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International Economic Week In Review For 2/24-2/28

Hale Stewart profile picture
Hale Stewart


  • The coronavirus has the potential to cause a recession in some countries.
  • EU President Lane offered an excellent explanation of why r* will be low for some time.
  • The international ETFs crashed hard this week.

Investment thesis: The coronavirus is the one and only story this week. So long as there continues to be fear-based selling, avoid international ETFs. However, this could eventually lead to a "buy low" situation. So, keep your financial powder dry for a potential purchase as this story dies out.

On Thursday, I wrote the following list of events that will happen as a result of the coronavirus outbreak. Let me take that list in pieces, developing each observation in more detail:

The primary way that countries are combating the disease is by quarantining an entire area, which means the flow of goods into and out of that area is stopped, perhaps completely.

Add that to the inter-connectedness of the global economy and you have a recipe for economic growth grinding to a halt.

Starting in the last 1970s and early 1980s, the business world began to shift to a "just-in-time" inventory system. Instead of buying large quantities of raw materials and storing them on location until they were needed for production, businesses ordered goods from location X and had them delivered to location Y at just the "right time" for those goods to be used in the production of a final product. This trend accelerated after the World Trade Organization admitted China which, in turn, made itself the de facto global low-cost manufacturing hub. China's quarantining of large swaths of its country means that Chinese produced goods are stranded, which sends ripple effects through the global supply change.

These two points would slow manufacturing and production. This would, in turn, lead to the following developments.

Consumers' paychecks will be hit by a drop in hours worked, which lowers income. Consumers are also scared, which means they are less likely to go out and do things, which causes a drop in retail sales.

This article was written by

Hale Stewart profile picture
Hale Stewart spent 5 years as a bond broker in the late 1990s before returning to law school in the early 2000s. He is currently a tax lawyer in Houston, Texas. He has an LLM in domestic and international taxation (MagnaCumLaude). He is the author of the book The Lifetime Income Security Solution. Follow me on Twitter at @originalbonddadYou can read his legal analysis on his law office's blog.

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.

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