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I vividly remember flying into Hong Kong in 2009 when authorities started quarantining hotels on fears of the H1N1 virus - or swine flu - epidemic. The memories of the 2003 SARS virus were still fresh.
As I traveled through the area during that stay, I saw the surgical masks and armed guards present at a level well above what you were hearing about in the news here.
I'm reminded of that trip now that news of the new coronavirus hits U.S. markets. By Monday morning, more than 2,700 people had been infected, and at least 81 were confirmed dead.
I've spent a lot of time in that region regularly for many years. And one thing I feel watching all this news come out of China is that this is far more serious than they are letting on.
The entire market is completely dominated by news of this virus and its spread, as well as the authorities' inability to contain it at this moment.
Bottom line: There's a lot of uncertainty, which has caused the market to currently fall about 1.5%. But based on what I see, that could turn into a 3% to 5% downturn - take a look...[mmpazkzone name="in-story" network="9794" site="307044" id="137008" type="4"]
China's Extensive Damage Control Efforts
China's keeping the real extent of the damage quiet because the country hates to lose face. The economy has accelerated, and the political control has consolidated, so China is going all out to control the news.
The main reason I see a further market drop ahead is that China has not yet got this contained. That means we don't know the full extent of the damage to China's economy - and therefore, the world economy. That's the uncertainty we're dealing with.
Traders are simply trying to get out of the way because they don't know what's coming next.
This is because the things we're seeing emerging despite the great Internet Wall there are far more serious than the news reports are letting on.
The downside move currently is 1.5%, but since China hasn't gotten it under control yet, we're going to be down 3% to 5% total, barring any kind of headline related to inoculation, a cure, or containment.
Now, is it just a question of containing the virus and getting a treatment/vaccine? And if we do all that, are we home free?
Well, you've got to do all that, plus allay the public's fears, because China functions very much as a group. If you clear the streets, you have to let people know it's okay to come back into them. China is a cash-based economy, and you've got to get the consumer engine moving again. That's the tricky part.
Another side of this is that Xi Jinping's authority is absolutely threatened by this because China simply cannot afford to have its reputation tarnished. Anything that embarrasses China is potentially a risk to the overall control structure and Xi Jinping in particular.
Back in 2002-2003 during the SARS virus scare, within a couple of months near the end of the outbreak, the market bounced back.
That will also be the case this time around because the underlying business case that we talk about so frequently - the numbers, the economics, the employment, the fact that the United States is currently leading the way in the global business environment - that is all going to be a net positive.
The question is how far it has to go before traders come to their senses and want to put their money back in.
Alibaba Group Holding Ltd. (NYSE: BABA) is currently taking a hit - as I write, it has dropped 6%, taking it down to $200 a share. Amazon.com Inc. (NASDAQ: AMZN) also fell $31, bringing it to $1,836 a share.
Not surprisingly, travel-related companies have been subject to the worst losses, including tour, airline, and logistics companies. Basically any company that feeds into the travel industry will be affected. This speaks to the very serious situation that's taking place right now.
Big Tech is also low because most of the stocks are very liquid, meaning they're owned by all the big pension funds and institutions, so it's basically just the function of the broader market looking for someplace to hide.
I'm thinking this is all overdone, because none of these companies are especially susceptible to the virus save Apple Inc. (NASDAQ: AAPL), which has got a big exposure in China.
What You Should Do Right Now
It's true that a lot of folks were expecting some sort of pullback or correction at some point. Well, this virus certainly became the catalyst for that expected sell-off. Naturally, whenever a market gets extended, it's like a big rubber band - it simply wants to pull back.
We've been overdue for that for about 30-45 days, give or take. The unknown factor here, however, is how far it will go. It's not over yet, so you should let it sit and sort itself out.
As history has shown us time and again though, if there's a silver lining, it's that this type of stuff tends to be a remarkable buying opportunity for the right companies once the dust settles. It just hasn't happened yet. We don't know how or when this is going to be contained.
So for right now, I would recommend holding off on loading up the truck - there's no reason to try to catch a falling knife.
We simply have too many unknown factors playing out here. Right now, the best strategy is to continue taking profits, raising cash, and looking intelligently at what you do want to buy once things settle.
I'll certainly be keeping a close eye on this situation in the coming weeks and making sure I give you the latest updates on the market and the best way to play it.
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About the Author
Keith is a seasoned market analyst and professional trader with more than 37 years of global experience. He is one of very few experts to correctly see both the dot.bomb crisis and the ongoing financial crisis coming ahead of time - and one of even fewer to help millions of investors around the world successfully navigate them both. Forbes hailed him as a "Market Visionary." He is a regular on FOX Business News and Yahoo! Finance, and his observations have been featured in Bloomberg, The Wall Street Journal, WIRED, and MarketWatch. Keith previously led The Money Map Report, Money Map's flagship newsletter, as Chief Investment Strategist, from 20007 to 2020. Keith holds a BS in management and finance from Skidmore College and an MS in international finance (with a focus on Japanese business science) from Chaminade University. He regularly travels the world in search of investment opportunities others don't yet see or understand.