April 9, 2020

All those involved in markets know that ‘Hindsight’ has no peer in the realm when it comes to trading or foretelling the future. Nonetheless, on this occasion, indulge me. I am angry for three reasons. Firstly, all those years ago why did no major global government listen to Bill Gates and more recently to George W Bush in 2005, who both warned that the world should prepare for such a pandemic as Coronavirus, in the wake of what happened with Spanish flu (1918) and more recently Sars in 2003? Secondly, there is little doubt that China has been economical with the truth in telling us how long it was before Wuhan had been savaged by this virus, until it became official at the back end of last November. Finally, I really do have a serious dose of the ‘pip’ with the WHO. How come it took this august organisation until 11th March to declare this ‘serial killer on steroids’ a pandemic?

Stock markets started to suffer acute doses of pre and post prandial neurosis on 19th February. The alarm bells started to ring in concert with the deteriorating vibes that were coming from China, with the virus starting to spread to Asia, and in a modest way officially in Italy, though many suspect it had been in Europe since January. If the truth could be told I suspect that as many as 2 million people, even in the UK had contracted this deathly lurgy without many of them knowing about it. Equity markets tanked by about 30% until 23rd March, on the back of truly terrible news on the health front in the US and toxic economic forecasting on global growth, employment and trade.  Disturbing figures such as -25% US GDP for the 2nd quarter and 15-25% unemployment rates, again temporarily were bandied about for the second quarter in the US, with the EU and UK not that far behind. Nonetheless investors decided to ‘take hold of the bit.’

These investors are either very right and ahead of the curve or markets will be the recipients of a very severe correction, if the return to work is postponed. The volatility of the equity market has been exacerbated by the significant input of algorithm and programme trading in very thin volume trading – both by ‘shorting’ stocks as well as taking a punt in buying them. However, there is little doubt that the optimists have massed their troops and their intrusion has seen global equities rally by between 15 and 20% in a matter of just under three weeks. It is astonishing that huge companies such as Exxon Mobil, McDonald’s, BP, Shell, Boeing, IAG, easyJet, Chevron, Facebook, Twitter, Rolls Royce, Aviva and many others can move 15% to 25% in a day.

Apart from the obvious economic indicators, don’t underestimate the damage the inability of being able to freely move goods and people around the world could have on the world’s economy. Also, many companies have laid off people and have no money to buy Chinese goods and chattels. China may think they are in a great place; that is not necessarily the case.

No one hopes more than I do that investors’ judgment on the recovery has been good. If their idea of a strong recovery has been precipitous, there could be a severe backlash on valuations.