Coronavirus - Financial impact

[Pellice]

According to this article, China is "injecting $174 billion in 'liquidity' into their markets Monday." But I do not understand how this will happen - could someone explain "reverse repo operations" - I take it that money is being "given," not loaned, by the central government to banks? And the purpose is to prevent the coronavirus epidemic from setting off panic selling? Definitely not my area of expertise!

Can this work? I guess we will see how it affects global markets.



https://finance.yahoo.com/news/china-inject-174-billion-liquidity-073630793.html

 

[MichaelB]

An excellent post to start a separate discussion on the market impact, and allow the other thread to focus on health.

 

[jebmke]

I don't know all the mechanics but is this materially different than what the FED has been doing to prop up liquidity in the US? On December 31, they injected $255 Billion - a single day. I seem to recall that they increased their balance sheet by over 10% in the last three months of the year. I often listen to Powell's press conferences and Q&A and it is increasingly clear that the FED doesn't have a complete grip on the US repo market.

 

[MichaelB]

No expertise here, just a couple of thoughts. The Bank China can instruct banks and intermediaries to use this money to buy Chinese equities, so it might keep equity markets from falling for a few days. After that, who knows. Will other Central Banks follow suit?

The problem I see is alll the quarantines and travel disruptions, which will likely have an impact on global supply chains, and will probably strengthen in the next few days until they can stop the growth and spread of the disease.

We were in the early phase of a global recovery from a global manufacturing slowdown. This has the potential to derail the recovery.

 

[kgtest]

The problem I see is alll the quarantines and travel disruptions, which will likely have an impact on global supply chains, and will probably strengthen in the next few days until they can stop the growth and spread of the disease.

We were in the early phase of a global recovery from a global manufacturing slowdown. This has the potential to derail the recovery.

Bingo! Anytime travel disruption occurs GDP globally takes a dive. It's what happens. Expect them (us equities markets and global equities) to go down a bit until the hysteria wanes... I see the USD is slightly up against the JPY

remember... we just had that thread on all the Armageddon scenarios...this is a VIX driven FEAR driven mechanism and the result is people moving to ...cash?

Buy the dip! Dry Powder!

 

[Winemaker]

According to this article, China is "injecting $174 billion in 'liquidity' into their markets Monday." But I do not understand how this will happen - could someone explain "reverse repo operations" - I take it that money is being "given," not loaned, by the central government to banks? And the purpose is to prevent the coronavirus epidemic from setting off panic selling? Definitely not my area of expertise!

Can this work? I guess we will see how it affects global markets.



https://finance.yahoo.com/news/china-inject-174-billion-liquidity-073630793.html

But don't forget that usually during the new year celebration, the shut the Chinese stock market down. If that doesn't screw up liquidity.......

 

[RxMan]

I think the manufacturing and shipping disruption this virus could cause is concerning. Workers at least for now in some areas are being told to stay home and that will shut down a lot of operations. My guess is this move is to financially stabilize their equities market so the panic selling won’t snowball. But the question is will this work?

 

[Another Reader]

I would expect to see pictures of short lines and empty terminals on the TV news if there was a noticeable drop in passenger traffic at the airports. That presumably would indicate some financial impact. I don't watch TV news, but nothing is showing up in the online versions. Has anyone seen such reports yet?

I'm also waiting to see if anyone at the airport is wearing the latest version of tin foil hats, the plastic beverage bottles...

 

[Masquernom]

Looks like Fidelity has a China focused mutual fund. Now how to time the purchase correctly....

The time to buy is when there is blood in the streets.

 

[Fermion]

I just made $19,000 off of Gilead coronavirus news (bought Friday, sold today). Sadly not in Robinhood...this took some serious cash.

Hmm....and I estimated our 2020 income at $25,000....oops.

 

[Masquernom]

Fermion, might want to start looking at a new Porsche......

 

[aja8888]

I just made $19,000 off of Gilead coronavirus news (bought Friday, sold today). Sadly not in Robinhood...this took some serious cash.

Hmm....and I estimated our 2020 income at $25,000....oops.

That $25K (after tax) should easily cover your truck transmission repair!

 

[Fermion]

That $25K (after tax) should easily cover your truck transmission repair!

GRRR I am still fighting that and the truck isn't even repaired yet (they are waiting on parts). All the snow is melting too, so there goes snowmobiling...

 

[GravitySucks]

Nephew just flew back to Bejing. He said there were less than 50 people on the plane, the airport empty, and that Bejing looks like a ghost town.

I would expect to see pictures of short lines and empty terminals on the TV news if there was a noticeable drop in passenger traffic at the airports. That presumably would indicate some financial impact. I don't watch TV news, but nothing is showing up in the online versions. Has anyone seen such reports yet?

I'm also waiting to see if anyone at the airport is wearing the latest version of tin foil hats, the plastic beverage bottles...

 

[Another Reader]

Nephew just flew back to Bejing. He said there were less than 50 people on the plane, the airport empty, and that Bejing looks like a ghost town.

A number of folks here travel regularly. For those that have been in an airport in the last week or 10 days, have you noticed a decrease in the number of people going through the airport from what you usually see? Are your flights less full than usual? I can see that flights to Asia, especially China, would be impacted, but I'm curious if there are overall decreases in the numbers of passengers or if specific airports are experiencing declines in passengers.

 

[PhrugalPhan]

Nephew just flew back to Bejing. He said there were less than 50 people on the plane, the airport empty, and that Bejing looks like a ghost town.

Reminds me of when we flew international on TWA after the '86 bombings. Lots of room to stretch out & enjoy the flight.

 

[Masquernom]

We went on vacation to Cancun a few years ago during one of the flu scares. We had most of the resort to ourselves.

 

[Lucie]

A number of folks here travel regularly. For those that have been in an airport in the last week or 10 days, have you noticed a decrease in the number of people going through the airport from what you usually see? Are your flights less full than usual? I can see that flights to Asia, especially China, would be impacted, but I'm curious if there are overall decreases in the numbers of passengers or if specific airports are experiencing declines in passengers.

I just flew through the Atlanta airport on Thursday. It was as crowded as ever, and my flights were full. Many people were wearing face masks.

 

[Amethyst]

We are touring Southeast Asia. Attractions like Angkor Wat are notably less crowded and the sound of Chinese is nowhere to be heard. Good for tour comfort; bad for nations that need tourist renminbi.

 

[DrRoy]

There have been multiple health scares to the market over the years. They pass.

 

[The Cosmic Avenger]

I just flew through the Atlanta airport on Thursday. It was as crowded as ever, and my flights were full. Many people were wearing face masks.

Most people book flights at least 3-4 weeks out, as that's when prices tend to go up. (And most travel is planned, not spontaneous. Business travel accounts for a little less than half, and while a good portion of that is refundable or last minute, not all of it is, and I believe as a whole it's only about 40% of all airline travel.) I'm curious what the flights and airports will look like when I travel in 2 weeks, by which time a lot of the travel booked before 2019-nCoV made the news will have been taken already. Or in other words, that's when people traveling will start to be more likely to have booked after it broke in the news, so that's when I would expect to start seeing a decline, if there is one. Although I suppose people could decide to cancel, I think the barrier is higher since most travelers buy nonrefundable tickets. I'm thinking that once we get to the point where people have decided to book or not to book we might see more of an impact.

 

[Gumby]

Good points.

 

[Brat]

It is true that this shall pass but I think wise investors should consider the likely economic impact for the next year. Supply chains will be disrupted, China is an integral part. Consumer spending in China will be devastated both because they are staying at home and because of lost wages. Earnings reports are retrospective so don't use them as a part of your investment plan. Right now, IMHO, equity buyers resemble the behavior of the market in 2007. When the impact is reflected in corporate profits we will see 2008 all over again.

China's Central Bank is adding liquidity to its short term market today. This tells me that they see problems ahead. Remember that China has no social security program, just assurances made that the government will take care of the elderly. As a result, Chinese save and invest in real estate for retirement. Many purchased condos now sit vacant. They have their own housing downturn. Some industrial firms have been the walking dead for years, Xi Jinping has been trying to close them as their employees retire. China has depended on rapid economic growth to support their transition to a market economy. This virus is a black swan for them.

Personally, I am positioning myself in a defensive position in anticipation of an equity downturn.

 

[MuirWannabe]

A number of folks here travel regularly. For those that have been in an airport in the last week or 10 days, have you noticed a decrease in the number of people going through the airport from what you usually see? Are your flights less full than usual? I can see that flights to Asia, especially China, would be impacted, but I'm curious if there are overall decreases in the numbers of passengers or if specific airports are experiencing declines in passengers.

Just returning from few days in Vegas. Crowded as ever. Saw a few masks in airport but not many. Craps tables were packed. People smoking, coughing, drinking, etc. All types of humanity in all its forms seen. In other words, Vegas normal.

 

[brewer12345]

Further to Brat's point, if we make the (magnanimous, IMHO) assumption that this is largely contained within China, the question becomes one of how long does it take for this to burn itself out and for normal economic activity to resume. Given that the epidemic continues to expand rapidly, I don't see this happening before the first quarter is over. Depending on when the number of cases peaks and starts to decline (and the data released by the Chinese authorities is buggy enough that we will have a hard time figuring out whether that is propaganda), it might take multiple quarters for normalization to occur. What will that do to global GDP? The second largest economy in the world has the provinces that account for 80% of its GDP affected by this mess, so it isn't going to be a small impact to China or the world. The big rally in EM equity today looks like a pure Chinese central bank short term stimulus reaction, not something based on the real economy.