What A Difference A Week Makes! Another Hissy Fit

Anyone who has read our comments over the years has seen our previous posts describing market "hissy fits" ( here and here, for example).  We are going through one right now and the culprit is the scary coronavirus.

We have no idea what the ultimate outcome of the coronavirus will be and it is a horrible thing anytime we are discussing an issue that is resulting in human suffering and, in some instances, death.  Thus, we do not take lightly the reality that this is causing much disruption in the lives of people around the world, particularly those infected with the virus.  Also, we are not health professionals and would not begin to try to assess the ultimate health impact of this situation.

However, as investment professionals, we do have to assess the potential impact this event may have on business and the markets, and on that front we believe some perspective is in order.

According to the United States Center For Disease Control there were 55,672 deaths in the United States caused by influenza and pneumonia in 2017.  That represented a 5.9% increase from 2016, so the number was pretty high in 2016 as well.

According to the World Health Organization, as of February 27, 2020, there have been 78,630 confirmed cases and 2,747 confirmed deaths in China out of a total population of 1,422,823,000 people in the country.  In the rest of the world there have been 3,664 confirmed cases and 57 deaths.  That's out of some 7 billion people!  We understand that the fear is that cases outside China are increasing, but this far into the outbreak, the overall numbers are still quite low compared to typical yearly flu cases around the world.

We simply do not see the type of reaction every year to the significant number of people who die of influenza in the United States as we are now seeing surrounding the coronavirus which has yet to even come close to the number of deaths that happen each year in the U.S., let alone the entire world.  Again, we simply suggest some perspective is important.

Those brief statistics would indicate to us that while it is clearly important to work towards containing this virus, and concurrently work towards a vaccine (which appears to be close), this situation has been turned into a near panic by the "crisis industry" (otherwise known as the media) and that has sent the markets around the world into a another "hissy fit".  We recall past "pandemic fears" such as the Avian Flu, SARS, and the Ebola outbreak.  Those diseases were deadly too, but ultimately ran their course and we believe the coronavirus will do the same.

Our Chief Investment Officer, Gerry Frigon, has recently been giving his quarterly update to clients in live group presentations and he has discussed that we expected there could be a 5-10% correction at any time given the recent strong performance in our portfolio strategies, and the market in general.  We wouldn't have expected it would all occur in one week, but here we are.

The major averages are all down over 10% from their recent highs (achieved last week!), as are our strategies.  Fortunately for our clients, this year started out very strong for us as all our equity strategies outperformed their respective benchmarks into mid-February.  We did not necessarily expect this selloff to happen so quickly and it is not our strategy to react to such market events in a frenzied manner.  However, we have recently taken some profits in companies we have owned for many years (some we've owned for over 15 years) and believed had reached maturity.  We have been deploying that cash to new companies that we expect have significant prospects and are generally smaller companies.

These times are difficult to go through and we have no idea if a bottom was put in yet.  Yesterday, February 27, 2020, the markets were off across the board about 4.5%.  This morning the markets are off another 3+%, as of this writing.  There certainly could be more on the downside, but we would urge our clients with excess cash to take advantage of this correction and immediately deploy at least some of any excess cash to our strategies.  These opportunities don't come around all the time.  It is time to take advantage.

The coronavirus scare will pass and there will be some economic impact but we expect it will be light in the overall scheme of things.  There are some very favorable trends happening relating to 5G in telecom, regenerative medicine in healthcare, the Internet of Things and automation in the factories, virtualization of network infrastructure, and many more (see our portfolios for all the examples of narratives on which we are focused).   Yes, what a difference a week makes, but it's just another hissy fit in the market.

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