Keep Calm & Carry On

After sharing yesterday’s update on the Coronavirus, I came into the office this morning still ruminating over the numbers. So I’m sharing some thoughts here to help put today’s crisis in perspective. Please note that these thoughts are my own, are extremely early and rough estimates, and will likely change over time. As such, I welcome any feedback as this is a fluid situation and we are doing our best to approach it with a clear and rational head.

Let’s start with China, the epicenter of the crisis. To date there are 80,422 confirmed cases in mainland China. That’s a big number! Of those cases, 2,981 have died. Another big and scary number. That represents a mortality rate of about 3.7% based on the current number of reported cases. While this is a small percentage in absolute terms, it’s not exactly comforting to hear that 96.3% of us will survive, as some folks have implied. That would mean 4 of every 100 people you know would die from this scary virus. But that’s not exactly true. Or even remotely near the truth.

While big numbers can be scary, we must maintain perspective. Consider that the current population of China is north of 1.4 billion people. That means that those infected in China (which by far has suffered the largest outbreak to date) represent 0.005% of the population or ~ one twentieth of one percent of the population. And those unlucky few that have died from the disease represent 0.0002% of the population. In other words, not so much.

If we take these sample sizes and apply them to the US, we can start to visualize the potential outbreak here. The current US population around 330 million implies that we would see less than 20,000 cases in the states (again, assuming the same infected rate as seen in China). That’s a big number and would certainly generate scary headlines over the next few weeks. But based on mortality rates in China, it would imply less than 700 deaths. And based on the 0.6% mortality rate in Korea (which is probably a better proxy for the rest of the world), it would imply about 100 deaths. Not 4 out of every 100 people we know, but 100 people total. For perspective, here’s an illustration of those deaths relative to the leading causes of death in the United States. Coronavirus literally doesn’t even show up on the chart.

Keep calm and carry on. There are plenty of reasons to be cautious about equity markets and risk assets here. This is not one of them.