Monday, February 24, 2020

Corona Virus and China: Please Give Us Good Lies So We Sleep Better At Night and the Stock Market Will Keep Going Up

The Take-Away:  We are comfortable with China's Lies and that's not good at all.

Bloomberg asked a very good question about why the rash of warnings from companies over the continuing outbreak of the novel coronavirus (COVID-19) in China did not rattle the stock market as it did today with the major indices dropping more than 3%.  Here is why:  for years, China has trained everyone to "believe" their always on target economic numbers when just about everyone and their grandmother knows it's fudged.  And now, we are getting more "transparent" daily numbers of new virus infections out of China, people seem willing to believe that as long as it shows a peak and then a steady downward trend so that it reassures the financial markets that things are starting to get back to normal.  

Of course, no one truly believes that deep in their hearts.  Markets are willing to believe the lies because it allows investors to go forth with certainty even if it is not reality-based.  And it's why when Apple announced that not only were they going to miss their $62-$67 billion second quarter numbers, they have no idea when things will return to normal, the market barely blinked.  And after that, even more companies came out with their own warnings.  What happened?  Record highs because China's numbers were reassuring.

Then someone had to go and start reporting real numbers.  Italy and South Korea began reporting explosive new number of cases.  Not only was the virus creating a new hotspot in Asia, the COVID-19 has gained a strong foothold in the EU. 

And once real numbers are being reported, the market really is now beginning to panic.  No longer could they believe in the fake numbers from WHO and Beijing.  Reality has a way of screwing things up.  The fantastically rosy mirage out of China just shattered by when Italy began isolating towns and eerie photos of empty streets in South Korea began showing up on Twitter.  Now imagine what was really going on in China since the lunar new year with its 1.4 billion citizens.

While financial analysts and investors are largely to blame, the news media are also culprits with their unwillingness to ask the tough questions or report on facts that people would rather not hear about.  The problem is that there is simply no accountability as well.  

Note:  Iran also reported an outbreak.  Due to the nature of its government, their numbers are more believable than China's but still needed to be taken with a scoopful of salt.

Note 2:  We are all hoping that everyone in China will come through this okay.  Our issues are with its government and supporters, not with the people.

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