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January 27, 2020 | The Panic

A best-selling Canadian author of 14 books on economic trends, real estate, the financial crisis, personal finance strategies, taxation and politics. Nationally-known speaker and lecturer on macroeconomics, the housing market and investment techniques. He is a licensed Investment Advisor with a fee-based, no-commission Toronto-based practice serving clients across Canada.

She lived a couple of doors away in our townhouse complex in mid-town Toronto. One day yellow CAUTION tape went up around her front entrance facing the common courtyard. In the underground parking garage the guy living beside us had some information. “SARS,” he said.

She was dead a week later.

That was 2003, and the last time anything like this coronavirus now flooding every newscast (along with a deceased basketball guy) was top of mind. Some people say the Chinese government’s unprecedented quarantine of 50 million people is beyond extreme. Others fear the authorities are still trying to cover up a pandemic. In the middle of a developing problem – and in a world where nothing’s remote anymore – nobody knows.

SARS was briefly terrifying. But the Toronto subways kept running. Nobody wore face masks. Ontario declared a state of emergency, but only hospitals were affected. In the end 44 people died in a city of six million. By comparison, about 3,500 are swept away each year by flu in Canada (eighty thousand Americans died of influenza in 2018). No headlines about that.

Well, investors have been taking few chances. The Dow opened 525 points lower on Monday, oil swooned and Chinese prospects dimmed along with the yuan. Stocks have been flirting with record highs of late, so risk is taken off the table quickly when uncertainty arrives. If you’re a day trader, this spike in volatility is what you live for. If you’re a normal person, though, what now? One terrified guy emailed me at midnight Sunday saying he was turning his paper assets into bars of silver. What a disaster that’ll turn out to be.

Well, here’s what we know. The virus is spreading and will continue to do so. Until it stops. Fewer than a hundred are dead globally. That may reach into the thousands. Perhaps it could be hundreds of thousands. In 1918 the Spanish Flu killed more than 20 million people after infecting a third of the world’s population. But that was then. Lousy, spotty health care. No vaccines. No global response. No containment. And a world exhausted and impoverished by WW1.

The new coronavirus could end up being like SARS. Unlikely to be worse, but there’s absolutely no telling. What we do know is history. As a Scotiabank report stated Monday about the SARS crisis: “Arguably the biggest economic lesson from that experience is that fear is the biggest risk to the outlook.” If the 2003 experience were repeated now, the bank figures, our economy could be slightly impacted and the biggest result might be a Bank of Canada rate cut to counter it.

The real issue is China. In a globalized world a plop by the No.2 economy would ripple across the world. It’s now the engine of the planet, like it or not. That’s why oil prices have dropped, anticipating a potential slowdown, along with copper, nickel and iron. No country, let alone the second-largest, can wall off 50 million people, extend national holidays, suspend tourism and shutter its financial markets for a week, without having an impact.

So, stocks down. Bonds prices up. Yields down. Oil down. Gold up. Risk off. And this week brings with it a host of corporate earnings reports plus central bank announcements. Yes, turn off BNN, even if Ryan is broadcasting. It’s all just noise. In fact street vets who’ve seen this kind of panic over and again call it an opportunity. Buy the dips, they say. We’re in a strong, fact-based uptrend with strong market momentum and this shall pass. Like SARS. Iran. Brexit. Hong Kong. Impeachment.

But for most people the best course of action is to do absolutely nothing. Certainly not go to cash. Or buy precious metals. Or a Glock. Or bury your retirement savings in a can in the garden (when it thaws). In fact make sure you’ve topped up the 2020 TFSA contribution, and start saving money for the annual RRSP deadline at the end of next month. If you have new money to buy assets with, a drop in major equity markets would make those ETFs even tastier. “It’s way too early for fear a global pandemic,” says one analyst. “Should it happen, however, we would see markets down 15%, give or take.”

Markets that soared 30% in 2019 and have continued that incredible climb this year are ripe for a pullback. What better excuse for profit-taking than some weird, animalistic, Twitter-hyped mutant Asian flu bug? It came unexpectedly. It will peter out. Meanwhile corporate profits are solid, central banks have been supportive, the US economy’s hot and everybody’s making bank.

Just don’t watch ‘Contagion’ tonight on Netflix. And wash your hands a lot.

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January 27th, 2020

Posted In: The Greater Fool

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