FORECASTS & TRENDS E-LETTER
by Gary D. Halbert
March 3, 2020

IN THIS ISSUE:

1. The Coronavirus: A Look at the Latest Numbers

2. 5 Reasons Not to Panic Over the Coronavirus

3. Use Market Correction to Invest With YCG Investments

Overview

I finished today’s E-Letter on Monday as I usually do, with a discussion of whether or not the Fed should cut interest rates at its upcoming policy meeting on March 17-18 due to the uncertainty of the coronavirus. While there were widespread calls for the Fed to cut rates at the upcoming policy meeting on March 17-18, I suggested the Fed would be better off to wait until we know more about what the coronavirus will do.

However, at around 10:00 Eastern time this morning, the Fed announced that it was cutting the Fed Funds rate by 50 basis points (0.50%) effective immediately. The Fed Open Market Committee (FOMC) reportedly held an emergency conference call this morning and voted unanimously to cut its key interest rate due to concerns over the spreading coronavirus and last week’s plunge in equity markets around the world.

The Fed’s surprise decision to cut rates ahead of its regularly scheduled meeting later this month took markets around the world by surprise. The US stock markets were trading lower in early trading this morning but turned higher initially in response to the Fed’s surprise decision.  However, within about an hour after the rate cut announcement, US stock indexes turned lower again and fell sharply on the day, with the Dow down 786 points.

While today’s letter was intended to be all about the Fed and whether it should cut rates, that decision has been made, and now it remains to be seen how the markets respond. Some Fed-watchers believe the FOMC will cut rates by another 50 basis points at its upcoming policy meeting on March 18, but at this point no one knows what will happen next.

As a result of today’s emergency decision by the Fed, I will hastily redirect my commentary which follows and turn my thoughts to the 800-pound gorilla in the room: the coronavirus.
I’ll give you the latest numbers on the virus and share some reasons not to panic over it, even though it will make today’s letter run a little longer than usual.

The Coronavirus: A Look at the Latest Numbers

As of the end of last week, the World Health Organization (WHO) reported that the number of confirmed cases of the coronavirus, now named “COVID-19,” topped 92,000 (92,312) worldwide, with deaths having topped 3,000 (3,137) globally.

Of the 92,000+ cases, 80,151 are in Mainland China; the next highest country is South Korea at 5,186, followed by Iran at 2,336 and Italy at 2,036. The numbers in each affected country drop significantly after that. To date, American authorities have reported 100 cases nationwide, with six fatalities (more details below).

In China, where the epidemic erupted and where the overwhelming majority of cases have been identified, officials claim they now have the spread of the virus under control. While data from China is suspect, officials there reported 125 new confirmed infections of the coronavirus on Monday and 31 new deaths from the virus yesterday. If true, that is the lowest number of officially confirmed infections since January 20, when President Xi Jinping issued his first public orders on the epidemic.

But in South Korea, site of the second-largest outbreak, the number rose on Monday to nearly double the caseload on Friday. The rate of increase was even faster in Europe, where officials warned residents to prepare for larger outbreaks.

In the US, the coronavirus killed three more residents of a nursing care facility near Seattle on Monday, raising the death toll in the area to six. And as the number of new cases rose nationwide, officials around the United States raced to assess the risk to schools, medical centers and businesses.

All of the US fatalities have been in Washington State, where leaders in the Seattle area said that they intend to open isolation centers. Four of those killed were residents of the Life Care Center nursing home in Kirkland, a Seattle suburb, that has become the focal point of fears that the virus may have been spreading for weeks undetected.

In Oregon, dozens of personnel at Kaiser Permanente Westside Medical Center in Hillsboro have been placed on paid furlough after coming in contact with coronavirus patients there. They have been asked to remain in self-isolation at home for 14 days, officials with Kaiser Permanente said.

The number of cases nationwide climbed to 100, and infected patients have been treated in 14 states. The new cases included a woman in Manhattan who contracted the virus while traveling in Iran, and a Florida man with no known contact with affected countries or people. After that man and another person tested positive, Florida declared a public health emergency.

Yet while the virus numbers are still increasing in the US, there is no reason to panic.

Reasons Not to Panic Over the Coronavirus/COVID-19

There is no question the coronavirus that emerged in December in Wuhan, China is spreading globally and will almost certainly be declared a “pandemic” by the WHO very soon. The spread of the virus outside China has rattled stock markets worldwide, disrupted the lives of millions and sadly has resulted in over 3,000 deaths so far. The virus has now spread to nearly 70 countries, and it is expected to get worse before it gets better.

The Centers For Disease Control and Prevention (CDC) warned last week that COVID-19 is a grave pathogen which must be taken seriously. Here is a portion of their press release:

“More cases are likely to be identified in the coming days, including more cases in the United States. It’s also likely that person-to-person spread will continue to occur, including in the United States. Widespread transmission of COVID-19 in the United States would translate into large numbers of people needing medical care at the same time. Schools, childcare centers, workplaces, and other places for mass gatherings may experience more absenteeism. Public health and healthcare systems may become overloaded, with elevated rates of hospitalizations and deaths. Other critical infrastructure, such as law enforcement, emergency medical services, and transportation industry may also be affected. Health care providers and hospitals may be overwhelmed.”

The CDC’s warning is a frank and unnerving warning and suggests we should be ready to take action. There is no need to panic, however. RealClearScience published an article yesterday pointing out five reasons not to panic over the coronavirus. I’ll reprint them for you below.

1. The number of cases in China is already falling significantly. Where once the graph of coronavirus cases in China showed an exponential climb, it has now leveled off substantially. Just three weeks ago, China was recording more than 3,000 new cases per day. Officials are now consistently reporting fewer than a thousand. Seeing much-improved conditions on the ground, big companies like Starbucks and Apple in China are resuming business activities. The latest (Mar. 2nd) World Health Organization (WHO) situation report revealed 206 new cases in China in the previous 24 hours, all but ten of them in Hubei Province, where COVID-19 arose.

2. The vast majority of cases are mild, and the death rate is likely lower than reported. A large study of 72,000 confirmed COVID-19 patients in China found that 81% of cases were mild, another 14% were severe (characterized by difficulty breathing), and 5% were critical. Overall, the death rate was 2.3 percent. More recently, the WHO reported a death rate of 3.8% in China, but noted that it is rapidly falling as standards of care quickly improve. Early on, the city of Wuhan (where the disease originated) was inundated with patients and hospitals could not provide proper care due to overwhelming demand.

For Chinese patients whose symptoms started after February 1st, the death rate is just 0.7 percent. (For comparison, the U.S. death rate from 2019-20's annual flu outbreak is between .06 percent to 0.1 percent. SARS a similar virus to COVID-19, had a death rate of 9.6 percent.) The death rate could be even lower, as very mild cases of COVID-19 that resemble a common cold likely go unreported.

3. Only one out of every 1,000 people in Hubei Province has contracted the coronavirus. There have been 67,103 confirmed cases of COVID-19 in China's Hubei Province, where the outbreak began in December. That sounds like a lot, but keep in mind that the population of Hubei is 59,170,000. The province is slightly smaller than Nebraska, but with thirty times as many inhabitants.

With this sort of population density, it's a positive sign that just .11% (roughly 1 in 1000) of the population has caught COVID-19. Even if there were 51,000 unreported cases, that would mean only one out of every 500 people in Hubei caught the virus. Given the population density in most other countries is significantly lower than in China, we can expect that the coronavirus will have a much harder time spreading in much of the world.

4. There have been no reported deaths in young children. Though the outbreak has endured for more than nine weeks, there still have been no fatalities in children under the age of nine, with almost all infected simply experiencing cold-like symptoms. Moreover, only 2.4% of cases are in individuals under the age of 18. Kids and teenagers have been surprisingly resistant to the virus. The death rate for people aged 10 to 39 currently stands at just 0.2 percent. Those genuinely at risk from COVID-19 are the elderly. People aged 80 and up have a 14.8% to 21.9% chance of dying if infected.

5. The world already survived another pandemic just ten years ago. Remember H1N1, more commonly known as Swine Flu? This was the most recent pandemic (besides HIV/AIDS, which is still considered a pandemic). It began in early 2009 and lasted through late 2010. Between April 2009 and April 2010, there were approximately 60.8 million cases, 274,304 hospitalizations, and 12,469 deaths in the United States alone! Globally, it likely infected between 700 million and 1.4 billion people, resulting in 150,000 to 575,000 fatalities. While this loss of life was tragic, more than a decade later, many scarcely remember Swine Flu. The same will hopefully happen with COVID-19.

I hope you found the above information helpful.

Use Market Correction to Invest With YCG Investments

Over the last year, I have repeatedly recommended YCG Investments and its “value-style” stock selection strategy. We just hosted a live webinar with YCG’s founder, Brian Yacktman, who explained how the strategy works and answered questions from listeners. You can listen to the webinar HERE. I invite you to look at YCG’s FACT SHEET to see its impressive performance.

I will tell you that YCG did incur some losses in last week’s stock market meltdown, but as usual they were down less than the market. Investing with YCG when the stock market has been down this much in the past has paid handsome dividends. Think about it. Call us at 800-348-3601 for additional information.

Before I close out today’s letter, I would like to make one observation about Wellesley Asset Management – our recommended Advisor that specializes in convertible bonds. While stocks were plunging lower last week in the fastest correction on record, Wellesley held steady as a rock and was unscathed by the chaos elsewhere. Because of Wellesley’s low correlation to stocks, we think virtually all of our clients would be well served with an allocation to Wellesley. I encourage everyone to take a look at WIA’s FACT SHEET and learn more.

With regard to YCG and Wellesley, past performance is no guarantee of future results.

Best regards,

Gary D. Halbert

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Forecasts & Trends E-Letter is published by Halbert Wealth Management, Inc., a Registered Investment Adviser under the Investment Advisers Act of 1940. Information contained herein is taken from sources believed to be reliable but cannot be guaranteed as to its accuracy. Opinions and recommendations herein generally reflect the judgement of the named author and may change at any time without written notice. Market opinions contained herein are intended as general observations and are not intended as specific advice. Readers are urged to check with their financial counselors before making any decisions. This does not constitute an offer of sale of any securities. Halbert Wealth Management, Inc., and its affiliated companies, its officers, directors and/or employees may or may not have their own money in markets or programs mentioned herein. Past results are not necessarily indicative of future results. All investments have a risk of loss. Be sure to read all offering materials and disclosures before making a decision to invest. Reprinting for family or friends is allowed with proper credit. However, republishing (written or electronically) in its entirety or through the use of extensive quotes is prohibited without prior written consent.