The COVID-19 - Coronavirus in relation to China, Supply, Demand, Debt and the future... [Podcast ep.29]
I can’t keep quiet and not share my thoughts and personal plans during these tough times.
So in a special edition Podcast, we share not only the impact of this difficult issue on our lives generally, but more specifically the best business strategies to employ, including:
- Dealing with the inevitable drop in demand
- Proactively monitoring “supply chain” impact
- A reminder that, based on history, markets will recover
- With Every Crisis, there is an Opportunity
Scroll below for full Transcript.
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Check out other GlobalTQM Podcast Episodes:
- Why Having An "On-The-Ground Presence" Matters | Ep. 028
- "Accountability - Who is Ultimately Responsible?” | Ep. 027
Transcript | The COVID-19 - Coronavirus in relation to China, Supply, Demand, Debt, and the future... [Podcast ep.29]
David - 0:00
Hey guys, welcome to this week's podcast. This week we were ready to do a special on how everybody's talking about the coronavirus. But I thought maybe I could give you my views on it, and certainly the business people I deal with and talk to on a daily basis and how this is affecting them, how they're dealing with it, and hopefully kinda bring some color in terms of supply chain issues and demand issues and some realities around it. And of course I'm together here with my co-host Kevin that you all remember and know. Hey Kevin.
Kevin - 00:32
Hey David, it's good to be back in the saddle with you today, and this is such a timely subject. So I'm anxious to hear actually how it's affecting you in East Asia.
David - 00:43
I know, and I mean everybody's talking about it and everybody's got views on it, so I'm gonna hopefully, y'know we'll keep it as concise as we can. Because I think people really need specific direction on what to do and what is really happening. Because there's so much speculation out there, there's so many theories out there. And I just think some true colors are always helpful.
Kevin - 1:10
It's really timely because, like I mentioned just a second ago, I mean even today, here in the States, we have entire factories that are closing, schools are closing. And these are not even in high-risk areas. I mean it has such an impact globally.
David - 1:27
Exactly. I think what's quite interesting for me, Kevin, is because Hong Kong and China where I live were hit first, I almost feel like we've actually already got a little bit of foresight into what's gonna happen. So to give you some perspective, my son is at an international school in Hong Kong, and they started a new school year in January. And his school has been closed since January. We now are known to approach the middle of March, towards the end of March, and it's gonna be closed till the end of April. So everybody's kind of hitting panic stations that they might still close schools and public places, and the reality is in all of China, Hong Kong, it's been going on for months. And so I wanna kinda shed some color on what that actually looks like day today. Where we've been really lucky and I believe all schools will be following this format, is there's a lot of great software out there like Google Classrooms were, and Zoom, where you can do group lessons in a virtual environment and kids can get their assignments, submit them. And I know all the schools in Hong Kong, my son included, are actually doing online classrooms every day. So what I've done is, he's got a really nice routine, you know he's got, you know, from X to Y every day. He literally sits in front of his computer as if he's at school. He gets a quiet room and he logs into his Google classroom and he joins and participates in his classes, and then I've given him time and locations to do his assignment, and he submits them, the teachers give feedback online. And it's been a really fascinating learning curve for me because everybody's been so supportive. And the way the schools have stepped up to actually do this has really, really been impressive. I can only imagine anybody in an online space of classes must be an interesting time for them. Because people adapt to new technologies quicker.
Kevin - 3:30
Now did the schools have this set up beforehand, or is this just a reaction to what happened right now? Because it seems like they ramped up very quickly.
David - 3:39
Yeah, it actually amazes me. They never had these facilities before. And you can see each week they're getting more familiar with the tech and using it better and using it in cleverer ways. So it is an amazing learning curve, and how the schools are pulling it off is really, really admirable. And I just think, I know everybody's panicking now, so I wanna talk a little bit about, kind of market reactions and sentiments and how this affects our businesses in a bit more detail. And so I'll probably circle back to that. But I think something I do want to touch on, that I feel that we have to kind of get a head start on is that, the original reaction was related to supply chain issues. So, y'know, the stock market started crashing down, businesses started suffering because originally this virus was contained to China, and basically factories couldn't re-open for production, there were gonna be supply chain problems and delays with materials and things like that. And as a result, the market became really, really worried that sales are gonna decline because of the supply issue. I also thought there was gonna be a much bigger problem than what it actually turned out to be. And I must say, hats off to China and Hong Kong and places where they have a government infrastructure and capability to really shut down cities and towns and keep people in a controlled environment. Because that's really important for containing spread. They really managed it really well. But what I didn't expect is that China would actually rapidly build up their supply chain, get it back to normal, and people are coming back to factories. And I speak to a lot of the major players in the industry now, and they'll all tell you the same story. Their factories are up and running and able to produce. The real problem actually now, which is what concerns me more, and what I want business owners now to be aware of, is there's gonna be a drop in demand. And why is there gonna be a drop in demand? Because even though factories can supply, if people aren't buying and people, the market sentiment is bad, people aren't out shopping, spending money. You know whenever there's a decline in the economy like, there's been a major catastrophe, people start becoming very thrifty with their spending, and it's only the essentials that they're gonna spend any money on. And on top of that, y'know, people have unfortunately lost a lot of money on dead markets, on share prices, on investment or pension funds that have been declining unfortunately. So that really, to me, is actually a far bigger problem than what initially thought what the real problem was, which was supply chain. I think the demand issue's gonna be really hard and get worse, unfortunately still.
Kevin - 6:34
That's ah, so you mentioned that the factories are kind of ramping back up, but have you seen kind of knock-on effects, y'know globally, where y'know, Europe and the E.U. or the States or whatever that y'know you mentioned, kinda the demand side of the equation as well, do you see the reaction? I mean is it that quick? Or is there a long time lag that you have to wait to kinda see the reaction?
David - 6:59
It's that quick. You can see it and feel it already. I'm talking to retailers, I'm talking to wholesalers, importers, I'm talking to online sellers. They're all feeling it. I think what's happening is it's country by country. I mean the U.S. is starting to feel it now, kind of literally this week. Europe already felt it, you know, happened in Italy. It's just, unfortunately, going to be unavoidable as people self-quarantine and public events are shut down, there's just gonna be this huge, huge, huge slowdown. And something that really worries me, and I wanted to kind of urge caution to people, is in these times to be really prudent. Because I know, there's still one element that hasn't kicked in. You've got the supply chain element that kicked in and resolved, but the demand issue's kicking in now and still expanding. And I think the one issue that concerns me the most is that there's a debt market issue here as well. Because a lot of people have borrowed money to buy homes, or even to buy shares or to make investments because the markets have been flying so high and they've been purchasing on margin. And a lot of banks, I know in Australia the banks are actually calling in those loans and those margin debts. And people have to repay them now and have actually lost the money. And I'm just really concerned that as these debt markets start unfolding and collapsing, you know the demand drops more and then the recessions kick into high gear. So I do think we've got some challenging times ahead of us, and I just want everybody out there in business now to just take the necessary precautions and be ready for it.
Kevin - 8:44
We've seen the largest drop in the U.S. stock markets since 2008 just this week.
David - 8:50
Kevin - 8:51
So it's exactly what you're saying. And there's kind of this global lag that, you know, you kinda see it going across time zones. Radiating out from China.
David - 9:00
Exactly. Now there are a few realities and I think part of the value I want to kind of bring to people today on this discussion is well, what can you do and what should you do? Because every crisis is an opportunity and a lot of people say, "If only I knew then what I know now." You know history shows we've been through this before. And I do think there are a few fundamental realities that need to be understood around this whole thing. One thing is markets and economies are always a reflection of people's reactions or overreactions, and things like that. But you always gotta kind of go to the source of what's going on and the source of information on how bad things really are. Now if you look at the coronavirus and how it's spreading and the effect it has, statistically it's not as bad as the common cold flu, as an example. The common cold flu doesn't have a vaccine, it relies on the body to actually fight it. And you know, as does the coronavirus rely on the human body to fight it and there are older, sickly people more prone to the damaging effects of it, as they are to flu. And from a numbers perspective, if you look at the Spanish flu that happened I think it was the 1920s, it's much worse in terms of deaths and things like that. So it's not the first time we've faced this type of thing and it's not the first time this has happened in the world at all. And if you look over the arc of time as I call it, it's a blip in the radar. And I think really the prudent thing to do now is to kind of take this opportunity to assess where you're at. If you're in business, streamline things, make things cost-effective. Figure out, if you as a business can figure out how to survive under these conditions, you'll become a lean operation. And that means being efficient with people, being efficient in business processes, figuring out what really matters and what really is a waste of time and things like that. You know, and then it kind of gives you a foundation to grow bigger and stronger as things turn around. Now the other thing I wanted to really kind of encourage people to do is, while the markets are down, all smart investors will tell you they've always made their money through these crises, right? They've taken their money, they've invested it in the markets, and they've waited for the markets to recover, whether it's one year, or two years or three years. And that is, unfortunately, a reality of what needs to be done now. Of course, there's a couple of things to consider in doing that, and I'll just share my thoughts on that for everybody so they can all kind of take advantage of the thinking. It's hard to time the bottom of the market. So, is it gonna drop another 10%, who knows? But the reality is, I think the market drops have been so drastic, there are a few things we do know. And what we do know is the markets will recover. That's not even a question. We do know that the levels they're at now are a huge discount and a huge sale price, basically being offered. So it is a really good time to get into the markets now. Even if it goes down further, it doesn't matter, in my view. Just remember, everything's my view, my opinion, and this is how I'm acting accordingly. Because they will go up. You can't look at the markets and say they're not gonna go up more and more and more and recover to highs beyond where they were. So, you know, I look at it as that's the opportunity now to get in. Now what I would suggest to everybody is, unless you are a very seasoned, experienced investor and you've got, you have the ability to do a lot of research on individual companies to know which ones you should be investing in, just focus on share indexes. Or certain sector indexes or market indexes. And just ride the general average wave up, because 99% of the time indexes outperform individual share picks. And that's a fact, it's been a fact like that for a long time. And any other top investor in the world will tell you that there's the 1% of people that outperform the indexes, and I'm pretty sure most of us are not those people.
Kevin - 13:52
If our name is not Warren Buffett, we probably are not going to outperform the market.
David - 13:57
Exactly. So you know, my advice is just, y' know, heed the lessons of the past and start making those moves now. Because there will be a recovery, the markets will go up. The indexes are gonna be your easier, safest bet, that you don't have to try to figure out individual investments because you don't have that experience. And I just think it's very important that people start doing that and thinking about that now because of whatever bad situation you're in, you have to recover.
Kevin - 14:34
Right, right. I love that concept of you know looking at the markets, kinda taking stock of where you are. I mean you touched on the idea that y' know, how do you get lean, how do you really make your operation efficient in these times? But actually act on it. Don't just sit there and bemoan the fact that the markets are down. This is obviously an opportunity as well to step back into the market. And I think overall, if people will do that, it is kinda this whole concept of all boats rising in a rising tide, so to speak.
David - 15:08
Yeah, I agree.
Kevin - 15:09
I just love that whole opportunity that you mentioned there, so. What a timely subject.
David - 15:15
No, it is, it is. And I think I'm just hoping that out of this podcast people can get some real practical advice on what to do, 'cause I know everybody talks about, oh we should do this, we should do that. But no one ever knows how to do it. So I'm just kind of thinking that practical advice is the nuts and bolts of how to make things happen and how to turn things around in your business and in your financial life in these times of crisis.
Kevin - 15:41
Excellent summary, Dave. Excellent wrap-up on a subject that, y'know, if we watch the news too much we certainly think the sky may be falling, but there's always the kind of that silver lining you're looking for here. David, thanks for sharing that.
David - 15:57
Absolutely. No great, and thanks for your time again, Kevin. It's always great chatting to you about these things.