After weeks of discounting the dangers of the coronavirus to the world economy, it seems that stock markets have finally gotten wise to the threat the virus plays to the global economy. The Dow Jones opened Monday down nearly 1,000 points as more negative news about the virus emerged. Numerous new cases were reported among health officials in Japan, and a new cluster of the virus in northern Italy has sparked panic in Europe. Coupled with a dramatic rise in the number of cases in South Korea, and a puzzling outbreak in Iran, there are fears that the ability to contain the coronavirus may now be impossible.
While total cases and deaths remain low, there’s a great deal of distrust still when it comes to the official figures coming from China. Many observers suspect that the actual number of cases and deaths in China is far greater than what is being reported. And fears of a pandemic are ratcheting up as a result.
Now that we’re nearing the end of February, the quarantine of Wuhan and numerous other cities is supposed to be coming to a gradual end. But there are indications that many Chinese workers are still afraid to come to work. With reports that the incubation period of the coronavirus may be as long as 24 days, workers going to factories risk picking up the virus from potential unsuspecting carriers, perhaps creating a larger second wave of the virus.
China has to balance its desire for economic output with its desire to keep its population from succumbing to the virus. And with economic output currently at less than half of normal, there’s every indication that the government is putting a priority on bringing output back up to normal. However, with output so far below normal, it will undoubtedly take a toll on the Chinese economy.
Most Chinese businesses have less than three months of cash on hand, and once they burn through those reserves they’ll be in serious trouble. They need to try to get their production back up and running, but they’re facing numerous headwinds. And businesses around the world that rely on Chinese goods, from automakers to dollar stores to construction firms, will similarly see their production fall as imports from China inevitably slow in the coming months.
Stock markets have finally gotten wise to the fact that this crisis won’t improve anytime soon. And as the virus spreads outside Asia and affects the West more and more, expect to see quarantines spreading around the world. Economic activity is going to slow down around the world, despite wishful thinking to the contrary. Now is the time for investors to prepare for that, if they haven’t already.
Monday saw stock markets give up all the gains they had made in 2020, and the outlook for the coming months is bleak. Gold, meanwhile, surged to nearly $1,700 in early trading. We’ve been warning about a stock market crash for a while, and this could be the catalyst that sends everything plummeting. If you haven’t already invested in gold, now is the time to do it, before it’s too late.
This article was originally posted on Goldco.
