Coronavirus, Canadian delinquencies, CP rail disruptions, Canadian job numbers and the recently proposed changes to the mortgage stress test.

This is on the economic backdrop of extremely high consumer debt, high corporate debt on the negative side and low housing inventory, low interest rates, and solid immigration on the positive side.

The hardest things to do is to fully integrate Bayes’ theory and avoid falling prey to confirmation bias… what is Bayes’ theory and confirmation bias?


Bayes theory is the integration of new information into existing knowledge. People, portfolio managers, analysts and pretty much everyone that ignore new knowledge become stuck in their ways and don’t change their thinking when the environment changes.

Confirmation bias is looking for data, support and opinions that only support your view. If I say that I think spring is coming soon and suffer from confirmation bias then I will likely ignore any reports of a longer winter and listen to people who feel the same way and use those peoples’ opinions to support my own view.

It is important to keep an unbiased view. We must factor in new information and figure out whether we need to accept or reject it objectively. We must seek out opinions of varying perspectives.

In this article we will focus on the Coronavirus.

Little is truly known about the virus. We know that over 60,000 people have been infected and that it has a death rate of under 2%. We also know that 80% of the people are over the age of 60 and 75% of them had pre-existing conditions. We know that it spreads easily but not exactly how. We know that people can have the virus for up to 14 days, be contagious and not show symptoms.

We know that countries that have anything but top medical care and the ability to cope with a fast spreading virus will suffer more than others. Very dense populations will be more susceptible as proximity can play a role. They will also be centered more closely to quality health care.

Hygiene and habits will also play a role. Hand washing, how people cough and the ability to quickly be diagnosed will help people stay home rather than going out and potentially infecting others.

The global response is good and governments are taking this seriously.

Industries that are affected are currently cruise lines, airlines, Chinese based transportation companies and companies that sell products in China as many stores remain closed or on reduced hours with reduced foot traffic.

The permanent hits to corporate income statements will be the cruise lines, airlines and local companies of which many will be suffering. Further many farmers in affected areas in China are unable to sell their products or get feed for their livestock. The livestock will have to be culled if they can’t get them feed soon as the stocks will become diseased and in an inhumane situation.

Much of the markets are looking through this as a temporary hit to production and will be largely made up when operations return to normal.

This is the reason that the market hasn’t sold off more.

Many companies are reporting that there are disruptions however they are not sure of the impact and if they will be material or not. Many companies seem to be coping well however geographically, countries that are large trading partners with China and Asia will be more affected.

We have seen this before with SARS, MERS, ebola and many other short term factors like natural disasters. They will cause the market to knee-jerk and sell off in the short term but production and rebuilding will occur post-event.

While this may become a larger factor, it remains manageable with coordinated global government effort and governments willing to step in and help out financially and monetarily if needed.

Coronavirus remains on the radar but has not changed our investment strategy at the time of this writing. 

Until next time,

Trevor Dale, CFA