1918 Redux?

1918 was the year of the Spanish Flu that resulted in the death of an estimated 30 million people or 1.7% of the world’s population at the time. The Spanish Flu’s mortality rate is estimated to have been 20%, as opposed to less than 1% for a “normal” flu year. All continents on the globe were affected.


Now we have a panic about the “Coronavirus”, formally named Covid-19. It is still somewhat in the early stages, but the Covid-19 mortality rate in China, where it is most acute, seems to be about 2%. As of this writing, about 2,700 people have died so far from Covid-19. It is spreading to other areas, with Italy seemingly now a focus, but there are only a few cases here in the US thus far. Clearly Covid-19 is not nearly on the same scale (yet) as the Spanish Flu, and so we are not seeing 1918 all over again.

Global Economy

What is different now is that the global economy is much more interconnected. China is Ground Zero for Covid-19 and much of the world’s manufacturing occurs in China. So, the concern is that companies that manufacture or assemble in China will have difficulty with their supply chains, which could cause massive product or component shortages and disruption in the world economy. The stock market sell-off we are seeing this week is over fear in these supply-chain disruptions. Companies are worth a multiple of the earnings they generate, and if they are “exposed” to the Chinese supply chain, then their earnings can get “sick” without anyone actually contracting Covid-19. The other issue is China itself as a massive consumer. The Chinese economy has been driving worldwide economic growth for many years. Now with Covid-19, we have photos of Chinese city streets with nobody on them – no cars, no pedestrians. If China goes into a cocoon in an effort to stem Covid-19, its overall economic growth will be stunted, if not sent into a recession.


What Covid-19 presents is tremendous uncertainty about the future global economy. It is not so much that we will have pandemic deaths, but that Covid-19 will cause the economy and the engines of economic growth to become sick. If you are a short-term trader, then Covid-19 will dominate the news and will present headline risk for the near-term future. However, if you are a long-term buy-and-hold investor, especially one who owns a diversified portfolio of stocks, funds, and other asset classes, then think about the best case of later this year or next, when we are no longer concerned with Covid-19, and China and everyone else can get on with life. If so, then look at this Covid-19 correction as an opportunity to add to your positions. You may have to endure some bumps but eventually, current medicine will address Covid-19 and we will be on to the next crisis soon enough.

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