of course, the only thing that can contract a virus online is your laptop.
Although, judging from what I came upon on the internet today, I wouldn’t be surprised to find people who would take my joke seriously.
I saw a lady pouring a whole case of her husband’s Coronas down the sink to save his poor soul from the coronavirus.
Ludicrous… and also really funny.
While I find the video amusing, it serves as a great example of how misunderstood the coronavirus is.
And I don’t mean concerning your health. Rather, I’m talking about how irrationally the stock market perceives it.
It’s currently treating the outbreak as a mere bump in the road. Nasdaq, the S&P, Dow Jones… they’re all reaching new all-time highs as if all the risks have evaporated.
The assumption is that Beijing will pour enough stimulus into the economy to offset the current shock and everything will return to normal.
However, what the market in its complacency doesn’t realize is that this is one problem central banks’ money-printing machines can’t fix.
It’s Different This Time
As investors, we’re always encouraged to buy the dip.
Be greedy when others are fearful, right?
Especially when you have one of the world’s most powerful central banks—the People’s Bank Of China—promising to pump 170 billion yuan into the economy.
However, this dip is a lot different than the ones we saw last year.
The disruption to Saudi oil production in September, the U.S. missile attacks on the Iranian general, and even the impeachment shock were all great examples of buy-the-dip opportunities.
The difference now is that the coronavirus will have a far more pronounced impact on the global economy than anything we have seen in the last decade.
That’s because this will be one of the rare moments when all economic sectors take a hit at the same time.
Be Patient, This Could Get Worse Before It Gets Better
In 2018 and 2019, the global economy contracted, causing a manufacturing recession. If it weren’t for the robust service sector, the result surely would have been a full-blown recession.
Although we have seen some recovery in January, this problem was ongoing.
Now it’s about to get even worse.
Manufacturing in China has all but shut down. That’s 28% of the global manufacturing output that just took a big, unplanned break. And this will reverberate through the global supply chain.
First, the consequences will spread to emerging markets in Asia, then Europe, and, before you know it, U.S. manufacturing will suffer, as well.
But it gets worse. I’ve said before that this is unlike anything we’ve seen in a long while. That’s because this time around, the service sector won’t be able to pick up the slack.
Malls in China are empty, offices have closed, and there’s barely anyone walking the streets.
People are staying inside because they fear for their health. I can’t blame them. I would be doing the same.
Unfortunately, that means they’re not spending… and no amount of money printing will convince them to go outside to do so. They aren’t going to risk getting sick.
Meaning, we now have the second-largest economy in a complete shutdown.
It’s impossible for the rest of the world not to feel the effects of this shock. It’s only a matter of time.
Not to mention how much worse the situation will get if the virus spreads to the United States and scares American consumers into their homes.
That is why I want to warn you—please, don’t buy this dip.
Be patient and wait for the situation to clear. There will be plenty of buying opportunities in the future.
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