Coronavirus - Financial impact

[Sunset]

I've been wondering about this too. I wonder if this 'lesson' will wake companies up. No "Single Points of Failure" is a mantra for IT disaster recovery and continuous operation plans -- yet so many companies now seem to have single points of failure in their supply chain sourcing.

Or, after the dust is settled will people go back to their old pre-outbreak thinking?

Is there opportunity domestically for in-sourcing? Dunno, but trying to figure it out.

<edit> When writing this below I was mentally thinking only of drug companies:

Companies don't care.

As the shortages become apparent, they will simply raise the price to maintain the same income level.
After it's over, things will go back to normal.
If it never ends, then once there is no more supply, the company will lay off all the staff, give the CEO a bonus, and shutter buildings as needed.

 

[audreyh1]

The Chinese are not making anything that the rest of the world cannot do, from the lowly aspirin to complicated computer chips. In fact, the electronic chips are made in factories set up by western countries. They only make everything cheaper.

A supply disruption suddenly awakes the world to the peril of concentration of manufacturing in one place. We can do without new iPhones, but medicine is another matter.

When this blows over, will something different be set up? Or it is quickly forgotten, and everyone goes back to the old way?

Well said! Wondering the same thing.

 

[audreyh1]

I've been wondering about this too. I wonder if this 'lesson' will wake companies up. No "Single Points of Failure" is a mantra for IT disaster recovery and continuous operation plans -- yet so many companies now seem to have single points of failure in their supply chain sourcing.

Or, after the dust is settled will people go back to their old pre-outbreak thinking?

Is there opportunity domestically for in-sourcing? Dunno, but trying to figure it out.

Companies did change some behavior after the liquidity crisis of 2008 - they quit relying exclusively on MM funds to cover short term liquidity needs like payroll. Well at least they did for many years and hoarded cash quite a bit. Have they now reverted back to pre-2008 methods? I have no idea.

 

[Brat]

Years ago (about 20) NIKE took a look at its supply chain, purchased critical businesses and moved at least one to Portland metro. They were stuck with an Asian firm that held a key patent on shoe manufacturing. That patent has doubtless expired but I suspect that they didn't consider the prospect of a pandemic. My guess is that their shoes are all manufactured in China, just like all the other athletic footwear manufacturers. Summer products were likely already produced as ordered by retailers and in containers headed to the US.

It is hard to anticipate a pandemic and include it in your business plan unless you are a supplier to the health care industry. It has been over 100 years since a serious infection swept the globe.

 

[NW-Bound]

During smooth sailing, it is not possible for companies outside of China to compete on costs. Not unless some quotas are set up to guarantee survivability of domestic producers.

Some time ago, I read about how Japan tries hard to prop up its domestic rice farmers, instead of importing cheaper rice. I just checked again, and they are still self-sufficient in this commodity, but it gets harder and harder as Japanese farmers get old and no youngsters want to carry the flag, nor do they have a surplus of youngsters. It's just not simple.

 

[BeachOrCity]

Companies don't care.

As the shortages become apparent, they will simply raise the price to maintain the same income level.
After it's over, things will go back to normal.
If it never ends, then once there is no more supply, the company will lay off all the staff, give the CEO a bonus, and shutter buildings as needed.

Sorry but this is flat out wrong.

Take auto manufacturing hypothetical example.....

A US Ford factory makes cars. A part(s) used in the car are sourced from China. They keep 30 days extra on hand in case of supply disruptions. The China factory has been closed for 3 weeks now. No real reopening as if they open the workers don’t show. Ford is frantically searching for another supplier. But the part is specific to ford and anyone who needs to ramp up manufacturing needs 90 days to do it.

Ford loses MONTHS of ability to make their cars. And they can’t just raise the price of the cars they do make because consumers know it is temporary and just hold off buying.

So ford revenue and income drop. Temp layoffs at the plant that makes the cars. Less business and shifts for the local restaurants who serve the food. And so on and so on.

Anyone who at this point doesn’t understand the cascading economic effect is kidding themselves.

China and the world economy could probably handle a one month shut down. Anything beyond a month will not just effect China, it will reverberate across the global economy.

 

[Another Reader]

Sorry but this is flat out wrong.

Take auto manufacturing hypothetical example.....

A US Ford factory makes cars. A part(s) used in the car are sourced from China. They keep 30 days extra on hand in case of supply disruptions. The China factory has been closed for 3 weeks now. No real reopening as if they open the workers don’t show. Ford is frantically searching for another supplier. But the part is specific to ford and anyone who needs to ramp up manufacturing needs 90 days to do it.

Ford loses MONTHS of ability to make their cars. And they can’t just raise the price of the cars they do make because consumers know it is temporary and just hold off buying.

So ford revenue and income drop. Temp layoffs at the plant that makes the cars. Less business and shifts for the local restaurants who serve the food. And so on and so on.

Anyone who at this point doesn’t understand the cascading economic effect is kidding themselves.

China and the world economy could probably handle a one month shut down. Anything beyond a month will not just effect China, it will reverberate across the global economy.

All that "just in time" manufacturing efficiency that was adopted for cost efficiency will suddenly not be so efficient for producing the product. At least a week ago, I read that Hyundai had to shut down the vehicle production lines in Korea because of the lack of parts manufactured in China.

 

[Mdlerth]

Is the pope Catholic?

The Chinese are not making anything that the rest of the world cannot do, from the lowly aspirin to complicated computer chips. In fact, the electronic chips are made in factories set up by western countries. They only make everything cheaper.

A supply disruption suddenly awakes the world to the peril of concentration of manufacturing in one place. We can do without new iPhones, but medicine is another matter.

When this blows over, will something different be set up? Or it is quickly forgotten, and everyone goes back to the old way?

I've been wondering about this too. I wonder if this 'lesson' will wake companies up. No "Single Points of Failure" is a mantra for IT disaster recovery and continuous operation plans -- yet so many companies now seem to have single points of failure in their supply chain sourcing.

Or, after the dust is settled will people go back to their old pre-outbreak thinking?

If I were a gambler, I know which way I'd bet.

 

[NW-Bound]

When this blows over, even if this is really bad, survivors will be happy to be alive, they gladly forget bad times in order to live happily forever after. Phew, they exhale together.

It's human nature. We collectively forget catastrophes, misery, wars, political scandals, anything bad really. It's never different.

 

[Sunset]

Sorry but this is flat out wrong.

Take auto manufacturing hypothetical example.....

A US Ford factory makes cars. A part(s) used in the car are sourced from China. They keep 30 days extra on hand in case of supply disruptions. The China factory has been closed for 3 weeks now. No real reopening as if they open the workers don’t show. Ford is frantically searching for another supplier. But the part is specific to ford and anyone who needs to ramp up manufacturing needs 90 days to do it.

Ford loses MONTHS of ability to make their cars. And they can’t just raise the price of the cars they do make because consumers know it is temporary and just hold off buying.

So ford revenue and income drop. Temp layoffs at the plant that makes the cars. Less business and shifts for the local restaurants who serve the food. And so on and so on.

Anyone who at this point doesn’t understand the cascading economic effect is kidding themselves.

China and the world economy could probably handle a one month shut down. Anything beyond a month will not just effect China, it will reverberate across the global economy.

I was only thinking of drug companies, you are correct other companies won't be able to raise prices.

And of course all companies will look for other suppliers, but if Countries flat out won't export (India saving drugs for itself), there won't be other suppliers.

 

[Masquernom]

In today's world of just in time supply, and cutting inventory to lower costs, I'd be surprised if Ford has 30 days supply of any parts on hand. They may have 30 days supply shipping at any given time, but I'd be surprised if they have that much on hand.
In the mega corp I worked at, we never had that much inventory of raw material available. Maybe two weeks on hand and more in transit.

 

[Nemo2]

In today's world of just in time supply, and cutting inventory to lower costs, I'd be surprised if Ford has 30 days supply of any parts on hand. They may have 30 days supply shipping at any given time, but I'd be surprised if they have that much on hand.
In the mega corp I worked at, we never had that much inventory of raw material available. Maybe two weeks on hand and more in transit.

The old "Just In Time' manufacturing.

 

[Brat]

I wonder if caring for the seriously ill will become a subject of discussion.

 

[razztazz]

I wonder if caring for the seriously ill will become a subject of discussion.

Depends. Is there any money to be made off it?

 

[Alexi]

Interesting FOX Business news article

" Dr. Doom warns coronavirus will shock Chinese economy "

https://www.foxbusiness.com/markets/coronavirus-china-global-economy-impact-dr-doom

 

[audreyh1]

Interesting FOX Business news article

" Dr. Doom warns coronavirus will shock Chinese economy "

https://www.foxbusiness.com/markets/coronavirus-china-global-economy-impact-dr-doom

Oh, jeez, I hadn’t seen that guy for a very long time. Forgot all about him.

 

[Tekward]

Possible supply chain impact after shutdowns approaching a month:


A survey of small- and medium-sized Chinese companies conducted this month showed that a third of respondents only had enough cash to cover fixed expenses for a month, with another third running out within two months.

https://www.bloombergquint.com/global-economics/millions-of-chinese-firms-face-collapse-if-banks-don-t-act-fast


This is beyond supply chain risk analysis, it's more of a Black Swan event.

 

[W2R]

I have seen a number of articles this week saying that due to the coronavirus outbreak, a shortage of Nintendo Switch gaming consoles in the US and Europe is expected by April. Nintendo had previously announced shortages in Switch availability in Japan for the same reason.

Although the Switch destined for the US is actually made in Vietnam, the parts are from China and so this is the source of the expected production bottleneck.

 

[Dtail]

Well with the largish increases in cases in Italy and South Korea, perhaps the market correction is finally here.

 

[NW-Bound]

With the market correction defined as a 10% drop, the Nasdaq may see that in a matter of 1 week.

If this develops into a full bear market (a decline of 20%), I will not be surprised.

Then, why have I not sold everything? Things got bad fast over the weekend. And market timing is never easy.

 

[Fermion]

Last week I was holding 150 SPY puts at $325 (March 20 expiration) but stupid me closed out 125 of them on Friday.

Still holding 25 in a Roth, but dang nab it, if only I could have had strong hands. This is the crash I was concerned about.

 

[target2019]

Many bargains today in the stock market. Check the Fear-Uncertainty-Doubt aisle...

 

[NW-Bound]

No, I am not buying. I am not interested in "Clearance Sales" (5% off marked up prices).

Only when I see "Going out of business sales".

PS. Just sold some covered calls. Also bought back a couple I sold last Friday (made money on them), in order to sell new contracts at lower prices. The outlook has changed significantly over the weekend.

These trades are peanuts compared to the total stash, but so that I feel I am doing something.

 

[Fermion]

Last week I was holding 150 SPY puts at $325 (March 20 expiration) but stupid me closed out 125 of them on Friday.

Still holding 25 in a Roth, but dang nab it, if only I could have had strong hands. This is the crash I was concerned about.

So this morning I was watching the puts and they spiked up to $16,000 profit, but I went to get a cup of coffee and they had dropped to just $11,500 profit. I sold them there.

That was a $4500 cup of coffee. At least the gain was in the Roth.

 

[NW-Bound]

Do you have any long position?

The gains from my bearish trades make me peanuts compared to the losses of my long-term holdings.