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Global Recession Is Now Certain, Sparked By Deep China Recession


  • China's economy is experiencing a severe economic recession which, in a best case scenario, will last at least two quarters.
  • A global recession is certain to be sparked by China's deep recession and it will last at least two quarters in a best case scenario.
  • The rapid and widespread international contagion of COVID-19 will deepen the global recession further, to an extent that is highly uncertain, making the timing of recovery highly difficult to forecast.
  • The degree of incompetence, on the part of Wall Street economists and strategists that is currently being demonstrated by their failure to gauge the severity and extent of the global economic damage caused by the COVID-19 fallout, is astounding.
  • Looking for a helping hand in the market? Members of Successful Portfolio Strategy get exclusive ideas and guidance to navigate any climate. Get started today »

In my article published one month ago I warned my readers and my subscribers about the fact that Wall Street consensus - highly influenced by the opinions of bulge-bracket economists and strategists - was severely miscalculating the actual and potential economic impacts of the COVID-19 outbreak in China. I also issued a warning about the correlative risk of severe global economic disruptions sparked by the severe economic downturn in China. Finally, I warned that due to the specific characteristics of the COVID-19 virus, it was quite likely that the disease would spread on a global scale, thereby magnifying damage to the global economy.

In this follow-up article to that prior piece ("Coronavirus Poses A Serious Threat To The Chinese Economy and Your Portfolio") I will update readers on my views, focusing on the economic impacts of developments related to COVID-19 in China and the rest of the world.

A Recession in China is Now Certain

The majority of Wall Street economists and strategists are still forecasting that developments related to COVID-19 will merely cause a slowdown the growth of China’s GDP growth in the first quarter. Furthermore, the majority of Wall Street economists and strategists are still forecasting that China will experience a “V-shaped” economic recovery beginning in the second quarter and that GDP growth for full-year 2020 will merely decelerate by about 0.50% or so.

This state of affairs represents the most blatant and severe case of incompetence on the part of Wall Street economists and strategists that I have ever experienced in my 25+ year career in trading and investing – a situation that is even more embarrassing than their inability to foresee the financial crisis (when it was already inevitable) in 2007-2008.

Consider the following facts about China’s economy:

1. 50% of China’s workforce is idled. Roughly

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This article was written by

James A. Kostohryz profile picture
James A. Kostohryz has more than twenty years of experience investing and trading virtually every asset class across the globe. After working exclusively with investment institutions for over two decades, Kostohryz now offers a very unique service that is specifically designed for individual investors: Successful Portfolio Strategy, offered through the Seeking Alpha Marketplace.

Kostohryz started his investment career as an analyst at one of the world's largest asset management firms covering sectors as diverse as emerging markets, banking, energy, construction, real estate, metals and mining. Later, Kostohryz became Global Portfolio Strategist and Head of International Investments for a major investment bank.

Kostohryz currently manages JK Investment Consulting, a firm specializing in: 1) Global portfolio strategy; 2) Risk analytics; 3) Macro forecasting; 4) Business cycle analysis; 5) Quantitative analytics. Kostohryz is also founder and CEO of Investor Acumen, a service dedicated to empowering individual investors to achieve their investment goals.

Born in Mexico, Kostohryz grew up in Colombia and South Texas. He graduated with honors from both Stanford University and Harvard Law School. He is a former NCAA and international-class decathlete and has stayed active in a variety of sports. Kostohryz pursues various intellectual interests and is currently writing a book about the impact of culture on economic development.

Analyst’s Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

I have put positions in various instruments described in my paid service.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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Comments (541)

jrhc profile picture
16 Mar. 2020
The magnitude of this coronavirus fact indicating how powerful Nature is, could be a powerful signal about global issues. The markets is just a sign, a marker, the real economy is what's affected here, the labour forces, the physical merchandise's exchanges, the planning and treating meetings, are all affected. But, on the other hand, what's going on here is not war, I mean real war, destructive war with a victor and a vanquished. And that, for sure changes profoundly things. Not the virus which creates rather a pause... giving to the world leaders time for reflexion (we know there's one leader who doesn't think just tweet around). After the pause what we'll see is who is better prepared for the future... and where the real leadership is located...
neals101 profile picture
You must live in China
How in the world do you data points on small business ?
A great call in February
Seems like you must have sources no one has
James A. Kostohryz profile picture
I've worked there and have good knowledge of how to find good data, @neals101.
Obi-Wan profile picture
I was about 70% cash by mid-Feb, and that's how I'll stay until I see something else to change my mind, and the prices I'd like to get back in at. Not before.
James A. Kostohryz profile picture
Folks, if you haven't already, please take a look at my service. My subscribers are doing really well. I not only told people when to sell, I will tell you when to buy and what to buy: seekingalpha.com/...
jrhc profile picture
12 Mar. 2020
People are panicking looking at DJ drastic crashes following the virus spread, but what it's hit is first of all the labour forces, whether truly sick or 'quarantined', plus the transport and merchant physical exchanges and distribution. Let's concentrate for a change, in the human and societal effects of this Nature outburst... facilitated, as Climate Changes, by us.
"...facilitated, as Climate Changes, by us."

I'm all for climate change danger being being odds-on, big ood-on, real, but i don't know you can anywhere near accurately claim that's what's at work here. Make claims that can get believably ridiculed later you do more damage to the reality of the need to fight climate change so be circumspect in the use of propaganda.

Anyway, came here to acknowledge something, and that's the fact the author of this article basically got it right, at least as far as china sparking global recession though imo other countries, including the US, sure contributed by ignoring what was in front of their faces, and those who pooh-poohed him, depending on trump hunches, only made themselves look ridiculous. Maybe you learn from that lesson and choose your battles more carefully. Ciao.
A.L. profile picture
11 Mar. 2020
FreightWaves.com reports freight flows through major ports. China bottomed around 02/15 and recovered fully around 03/08-09. China is back in business as usual.
Did those freight flows actually move to another destination once in China?

That will be key.

Simply arriving in port in not sufficient.
"...freight flows..."

Speaking of freight flows, in country home deliveries might be looking good. I've got zto and they were up on the 2000 pt down day, up again yesterday, and up again until i guess around mid-morning today. They were my best bet heading into 2019 though i had to lighten up off trump's trade war. Kept a bunch though. Could be people don't want to venture from home much over there and are ordering a lot more online to get delivered to them. Zto's got a tie to baba. Don't have baba myself, never did. Not that i don't like it, just that i missed it and i don't chase. But i've got an interest in it through zto.
James A. Kostohryz profile picture
@A.L. China is not at all back to business as usual. Far from it.
James A. Kostohryz profile picture
I told my subscribers today before the close that I was expecting a potentially face-ripping bear market rally. Typically, bear market rallies are very intense and can last for weeks. However, in this case -- even though it could be a big one -- it will probably only last a few days, at most. You can see how I will trade it, for potentially very big profits, here: seekingalpha.com/...
"...and can last for weeks."

If we got one now/soon that did last for weeks it would highly likely be due to the scare of the corona virus waning due to a decline in its incidence over that time, no? Taking the specter of a deep hit to the economic environment with it. That would in turn reduce the impact of the oil supply increase, a decent economy necessitating more energy supply than would be needed in a recession. If, however, a near term bear rally lasts only a few days its end should highly likely be caused by the same factors causing us to travel the road to a bear continuing, not having given any signs of a lessening impact on our future. Instead perhaps heightening fears of a recession in our future, and one which may likely deepen as the virus impact extends for the time the virus and its scare survive at any heightened level. I'll use the virus and the reaction to it to provide me the cues as to how to play this one but i will continue to nibble each significant price decline level i get.

I entered this current phase of the market over 1/3 in cash spread across the stock accounts i have. That should be enough to take me to wherever the market bottoms. I'm playing it that that'll be enough to see me through the virus threat termination and we should have some idea how bad both the damage to the population and the damage to the economy will be by the time it culminates in a market bottom. If in between i get some real good quick ups providing nice profits on any then recent nibbles i've made i won't hesitate to take those profits as long as i believe the bear, if we get one, will continue. I.e., i'll swing trade when good profits are offered during these times as long as it looks these times will continue on current trend. Eventually the downtrend will end and i'll be wrong for taking any profits from then recent purchases but that's ok. I'll still most likely have enough adds to my stuff to provide nice times in the future. Ciao
@James A. Kostohryz

Are you thinking of something like late 2015 when there was drop, rally, then another drop, before recovery?
James A. Kostohryz profile picture
No, @cat2005 . This is going to be a full-fledged bear market.
terryongarland profile picture
Seems like everything said about this virus..is true..bad and good..overblown and nonchalant,
valid or not...which means..major disruption.
So..Joel may be correct
Oh..the major buying opportunity of this decade may be soon.
"So..Joel may be correct"

The only solid call i've been making is be cautious, so yeah, and there's no might be about that. I've made no call i can recall about what will be. I know i've said at this stage we won't know what will be until a lot more data comes down the pike. An actual mortality rate and a determination of how long the virus danger is likely to last, and the full extent of its economic impact, that won't be able to be diagnosed and give out ballpark accuracy figures likely for some time yet, and likely will have to be on a country by country basis as some countries are handling this a lot better than other countries. So unless you can show me something else i've said and which i may be correct about don't put words in my mouth that i haven't said myself. Thank you.
terryongarland profile picture
@joel menkes ..Just sayin..your concerns have validity..you are too sensitive bro.
"Just sayin..your concerns have validity."

Thank you for making that clear.
CASH IS KING guys and gals. Stay on the sideline and be safe. Don't lose your $$ or pension trying to catch a falling knife
"Stay on the sideline and be safe."

Shoot me. I'm trying to nibble. At my prices. I'll continue to do so if/as the market falls. Nibble only, my prices. Even if all this causes a recession i wouldn't expect a long one unless this administration completely screws it up. I sure wish we had a better one to handle everything coming but we don't. Nevertheless, i still don't think they can screw it up that badly. The gop congress doesn't want to lose all its seats so finally they might get the stones to face up to this guy when they should.
The_Hammer profile picture
You must be kidding? Bernie, Pokahontas, Petey boy Crooked Joe would be better? Where the blank did u come from?
"Bernie, Pokahontas, Petey boy Crooked Joe would be better?"

Yeah, any one of them. What fantasy land you the blank been?
How come i'm not seeing alerts for any new comments from any thread i've looked at lately? Sa suspend running as well? It'll be a restful day for you guys if we get to 20% down, then trading gets suspended for the full day and we can all catch up on our sleep. Nightmares expected. I sure don't expect to get anywhere near that type loss, i don't think we'll even get to the 2nd breaker at 13%.
James A. Kostohryz profile picture
Ignore people telling you to "buy the dip". Right now, you need to be looking to "sell the rip" You really need a strategist that can help you discern when and what you should be looking to buy:
The like is for the idea. No judgement either way on your service
@James A. Kostohryz

I disagree. Buying is ripe here. Buying market puts and inverse ETFs, that is.
I’ve lived/worked in China beginning in the late 80’s. I’ve been through a period of martial law while living there. It’s an very disconcerting experience. The Chinese govt will do anything to limit negative press. They will do anything to get the ‘machine’ back up and running, even if it means putting millions of people at risk.
"They will do anything to get the ‘machine’ back up and running, even if it means putting millions of people at risk."

Any different than at any period of china's history, no matter the type gvt it's had? Meanwhile it seems the current US gvt is trying to copy the current chinese gvt's approach in terms of propagandizing down the dangers while the current chinese gvt is already moving away from that approach because it didn't work there. I guess the current US gvt thinks its own people are too stupid to see through the attempt. Unfortunately for a large segment of its population the US gvt is correct.
What you are saying is not true. The American is the one that is giving all negative impression to the world, they can do anything just to kill million out there.
James A. Kostohryz profile picture
I just got an interesting tip by a reader, @A17 . A February webinar presentation hosted by the American Hospital Association, presented figures that suggest (as I have) that the US hospital system could become quickly overwhelmed if drastic containment measures are not taken: www.businessinsider.com/...
"A February webinar presentation hosted by the American Hospital Association..."

Maybe we're all that much better than cuba when it comes to how well we consider our people vs business profit. On the possible recession front maybe something emblematic about how many businesses you never thought about might get hit.

terryongarland profile picture
Lots of things could happen ,and the US hospital could be overwhelmed.Oh the humanity !
Hyperbole is getting nuts but if shorting is your game,I guess hyperbole works in your favor.
"but if shorting is your game,..."

I don't short, other than a rare put purchase here and there, with a lot of time passing in between. I prefer selling for premium than buying and spending premium. Reality and caution is my game. Is fantasy and wishful thinking yours?
BJA-2 profile picture
Lots of customers are backing out of the CONEXPO show at the last minute. The trade show will be a dud.
Stopped by for just a moment because i noticed something in my watch lists/holdings. One i have neither in holdings nor on watch is baba which a quote pulled shows is down a bit today. One i do have on watch and has been in my holdings for a couple of years, and had been my numero uno choice last year until the trade war started, is zto. That's up today. Delivery service in china. Better to have your stuff delivered to you rather than walk about in a pandemic. Perhaps. Sorry i lightened up some when the war did start. It's done quite well lately. You guys can play with that one, or not, as you wish. Could become a global thing for awhile. And bricks and mortar getting hurt even more?
Will Hicks profile picture
Has anyone on this thread come across quality longitudinal data on patients outcomes? Eg. how are patients faring that were diagnosed in January vs. February?

For instance, on the John Hopkins website, S. Korea has reported 6,088 cases and 35 deaths, a 0.6% fatality rate. But that number is likely skewed to the low end due to more widespread early testing. (I understand they have testing drive throughs running just like McDonalds).

On the flip side, the same website reports S. Korea has a total of 41 recoveries, which also suggests a huge number of patients still in the health care pipeline (home, hospitals, ICU). Has anyone seen good data on how these cases are being treated?

@James A. Kostohryz
Watch Dr John Campbell on you tube decide for yourself.
Slade_01 profile picture
NEJM recent article suggests death rate well below 1%, perhaps more in line with seasonal influenza: www.nejm.org/...
05 Mar. 2020
Yes I saw that last week and was surprised by the optimism of the assumptions. The key sentence is:

"If one assumes that the number of asymptomatic or minimally symptomatic cases is several times as high as the number of reported cases, the case fatality rate may be considerably less than 1%."

However, this optimism seems to have been premature. If you look at this more recent interview (march 3) from Bruce Aylward who was in China recently under WHO:


Julia Belluz
If you didn’t find the “iceberg” of mild cases in China, what does it say about how deadly the virus is — the case fatality rate?

Bruce Aylward
It says you’re probably not way off. The average case fatality rate is 3.8 percent in China, but a lot of that is driven by the early epidemic in Wuhan where numbers were higher. If you look outside of Hubei province [where Wuhan is], the case fatality rate is just under 1 percent now. I would not quote that as the number. That’s the mortality in China — and they find cases fast, get them isolated, in treatment, and supported early. Second thing they do is ventilate dozens in the average hospital; they use extracorporeal membrane oxygenation [removing blood from a person’s body and oxygenating their red blood cells] when ventilation doesn’t work. This is sophisticated health care. They have a survival rate for this disease I would not extrapolate to the rest of the world. What you’ve seen in Italy and Iran is that a lot of people are dying.

This suggests the Chinese are really good at keeping people alive with this disease, and just because it’s 1 percent in the general population outside of Wuhan doesn’t mean it [will be the same in other countries].
I have a friend who has a Chinese wife & baby. He was able to leave Wuhan, she was not. He skypes her every night. I get the feeling that the Chinese think this is no big deal. They are used to these kinds of things.
I doubt this will be more than a speed bump based on this anecdotal info & much more that I have read. The speed of the response is breathtaking & any mention of vaccine or cure will send stocks higher. The upside looks a lot more likely. Disclaimer: I am talking markets only, not medicine!
The Wall Street Journal: Frozen vegetable and meat storage warehouses throughout the U.S. are stored to capacity , with pallets stacked 60 feet, with frozen food that was bound for China, but must now wait in frozen storage.
I thought the Chineses had to eat, even with the coronavirus.

@Dennis Webb
no dock workers to unload the ships
RunawayBear profile picture
@kimbillro They can always eat bats and cockroaches.

(what, too soon? lighten up people)
It's a good gamble James - you'll be able to live off of this prediction for years if it actually comes to pass. But I wouldn't count on it, if I were you. I spent time in Hong Kong during SARS, and the commentaries coming out of the media at the time were equally as bad as today. All wrong, of course. And most likely wrong today. Trump is probably right that the markets were more anxious about a crazed socialist winning the Presidency than a few cases of the flu.
jrhc profile picture
04 Mar. 2020
The markets panic, it's their only response to any 'real or dubious news'... The real economy is different, and is reacting appropriately stopping some factory production and show gatherings as a way to decrease exposition to the virus, particularly in China, South Korea, Italy... perhaps in some areas in the U.S. as well. For the rest, high level world leaders are looking and preparing with brains, and cold blood how to implement necessary corrections and adjustments to the pandemia. U.S. with Trump and his 'expert' Pence at the helm doesn't count...
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