“Dad, are you experiencing any impact from the Coronavirus?”
My son is a very caring person.
Our coach is fine. It hasn’t experienced any impact from COVID-19.
We’ve taken a pretty big hit on our investment portfolio. Thankfully I de-risked the portfolio last fall. I was all in with equities (left side) up until August of 2019 and shifted to a 20/20/20/40 mix late fall. By all measures we were late in the economic cycle in 2019 and I was expecting a bit of a correction to occur in the markets. And, being retired, I was carrying way too much risk with a high concentration of assets in one stock from my former employer. I rebalanced our portfolio with a lot of diversification in the asset base.
These actions did help absorb some of the shock from the recent market downturn. Before the open this morning we are down about 13 percent. I expect the open to be strongly negative based on Trump’s announcements last night. There will be more losses.
The old portfolio? Well, let’s just say that we would be starting a GoFundMe campaign for our retirement. That portfolio would have been hit very, very hard.
The bears have arrived but they will pass over the next year or two.
I’ll give a few of my thoughts about the economic side of the coronavirus for those of us that are retired and travelling and then a few thoughts on what Lorraine and I are doing from a health perspective.
Long-term, the consensus view from my former colleagues in the investment industry indicates a minor negative impact on World GDP due to the COVID-19 pandemic.
Short term? Much larger impact. We have already seen the volatility in the stock markets and I expect it to continue as the supply-side and demand-side factors influence GDP.
The supply-side factors that could have an impact on the productive capacity of an economy include:
- Labour. If governments impose strict social distancing protocols and other restrictions on their citizens, extended layoffs will have a direct impact on the productive capacity of an economy. This morning, the Minister of Health for Canada reported that the government believes that 30 to 70 percent of Canadians will be infected by COVID-19. If large numbers of people are ill and unable to work then there would be a significant negative impact on the supply of labour.
- Supply-chain. Advanced economies operate a highly complex supply-chain with components sourced globally. A country hit hard with COVID-19 would readily impact the ability of another country to supply goods. Or a country could decide to use the supply-chain as leverage. China dominates the global supply chain. The majority of medical supplies that the United States and Canada requires for health care originates from China. Almost all of the top 10 global medical device companies have their manufacturing centres in China. Aside from the potential for shortages of medical devices and pharmaceuticals in the supply chain, China could withhold supplies to advance their aspirations to dominate the world’s economy.
- At-risk industries could close to mitigate risks. Walt Disney closed several of their theme parks. Carnival Cruise suspended operations for the next two months. Countless conferences have been cancelled. Shutting down tourism, transportation, retail and other service industries would have a significant impact on the economy.
The demand-side factors include:
- Consumer confidence. It is such a major force in economic activity. When people are scared and when people see the markets tumbling down, a natural reaction is to reduce discretionary spending.
- Business confidence. Businesses may decide to defer any significant capital investments during a time of steep decline in consumer demand.
- When labour is either laid off or absent, short-term consumption is reduced.
The economy is going to be very bumpy over the next few months. If the pandemic is not contained, it could take much longer to see a recovery.
From a personal perspective we are taking the following precautions:
- We are limiting our time in public places and we are keeping our distance from others when we are in more crowded environments.
- We are washing our hands. Frequently.
- We are making sure that we eat healthy foods. Lots of fruit and veggies. Little to no junk food.
- We are exercising regularly.
- We are determined not to stress over factors that we cannot control.
We have our health. We are financially stable. We are in our coach in a beautiful place.
It may all change for the better over the next few months or it may become more severe. Regardless of outcome, I will do my best not to let the economic and pandemic issues of the day drive fear into my life.
This pandemic will pass.