Expect a recession

The Thinker by Rodin

A recession is coming. It’s probably already here; we just can’t prove it yet.

The trigger was the emergence of the coronavirus and the resulting COVID-19 disease in late 2019 in China, but if it hadn’t happened it would have likely happened later in the year anyhow. As predicted it’s spreading all over the globe. People are already starting to hunker down. In some places it’s getting hard to find bottled water, toilet paper and hand sanitizer.

This is an overreaction. You don’t need bottled water unless the public water supply system goes out, which it won’t. And even if somehow the water is unclean, you can boil it. Fear of course makes people overly cautious, but it’s currently way overblown. It’s the fear that is driving down the stock market and making people buy too much toilet paper.

The world economy is now built on specialization and trade, so when China’s manufacturing sector takes an indefinite hit, it’s going to have large worldwide ripples. It’s already happening, but if you need proof you just have to look at Chinese ports, where little is going out or coming in. When items like rolled sheet metal don’t make it to manufacturing markets, value-added products can’t get produced. That will cause layoffs. But fear in general will cause people to be cautious with their money. The Fed can cut its discount rate by half a percent, but it won’t do much to solve the underlying problem.

Coronavirus was perhaps half the reason I sold twenty percent of my stocks and moved them into bonds on February 14, at just about peak market. Even then, it wasn’t too hard to see how this was likely to go. With the wholly inept response by the Trump Administration, it was clear that an intelligent response to the health crisis wasn’t going to be forthcoming. We could have been much better prepared than we were, but instead Trump cut the Center for Disease Control’s budget. Voters won’t forgive incompetence when it kills their family, friends and neighbors.

It’s also becoming clearer that this virus will not only put us into recession but turn into a pandemic. It’s pretty much there already. It’s not hard to catch and there is no vaccine available. Potentially 40-70% of us could contract it. For most of us, a bout of the flu will be much worse, but since it will spread so easily and has about a two percent mortality rate, it’s going to take a lot of lives.

There are 330 million Americans. It’s realistic that 10% of us will contract the virus this year, and there may be more next year. At a two percent mortality rate, it’s likely to kill about 660,000 of us this year, principally the aged and infirmed. This is just a ballpark figure, but it’s likely to be the biggest public health crisis since the 1918 Spanish Flu. I live in a 55+ community, with most of my neighbors probably 75+. If it gets me, it’s unlikely to kill me, but it’s likely to kill a few of my neighbors. Most neighborhoods will see at least a few casualties from this virus.

So of course we are going on a cruise. It’s hard to get out of as it’s paid for, but the cruise line won’t let in people cruise who fail a health check or who have traveled through certain countries recently. It’s unlikely to affect our cruise beyond perhaps being denied ports of call. But it’s still worrisome. 660 people on the cruise ship Diamond Princess out of Japan contracted the virus and 7 died, in part because Japan wouldn’t let them off the ship into proper quarantine facilities.

I’m not panicking. Prevention is mostly being vigilant, which means washing hands frequently. Still, cruise ships are great places to pass it on, as the Diamond Princess learned, because of the centralized air conditioning which can push the virus through the whole ship. In general, being in close quarters is not a good idea, and you can’t avoid that on a cruise ship.

Speaking of which, the travel industry will slump. Actually, it will go into a depression. And that will affect a large supply chain of its own, which will feed a downward economic spiral.

What can you do? Don’t overreact, but also take sensible precautions. Wash your hands regularly, particularly after touching foreign surfaces, with soap, for 20 seconds or more. A vaccine is probably at least a year away. This means you could easily get the virus anyhow, just realize that it probably won’t kill you, but it will be widespread.

With luck you can avoid it until there is a vaccine, but even when it’s available it will go to the elderly and infirmed first. One in 50 odds of dying is very good odds. Unfortunately, the way our society is ordered will make it worse here. So many workers have no sick leave, so they will come to work and spread it further. It’s the downside of a gig economy and our poor labor standards. Those who can will work from home. Those who can’t will bear much of the risk and be the principle carriers.

It also probably means that Trump will be a one-term president. He is managing this as ineptly as we feared. It won’t take too many MAGAers to die before their friends notice. It will help people put their prejudices aside and force them to understand the value of science again. At least I hope it will. It should.

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