How sanguine are you?

[Avantegarde]

I know it is fashionable to say that stock market investors should stay in for the long term and ride out dips, slumps, recessions etc. But I am amazed at how many investors are assuming everything will be ok-ish (or at least recovering) in about a year's time, or even sooner. I simply cannot believe this outlook. I think a long world-wide economic depression with associated mass unemployment (tens of millions in the US alone) is in the offing. If true, this would bring with it business closures, individual bankruptcies, slashed living standards, shrinking trade and a huge reduction in dividend flow (that crucial factor for valuing shares) around the world, and on a vast scale too. No amount of (sensible) digital money-printing can stave this off. For the record I have sold my holding in an S&P 500 tracker fund which is still showing me a profit on its purchase price. But the S&P 500 and the Dow must surely have further, much further, to fall. That is my not-so-sanguine view. What's yours?

PS: I write this as Chancellor Rishi Sunak is addressing the nation on Radio 4 with talk, amongst other things, of the economy "bouncing back as quickly as possible". Yeah, right.

[Walkeia]

Hi AG,

I think this discussion has been had at length in a number of other topics. I post the link for 'what next for the market' below which is one of them.

viewtopic.php?f=8&t=22480

I see a fair few rays of light in the flattening of the virus curves and possible lifting of restrictions in the coming month - though I admit I feel most of this news is now priced by the markets. It may be fashionable to say 'should stay long term, ride out the dips etc' but this is my first experience of a proper market crash having started investing post '08. I am now appreciating just how hard this is to do but I remain resolute. I added too early; but thankfully got a a chunk at a decent level in VWRL so happy with my average. I have not enjoyed the swings and logging into the investment account less is the best advice i have read!

Your outlook is pessimistic; and I guess I'm an optimist but history would show backing mankind's ability to innovate, progress and over-come obstacles is the winning strategy in the long run - regardless of the timing. A respiratory virus has not made me doubt this; it's a tragedy and a setback and rightly we need to price this in but I disagree it will lead to the destruction on the scale you see below. My bigger concern is high inflation in the decade ahead due to current policy actions so owning real assets is a must in my opinion (adding trillions+ to the money supply has to go somewhere but most importantly this time in tandem with relaxing banking regulations - for the past decade bank regs limited the impact of QE etc). That been said, I wholeheartedly support policymakers approach in that inflation and controlling a strong economic rebound would be the better position to be in vs. under cooking the policy response and ending up in the world you describe.

all the best,

[Walkeia]

For the record I have sold my holding in an S&P 500 tracker fund which is still showing me a profit on its purchase price. But the S&P 500 and the Dow must surely have further, much further, to fall.

I would just add one thing AG - my questions back would be what did you decide your expected loss tolerance is? do you have rainy day cash on the side? do you expect to reinvest at better levels or cash out for good?

I ask these questions because my portfolio was heavily equity and trust focused. I am young and perhaps a bit flippant - 50% draw down like dotcom or '08 - 'great! I will by more'. Wiser heads did tell me anticipating vs. accepting such a move and living through it are different things. I've lived to tell the tale so far but will adjust my medium term strategy so I don't repeat a few sleepless nights I hope. I guess what am trying to say is that you're onside after this move but abandoning your framework / strategy that is showing how powerful it can be - given you're are selling at a profit after these moves?

[ADrunkenMarcus]

But the S&P 500 and the Dow must surely have further, much further, to fall. That is my not-so-sanguine view. What's yours

My view is it is better to buy equities when prices are lower (however 'lower' is defined!). I had a chunk of cash which I was going to invest in April anyway and the timing has been fortunate for me - I bought a load of MasterCard at $251 a share instead of $347.

I have some more cash sitting ready to invest and lower asset prices are a benefit for me in the short term.

As for my existing investments, my main portfolio is still substantially up on 30 April 2016 and has only lost 9% on a total return basis for the current year (my year runs 1 May to 30 April).

Best wishes

Mark.

[vagrantbrain]

I'd just left school when the dot-com bubble burst so this is going to be my third major recession. I'm still invested (in global trackers, tech and the far east) and i'm planning to stay that way. As i'm getting a bit older i'm learning that bad times are always followed by good times - it's been like this for a few hundred years now, and as I can't see any reason for this time to be any different i'm staying put and continuing my monthly SIPP and ISA contributions.

[Parky]

Unlike a war, all the infrastructure is undamaged, all the young, skilled workers are still available. The economically inactive members of society are being thinned out. The financial plumbing is still working (so far, anyway). Sure, government debt is increasing massively, which will lead to inflation, but haven't we been trying to increase inflation a bit (with higher interest rates to follow)?
I see no reason to be unduly pessimistic, and remain fully invested for an eventual recovery.

[bungeejumper]

As i'm getting a bit older i'm learning that bad times are always followed by good times - it's been like this for a few hundred years now, and as I can't see any reason for this time to be any different i'm staying put and continuing my monthly SIPP and ISA contributions.

In the long term you're doing the safest thing. But I don't think this one is going to observe the normal recovery rules, so it may take longer than usual.

Most market panics (I do hate the word crash!) are caused by either a supply issue or a demand issue. You fix one, and the other comes back into line before too long. But I'm racking my brains to remember the last time we had both at once?

And it's the unknowns that are so massive this time. The coronavirus doesn't read the papers and it can't be bullied by government policies or shaped by central bank action. Totally uncharted territory. I had the good fortune to sell down to 70% cash last autumn, but I'm not tempted by anything yet, apart perhaps from a punt on the oil price, which is just too silly for words and which isn't primarily a coronavirus issue anyway.

Sitting on my hands for now.

BJ

[Avantegarde]

One of the things that worries me most and which makes me very pessimistic is one single fact: Trump is US President. Because he cannot engage with reality he is simply guaranteed to do the wrong thing at all times and make matters worse. From an investment point of view, this matters a lot as the US is the world's largest economy and biggest stock market. His policies have inflated a huge stock market bubble in the US in the past four years. I fear his behaviour will engineer a complete reversal of that and maybe even worse.

[EthicsGradient]

While Trump worries me, I wouldn't say he's guaranteed to do the wrong thing; he's guaranteed to do what he thinks will get him re-elected in November.

There are 2 parts to that: first, is what will get the centre and right wing of American voters optimistic enough at that point to turn out for him also the right thing for the world economy in the long term - not necessarily, but there is some overlap; and secondly, will he correctly identify that? He himself just knows about publicity and media manipulation, so is useless in actually making things better, but he does also want to keep rich people on his side, since they pay for the campaign, and their interests include a thriving world economy. So they may manage to communicate to him some actions that work.

His fantasy that he understands medical science does worry me; he's obsessed with chloroquine as a miracle cure. His understanding of health is severely limited, however; he thinks exercise is bad for you, because you have a limited amount of energy, and you shouldn't use it up. The health of the more gullible sections of America will improve when Trump is not on their TVs each day giving out bad information.

[bluedonkey]

While Trump worries me, I wouldn't say he's guaranteed to do the wrong thing; he's guaranteed to do what he thinks will get him re-elected in November.

There are 2 parts to that: first, is what will get the centre and right wing of American voters optimistic enough at that point to turn out for him also the right thing for the world economy in the long term - not necessarily, but there is some overlap; and secondly, will he correctly identify that? He himself just knows about publicity and media manipulation, so is useless in actually making things better, but he does also want to keep rich people on his side, since they pay for the campaign, and their interests include a thriving world economy. So they may manage to communicate to him some actions that work.

His fantasy that he understands medical science does worry me; he's obsessed with chloroquine as a miracle cure. His understanding of health is severely limited, however; he thinks exercise is bad for you, because you have a limited amount of energy, and you shouldn't use it up. The health of the more gullible sections of America will improve when Trump is not on their TVs each day giving out bad information.

You've summed him up very accurately.

[jonesa1]

At the moment I'm reasonably chilled, but that's largely because I'm in the privileged position of not depending on an insecure job or the stock market for most of my income. A DB pension covers about 2/3 of my net income (that % will increase if and when dividends decrease), my partner works full time as a civil servant (working from home) and one of my daughters is also a civil servant (moved back home and works remotely). Since we've been in social isolation, grocery bills have increased (an extra mouth to feed and all meals being cooked at home), but most other discretionary spending (meals out, takeaways, visits to the pub, rail travel, weekends away, vacation food & drink - we had booked a family holiday on a Greek island for this week) has stopped, so outgoings have dropped considerably. As a family we also have enough cash to manage for a year or two with no income.

My main worry is the risk of longer term inflation, which would significantly erode the value of my DB pension. I'm hoping the equity investments will help to mitigate any impact from inflation.

[colin]

Worse things happen at sea.

[JohnB]

I had more than enough in Jan, still had more than enough when down 30%, and its recovered a fair bit now. Nearly all my spending is discretionary, and I'm spending pretty much nothing now. My biggest worry is a raid on savings as all the money is being given to those in work. I'm in favour of wealth redistribution in general but don't want my money to go to those who don't save.

[Avantegarde]

This is the evening of Thursday 9th April 2020. No end in sight yet to the lockdown in the UK. Meanwhile we have today had these two bits of information which, in any other circumstances, would be regarded as shattering.

1) https://www.bbc.co.uk/news/business-52232639 - 14% fall in UK economy forecast in the current quarter.

2) https://www.bbc.co.uk/news/business-52231929 - 16 million workers in the US have lost their jobs in just three weeks.

Plenty to ponder there.

[zico]

Economy and unemployment figures are simpy a consequence of the shutdown.

The news below is more what I'd regard as shattering. Implications are that herd immunity won't be possible, and that people who've had Covid-19 can get it again. That blows a huge hole in governments' current strategies to deal with Covid-19 in advance of any vaccine.

Coronavirus: low antibody levels raise questions about reinfection risk


https://www.scmp.com/news/china/science ... ions-about



Researchers in Shanghai hope to determine whether some recovered coronavirus patients
have a higher risk of reinfection after finding surprisingly low levels of Covid-19 antibodies in a number of people discharged from hospital.

A team from Fudan University analysed blood samples from 175 patients discharged from the Shanghai Public Health Clinical Centre and found that nearly a third had unexpectedly low levels of antibodies.

In some cases, antibodies could not be detected at all.

“Whether these patients were at high risk of rebound or reinfection should be explored in further studies,” the team wrote in preliminary research released on Monday on Medrxiv.org, an online platform for preprint papers.

Although the study was preliminary and not peer-reviewed, it was the world’s first systematic examination of antibody levels in patients who had recovered from Covid-19, the disease caused by the coronavirus, the researchers said.

There's more of the story in the link.

[1nvest]

For the record I have sold my holding in an S&P 500 tracker fund which is still showing me a profit on its purchase price. But the S&P 500 and the Dow must surely have further, much further, to fall. That is my not-so-sanguine view. What's yours?

Year on year +10.8%, year to date -2%. Recently bought some more S&P500 as part of fiscal year rebalancing and adding to ISA. Job done for the year, see no reason to change my asset allocation or to worry about it. If you are uncomfortable with your asset allocation then consider changing it. Factoring in currency fluctuations also (whilst the FT100 has 70% of earnings via foreign, many firms hedge their currency exposure such that invalidates most of the currency hedging that might otherwise have provided i.e. holding S&P500 is more assured to have stock +/- currency elements for a UK investor). Markowitz (who won the Nobel Prize in Economics for his pioneering work in Modern Portfolio Theory) originally went with

I visualised my grief if the stock market went way up and I wasn’t in it — or if it went way down and I was completely in it. So I split my contributions 50/50 between stocks and bonds.

[dealtn]

This is the evening of Thursday 9th April 2020. No end in sight yet to the lockdown in the UK. Meanwhile we have today had these two bits of information which, in any other circumstances, would be regarded as shattering.

1) https://www.bbc.co.uk/news/business-52232639 - 14% fall in UK economy forecast in the current quarter.

2) https://www.bbc.co.uk/news/business-52231929 - 16 million workers in the US have lost their jobs in just three weeks.

Plenty to ponder there.

Both of which are backward looking. It's about how long this lasts, and how soon we come out the other side, that will determine the level of markets (and individual companies).

[mickeypops]

We’re retired and have guaranteed income sources which will cover the basics. Our portfolio of income producing Investment Trusts provides the luxuries. No doubt dividends will suffer, but we don’t know by how much. Even if dividends fall by 50% we’ve more than enough cash to cover well over two years of the shortfall and that’s without any belt tightening.

So I’m pretty sanguine. The capital value of the portfolio has suffered, down about 20%. But I’m not selling anything so that doesn’t really bother me.

[TahiPanasDua]

This is the evening of Thursday 9th April 2020. No end in sight yet to the lockdown in the UK. Meanwhile we have today had these two bits of information which, in any other circumstances, would be regarded as shattering.

1) https://www.bbc.co.uk/news/business-52232639 - 14% fall in UK economy forecast in the current quarter.

2) https://www.bbc.co.uk/news/business-52231929 - 16 million workers in the US have lost their jobs in just three weeks.

Plenty to ponder there.

Of course, nobody can predict the future but it is only human to try. So here is my simplistic take.

It is almost never "different this time" even though now certainly feels like it. We will eventually recover so staying invested, if possible, is probably best for most people. However, there will almost certainly be no V curve and absolutely no swift recovery. The very recent upturn in the markets is deluding as a very long and deep recession seems virtually guaranteed given the massive level of damage to whole industries, huge unemployment in so many parts of the world and the world's well-meant but puny and poorly coordinated medical response. Furthermore, the drop in the S&P 500 seems big but is relatively mild in the context of the massive rise over the last 10 years. As a whole, this could easily drag on for years.

In the above context, we should avoid the allure of Fear Of Missing Out. Monthly cost averaging buys of internationally diversified ITs or ETFs is the way for mere mortals to go, but only if they are easily affordable and they don't have to dip into cash reserves. Even, say, 2 years standby cash could get a pasting if, like me, 90% of your income is from dividends. Also, expect huge tax increases to pay for all the government spending. If your job is insecure, hope for the best but, where possible and more easily said than done, prepare for the worst.

This is the most pessimistic I have been in my 40 year investing career and my instinct is just to sit tight. Hope I'm wrong!

Good luck to all,

TP2.

[Hariseldon58]

It’s likely that this is not going away soon...

My instinctive reaction is that recovery will take some time and some companies will not survive. The drop in the markets of around 20% or so, (having fallen more, but recovered somewhat) seems insufficient for the gravity of what lies ahead.

However when one looks back at some of the calamities that have befallen markets, World Wars, Spanish Flu, Great Depression, numerous economic crisis over the years....

Recovery has always come along, so we can presume that we will recover, either with a medical triumph or we get used to this and slowly emerge with a slowly recovering economy and eventually a medical solution of some form.

Given that the Spanish flu followed the earlier huge disruption and destruction of WW1 and we had the roaring 20’s the recovery to some degree of normality could be 12-18 months if we are very lucky or 5 years if not.

Personally I think further market falls will happen but I don’t know and I know I don’t know !!! I am confident that recovery will come and so I will ensure I have resources to finance the next few years and not be too greedy or allow FOMO in the meantime!