The novel coronavirus epidemic has brought the current epidemic in the financial media of fake news and false analysis to the fore.
That Chinese authorities could mysteriously discover an additional 15,000 COVID-19 cases by including patients that have been clinically diagnosed in Hubei province should tell us all that we need to know about that government's transparency. Note also that, per the South China Morning Post, that definition was only retroactively applied in Hubei; major municipalities like Shanghai and Beijing are still only reporting cases that have been confirmed through swab-based testing.
It's truly scary, and the facemasks are out in full force in my neighborhood of Flushing, Queens, which is heavily populated with Chinese immigrants. Doesn't everyone watch CNBC? Ray Dalio of Bridgewater Associates deemed the risk from coronavirus as "exaggerated." Uh, thanks.
That's really the problem. It's the oldest trick in the book, and it's called "talking your book." Asset managers obviously have a huge interest in maintaining the currently elevated valuations of U.S. stocks -- price/sales and price/earnings ratios for the S&P 500 continue to sit at levels not seen since 2002 -- so they go on these media-sponsored tours.
Ignore them. Listen to actual experts on the Chinese economy. My favorite, as I have noted in several Real Money columns, is Andrew Hunt, now living in the U.K. but based in Asia for many years for Kleinwort Benson.
This is from Andrew Hunt's morning missive Friday:
"We believe that the 'economic damage' to China and indeed the world has already been more than the consensus is reported to be expecting. Enough damage has already been inflicted on the economic system to ensure that there will not be a global recovery in 2020H1 and that even the second half of the year may prove weak.
The fixed income markets clearly sense this, and we expect further price gains in these markets. The equity markets have meanwhile reacted in their now customary Pavlovian manner to the thought that 'more economic weakness implies more QE and further shortages of financial assets,' and we suspect that they will remain in this parallel universe as long as they believe that governments have the virus 'under control'. As we have noted before, it is only when it appears that the authorities are losing control of a situation that equity markets react negatively.
Note that Hunt opines only on the economic impacts of the novel coronavirus, not the scientific parameters of the disease, as he is an economist, not a virologist. So, if you are relying on the Chinese government's resolve to flood their economy with money, that's probably a good bet since every other central bank in the world is doing that, including the U.S. Federal Reserve even in the face of the strongest domestic employment readings in 50 years.
If you are relying on the Chinese government's public proclamations on the breadth and depth of the carnivores to inform your investment decisions, however, remember that they are, also, talking their own book.
I agree with Andrew Hunt that this epidemic is going to dent Chinese consumer confidence for much longer than the global equity markets are currently assuming. That's good for bonds and bad for stocks. Make sure your own "book'' is composed accordingly.