I appreciate that as I express my views, some may consider me cynical whereas I am really trying to see through the headlines to draw sensible conclusions. A phrase that you will be familiar with that was popularised by Mark Twain, is there are three kinds of lies, ‘Lies, damned lies and statistics!’
We all know that the media see their role as selling news and of course, human nature dictates that bad news sells better than good news. Sometimes I get the feeling good news is only imparted somewhat grudgingly.
Clearly, the coronavirus pandemic is a serious global crisis that needs to be tackled, but the information that gets published, does not tell the whole story and I will give you an example. The headlines will tell you that the most deaths have now been recorded in the United States, which makes you draw a simple conclusion, whereas in fact the rate of deaths in the US per 100,000 people is 4.3% compared to Belgium for example, who top the table at 13.4% - rather a different picture I feel!
As another example, France, which has just announced a further 1 month lockdown, currently records 15,729 deaths linked to Covid 19, which on its own is an alarming statistic, but bear in mind the total deaths in France since 1st January amounts to 168,508 and furthermore, more than a third of the Covid 19 linked cases were residents of old people’s homes. To my mind, the fuller statistics tell a rather different story.
Don’t get me wrong, I am not suggesting that there’s not a problem and of course, we should obey the rules of containment, but we should also remember to keep this in perspective.
One word that is being used ad nauseum is “unprecedented” and to a degree, there are some aspects where I agree this applies, particularly in the context of our modern world that has seen a rapid growth of travel and globalisation to a degree that we have not seen before and with the pandemic, which has been assisted in its spread as a consequence.
A question that we all have in our minds I am sure, is where are we now and what can we expect?
In my view, I am not sure whether I think we are currently in the eye of a storm or perhaps more realistically, we are in the calm between two storms – let me explain.
Turning to the financial markets, what I believe we have seen over the last 2 months is markets reacting mainly to the fears emanating from the explosion of the pandemic and the uncertainties of this, followed by a partial recovery as slightly less pessimistic statistics start to emerge about the number of new cases and to a degree, I believe that markets now largely factor in the impact of the virus from a health perspective. I will concede that this period could be classed as unprecedented, but only in the context of the impact it has had on our globalised world. So why do I say, this is the calm between two storms?
Simply, we are now moving into a period where large organisations will be reporting their results and in particular, their earnings for the first quarter of 2020. Arguably, these won’t look too bad, because the “selloff” really only started around 20th February and therefore, the results for more than half the first quarter will help to mask the impact of the sell off. However, they will also be announcing their forecasts of future earnings and in this respect, you would like to think that markets will have anticipated this and be pricing the impact of a severe reduction in earnings into values already, but I fear that is not the case. The implication therefore, is that “storm 2” will see further falls in the market as a result, but unlike the virus impact, we are now moving into familiar territory, which is the economic impact. In this regard, we can learn from history and consequently, I would expect there to be further falls in market values before we move into a true and sustainable rally and recovery, which I also believe firmly will follow, but of course, the question I don’t know the answer to, is when.
History shows though that there are opportunities during these periods and as one Fund Manager described to me yesterday, they will continue to buy quality stocks, even if values continue to drop, they will continue to buy as they can capture value all the way down!
The results of this strategy will only be seen in the fullness of time, but as I have said previously, because of all these factors and the unknown timeline, it is far better to remain invested in the market as the best way to ride the current storms.
Caution should always be remembered however and to quote Warren Buffett, who is considered to be one of the world’s most successful investors and philanthropists ‘If you’re going to test the depth of the river, don’t do it with both feet!’ Therein lies the argument for a well spread investment portfolio.
If you are interested in the statistics, have a look at the following link which will take you to Johns Hopkins University https://coronavirus.jhu.edu/map.html
As always, stay safe and let us know if we can help.
Best wishes.
Richard, Chris and Lesley