Last month, this newsletter gave you a fairly early warning on the Coronavirus (see
). As we all know by now, it turns out it was a correct prediction, but one could argue we didn't go far enough.
So where are we headed now? The analysts will need to carefully monitor the manufacturers, looking for the ones who, a major perturbation like the one caused by the Coronavirus, may be in danger of slipping through their loan covenants, or, even worse, sliding into bankruptcy. We have no recommendations as to which companies these may be, our caution is to examine daily and carefully--this is your job.
Second, the manufacturers will need to look at their suppliers with the same jaundiced financial eye.
As analysts, you'll really need to watch both. For if some key suppliers sink beneath the waves, it could affect paper manufacturers which are, at least so far, keeping their heads above water. If a vital supply or part is no longer available due to a supplier failure, it could be a serious problem.
I once watched this happen when a machinery supplier folded in the middle of the construction of a new mill. If it had not been for the excellent project team the mill owner had on the job and the owner's own deep pockets, it would have been a disaster. As it was, the startup ended up being moved only a week, but the effort and the resources necessary to accomplish this were extraordinary, to put it mildly. Seeing it happen from the front row, this old papermaker was completely flabbergasted.