You may recall I recently wrote that the COVID-19 virus, whether it grew to become one of the world’s great killers or just the cause of one of the world’s great panics, would certainly bring rapid economic damage. It would also help take down the stock market by accelerating us into recession, which is how I’ve been predicting this bull run will finally die. (See “COVID-19 (Coronavirus) Economic Impact Sweeps Down on Global Economy Like a Fat Black Swan.”)
The crisis has now become economic suicide because it is not the death of millions of people that is tearing the economy apart; it is the fear that there may be deaths of millions of people that is causing humanity to tear the already fragile fabric of the global economy apart with actions taken on the political level, the corporate level and the individual consumer level. It is a fabric already worn thin by two years of trade wars, moth-eaten by corruption and greed, and badly woven in the first place from materially flawed economic ideas, patched with bailouts.
The article isn’t about how bad the disease is but about the public response and its already severe impact on the economy that will be showing up in stats down the road. For this discussion, it doesn’t matter how severe the disease actually turns out to be. (I have, however, revised some of my earlier statements about how deadly COVID-19 is here.)
Public perception is slaughtering the economy. Even if the disease kills fewer people this year than the common cold, the global human response is already far more extreme in areas not even touched by the illness than any response I’ve seen in my lifetime to any pandemic. Think about it:
The Seattle lights go out
This particular coronavirus illness (COVID-19) broke out in the US in a single nursing home in Kirkland, a Seattle suburb. There it killed (so far) fifteen of the old and infirm. That is the only kind of person it killed in Seattle so far, but the disease leaked slightly into the business community after about a week. As soon as it did, and within the last forty-eight hours, it caused all of the following fallout:
The University of Washington canceled all classes on campus and asked its 50,000 students to take courses and finals online until the end of winter quarter.
Numerous schools in the Seattle — public and private — closed campus classrooms until the end of winter quarter. For example, the much smaller Seattle University (7,300 students) has closed classrooms until after spring break. Likewise for Lake Washington Institute of Technology (6,000-students). Same goes for grade schools and high schools and religious academies in the Seattle area. Schools in other counties all over western Washington are seriously contemplating month-long closures.
This panic transpired in the last forty-eight hours, even though no schools or universities in Washington State have reported any diagnosed cases of COVID-19, and in spite of the fact that the disease barely even affects children and has never been lethal to college-age people that I have been able to find in any report. Few children anywhere have even gotten the disease. They seem only to carry it. (Many major universities in the US stated in the last twenty-four hours they will take similar actions if the disease comes near them.)
Facebook closed its Seattle office until March 9 because a contractor in the office had an employee diagnosed with COVID-19. 5,000 employees have been ordered to work from home until the end of March. Alarm spread from Facebook’s Seattle office to offices in other states as people worried they, too, might have had contact with the one contractor. From there, the alarm spread to other companies in Seattle: (NPR)
Amazon also had an employee at its Seattle headquarters come down with COVID-19 and ordered all employees in the greater Seattle areas who can work from home to do so until the end of March. (How will people buy their surgical masks when they dare not travel to stores where they might meet other people?) (NPR)
Inside Amazon, while some workers emailed each other about whether masks provide effective protection, many were scrambling to deal with business problems caused by the virus, according to four employees, who were not authorized to speak publicly. Those included whether Amazon will have enough products to offer for Prime Day, its summer sale event, or have enough drivers to handle a surge in online grocery orders as the virus spreads.
Microsoft — which has its headquarters in Redmond, WA, near Seattle — ordered all employees in the Seattle area (and San Francisco, also South Korea and Singapore) to work from home until the end of March because two Microsoft employees have reported being infected. (NPR)
Google recommended all Google employees work from home until the end of March. (NPR)
Do you notice a pattern as though each corporation is copying the other? Perhaps that is based on government recommendations or fear that by not following the prudence of the first company, they will be open to liability if they don’t do, at least, as much. Regardless, down the dominoes went … all in a single day.
These are major corporations, so these precautions represent tens of thousands, if not hundreds of thousands of employees in metropolitan Seattle being asked by their employers to stay home from work for a month! (And no one knows if a month from now things will be any better or possibly worse.)
REI, a sporting goods company headquartered in Seattle, temporarily closed three buildings in Seattle for disinfecting after some employees reported possible exposure to COVID-19.
A forty-four story building in Seattle was closed entirely due to one person having been in the building with COVID-19. They could have just disinfected the areas the person travels through, but they disinfected the entire skyscraper! The costs of these reactions being repeated everywhere is huge!
Emerald City Comic Con, which gets almost 100,000 attendees each year, was cancelled.
Some of the above work-from-home changes might launch a permanent change in how companies do business in normal times if they find working from home works better than they thought it would now that they feel forced by necessity to invent solutions to the shortcomings of working from home.
Several of those same companies are offering free versions of their team collaboration tools for the next few months. Microsoft and Google, for example, are making their fully featured tiers of Teams and Hangouts Chat, respectively, available as a free trial for the next few months.
They may be offering free versions just as a public service, or they may be offering them to capitalize on what they see as transformative times. Who knows? Having entire large companies work from home may catch on, and that may be good in the end, but coronavirus will become the virus that virally changed the global workplace.
“We’ll never probably be the same,” Jennifer Christie, Twitter’s head of human resources, told BuzzFeed News of the company’s workplace practices. “People who were reticent to work remotely will find that they really thrive that way. Managers who didn’t think they could manage teams that were remote will have a different perspective. I do think we won’t go back.” Twitter — whose CEO, Jack Dorsey, said he wanted to move toward a distributed workforce in the most recent earnings call — is one of a number of companies asking employees to work from home as the coronavirus hits the US.
The post-corona world is already shaping up to be a different world for many.
I’ve never seen anything like this
Fifteen cases in Washington have turned fatal. Almost all cases have emerged from a single retirement home. All that have died have been elderly. Those are the basic facts of what happened disease-wise in Washington.
King County, where Seattle is located, declared a state of emergency as did Washington State in the last forty-eight hours. California also declared an official state of emergency the same day Washington did after only one person died of the virus. This is a move neither state has made when thousands die of the flu. The only person that died in California actually got the illness on a cruise ship that came into San Francisco Bay. Marin County declared a state of emergency, though there are no known cases of COVID-19 in the county. Florida had already declared an official state of emergency last Sunday after two people in the state were diagnosed with the illness.
Has anyone ever seen any state in the union declare an emergency over one or two infected people with any other disease — even a disease known to have a much higher death rate? Have you EVER seen major corporations tell their entire regional work force to stay home for a month? Ever? Ever???
The business response to COVID-19 is completely unprecedented. So is the US government response. So is the Chinese government response. So are the stock markets’ responses all around the world. And, therefore, so is the general public’s response because what else can they make of all these responses by governments and health agencies and businesses with their constant warnings on every radio channel and television news program?
Even the notorious bubonic plague, which has broken out several times in the US, never got a response anything like this! Yet, even with treatment, the bubonic plague has a much higher death rate than COVID-19 (as high as 30-90% without treatment, and still 10% even with antibiotic treatment), and there is no effective vaccine for the bubonic plague either.
Between 1900 and 2015, the United States had 1,036 human plague cases with an average of 9 cases per year. In 2015, 16 people in the Western United States developed plague
Yet, get one case of COVID-19 in a state, and the whole state becomes a State of Emergency. Wouldn’t a more proportionate response be to declare an emergency is just the area of a state where the disease was diagnosed, rather than over an entire state? If you feel otherwise, tell me when you have ever seen entire states take such moves over one death.
Maybe the state-wide response is merited; but whether it is or not, there can be no doubt that fear of the illness is killing us economically. Suddenly the economy matters again to the stock market, too, which is paying much more attention to the economy than to the Fed, even to the point of completely dismissing the double-dose interest-rate cuts it has always craved until now. Suddenly stock valuations appear to matter to investors who couldn’t care less a month ago that the market, priced to insanity, was “the most perilous in history.”
I find it interesting to ask “Why is this the greatest and most global viral fear I’ve seen in my lifetime? Responses in areas barely affected are beyond anything I’ve ever witnessed. Entire skyscrapers shut down, conventions shut down, airports empty, states of emergency breaking out everywhere, entire corporate work forces sent home for a month, schools and colleges closed.
No, I’ve never seen anything like this — not on 9/11, not in any viral outbreak in the US. It looks to me like mass hysteria, but I might be wrong. I’m not saying I’m not, but I am mystified. I find it interesting to ask why is the whole world so ready to panic over this virus? Why now? I wonder if it is for subliminal reasons bigger than the disease, itself.
Let me now go to a wide-angle view of the public response with that question haunting me if it doesn’t haunt you:
Going beyond the outer limits of Washington State
Ford Motor Co., CNN, Citigroup and Twitter have put employees through work-from-home drills in preparation for a viral pandemic. (I’ve never seen companies do that before.) Twitter, in fact, is already encouraging all employees around the world to work from home if possible and limit all non-essential travel. (I’ve never seen that before.) Big and small businesses are starting to run for cover all across the nation:
“No one has a playbook for this,” said Dan Levin, who runs a small company outside Chicago, Cain Millwork, which makes furniture and wall paneling. He said he was planning to have some of his office employees work from home.
Other major corporations like IBM, Facebook, JPMorgan Chase, Amazon, Adobe, the Washington Post, Walmart, Google, and Apple are limiting employee travel and canceling large events, such as conferences and conventions. (Never seen that before.)
The International Monetary Fund and the World Bank have cancelled in-person spring meetings. (Never seen these major banking institutions cancel their meetings due to an illness in the world that I recall? How about you?)
Uber urged employees to restrict nonessential travel until the end of March. How do you make it as a transportation company if you restrict all non-essential travel? (NYT)
Lyft also urged all San Francisco’s employees to stay home after one driver reported contact with a passenger who had contact with someone with COVID-19. (Techcrunch)
Cities hosting large trade shows, such as Austin’s South by Southwest, which brings 400,000 people to the city, have cancelled their annual shows. The City of Austin, Texas, declared a disaster! Austin Public Health stated there is no evidence that closing the show will make the public any safer. Apparently this is a pre-emptive “disaster” because there have been NO cases of COVID-19 in the City of Austin or in its surrounding county! But it’s “a disaster!”
I never saw the stock market make such huge swings on every word about a viral outbreak before either. Market volatility is now extreme. It hasn’t been this high since the Great Recession. VIX terms structure is its worst since Lehman Bros. went down. Daily thousand-point bounces. The massive Biden Bounce — the greatest one-day point gain ever — turned out to be something to fade the very next day.
As I pointed out in a graph recently, the market never fell this much in response to any major viral outbreaks unless it was already falling for other reasons. From top to bottom, the S&P 500 just lost 16% in seven trading days — a very rare event — almost entirely on viral fears. Is it that the fear is so great or that everything that is falling is so weak?
The buy-and-hold investors are getting their heads smashed daily from floor to ceiling to floor again like the end scene out of Once Upon a Time in Hollywood.
Said one veteran stock advisor,
“This is systemic selling that I’ve never seen in my lifetime.”
The Fear & Greed Index moved from its most extreme greed reading to its most extreme fear reading faster than ever before:
“Panic moved up a few notches from already extremely high levels,” said one trader today, “I thought last Friday was the blow off top and then a few times this week before today but now its beyond belief,” he said, noting the rally in 30-yr to all- time lows.
The market is suddenly speculating the Fed will lower its fundamental interest rate to the zero bound within a month! Even a Federal Reserve bank president admitted this week that central banks are rapidly losing credibility. (More on that in the Patron Post I’m working on.)
And US bond yields never got this low even at their lowest point during the Great Recession “recovery” era when the Fed was trying to get yields down. All the result of a rush to safe havens.
This is what panic looks like. What else would it look like?
Italeave now means a new kind of exit
Italeave is no longer just a reference to the prospect of Italy leaving the European Union someday.
Italy, has so far experienced the largest coronavirus outbreak outside of China. Although the outbreak began in Northern Italy, 49 cases have been reported in Rome, so the streets of Rome are reportedly quiet and almost empty as the few people brave enough to walk about wearing face masks. Fountains that are usually crowded with people sitting around them have one or two at most. Many tourist sites are closed. Fruit is starting to ferment in the empty marketplaces. The tourists, themselves, have either left or gone out of sight.
It is in Italy as though The Earth Abides. (A potent classic tale if you haven’t read it. You can read about the book there or even purchase it.) Some of the tourists who remain are worried they might not be able to get out of town if quarantines spread. That may be, in part, why so many have already gone.
I’m not nervous about the virus at all… But I’m worried about the fact that if they close down the borders, we’re not going to be able to go home for like a year or so.”
We’re paying for our transparency,” [says another]…. Italy has carried out more than 36,359 tests for coronavirus — far more than any other European country.
4,636 people have tested positive for COVID-19 in northern Italy and 197 have died from COVID-19. Schools, universities and public events have been closed in numerous parts of Italy. Ten-million students and one-million teachers and staff have been ordered to stay home for, at minimum, two weeks. (Never seen a nationwide closure in Europe until now.) Small number of deaths — one here, seven there — scattered around the world have become hourly news bombardment. (Never heard the media hourly mention the hundreds of daily deaths from flu.)
Italy’s leading public intellectual, Massimo Cacciari, demanded clarity. “Someone has to explain the logic behind these measures: schools closed, but offices open. I need a scientific explanation,” Cacciari says, “why contagion is greater in schools than in offices — or else we’ll all go crazy!”
Some local business people in Italy blame local politicians for causing panic and, thus, killing business.
“First they said there was no problem at all, then they went overboard, sending confusing, contradictory messages, creating a situation of total panic.“
Holy-water vessels are kept empty now in the capital of Catholic Christianity to keep people from wiggling their germy fingers in the holy water. Priests have been given new instructions on how to administer communion by not placing the wafer on the parishioner’s tongue and are instructed to leave off the call to shake hands after communion as a sign of community and peace. (Never saw the Catholic Church change its communion in my lifetime for a virus or anything until now — not even reflecting back on what I can recollect from hundreds of years history.)
Authorities all over the world are recommending “social distancing” and working hard to change social customs overnight — customs go back thousands of years, such as greeting another with a kiss on the cheek in Italy or even a handshake. They are teaching their publics to use an elbow bump or a friendly toe kick, and the public is readily shifting all over the world. Face-to-face job interviews have been banned in some corporations, and some, such as Facebook, have said no more guests at work. That means no more bring-your-daughter-to-work days until the virus has passed.
It all raises some disturbing questions
The panicked parts of the world are looking as though people overnight have become suddenly deathly afraid of each other, even though most of us have never even seen anyone who has the illness, and even though most people who have had it said it was like a common cold. (Never have I seen a disease cause official pushes for cultural changes all over the world like this one, and it has barely even spread yet.)
Global culture might forever change — becoming less social and less friendly — due to fear of one viral pandemic, which might not in a year even kill as many people in the entire world as influenza kills every year in the United States alone.
So, the why that I wonder about is why so many nations world are so primed to respond in fear right now to this particular virus as compared to any other virus in my lifetime or ANY OTHER EVENT in my lifetime. I’m not wondering whether the disease is greater than I think. (Maybe it is. I don’t doubt I could be underestimating where it will go.) I’m wondering if there is not some much deeper fear that has been haunting the world, and this is the trigger that is releasing it. I don’t have an answer to that. I just know I’ve never seen anything like the rapid seizure that just happened in Seattle over the last two days and that seems to be spreading across country and around the world simultaneous to Seattle’s response.
Is it the media response that drives the story relentlessly all day, every day? Is it the big emergency responses of governments or just China’s response in quarantining a population the size of the United States? Is it the fact that we’ve been fearing an Outbreak like the one Dustin Hoffman starred in back in the nineties for decades now and have decided this is the big one? Is it all our apocalyptic stories coming to haunt us in times that feel apocalyptic or the fact that there have been so many real things to fear developing in the world for a long time — terrorism, superbugs, wars everywhere, economic collapse? Is it the fact that disease is coinciding with long-denied fears about the failure of the entire global economy staging a return, and we know this could be the black swan that forces us to face the flaws we have long denied covering? Is it because we have so many people living in the world now who were raised to believe life should always be nice … and safe … and everyone should get a reward for showing up who are shocked when life isn’t all of that?
I don’t know, but I do KNOW I have never seen responses on this scale in so many places at once to anything!
The fear is palpable as toilet paper flees off the shelves in the town nearest me and as I see people walking around with masks on their face in an area where I’ve never seen that. I met a supervisor today who bumped elbows with me, instead of fists, to adopt the new approach. Maybe he was just having fun with it, but I think he was trying to teach the new norm.
Where are we going from here?
There are economic upsides to all the panic, too. So, I can tell you where I’m going. I’m going to Hawaii. For two months I’ve been watching for roundtrip tickets to Hawaii to go on sale in order to schedule a spring break. Consistently, the price was $950 per person for economy. Thursday, right after airline stocks plummeted (with some down now 40-60%), I got tickets for $356 each.
(I’m not stopping my life because of this virus. I don’t find myself afraid of it at all so far, and I’m one who can’t stand having colds. It’s not that this won’t be horrible if I get it, but I don’t let fear of illness rule my life when it may not even happen to me. I just take reasonable precautions, like stepping away from someone who is coughing, washing my hands, etc. that I do in any flu season.)
A lot of people, on the other hand, aren’t going anywhere. 200,000 flights have already been cancelled worldwide, and airlines are offering tickets everywhere at less than half price. That’s already having a huge economic impact on more than airlines, and my point here is not whether the fear is right but to point out that the fear is already having a huge impact when you see corporations making such momentous changes in just hours, whether right or wrong. The cancelled flights have also brought grief to retailers and restaurants at airports and to hotels all over the world.
Airport retail outlets have been a rare success story in the slumping bricks-and-mortar world. Now, duty-free and other airport shops are under siege from the coronavirus…. This is the greatest crisis the travel retail sector has faced, worse than [severe acute respiratory syndrome], the two Gulf wars or various financial crises…. That’s largely driven by the fact that the Chinese traveler has become the epicenter of the sector over recent years and many retailers are worryingly reliant on them….
What to make of the virus and the economy? Here’s O’Hare airport in Chicago tonight at 7pm rush hour … pic.twitter.com/OzYNWoWLxa
— Evan Feigenbaum (@EvanFeigenbaum) March 3, 2020
The airline troubles mean another major Seattle employer — the one that used to be its biggest — Boeing, which already has plenty of troubles it entirely brought on itself with its own greed — may be facing a layoff recession as great as the one it landed in Seattle in ’71.
On the other hand, one of the bright spots is that toilet-paper sales have been outstanding around the country, and many retailers will report outsized sales of all necessities for February when March comes around due to people stocking up for the worst and in some cases hoarding. (But those are sales brought forward that will eventually bring weaker retail results in later months.)
Those are the real hard facts that need to be dealt with right now. Seattle is an easy case-in-point — an example of what is to follow in cities all over the nation and all over the world as the fear of coronavirus causes the global economy to seize up.
A month of businesses ordering employees to work from home is going to show up in US stats next month, and it may last beyond a month. It may be a good transition in the long run, but it will show up in business statistics as those hundreds of thousands of employees don’t buy gas or don’t buy transportation and don’t buy lunch out and don’t shop on the way back home and maybe are not as productive as they learn this new working paradigm or just don’t work at all and claim sick leave because their jobs aren’t doable at home, but they also have no utility in an empty office building or empty factory. (For example, is the temporarily unnecessary custodian of an empty building going to do his or her job at home? Is he or she going to keep cleaning a building no one is messing up? Who is the campus cook going to cook for when no students come to school? When schools and offices and conference centers are empty, lots of support staff have nothing to do.)
Since these workplace transformations all happened in just the last forty-eight hours in Seattle where the virus first broke out, how are other US cities going to adapt when a death or two happens in them? Already two states have declared a “state of emergency,” and one of them had only one coronavirus case in the whole state. Whether you consider that mass hysteria, as I do, or a perfectly rational response, it is (either way) a REAL economic set of rapidly changing facts that need to be understood right now as you consider where stocks are likely to go and where the whole global economy is likely to go.
Predictions: The changes that are happening appear to me to be transitional, not transitory. The world will not be the same if this virus doesn’t extinguish itself in warmer weather in another month. Transition will come because people are not the same. They are responding with more alarm than I’ve ever seen. They are making overnight massive changes in how they operate their businesses and their lives. Everything is changing swiftly now … in social habits, business practices, religious practices, stock re-evaluations, bond interest, Fed rate cuts. Fear is motivating people to move quickly … for better or worse remains to be seen. Even the Fed, which used to move at glacial speed, has had to make major changes between regular scheduled meetings that it didn’t want to be making at all this year.
The next phase economically will be the knock-on effects financially as one trade starts to force another kind of trade and then as credit starts to crack in two or three months. Decrepit financial structures and hidden rot will crumble under this kind of stress. Falling institution will crash into each other if this virus goes on long enough.
As Warren Buffet has said, when the tide goes out, we’ll all see who was swimming naked. If the viral spread goes on for even a couple of months, a lot of things will have shifted beyond a simple bounce back to where they were. If investors realize that this is a transition, markets that were already way above economic reality will collapse in even greater panic.
If, on the other hand, spring sunshine snuffs the virus out in a month or two, maybe things can still settle down and markets could even recover before the end of the year. That is my only caveat — if the virus quickly goes away as nature works its own delivery. (A change in the driving force of change, itself, that is not predictable economically or knowable by mere mortals.)
My Patron Post on where the Fed is likely to go with all of this will be finished this weekend. Work on it has slowed because so much has been happening so rapidly in the global economy, the US economy, the stock market and bond market as COVID-19 single-handedly blows around the whole house of cards.