Baron Creek

What Is Really Happening?

  
By:  Baron Creek  •  Economy  •  one month ago  •  35 comments

What Is Really Happening?
The coronavirus and "zombie companies" apocalypse!

I’m beyond puzzled by this thing called the coronavirus. No, not the disease itself but its potential impact on the global economy. Don’t get me wrong, people are getting sick and many are dying, which is a terrible thing and yes... this disease is on top of all the other ailments we can die from. 

There must be an economic impact at some point down the road. China extended its New Year’s holiday and by a week, but all accounts indicate another couple of weeks were added on and now they are slowly getting their footing, although still far from normal. 

The supply chain has been disrupted. My guess would be that most companies accounted for the initial shutdown period and maybe even had enough reserves to hold up against an extra week. In an age of just-in-time, any prolonged shutdown staggers into play some time down the road. 

Take any finished product, it has many tiers of suppliers, from the mining of ore to making the widget which is required to make that doodad until it finally is assembled into that beautiful object you spent way too much money for. It could take months and months to feel the impact.

Certainly, the origin point of the disruption can work massive amounts of overtime to fill the supply chain back to standard. Every tier along that chain would be forced to do the same. Assuming the companies have adequate material, workers, equipment utilization capacity, etc. ... it can be done. It will cost more... and will take time. Many months!

Then there is the no small matter of transporting those items. Somehow, I doubt the transportation industry has enough idle ships, planes, freight cars, etc. to quickly deliver. Naturally, as the demand rises, the market will fill in the gap with these items, provided the miners, manufacturers/builders can get their supply chain to respond. Which can be done, but generally when such a demand hits, stuff costs more... and will take time. Many, many months!

I’ve taken a long time to arrive at my point of “puzzlement” but I am getting there. Coronavirus and Zombie seem like a good fit in a society that seems to love all things zombie related, but I am not referring to that type. It would be Zombie companies. If you are not familiar with that phrase, it is basically companies that have managed to stay afloat via ever lowering interest rates on loans, reissued bonds, etc.  It is not unlike homeowners that re-finance for a lower rate, then end up with more cash at the end of each month and then finding ways to get back into the same jam. Or even a certain federal government, which would be hitting $2T budget deficits, if not for low bond rates. 

Now to the source of my puzzlement. All this supply chain disruption and repair requires lots of money by lots of people. Do they have the cash to bridge their respective gap? Where will they get the money to bridge the gap?

Sure, China can ease like crazy and so can everyone else (actually, the last part might be a lie). In China they might be able to go directly to the company and give them credit and move it along... or have the People’s army hold a gun to bankers and force them to extend the credit. The rest of the world relies on banks to accomplish that.

Given that most of the world, except the Federal Reserve, is already pretty much holding the gun to the banker’s heads via penalties on excess reserves... can the financial system respond, or will it try. Remember the Repo market of few months back, which took the Federal Reserve to step in? It appears the U.S. banking industry refused to step up for a certain other banking system, which was not a small one. 

Back in the bad old days... GM and Chrysler went under because banks would not extend them more credit. Their business model was no longer deemed viable by the financial markets. 

Ford already had a guaranteed line of credit, prior to the big blow-up. Ford used that line of credit to bridge the gap, although that was not the original purpose.

There are a lot of zombie companies around the world, light on cash, operating at razor thin margins and risky business models. That’s a lot to absorb... for me and likely the impact of coronavirus on them. 

So, I’ll cut to the bottom line... Dammit, this is about me and my savings. Should I be overly concerned or not worry. Wrong, if you say don’t worry. I really want to live a long life, set aside just enough for burial expenses and then die broke. Of course, if I contract the coronavirus and die in the next few months, I have worried for nothing. 

But, until then, what is really happening?

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Baron Creek
1  author  Baron Creek    one month ago

Supposedly, I should make a comment to get this posted somewhere. Not real sure how I feel about that!

 
 
 
Buzz of the Orient
1.1  Buzz of the Orient  replied to  Baron Creek @1    one month ago
"China extended its New Year’s holiday and by a week,  but all accounts indicate another couple of weeks were added on and now they are slowly getting their footing, although still far from normal."

It's a scene from a dystopian movie outside, Restaurants are not open and only stores that sell necessities such as food and medicines are open as far as I can see, but I can't see too far because I'm voluntarily self-quarantined at home now for more than a month.

 
 
 
zuksam
1.1.1  zuksam  replied to  Buzz of the Orient @1.1    one month ago

Hopefully as a Canadian you've inherited a higher resistance to Cabin Fever.

 
 
 
Buzz of the Orient
1.1.2  Buzz of the Orient  replied to  zuksam @1.1.1    one month ago

LOL.  I don't know what being a Canadian has to do with that - Toronto isn't a rural wasteland.  However, not having cabin fever is because of having many interests and being able to utilize them.

 
 
 
Snuffy
2  Snuffy    one month ago

Not sure how large the impact will be just yet. Today appears to be the first big financial impact to this as seen in the markets but many feel that is getting a late start as inventors have mostly been ignoring the issue.  I heard on a financial news site today that the man-hours lost so far in China is roughly equal to a two month unplanned leave of absence of the entire USA workforce. If I heard that correctly that is a large financial impact.

How long this all takes is still up in the air.

 
 
 
Baron Creek
2.1  author  Baron Creek  replied to  Snuffy @2    one month ago

I read the market tanked for today, but one day doesn't make a trend, imo. There seems to be a lot of financial weakness in the supply chain. The market is driven by mostly large mult-nationals, which can likely withstand any shock and wouldn't really report until next quarterly report or guidance is offered. It would be those smaller companies that will take the heat, imo.

 
 
 
XDm9mm
2.1.1  XDm9mm  replied to  Baron Creek @2.1    one month ago
There seems to be a lot of financial weakness in the supply chain.

IMO, it's not financial weakness, it's over dependence on single source suppliers.  IE....   Made in CHINA.

 
 
 
XDm9mm
3  XDm9mm    one month ago
So, I’ll cut to the bottom line... Dammit, this is about me and my savings. Should I be overly concerned or not worry.  Wrong, if you say don’t worry.

Why worry?  There is after all nothing you personally can do about it, unless of course you happen to stumble on an immediate cure...   besides getting dead that is.

I really want to live a long life, set aside just enough for burial expenses and then die broke.

Excellent idea.  Good luck.

Of course, if I contract the coronavirus and die in the next few months, I have worried for nothing. 

BINGO!!!!   Re-read my first response sentence.

But, until then, what is really happening?

That is the billion dollar (inflation) question.

Considering that they know little about it since the Chinese have not been very forth coming with what THEY know about it, and have very likely lied about what they DO know, it's anyone's guess.

The only thing that is actually happening is that people are starting to panic about the unknown.   

I WILL say with a fair degree of belief is that it's going to get worse, much worse before it gets better and people will look back and ask themselves, why did I panic?

 
 
 
Baron Creek
3.1  author  Baron Creek  replied to  XDm9mm @3    one month ago
Why worry?  There is after all nothing you personally can do about it, unless of course you happen to stumble on an immediate cure...   besides getting dead that is.

It is not the disease that worries me, but the financial impact potential.

 
 
 
XDm9mm
3.1.1  XDm9mm  replied to  Baron Creek @3.1    one month ago
It is not the disease that worries me, but the financial impact potential.

It's short term panic.....   unless of course we wind up with something like the Spanish Flu, but even that will be recovered.

Obviously, you're concerned about the market in general, but remember that is long term strategy and short term hiccups are just that,  hiccups.

I'm hoping that this will finally wake the American public up and convince them that we cannot allow ourselves to be be so dependent on others for what we use in both a military and consumer context.  Those few pennies we might save can bite us in the ass big time.

 
 
 
lady in black
3.1.2  lady in black  replied to  XDm9mm @3.1.1    one month ago
I'm hoping that this will finally wake the American public up and convince them that we cannot allow ourselves to be be so dependent on others for what we use in both a military and consumer context.  Those few pennies we might save can bite us in the ass big time.

Blame the corporations, they are the ones that want cheap labor and bigger profits.

If 99% of goods are made in China we as consumers don't have much of a choice now do we.

 
 
 
Baron Creek
3.1.3  author  Baron Creek  replied to  XDm9mm @3.1.1    one month ago

We're clearly on two different planes of thought. I apologize for not being clearer.

 
 
 
Baron Creek
3.1.4  author  Baron Creek  replied to  lady in black @3.1.2    one month ago

We the consumer are perfectly content to keep inflation low. In fact we demand lower prices... even at the expense of our neighbor's job. 

 
 
 
XDm9mm
3.1.5  XDm9mm  replied to  lady in black @3.1.2    one month ago
If 99% of goods are made in China we as consumers don't have much of a choice now do we.

You certainly do.

Do a little searching and find the American made product.

For example, everything I'm currently wearing is made in the USA.  Ok...  my watch is Swiss made, but my old USA made Hamilton is among my other watches.  (I was really pissed when Hamilton watch in Lancaster PA shut down.)

All of the furniture in my home is American made, and quite a bit of recent purchases were made right here in TX....   I like to help keep my neighbor, wherever he/she lives in this country, employed.

My appliances are all made in America.  

Granted they all cost a little more, but I'm willing to pay the small premium to keep AMERICANS working.

Unfortunately, I'm forced to rely on too much consumer electronics like computers and vehicle audio equipment, but even there, I do my best to search out American made products, like the stereo system in my home is American made, but admittedly not too many people are willing to spend what I did and rightly so as most likely couldn't afford it.

So, please don't tell me you can't find American made products.

 
 
 
lady in black
3.1.6  lady in black  replied to  XDm9mm @3.1.5    one month ago

I didn't say you can't find American made products, I said when MOST products are NOT made in the US to blame the corporations for wanting cheap labor and bigger profits.

 
 
 
Just Jim NC TttH
3.1.7  Just Jim NC TttH  replied to  lady in black @3.1.2    one month ago
Blame the corporations, they are the ones that want cheap labor and bigger profits.

Nope. Blame the American consumer. The are the ones that demand the lowest prices possible and will buy the products, in most cases, that is the least expensive. Corporations wouldn't have to look for the cheapest source if the citizenry of the US would demand only American made and pay the price.

 
 
 
MUVA
3.1.8  MUVA  replied to  lady in black @3.1.2    one month ago

You can also throw some blame at regulation or the over regulation and also don’t forget get the greedy union employees they get a share.

 
 
 
lady in black
3.1.9  lady in black  replied to  MUVA @3.1.8    one month ago

Nope, I blame the greedy CEO and shareholders that want profits over anything else.

 
 
 
MUVA
3.1.10  MUVA  replied to  lady in black @3.1.9    one month ago

I put the blame on all parties that are to blame.

 
 
 
MUVA
3.1.11  MUVA  replied to  lady in black @3.1.9    one month ago

Do you work for free?I know I don’t I charge as much as I can a hour.

 
 
 
XDm9mm
3.1.12  XDm9mm  replied to  lady in black @3.1.6    one month ago
blame the corporations

Nope.   Blame the consumer wanting to save a few pennies at their neighbors expense.

If the American CONSUMER eschewed Made in (fill in the blank) products for American made products, where do you think the manufacturer will make the product?

You're only allowed one guess.

 
 
 
charger 383
3.1.13  charger 383  replied to  MUVA @3.1.11    one month ago
the greedy union employees they get a share.

Myself and those greedy Union employees want as much as we can get too

 
 
 
MUVA
3.1.14  MUVA  replied to  charger 383 @3.1.13    one month ago

They should start their own business.

 
 
 
Buzz of the Orient
3.2  Buzz of the Orient  replied to  XDm9mm @3    one month ago
"...the Chinese have not been very forth coming with what THEY know about it, and have very likely lied about what they DO know,"

That's nothing more than a panic-driven conspiracy theory. The UN's WHO disputes that.

 
 
 
Just Jim NC TttH
4  Just Jim NC TttH    one month ago

Interesting read.........................And this was from December of 2019

"As many as 2,400 people have died from the flu in the United States since Oct. 1, according to the latest numbers from the Centers for Disease Control and Prevention.
Up to 2.5 million people have been infected and 29,000 hospitalized.
https://weather.com/health/cold-flu/news/2019-12-06-flu-season-fast-start-cases-spread

Other than the fact that it is China for the most part, and others. I really don't see any reason for TOTAL panic here in the US when we face those stats yearly....................

 
 
 
XDm9mm
4.1  XDm9mm  replied to  Just Jim NC TttH @4    one month ago
I really don't see any reason for TOTAL panic here in the US when we face those stats yearly.

True.   The "panic" is just that.   At present, it's too early to "panic".

But, having said that, there are too many unknowns about the virus, and I personally don't believe China has been too honest with the rest of the world.  That plus the now coming to be known easy transmission of the virus from person to person, and we are potentially looking at a pandemic.  The only factor we in America have in our favor at this point is our existing medical system and facilities which I believe, with sufficient public awareness of precautions will be able to control any massive spread here.   Of course, that will very likely mean at some point very strict travel restrictions to/from certain domestic and international areas.

 
 
 
Buzz of the Orient
5  Buzz of the Orient    one month ago

I'm a little closer to the covid-19 situation and am a little more aware of what is going on than pretty well all of you, and if you were to check with the independent WHO your claims that China is being secretive about anything concerning the virus, including its DNA and the numbers and the extent of its sharing info with the rest of the world you are mistaken. They made a big mistake at first by not paying attention to the early warnings, and in fact shutting them up, but that is not happening after that lesson was learned. 

However, it's no surprise that there has been a lot of anti-China rhetoric over the past few years, so I'm not surprised by the attitude.

 
 
 
WallyW
5.1  WallyW  replied to  Buzz of the Orient @5    one month ago
they made a big mistake at first by not paying attention to the early warnings, and in fact shutting them up, but that is not happening after that lesson was learned. 
Yes they surely did, including the doctor who initially raised awareness about the outbreak, and who later died from it. It appears your benevolent and caring government doesn't really give a shyt about your health and well being, let alone your happiness

 
 
 
Buzz of the Orient
5.1.1  Buzz of the Orient  replied to  WallyW @5.1    one month ago

It's not MY government. I'm not a Chinese citizen and have to keep renewing my visa to be able to stay here. MY government is Canada. I am a Canadian citizen with a Canadian passport.

 
 
 
Baron Creek
5.1.2  author  Baron Creek  replied to  Buzz of the Orient @5.1.1    one month ago

I would have asked this on another thread, but thought it might be a de-rail somewhere else.

My basic concern, is a matter of logistics and of course the stoppage of production. As for the virus itself I will trust the government to provide the necessary tools to slow/stop the virus (that is lie number one) and the news media to accurately report what is happening (Lie number 2).

That $5 widget that is made in China, is shipped to "another" place to be assembled into a larger component and the shipped to "somewhere" else to be assembled into a sub-assembly and then shipped to "another" place for final assembly, then shipped to retail outlet. All of this points to supply disruptions in the U.S. (and elsewhere) likely in April. I assume companies had prepared for Chinese new year and had ample stocks in reserve + maybe another month in case of logistics problems. 

That would indicate a 6 week curtailment of production could be absorbed if at the end of that 6 weeks production in China resumed at 100%. I had seen reports that state owned businesses were functioning at 90% at the 6 week mark, but those reports are sort of in question. However, data on small companies, etc. have not been provided, other than electricity usage etc. Which has anecdotal evidence that factories might be turning the lights and equipment on, but not really in mode of smooth operation.

Finally... from your perspective, does it appear that business is returning to normal? Don't worry, I am not investing based on your perspective. Just curious. 

 
 
 
Buzz of the Orient
5.1.3  Buzz of the Orient  replied to  Baron Creek @5.1.2    one month ago

I believe that major industries are operating unless the TV networks are using footage from another time but the workers are wearing surgical masks so I think the news is current. However, most stores except  for those selling necessities such as food and medicines are closed.  One must pass a no-fever test to enter the open stores.  Hardly any restaurants are open, but banks are open.  Schools are still closed.

 
 
 
Baron Creek
6  author  Baron Creek    one month ago

Not unexpected from China, regarding lubing the economic machinery . Still quite worrying the slow restart of companies.

The domino impact will be a test for a lot of trading partners, imo.

 
 
 
Baron Creek
6.1  author  Baron Creek  replied to  Baron Creek @6    one month ago

That slow restart of companies . The problem is within the supply chain and stability of companies along that chain, imo. 

 
 
 
Baron Creek
7  author  Baron Creek    one month ago

Another supply chain disruption article . I have, also, read articles stating the financial sector could withstand all of this. Imo, the debtor companies will be under extreme stress and exactly which part of the financial market will step up to the plate and lower rates for these companies, extend more credit, etc. In China, this might be possible, but the West?!?! Sure the FED and others could ease rates, etc. but what part of the market will take the gamble?

 
 
 
Baron Creek
8  author  Baron Creek    one month ago

Its Monday, March 9th at 12:20AM. I have been dazzled by the dramatic global rout of stock markets, including the futures. Everything is plunging, from crude prices to corn futures, even U.S. 10 year bonds were briefly at 0.47%. 

I'm going to bed now and when I wake up, I will hope it is all just a dream. Although things are not really going to get any better, imo.