As the sun comes up on another exciting day, European markets are up and US futures are up even more, after the Fed rate cut and down market yesterday, Monday’s huge rally, and last week’s rapid decline.  Meanwhile, the 10-year Treasury is yielding well under 1%¹, a record low, and the volatility index (VIX) dipped below 30².  Just another day at the office.

What about the Pandemic?

What will be the impact of the Coronavirus?  Nobody actually knows yet, but there continues to be rampant speculation.  Will financial markets in New York send everyone to work from home, or will this turn out to be similar to the flu, and perhaps affect many fewer people than the flu affects every year?  Will we get a vaccine in record time?  Will a treatment get delivered before this disease spreads too far?  Will it fade away in the summer the way the flu does?  Or will this spread over much of the world and have a larger impact than we expect?

Obviously, we will have to wait and see, while taking the proper precautions.  Did anyone mention washing your hands?

The end of the China era of manufacturing dominance?

In our last few communications we mentioned the problem that many companies have with their supply chains in China.  Over the last few decades China has become dominant in manufacturing, as their infrastructure, low labor costs and government policy combined to make them a great place to manufacture all sorts of things.  But now the risks are all too clear, and everyone is having to rethink their supply chains.

Interesting Forbes article this week³, essentially suggesting that China has been hit harder than we think and that this will mark the end of China’s role as the hub of so many supply chains.  And now, especially with the passing

of the USMCA trade agreement among the three North American countries, Mexico has reclaimed its place (from China) as the number one trading partner for the US and is ideally positioned for substantial growth.

While no one wishes for calamities to befall China or anyone else, these events may ultimately lead to some good outcomes.  This article points out that companies knew of the risk of this level of concentration and were already working on changes, but that will have to speed up considerably now, which may well prove beneficial to both the companies and to Mexico and others who are seeking to “emerge” and raise the standard of living for their people.

Let’s hope we can get there without too many more casualties and without more substantial damage to the global economy.

Best,

Roger Hewins

Team Hewins, LLC (“Team Hewins”) is an SEC registered investment adviser; however, such registration does not imply a certain level of skill or training and no inference to the contrary should be made. The information contained within this letter is for informational purposes only and should not be considered investment advice or a recommendation to buy or sell any types of securities. Past performance is not a guarantee of future returns. It should not be assumed that diversification protects a portfolio from loss or that the diversification in a portfolio will produce profitable results. The opinions stated herein are as of the date of this letter and are subject to change. The information contained within this letter is compiled from sources Team Hewins believes to be reliable, but we cannot guarantee accuracy. We provide this information with the understanding that we are not engaged in rendering legal, accounting, or tax services. We recommend that all investors seek out the services of competent professionals in any of the aforementioned areas. For detailed information about our services and fees, please read our Form ADV Part 2A, which can be found at https://www.advisorinfo.sec.gov or you can call us and request a copy at (650) 620-3040.

 

¹ Tappe, A. (2020). The 10-year Treasury yield just dropped below 1% for the first time in history. [online] CNN. Available at: https://www.cnn.com/2020/03/03/investing/10-year-treasury-yield-record-low/index.html [Accessed 4 Mar. 2020].

² CNBC. (2020). VIX: CBOE Volatility Index – Stock Price, Quote and News – CNBC. [online] Available at: https://www.cnbc.com/quotes/?symbol=VIX&qsearchterm= [Accessed 4 Mar. 2020].

³ Rapoza, Kenneth. “Coronavirus Could Be The End Of China As A Global Manufacturing Hub.” Forbes, Forbes Magazine, 2 Mar. 2020, www.forbes.com/sites/kenrapoza/2020/03/01/coronavirus-could-be-the-end-of-china-as-global-manufacturing-hub/#4768211d5298 .

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