There is an increasing level of hysteria regarding the West African Ebola outbreak. Is it justified? Should we fear for our own safety? Maybe, maybe not, but it’s likely the fear will impact various investments, and that’s a subject we can and should try to think clearly about.
First, however, I want to say that I am deeply dismayed by the outbreak; as a human being, I feel for those directly affected, I mourn for those we’ve lost, and I understand the concern of those who fear the spread of the disease. Whatever else may be said, this outbreak is a tragedy of historic proportions unfolding.
I can only hope that individual people, groups and organizations, and society as a global whole will learn from what happens. We must emerge wiser, if sadder, as a result, or all the deaths will be for naught.
Now, some key facts:
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As of October 8, the World Health Organization (WHO) reported 8,399 “confirmed, probable and suspected” cases and 4,033 deaths in seven countries: Guinea, Liberia, Nigeria, Senegal, Sierra Leone, Spain, and the United States.
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The vast majority—99.7%—of the cases (8,376) and 99.8% of the deaths (4,024) have occurred in the three West African countries most affected: Guinea, Liberia, Sierra Leone. Liberia is the worst hit, with 57.4% of the deaths (2,316).
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Ebola outbreaks occur periodically in Africa. There is no scientific evidence yet that this strain is very different from any others. (Studies are underway.)
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This outbreak is the deadliest yet, but that could be due to social or cultural issues that have helped it spread, such as burial practices that expose people to infection.
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Contrary to rumors and baseless statements bandied about by barstool experts, there is no evidence that this strain is airborne.
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Given the transmission through bodily fluids and the lack of roads in much of Africa, I stated at our Casey Summit last month and in the International Speculator that the Ebola outbreak was more likely to spread (further) in Europe or to the Americas, via air travel, before appearing in East or South Africa. I didn’t mean to make a prediction, but the Texas cases show that I was right.
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The incubation period for Ebola can last up to three weeks. That means that the new “touchless” temperature screening initiated at major US airports for travelers arriving from West Africa will not catch those who’ve been infected but are weeks from showing any symptoms.
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The long incubation period also means that even if this outbreak were contained today, we wouldn’t know for another month, at soonest.
I wish to neither add nor subtract from the gravity of these facts, which are alarming enough, even without the hype and fearmongering pervading TV “news” and social media. And, of course, I’m no epidemiologist. But I do have some analysis of my own to offer:
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Given various cultural, poverty, and other social issues, as well as the general tendency of governments to underreport bad news, I think the outbreak is already much worse than reported, and I think it’s far from contained.
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I just flew back from East and North Africa last week, and no officials anywhere along the way asked me if I’d had contact with anyone from the affected regions, nor any questions at all related to the outbreak. What’s being done is too little, too late. I’m convinced the news will get much worse before it gets better and would not be surprised to see the death toll exceed 50,000 or even 100,000 before the outbreak is stamped out. That said, I do think the outbreak will be stamped out, with most of the death toll in the countries already most affected.
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I think the measures taken by Western governments to stop the spread of the disease from West Africa, even the new ones just announced, are going to prove futile. All possible and ethical aid should be given to the regions affected to help stop the spread from the sources. This is enlightened self-interest.
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Despite the infection of a medical worker in the hospital where the US Ebola fatality occurred, I do believe the US, EU, and wealthier countries will be able to contain the disease when it does crop up within their borders. However, those measures will be reactive; helping fight the disease at the sources remains the best way to get the outbreak contained.
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China has been “buying” Africa for more than a decade; instead of sending troops to conquer and seize resources, they’ve been sending billions of dollars in aid in exchange for valuable minerals rights and other concessions. They have also been sending thousands and thousands of engineers, architects, and other workers to build roads, mines, and other projects in the countries where they’ve been buying up resources and building their presence. Many of those people travel to China frequently… I would not be surprised if China already has an Ebola problem but just doesn’t know it—or won’t admit it. Some of these Chinese workers are and will be sent to South America, where China is pursuing a similar agenda.
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Desperate Africans from many countries are crawling their way north, paying their life’s savings to board overcrowded boats, intent on smuggling themselves into Europe. Europe has been unable to stop this exodus and spends considerable resources plucking the victims out of the sea when their decrepit, overloaded boats sink. Even if Europeans stop rescuing African shipwreck survivors, that won’t stop the flood of those on ships that don’t sink. Full military interdiction of the waters separating Europe from Africa and quarantining of persons intercepted would be hideously expensive—a cost the struggling European economy can ill afford today.
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Cuba has historical ties with many African countries and is reported to have sent “hundreds” of doctors to help. What are the odds that none will be infected—or that all will be quarantined until proven clear, before being allowed to return home, just off the coast of Florida? (And not so far from where I live, in Puerto Rico.)
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I’ve not seen a reasonable estimate of the economic fallout of what has already transpired, but I’m sure it’s huge—and going to get much worse. Africa may seem like an impoverished backwater of little consequence to North Americans and others far around the world, but Africa is a major trading partner to America’s major trading partners, and the source of many important raw materials used by our global economy. For just one example, Côte d’Ivoire borders Liberia and is the world’s largest cocoa producer. Yes, chocolate prices could be affected. The World Cocoa Foundation is taking donations to help join the fight.
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In our market sector, its important to remember that Africa is a major source of the world’s mineral wealth, including oil, gas, and diamonds, in addition to copper, gold, platinum, and other metals. If the outbreak gets bad enough, metals prices could be affected.
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Northeast Africa is closer to the Middle East than North Africa is to southern Europe. If the Ebola outbreak does spread north and east, the oil and gas of North Africa and the Middle East could be affected, impacting energy prices.
Unfortunately, measures that would really help stop Ebola’s spread, such as fully quarantining the countries that have outbreaks, would exchange the risk of the disease’s spread for the certainty of economic hardship. It’s important not to kid ourselves about what those words mean: increased economic hardship for those already on the bottom rungs of the social ladder means falling off, which can be just as fatal as Ebola.
Those who’ve been wondering why the UN or someone doesn’t just quarantine the three countries most affected, or all of West Africa—or the whole continent—should ask themselves: Why not quarantine Texas? Or, if we’re talking countries, why not quarantine the entire United States? And if we're talking continents, we'd have the throw Canada and Mexico in too…
Answer: the cost would be astronomical, and it would come with a death toll as well.
No. Not yet, at any rate; the disease is spreading, but its growth does not yet seem exponential. The “cure” must not be worse than the disease. Our best bets are to help the sources deal with the outbreak and to accelerate research and deployment of new treatments. A real cure—a medical solution that kills Ebola without killing people—that should be our top priority.
Investment Implications
All of the above has implications for all people living on this planet, as well as more specific import for investors who read this column.
So… How can one “Ebola-proof” one’s investment portfolio?
Unfortunately, with the disease already present in the US and EU, the only sure answer is to sell everything and go 100% to cash.
As with other nuclear options like quarantining the US or Spain, that would exchange the risk of being affected by the spread of the disease for the certainty of holding paper assets the governments of the world are working to debase as fast as they guess they safely can ("guess" being the key word there). And it means you are completely out of the market, as an investor.
It’s premature to embrace such extreme measures, so what should we be doing?
The obvious and pressing concern is to minimize or eliminate exposure to investment risk in areas where Ebola is most likely to become a serious problem. (I assume anyone paying attention has already sold their stock in companies that rely upon or have close connections to Liberia, Guinea, and Sierra Leone—if not the rest of the countries on the outbreak list, except for the US and Spain.)
For my money, that’s primarily Côte d’Ivoire (which borders Guinea as well as Liberia) and Mali (which borders Guinea and Senegal—and Niger, but the outbreak there does not seem to be spreading). We’ve not made any investments in Côte d’Ivoire plays since I’ve been with Casey Research, but we have recommended stocks in companies with mines in western Mali.
Unfortunately, the gold fields in the region are not far from the border with Guinea, and that border is highly porous. The port of Dakar in Senegal is an important part of the supply route for the mines. There has been no report of an outbreak in Mali yet, but the area is rural, civil infrastructure almost nonexistent, and I don’t trust the government, which is still nominally fighting a civil war to the northeast, to do what’s necessary to prevent the spread of the disease. Consequently, we’ve recommended selling those stocks.
We could also speculate on the price of chocolate rising if, or perhaps when, Ebola spreads from Liberia to Côte d’Ivoire. However, I don’t know much about the chocolate business, so I’m reluctant to offer any advice there. Stocking up on Nutella is probably as far as I’ll go.
More pertinent for us as metals investors is that West Africa’s gold fields are a major source of global mine supply, and if the disease does spread farther across the continent, especially east and south, there could be serious supply issues with copper, uranium, and other metals. Demand for industrial metals would presumably drop as well during a global epidemic, but Africa supplies far more than it consumes, so taking much of Africa out of the supply-and-demand equation is likely going to be net negative for supply and therefore potentially bullish for prices.
But such sweeping chains of events are not certain yet; the trends are indeterminate.
This leaves us with the defensive measures touched on above. Think of it as an orderly retreat, made only when necessary in the face of a clear and present danger, such as Mali or Côte d’Ivoire looking like the next Ebola dominoes to fall.
There’s one thing I should stress again, because it can’t be stressed enough: unless you want to be completely out of the market, you can’t avoid investing in 100% of the countries on the Ebola outbreak list, as well as those that border them. That would mean selling everything in the US, Canada, Mexico… and the EU, for that matter.
But isn’t the rest of Africa more at risk than France, or Oklahoma? As above, I do think those areas across insecure borders from already heavily impacted areas are certainly so. However, it’s a long walk from Freetown to Cape Town. My guess is that we’ll see more cases in Europe—Italy seems a likely target—before we see more distant parts of Africa infected.
One more thing… Don't panic. Don't let alarmist headlines and fear-mongering distract you from the facts. The disease is hard to treat, but it spreads relatively slowly—more like AIDS than a cold or flu. Even if the death toll eventually rise to a quarter of a million people, that's fewer than are killed on China's roads every year. It's terrible, but we must maintain some perspective.
This is why I’m not ready to sell everything in Africa yet. I am, however, watching developments closely, and will keep readers appraised as the trends shape up and the risks and rewards become clearer.
Stay tuned. And if you agree with my thinking, please forward this article to other investors who may benefit from it. Best of luck riding this one out—to you and all the people of our highly interconnected world.
