Fear of the unknown has sparked a strong reaction from the World Health Organization and our own Centers for Disease Control, roiling world markets and sending the Dow Jones Industrial Average into a 3,500-point tailspin.
Major disruptions to supply chains in multiple business sectors have companies around the globe on defense, warning about the potential impact on profitability going forward. Even high-flying Apple has issued a warning that Q1 revenue will take a hit over interruption of iPhone production.
We have made numerous references to what we call the Psychology of Decision Making on this blog. Simply put, it is based on the concept that we think our way into feeling good about taking any particular action. We do that by gathering and assessing important facts, seeking expert advice and giving full consideration to the potential consequences of our decisions. It’s only then that we decide to take action (offensive or defensive) or opt for a wait-and-see posture until the appropriate path becomes clear.
We bring this concept up again today because the whole world is uncertain and short on facts as it relates to the coronavirus outbreak that is dominating the headlines of late. The infection, which has spread to more than 60 countries in a matter of days now has the full attention of authorities who feel justified in quarantining millions, shutting down air and ground transportation and banning large social gatherings until more about the characteristics of the virus are known.
Equity investors have responded by fleeing to the safety of sovereign bonds, driving the yield on the US 10—Year Treasury down to an all-time low of 0.972% on the morning of March 4th. Companies dependent on Chinese manufacturers for parts and finished goods are scrambling to find suppliers outside of China before their revenues are impacted. Airlines are taking a big hit, as are destination resorts and cruise lines. Oil and other commodities have also suffered steep declines.
Now, we are not the gloom and doom type, but we believe this current situation makes the point that the decision making process can be easily disrupted. That said, we think it’s a good idea to stay informed, expect the unexpected and consider the short and long term consequences of major economic disruptions, whether they be viruses, elections or emergencies half way around the planet. That way you’ll be proactively thinking your way into feeling good about the business decisions you make, rather than reacting emotionally on sketchy information that turns out to be false down the line.
The coronavirus story will continue to dominate the headlines for the near term, of that there is little doubt. Extraordinary efforts around the world are being made to contain the virus and the pharma industry is hard at work at developing a vaccine. We just don’t have a timeline for the solution yet.
In the meantime, Q1 GDP around the globe will be negatively impacted. There’s little doubt about that either. The question is: will the global economy see it as a short term disruption and keep its collective foot on the gas, or slam on the brakes? What we all need is more information that will help us think our way into feel good about the decisions we make. Patience was never more a virtue than it is today.