On Lockdowns, Outlook and Investing
All,
On the state of affairs:
- First of all, thank you for all your well wishes the last few days. Martha and I have officially recovered from the virus and have received NHS clearance to leave the house again. If we have any advice for anyone its eat well, sleep a lot, then sleep some more.
- By comparison with other people we have gotten away with it lightly. The distress and the fear in the majority of the public are real and for a good reason.
- Much of the economic damage will only become apparent and quantifiable only when people return to work. The macro result will likely be more stagflation for longer as we do everything to stabilise and protect and cocoon what remains of the economy. Where new technologies were substituting older ones, those changes will be permanent and ripple up their supply chains. Other industries like international tourism will take a long time to regenerate. General economic overcapacity will depress inflation for some time to come.
On Lockdowns:
- Wuhan has emerged from lockdown after 76 days = 11 weeks. By contrast, most major European nations are only in their 3rd or 4th week and only the longest of them are seeing a reduction or even a first flattening of their death rates.
- So while some first countries are experimenting with the relaxation of those measures, it is probably safe to say that most of us will still spend the month of April in lock-down, which is worse than the general expectation that most governments have been setting so far.
- Until a safe vaccine is found, heavy travel restrictions will remain in place well after nations and regions relax their internal rules for fear of importing the virus again. Imposing quarantine on international and interstate travellers.
On Markets:
- This crisis has come on more suddenly than past experiences have thought us to expect and by the same token markets may also have approached bottom more quickly than we would expect.
- While we still struggle to estimate the fall-out from the crisis from company to company, the market has responded with heavy discounts all around.
- The market, however, has visibly moved on since most initial rescue packages were passed and HY has seen inflows. In the last two weeks investors have begun forming a view on certain industries. The overall positive reaction also follows the realisation that many of the systemic troubles befalling the financial system the last time round are not featuring this time.
- Bids have emerged.
On Outlook:
- The upcoming Easter holiday should provide some much needed rest and pause for reflection. Reflection not only on the state of markets, but on our values and beliefs in general. Without wanting to sound overly fuzzy, values and beliefs provide grounding and stability from where to draw confidence, push and grow. It will fill the half empty glasses to half full.
- The end of April will see an intensifying discussion of the when and how of easing lockdown rules and we will be observing the first nations gradually returning to work.
- In May/June, the US will be more centrally coordinated in its return to work / relaxation of interstate restrictions and thus domestic activity will find more quickly out of the depths of the crisis than Europe - (once again).
- The return to work, will fill people with confidence and set the bull market back on track (if it isn’t already).
Time to invest:
- First of all into ourselves. We will be joined by Juliano Torii on Monday. He will be instrumental in helping us cover the vast new space and allow us to roll out our service in more breath and depth. Having retired a number of old names that we do not feel make sense to cover for most of us at the moment, we are looking forward to rolling out coverage substantially in the next weeks and months.
- With markets having found “a” bottom, we will be committing to a string of new positions in April and may. We will likely be leaving some dry powder, but are looking to largely position ourselves in the near term.
I am available on 07766 543 667.
Wolfgang