Showing posts with label Act of War. Show all posts
Showing posts with label Act of War. Show all posts

Friday, March 20, 2020

Bioterrorism

Bioterrorism



The Wuhan coronavirus (COVID-19) will go down as one of the most effective acts of bioterrorism in history. If you want to destroy global capitalism and democracy, viruses are the ultimate Trojan Horse. Viruses destroy the very fabric of an open society by concentrating power in the hands of a few to make vast economic, societal, and political decisions without a single vote. Basic freedoms, like movement, are restricted.

Viruses are especially dangerous in countries that value human life highly because those countries are willing devote almost limitless resources to testing, treating, and caring for all segments of their society, especially the most vulnerable. If you want to take down a democratic society, a viral pandemic is an extremely effective agent to accomplish that goal.

Whether accidental or strategic, the results of the WuFlu have been dramatic; from an economic and social impact its devastation is global in scale on par with a World War. The story of "the Wuhan," however, starts not in November or December of 2019, but rather several decades before, when the seeds of destruction were first sown with something so seemingly benign as counterfeit goods.

The New York Times has an excellent article entitled "The Chinese Roots of Italy's Far-Right Rage" that helps frame the current disaster in terms of product theft, industry destruction, and ultimately killing of the former residents. In summary, the article details the initial theft of hundreds of Italian textile brands (linen, shoes, clothing, etc.) by visiting "tourists" who took pictures of all the products and factories while in Milan, then subsequently began making identical copies in the 1980s. The result was a flooding in the market of counterfeit goods. These goods led to the destruction of the industry because the Italian factories had a higher cost of goods for raw materials and labor; the authentic Italian goods, however, couldn't survive against their inferior clones despite the value difference in quality. 

In the decades that followed, Italian factories were systematically purchased by Chinese Nationals who brought over their own family and friends thus displacing generations of Italian families. While the New York Times story was written specifically about the Italian fashion industry, it applies generally to nearly every industry in every country with particular emphasis on manufacturing and pharmaceuticals. If there was a branded successful product, the strategy over the past 40 years has been to clone it, sell it, and capture the industry. In recent years this has been prevalent noticeably in software platforms.

Over the past 40 years global manufacturing has largely moved offshore. Coronavirus is simply the icing on the cake; not only have the products, jobs, and industry been destroyed, but the very residents of those areas are now being killed. The coronavirus pandemic is the final indication of what has happened to democratic Western Society since globalism has pushed industry to embrace "free trade" agreements like NAFTA...cheap goods and executive comp were the costs of losing a nation's self-reliance.

In times of crisis, allies evaporate, borders close, and citizens are left wondering why a country isn't self-sufficient. Fear, panic, and hate are not going to be the answers in the weeks and months ahead that will make this country stronger. Rather, it will be the collective awakening of our society, especially amongst GenX, of the need to seek greater political power and rapidly ween the United States off of dependence on foreign manufacturing; we have an abundance of God-given resources in this country capable of making the USA self-sustainable. A "New New Deal" should be a sustainability movement laser-focused on repatriation of industry. "Made in the USA" means a lot.

Saturday, March 14, 2020

Demand Shock

Demand Shock


The United States of America has entered a period of severe negative demand shock. Negative demand shock occurs when demand collapses across multiple economic sectors simultaneously. As the Wuhan coronavirus has spread in this country it has triggered a panic not seen in the stock market since 1987...and it presumably will last significantly longer. Much longer. Think 1929ish.

Entire industries have been laid low, namely: airlines, cruise lines, hotels, casinos, restaurants, sporting events, and education to name a few. There undoubtedly will be secondary and tertiary impacts such as the hundreds of thousands of small business that cater to these industries as well as the millions of employees whose livelihoods are intricately woven into supply/demand chain of our economy.

From an economic standpoint, Wuhan coronavirus has most likely triggered a recession. It is hard to conceive of our economy, which is 70% consumer-dependent, bouncing back from the Wuhan coronavirus quickly, especially since there will be many lingering concerns in regards to travel, safety, and trust.

The path forward is an arduous one. First, large segments of the American population will be exposed to the Wuhan coronavirus. Second, many Americans will undoubtedly be infected with this disease, with victims typically being the elderly and/or those with underlying medical conditions. Our most vulnerable. Third, it's not going away quickly.

Self-quarantine time alone is running at a minimum of 2 weeks, but there are staggered results popping up all over the country. What I mean by this is that another cluster might easily pop up in a month, or 2 months, or even next year. Wuhan coronavirus is the proverbial "whack-a-mole" scenario.

What does this all mean? Based on the existing infection rate it is probable that many millions of Americans will be infected with the Wuhan coronavirus and thousands will die. As America is a country that values life highly, this will have severe economic and social ripple effects; demand shock is the most obvious initial wave. Another rational wave is going to be societal push-back against viral originators responsible for deaths and economic destruction. Human nature is what it is. As previously stated, it is highly likely we entered a recession last week. We definitely entered a bear market. 

What's an investor to do? Price discovery has significantly altered the trading prices of many stocks, especially in the most affected sectors such as airlines, cruise lines, oil, etc. to name a few. Given that nobody really knows when the Wuhan coronavirus will be contained, it is important to focus on sustainability and that usually translates to quality of balance sheet and earnings.

There are many industries that do not seem sustainable if all of their demand collapses. I would avoid them. Survivors? There will be many survivors, namely in the food and beverage industries, many of which are actually experiencing tremendous demand. I like those sectors. Finally, there are some sectors (like tech) that have extremely large installed userbases which don't disappear overnight and given quarantine conditions might add to their installed userbases. I like those as well.

In times of uncertainty, having cash is a good thing; you might miss out on a quick turn of events and maybe not capture all of the upside, but when survival is on the line it is better to survive. Ultimately the Wuhan coronavirus will be contained at some level. The jury is still out on what level. Until that time it makes a lot of sense to focus on quality cash flow and survivability.