With the rapid rise in confirmed Covid-19 coronavirus cases around the world and fatalities now not just in China, the recent desire by the Chinese government to reignite their economic engine from mid-February, while cases are still rising, may prove problematic. China has given notice to companies to restart operations across most of the country (the exception being the mass quarantine area of 40M people in the Hubei province – where Wuhan is the capital). If the incubation period is 14 days and the rate of cases is rising sharply still, then this economic activity regenerator move may exacerbate and escalate the number of cases and the virus contagion problem. Short term economic gain may prove to be a long term health pain. On February 17th Bloomberg reported that 50% of manufacturing plants were trying to reopen but many did not have medical equipment to check on returnees and their health status.
As China announced reactivation of their economy, WTI Crude oil prices recovered from the low of US$49.31/b two weeks ago to US$52.05/b as of Friday February 14th. We suspect that if the reactivation of business is premature and is reversed as more virus cases are announced, the price of crude should fall below US$49.31/b and decline into the low-US$40s. If China needs more time to get full control of the virus, stock markets in general may face continued disruption from this ‘Black Swan’ event. There are now ships waiting offshore in China to unload crude and LNG while others, waiting to leave ports in Middle East, are now being parked awaiting sailing orders.
We expect the next month or so will prove challenging for investors with a backdrop of more problems for China and worry about when their economy will recover as well as concern about the upcoming US Presidential election. The issue here is will a leftist Democrat like Bernie Sanders who vilifies Wall Street and corporations win the nomination or will a centrist like Mayor Pete or Mayor Mike gain the Dem’s mantle. If Bernie does well in the next few contests we expect this will get more attention as he blasts the fat cats on Wall Street and talks about much higher taxes on the wealthy and on corporations. It could get very ugly!
A bit more downside pressure could provide us with the S&P Energy Bullish Percent Index falling below 10% (now 36% and down from the recent high of 64%, four weeks ago). The S&P TSX Energy Index, now at 130, could fall to the 115-120 level during this last phase of the decline. If so, we expect to add quite a few new investment recommendations to our Action Alert BUY list and we will send out Action Alerts to subscribers.
During the last 30 days we have nibbled on some of the names we currently own in our personal portfolios and plan to add some of the new names after waiting the requisite five business days after we send notice to subscribers of the new ideas via Action BUY Alerts. We have cash on the sidelines for now and remain patient waiting for the low risk Energy Bullish Percent Index <10% to kick in.
The World Outlook Financial Conference in Vancouver was another wonderful success for Michael Campbell and his team. On the energy side 10 companies presented and they were very well received.