Where I am right now – and it isn’t in stocks….

Thursday, 2nd April 2020

Where I am right now – and it isn’t in stocks….

It’s carnage out there….

The FTSE 100 just posted its worst Q1 performance since 1987 – down 24.8%. It was down 14% in March alone….

The FTSE 250 fared even worse. The ‘domestic’ index – more UK focused than the FTSE 100 – lost 31%. That’s the worst quarter on record….

In the US, the Dow Jones Industrial – the 30 biggest blue-chip stocks – booked its worst quarter in 124-years. It was down 23.2%. The S&P 500 recorded its worst Q1 results in history – down 20%….

The Stoxx 600 includes the largest companies across Europe. That sank by just 23% January through March….

Asia-Pacific markets logged the worst Q1 results since the last financial crisis….

Did I say carnage? What I mean to say was bloodbath….

  • Unprecedented financial disaster….

Of course, the coronavirus has played a large part in all this evil….

But existing fragilities in global economic and market systems have played a part too….

The cracks were in place. Coronavirus is the black swan event that has exposed and widened them….

Now the world is on lockdown. Businesses aren’t doing business. Products are not being made. Services are not being rendered. Customers are not spending money. Profits are not being earned. Nor are tax revenues….

Revenues that are lost during this period will be lost forever. The man who didn’t fill his car with petrol last week, won’t fill it up twice to make up the shortfall when this crisis is over….

All over the globe economies are reported to be in contraction. Whatever survey you consult, business confidence is at its lowest ebb. Investors and consumers expect a recession on the road ahead – or depression….

Unemployment figures ride at unprecedented levels – set only to get worse. Some people and businesses are dipping into savings and cash reserves. Those that have none of those are trying to borrow money. Those that can’t borrow are in desperate trouble….

Did I say bloodbath? What I mean to say was financial disaster on an unprecedented scale….

  • By any means necessary….

Government – and central banks – are throwing the kitchen sink at the problem….

And the fridge-freezer. And the washing machine. And the tumble drier. And the table and the chairs and the cupboards and the kitchen door. If it isn’t nailed down, it is being picked up and flung at this thing….

Government and central banks are desperate to keep the economic wheels turning…. to keep the whole shebang on the road….

The alternative is unthinkable – and most likely involves trouble on the streets and martial law….

The Federal Reserve, the Bank of England, the European Central Bank, the IMF, the G7, the G20 – all of them are out peddling the same message….

Whatever it takes…. No limits to borrowing…. Interest rates will be hammered down as low as they can go – and then some….

We’re going to spend our way out of this thing….

  • Wait for the bill before clapping….

12-months ago barely anybody outside of political circles even knew who the new Chancellor of the Exchequer Rishi Sunak was….

Now, having promised to dig businesses, workers, the self-employed and  charities out of the quicksand with ‘whatever it takes,’ he’s one of the most popular men in the country….

He’s seen as the safest pair of hands in government. People want to know whose shirts he wears. He’s seen as a cool head in a crisis. His stock has risen while the markets tanked. He’s looked upon as future prime minister material….

It is as if Sunak has opened his own wallet and found the money to support the nation all on his own. But that’s not the case….

Nor is it the case – as a lot of journalists seem to believe – that the government has opened its coffers and come to the rescue.

Government has no money of its own. What it has it takes from the taxpayer. And what it doesn’t have it prints – or brings into being via central bank bond purchasing….

The money being promised and spent now hasn’t even been earned by the taxpayer yet. The bill hasn’t been presented either….

People might want to wait for the bill before they stand up and applaud Sunak and Johnson and all the rest as though they were frontline NHS nurses….

That bill is going to make your eyes water when it lands. If you’re a taxpayer, a saver, someone who uses public services – and I’m talking a couple of generations into the future – it’s going to hurt….

And many of the freedoms and civil liberties so gleefully conceded during this crisis will not be so easily given back once it is over. Some will be gone for good. That’s how crisis works. The state apparatus takes its opportunity. But that’s a whole other story….

  • Is now the time to buy stocks?

The markets have dropped like a stone. So, is now the time to buy stocks?

Some folk think so. Particularly many of those whose personal incomes depend on commissions for selling stocks….

I am not a financial advisor. You must make your own mind up. But, for me, the time to buy stocks is when nobody wants to touch them with a bargepole. Then they really will be cheap. But  that time is certainly not now….

Over the last fortnight, every hack financial journalist in creation has been commissioned to write an article on the great opportunities that abound in the stock market right now….

A simple search in Google reveals that hundreds and thousands of news articles have been written about ‘these cheap stocks’ or ‘those cheap stocks.’ Everybody’s been briefed that now is a good time to buy….

And many believe it. Take a look at Google Trends. Searches for the term ‘cheap stocks’ have been at an all-time high over the last month….

The herd is running with the idea that the slump in markets is temporary. That the bounce-back will come. That’s there is money to be made in a rising market on the road ahead….

Running with the herd can feel like there’s safety in numbers. But, be careful. When you run with the herd, you run the risk of getting trampled….

  • What does well in a recession?

And most likely stock prices will rise….

Inflation will see to that. Print trillions of new currency units into existence globally and you will eventually get inflation – rising prices and devalued currencies. And more printing – much more – will be required yet….

When the markets smell inflation in the air, trillions in cash and bond money (the worst place to be) will rotate into real assets – like stocks – and stock prices will rise as a result….

If you’re of a mind to reposition yourself in stocks now, discount retailers do well in a recessionary environment. When incomes go down, consumers draw their horns in, get on a budget and find cheaper alternatives….

Home improvement retailers tend to do well too as people turn to DIY rather than call in a tradesman. They make-do and repair rather than buy new. And people will have been sitting at home over the last couple of weeks noticing all the jobs that need doing….

People cut back on vacations and recreational travel during recessions, but shelves still need to be filled and goods still need to be moved during recessions and stocks tied to freight and logistics are not a bad bet….

Personally, I’d be in toilet rolls and paracetamol. The former has cemented its place as a symbol of civilization. Nobody will want to run the risk of being without either ever again. And coronavirus – whilst it might disappear this summer – is always liable to make a future comeback. Consumers will be prepared next time….

Warren Buffett is said to be circling the businesses suffering most because people are staying at home and not spending – airlines, hotels, casinos, cinemas have all seen heavy losses on stock prices. Buffett senses value. But he’ll be doing the due diligence too. And trying to front run him before he strikes is a game for a brave man or a fool’s errand….

  • Where I am right now….

Those are just idle thoughts. I’m not looking too deeply at stocks. I know inflation will make the market rise again – but it can’t and won’t improve the underlying fundamentals of the business behind the stock….

In other words, a market riding high on inflationary drivers is just another asset bubble – one set to burst again at some point….

And things could get worse in the markets yet before they start to feel better for stock investors. It’s a rough road ahead. Lots of ups and downs and uncertainty….

My own preference right now remains as it was – for gold….

Gold hasn’t come out of the recent turmoil unscathed. It is an industrial metal – a commodity as well as a safe haven. And prices have dropped off alongside the reduced industrial activity across the globe….

But gold is set to fly high further down the road. Inflation will see to that too….

And gold is a safe haven in that they’re not making any more of it. You can’t print gold. It holds its value. And it increases in value when demand is high….

Demand is high right now. The Royal Mint is currently out of many of its various coins and bars . Other bullion dealers report similar shortages. Coins in online auctions are getting well over their estimates. I see demand getting higher still over time….

I want to be in gold until such time stocks really are cheap – until such time nobody wants to touch stocks with a bargepole. That time isn’t now – but it will come. I can wait….

That’s where I am right now….

All the best,

Dave Gibson

Money Truths