Viking

By far the most level headed logical approach to this situation. So can someone please square what this ‘level headed’ guy is saying and what we are seeing in China, South Korea, Italy, Iran, Japan? Why are these governments instituting such extreme measures (shutting down whole regions) to contain the virus? Clearly some pretty smart people are taking the other side of the argument that this virus is a serious health problem (and not just another flu). 1.) Barry from Texas@solar2029 46m Replying to @ElonBachman “2 months of data is not enough yet... incubation period is 1-2 weeks and disease course is ~1-2 weeks ... even with say 0.2-0.5% CFR - still 2-5x flu with higher transmissibility than flu - also ~5-15% end up hospitalized or in ICU - huge$$$ and strain” 2.) @merlinvestor 2h Replying to @ElonBachman “Hands down biggest issue is strain on the health system. I have zero faith in china data but in Northern Italy, 1 / 11 goes in ICU.” 3.) Merl investor@merlinvestor 2hReplying to @ElonBachman “Old people survive this thing *IF* they get proper care.. Lockdowns slow the spread so that health system can keep up. Therefore economic impact of the virus is real.”

For those who think this virus is a short term blip watch this video on U-tube. Gruesome stuff. No sugar coating. One could make the case the media (and the WHO are asleep at the wheel). I am not suggesting what happened in China is going to happen in the US or elsewhere. What I am suggesting is this virus is a serious problem that is still being underestimated. Let's hope I am very wrong. It has been an absolute tragedy to those who have been affected. It has been consistently underestimated by health authorities. It is only after an outbreak happens that authorities take it seriously. And of course, at that point in time it is too late for those affected. Coronavirus: How the deadly epidemic sparked a global emergency | Four Corners - China is at the epicenter. Fortunately, they have been very transparent through the entire process. The information coming out of China is excellent. They are saying things are getting much better so I believe them. Just a short term blip to their population and economy. Should be back to normal soon. (Sarcasm, just to be clear)

Cherzeca, my read is people are not panicking enough right now. 450 tests in all of the US? Really? People need to call their elected representatives and tell them to get the necessary resources allocated to this issue. A month ago! Why? Look at the devastation when an outbreak hits... northern Italy, Iran, South Korea etc. There is a reason health professions are sounding the alarm bells. These are smart people and they are genuinely concerned. Unless handled very well, this virus will become an even bigger health/economic problem for all of us. We are all in this together. Does anyone think the US is the global leader in how they are handling this virus? Maybe we need a little panic to get people focussed on doing what’s needed.

Greg, i the more i read the more i think the US is just ending the first inning of dealing with this virus. Look at the carnage in markets already. My province (BC) with a population of 4 million says it has up to now done 2X the number of test versus the entire US with a population of 327 million (as of 2 days ago). 1,012 versus 459. My guess is BC is not testing people who should not be tested. What this tells me is the US has not been testing incoming people nearly enough. So there is a very high likelihood the virus is now in the US in multiple locations and silently spreading. There was a window to vigorously test and dramatically slow the spread of the virus from late Janaury until now; the US did not do this. The proof of this starting to morph and really get out of control is when cases are found that cannot be traced to a known source. And these are just starting to pop up in the US. If this thing breaks out in the US in multiple locations then look out below. The US is not ready to deal with a pandemic. I am sorry if i sound all doom and gloom. But i see no facts (i.e. US has been vigorously screening) to give me comfort that this is going to blow over in the next week or two or even month. All i see are red flags on this issue. Regarding when to get back in i agree that some stocks are starting to look cheap. And i will likely start to buy if markets continue to sell off. The problem we have from an investment perspective is we really have no playbook. Yes, there was SARS and a few other outbreaks. But each one is so different it is not really possible to compare. Bottom line is we still do not understand what we are up against with this virus. The news flow will likely get worse from here. The impact on the global economy will get worse. This tells me to be patient. Yes, stocks could be higher in 6 months and the bull market will re-emerge; perhaps this time will be different. - https://globalnews.ca/news/6610416/bc-covid-19-testing-more-than-united-states-premier/

Gregmal, i think the general population in the US is still in the Disney stage of this virus; it is a concept but not a reality. People in parts of Washington State are graduating to the next stage; no longer a concept but a reality. When the fear stage hits people start adjusting their behaviour pretty quickly. We were planning a family trip to Oregon for March spring break. Not anymore. One reason is the risk of getting stranded and quarantined. Another big reason is the insane cost of medical care in the US; uncertainty around medical costs in the US (coming from Canada) should someone need care; yes, we are covered through our provincial health plan for some things and there is travel insurance but this can get quite messy depending on the fine print. Why take the chance is what we are thinking. My son has a class trip scheduled for April to Oregon for a Shakespear festival (60 people). My guess is it will be cancelled; there is no way the school will be taking on the risk of travel to the US with this blowing up. This is real economic loss and will quickly start to add up.

So much that is not understood about the virus... 14% of Recovered Covid-19 Patients in Guangdong Tested Positive Again - https://www.caixinglobal.com/2020-02-26/14-of-recovered-covid-19-patients-in-guangdong-tested-positive-again-101520415.html

Expert: There's a 'million-dollar question' surrounding coronavirus https://finance.yahoo.com/news/coronavirus-contagious-winter-204159834.html Other experts have asserted that the virus may simply become a permanent part of illnesses that transpire as a result of cold weather, like the common cold or the flu. Marc Lipsitch, a Harvard epidemiology professor, told The Atlantic that if the virus continues to spread and be as severe as it is now, “cold and flu season” could become “cold and flu and COVID-19 season.” Other infectious disease experts echoed a similar sentiment. "We know respiratory viruses are very seasonal, but not exclusively," William Schaffner, an infectious disease specialist at Vanderbilt University, told CNN. "One would hope that the gradual spring will help this virus recede. We can't be sure of that." Regardless of whether the coronavirus is likely to be a winter phenomenon or not, "this is going to be with us for some time — it's endemic in human populations and not going to go away without a vaccine," Amesh Adalja, an infectious-disease expert at the Johns Hopkins Center for Health Security, told Business Insider.

The key problem for investors right now is ‘headline risk’. Fundamentals are not going to matter for a while. Everything i am reading right now tells me the US is failing badly in how it is handling this developing crisis. And the key factor in how severe the outbreak gets is how it is handled in the initial stages. This tells me the ‘headlines’ are going to get much worse in the US. And political leadership are going to make it even worse. We may ge at the early stages of a slow moving train wreck.... Equity investors are going to see their resolve severely tested as we see 1,000 point swings (both ways) in the coming weeks and months. Here is a recent negative example of ‘headline risk’: China PMI horror show to trigger Q1 downgrades https://asiatimes.com/2020/02/china-pmi-horror-show-to-trigger-q1-downgrades/ China reported its lowest purchasing managers’ index (PMI) figures in 15 years as the coronavirus outbreak and the glacial pace of resumption after the Lunar New Year holiday thwarted economic activity. The data has raised doubts around claims by Beijing about companies making a high rate of work resumption. This has sent analysts scrambling to rework their quarterly GDP forecasts as the world’s second-largest economy reeled from travel restrictions, supply-chain disruptions and a lethargic resumption of business. China’s Purchasing Managers’ Index in February plunged to 35.7 from 50 in January. This is the lowest reading since January 2005 when it was first released and even lower than November 2008’s figure of 38.8 during the Global Financial Crisis. The market had expected a reading of around 46, according to a Reuters poll and this shocking data had analysts recalibrating their numbers. “The sharp drop in China’s manufacturing PMI in February reinforces our view that the normalization in economic activity will be delayed, as reflected in high-frequency growth trackers,” ANZ economists Raymond Yeung and Zhaopeng Xing said in a note.

The key problem for investors right now is ‘headline risk’. Fundamentals are not going to matter for a while. Everything i am reading right now tells me the US is failing badly in how it is handling this developing crisis. And the key factor in how severe the outbreak gets is how it is handled in the initial stages. This tells me the ‘headlines’ are going to get much worse in the US. And political leadership are going to make it even worse. We may ge at the early stages of a slow moving train wreck.... Equity investors are going to see their resolve severely tested as we see 1,000 point swings (both ways) in the coming weeks and months. True, but is this not one of, if not the biggest argument in favor of active managers and astute capital allocators outperforming? The saying "fundamentals dont matter" is valid on the way up and on the way down if you are rationalizing cash yielding zilch. But on the way down, how is people not caring about fundamentals not a huge advantage? The worst thing that can happen, when people dont care and fundamentals dont matter, is multiple contraction, however history has plainly shown us that this only really sticks to things that deserved it. IE who suffered long term from 08? Probably only the financials. Everything else went back to normal and received healthy multiples. Here? Its probably retail and travel stuff. Except retail already carries a shitty multiple, unlike say, financials did in 06. I think if we talk about bias, the big one here is a lot of people who have thought valuations where out of line for a long time see the market crashing and think "I was right, and its about time" and then anchor to that in assessing how much more it "should" go down. But the two are totally unrelated. I mean theres people in that crowd who have thought valuations where out of line since 2013.... Its similar in thought to what I experienced in YE 2018. Everyone I talked to about why the market crash there made sense, at least the ones with semi intelligent rationalizations, gave some kind of derivative spiel about "the Feds been propping things up and oh we were in a bubble all this time", but at the end of the day the market didn't just wake up in November 2018 and go "shit, today we're going to abandon everything thats mattered for the last decade or so and now only consider "this"...thats just not how it works. Further, as far as spread goes, I am curious to see how many cases are found in warmer weather regions. Typically these are much lower. Which could create opportunities in those areas. Particularly places like Florida and Texas. And then for the rest of us, Spring is 3 weeks away, which may bring on some weather related relief, but who knows. Its not hard to see, if say containment is successful at least until warmer weather, there being a vaccine by October/November of next year. Thats often more time than it takes to generate one for the annual flu. I am in the active management boat :-) My goal is not to stay in cash forever. The decision will be: 1.) when to start buying 2.) what stocks 3.) how fast to be more fully invested Not easy. But i do enjoy the journey (although it is stressful at times) And the input from this board is a great help as well :-)

We will find out in the coming months how individual countries are handling the outbreak. My focus on the US is i am coming at this from an investing perspective. If things get ugly in the US then financial markets are going to tumble.

The key problem for investors right now is ‘headline risk’. Fundamentals are not going to matter for a while. Everything i am reading right now tells me the US is failing badly in how it is handling this developing crisis. And the key factor in how severe the outbreak gets is how it is handled in the initial stages. This tells me the ‘headlines’ are going to get much worse in the US. And political leadership are going to make it even worse. We may ge at the early stages of a slow moving train wreck.... Equity investors are going to see their resolve severely tested as we see 1,000 point swings (both ways) in the coming weeks and months.

BRK; decided to lock in my still small gain of 1.5% for 2020 (total portfolio) and move to cash. Too many unkowns that are important inputs to investment decisions (like that will US GDP, corporate profits etc be in 2020?). Will know much more in the next month :-)

I am looking at it from four angles: 1.) market was up 35% from Dec 2018 to Feb 2020. Likely now fairly valued pre-virus. Now let’s look at the impacts of the virus: 2.) current economic impact to China (GDP): bad and will take time for economic activity to recover; risk to downside (takes longer than a couple of weeks or a month for China to get back to normal). 3.) impact to global supply chain: bad and impact is only now starting to be felt. How many companies in China are still shuttered? How many are back up and supposedly running but experiencing staffing issues? Needless to say it will take some time to ramp up production. Companies outside of China are not issuing new guidance yet because they can’t quantify the issues yet; this will change and downward revisions to earnings and profits are coming in the coming weeks and perhaps months. 4.) economic impact of virus arriving in US in numbers: this will slow economic growth further I do not think 2, 3 or 4 above are factored much into current stock prices. Needless to say, the next couple of weeks will be key. And this will likely take many months to play out with lots of downward revisions and ‘surprises’. I am now 100% cash. I was able to lock in a 1.5% gain for 2020 (and all my gains from a 10 year bull market). If markets go higher from here i miss some upside. If markets go lower i will be positioned well. May we live in interesting times :-)

What I am also trying to understand is potential to slow / damage the economy. Not just the direct effects but also the secondary. What will GDP look like in Q1, Q2, Q3, Q4 and the year (which is what ultimately drives corporate earnings)? Will the virus take China, Europe and parts of Asia into a recession in 1H? Does the US and Canada also slip into a recession? If so, is it shallow? How low do financial markets go in the near term? And how fast? At what point does the disruption in financial markets start to bleed into the larger economy? Does lending start to freeze up to 'out of favour' sectors (tourism/travel, oil and gas, companies with exposure to China supply chain, companies with too much debt etc)? And what are the policy responses by the government? Do we get another injection of liquidity from the Fed? If so, will it help? What else can the government do to help? Hopefully in a couple of weeks I can look at my post and ask "What on earth was he thinking!" :-) PS: Citigroup, Goldman, JPMorgan Slash Earnings Estimates for Stocks - https://finance.yahoo.com/news/citigroup-goldman-jpmorgan-slash-earnings-032720946.html (Bloomberg) -- Citigroup Inc. now expects zero growth in global earnings for 2020 as the coronavirus throttles economic growth. And it warns even the new forecast may prove too optimistic. The bank’s call on earnings per share follows moves Thursday by Wall Street peers Goldman Sachs Group Inc. and JPMorgan Chase & Co. to cut profit estimates on U.S. companies. Goldman expects no earnings gain for American firms this year.

Wow. Big moves :-) The light bulb for me went off on Monday. Tuesday and Wed I was mostly selling; raised cash position to 80%. Was a big buyer of BRK today at the close. This will take some time to play out. I need to be patient on the buy side...

I just updated my spreadsheet for tracking Fairfax Equity holdings (attached below). If anyone sees errors in the spreadsheet please let me know :-) From the start of the year (Jan 1) to today (Feb 27) my estimate is their mark to market equity holdings are down $520 million (Eurobank is down $406). I believe they also mark to market the Seaspan warrants; they are down an additional $108 million. The majority of their equity holdings are Associated and Consolidated Equities and I am not sure exactly how all of these are valued on the financial statements at each quarter-end. I like to track what the stock prices are doing to get a handle on how Mr. Market is valuing these holdings over time. These holdings are down $632 million ($740-$108 Seaspan warrants). All three of these items: $520 + $108 + $632 = $1,260. Please note, this is not the hit that Fairfax would take if the quarter ended today; the $632 would not flow through the financials :-) Fairfax is in a very tricky position. They hold a lot of equities in their portfolio. Great with a 'risk-on' trade which is how they have been positioned since Trump was elected. Absolutely brutal position to be in should we get sustained, large stock market sell-off. PS: the portfolio of Fairfax India is actually up nicely since Jan 1 (still even with the global equity sell off). Their holdings are another tab on the spreadsheet. I estimate their mark to market equity holdings are actually up $128 million this year. Pretty interesting :-) Fairfax_Equity_Holdings.xlsx

Liquidity is one part of the equation. Price is another. Shares closed today at $207.67 and BV = $174 (at Dec 31). So shares are trading today a little under 1.2 x BV. (Yes, the stock portfolio is down so Dec 31 BV is overstated). Bottom line, if shares continue to fall they will be comfortably under 1.2 x BV which should also get Buffett excited about executing some buybacks in volume (a little like an undersexed guy in a brothel :-)

BRK (again) Buffett commented Berkshire would fall less than the general market in a sell off. Let’s hope that is true :-). Having 20% of market cap in deployable cash has to matter at some point.

Agreed. The challenge is when (and what) to buy. Good problem to have.

Also, who is going to want to be holdings stocks going into the weekend? Tomorrow could be another very interesting day. I wonder when global central banks get more visible... Markets seem to be on a one way train right now. Confidence is a very fragile thing.

Cigar, thanks for taking the time to post. I am not an insurance expert and find your posts to be helpful :-) I am back on the sideline with Fairfax. Their equity portfolio is getting hit pretty hard.

It looks to me like most countries are having a hard time accurately testing and reporting on the virus. That does not mean it is not growing in size. It simply means we do not know. Lets hope we do not get more surprises like Italy or Iran. A few more like these and the cat is likely out of the bag.

Definitely. And next year Q1 and Q2's earnings will look amazing in comparison... Market right now seems to be expecting these warnings, so we'll see what their magnitude is and how the market reacts. Liberty, pre-virus we had what looked to be close to a mild global manufacturing recession in 2H 2019. Germany and Japanese economies are not doing well. Europe looks weak. The watchout is if the virus causes consumer confidence to fall, particularly in the US (as they are driving the global engine at the moment). If the virus leads to a mild recession earnings in 2H 2020 then earnings next year might not look so good. I am not saying this is my base case. But the bond market is no longer flashing yellow they are on full stop red. And up until 2 days ago the stock market was at all time highs. Someone has it wrong (bond market or stock market). Should the virus outbreak get worse (spread to the US) my guess is the Fed will respond with anemergency cut. So even if things get worse stocks may do well :-)

If we knew, we'd be rich. © Warren Buffett. Jurgis, I think Buffett’s answer (do not try and time the market) is overly simplistic and not actionable for most investors. When we are in the midst of a bear market emotions get the best of most investors. I am simply trying to assess what the probabilities are that this out break starts to spread in the US to the point that it impacts the economy in a meaningful way. Two weeks ago my read was that the virus was not going to impact the US economy very much. Over the past 4 days my view has started to shift and it now appears the question is when the virus breaks out in the US (not if) and how bad it gets. Hopefully this thing just blows over. The next could of weeks are going to be very very interesting :-) Here in Canada we are being told to make preparations: stock up on prescriptions and perishable food. Canadians being told to prepare for a possible novel coronavirus pandemic - https://vancouversun.com/diseases-and-conditions/coronavirus/canadians-being-told-to-prepare-for-a-possible-novel-coronavirus-pandemic/wcm/f93197f0-8c56-4050-a50c-4de1f031c659 “Etches said people can take steps now, at home and at work, to prepare. Some of those steps include stocking up on needed prescriptions ahead of time so there is no need to do so during a possible pandemic. She also recommended people stock up on non-perishable food.”

1.) a bunch of cash (sold FFH) 2.) BRK 3.) And a little BAC and C. But post purchase i am thinking i am early with BAC and C :-) I am thinking we may only be in the early innings of this sell off so capital preservation is a focus. Patience...