IKN

idle and fond bondage

“The market catches a cold” (From IKN557, out last Sunday)

BY request (and with a typo resolved), here’s how this non-doctor, non-virologist, non-Chinese speaker who knows his limits and does not try to fake it put the whole question of the coronavirus as affects a (mostly) junior mining portfolio last Sunday evening. So far at least, I see no reason to change course because 1) it was always going to get worse before it got better and 2) though obviously highly infectious, the mortality rates to date (on the data given yes I know, see below) are reasonable. Again, the same as the ugly and hard-nosed way of the piece below.

The market
catches a cold
The world is reacting to the
coronavirus outbreak in much the same way as it normally does (SARS, Swine Flu,
Ebola, other), attitudes from “it doesn’t matter at all” to “we’re all gonna
die”, with all stops in between depending on one’s own mindset and worldview.
The IKN Weekly this is a serious outbreak that will bring death and discomfort,
but also realizes it does not represent an existential threat to mankind and is
more sanguine.
It is an influenza. Humans have
lived (and died) alongside this virus since deciding to be vertical monkeys and
will continue to do so. For sure this strain is particularly virulent, others have
been along the way, too. Yes, if I were a Wuhan
resident (or recent visitor), I would also be worried about its incubation
range and how long it takes for first symptoms to appear, but that’s exactly
what most influenzas do. And on the subject, we should consider that according
to the US Centers for Disease Control and Prevention (CDC), “normal flu” is
estimated to kill between 8,200 and 20,000 people in The United States of
America alone during the 2019/2020 winter season (1). Of course, the “normal flu”
virus has affected a lot more people this season (CDC estimates up to 21m
people) and the vast majority of them are non-serious infections (we all get
the sniffles every so often, hospitalization rate is 24.1 per 100,000) but for
serious cases the hospitalization rate for normal flu is estimated at between
140,000 and 250,000 this season (and again, only USA). So if we take the
max/min of the two data it gives a mortality-to-hospitalization rate of between
3.3% and 14.3%, the median at just under 9%. This is what flu does, it kills
people and it’s particularly good at killing the more vulnerable in society at
both extremes of the human age range. Coronavirus is a turbocharged version,
we should absolutely be concerned about the news from Wuhan and the way in which it is spreading
.
I agree that China
is almost certainly fudging its numbers and no government locks down a city of
11m people (though many have already left for their New Year vacations, using
newly acquired personal buying power for tickets on rapid transport systems. It
is a new and clear geopolitical/geo-social issue and these things matter when
your subject of interest (mining companies) is directly affected by the prices
fixed on world-scale fungible commodities (copper, gold*, etc). However, it is
a geopolitical and in our modern world, we’ve seen time and time again that
their influence (pardon the pun) is limited both in time and scope. This is not
1918 or 1920 and just as standards of living and transportation increase, so do
standards of hygiene and medicine. We could at this point debate the sanitary
(and eating….ugh) habits of provincial China, but epidemic is not pandemic
and in the western world standards are far higher than a century ago. We can be
certain this epidemic will get worse before it gets better, but on these pages
we have to be hard-nosed and capitalist. People will die, then they’ll stop
dying and that’ll be it.
We will get plenty of screaming
headlines in the next couple of weeks and you’ll have all the opportunity you’ll
ever need to be panicked out of investments, the numbers of infected people
will rise quickly (another over-hype signal will be the use of the word
“exponential/ly”, I personally do not need a Twitter-led introductory course
into that branch of mathematics) and fuel the prophets of doom with their
clickbait-driven careers. There’s always 
the perfect post-panic excuse too; that they are happy it didn’t turn
out to be as bad as “others” expected and that even so caution was the best
policy. Not true, filtering out the shrillest voices on either side was, is and
will always be the best policy. On a personal level, I have been caught in the
HudBay (HBM) tax loss season trade and that will now become a closed position
loser thanks to the mess out of China, but selling thinly or moderately traded
exploration stage copper positions (Regulus REG.v and its big drilling year
2020), development stage (TMQ and its big permitting year) or start-up producer
(Excelsior MIN.to) would be crazy. Its effects on my portfolio of stocks will be temporary and
it’s an easy decision not to change its course, other than in very minor ways.
* I agree it isn’t a true commodity,
gold is an asset class. For want of a catch-all word, I went there.

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