Fear of Covid.

[Avantegarde]

Shares slumped around the world in March when the scale of the Covid pandemic became apparent, along with the economic effects of the various lockdown measures. Dividends have been slashed. Shares have recovered in the US but not elsewhere. If, like me, you thought that the pandemic and its effects are now going from bad to worse (helped by the criminal stupidity and incompetence of some of the worst elected political leaders the world has ever seen: yes Trump, Johnson, Bolsonaro and Modi, I'm talking about you) what do you think the outlook is now? A longer and deeper recession? Even lower dividends? Further share price falls? Or what? Optimists are welcome to comment.

[dealtn]

Shares slumped around the world in March when the scale of the Covid pandemic became apparent, along with the economic effects of the various lockdown measures. Dividends have been slashed. Shares have recovered in the US but not elsewhere. If, like me, you thought that the pandemic and its effects are now going from bad to worse (helped by the criminal stupidity and incompetence of some of the worst elected political leaders the world has ever seen: yes Trump, Johnson, Bolsonaro and Modi, I'm talking about you) what do you think the outlook is now? A longer and deeper recession? Even lower dividends? Further share price falls? Or what? Optimists are welcome to comment.

Read Howard Marks latest letter from Oaktree Insights on, amongst other things, valuations.

I'm not sure if I am allowed to post a link, but I doubt Google will have much difficulty finding it. This is Investment Strategies so presumably recessions aren't your concern, but Investment. Other nuances around this can of course be discussed elsewhere.

[Lootman]

Shares slumped around the world in March when the scale of the Covid pandemic became apparent

Or became over-estimated, leading to the best buying opportunity since the last time fears were over-estimated, March 2009.

If the S&P 500 (currently at an all-time high and well up on the year) goes back down 1,000 points again, I will buy again.

[Darka]

I bought a lot of shares in March/April, and have bought something every month since.

By the end of November I will be up income wise compared to the whole of last year and I expect a recovery in share prices over the short to medium term.

With hopefully 40 years of investing ahead of me, I'm happy to buy at these prices.
Recovery might take some time, but it will come and I'd rather invest before the recovery than after it.

In my opinion, there has been a massive over reaction to Covid.

[Avantegarde]

Shares slumped around the world in March when the scale of the Covid pandemic became apparent, along with the economic effects of the various lockdown measures. Dividends have been slashed. Shares have recovered in the US but not elsewhere. If, like me, you thought that the pandemic and its effects are now going from bad to worse (helped by the criminal stupidity and incompetence of some of the worst elected political leaders the world has ever seen: yes Trump, Johnson, Bolsonaro and Modi, I'm talking about you) what do you think the outlook is now? A longer and deeper recession? Even lower dividends? Further share price falls? Or what? Optimists are welcome to comment.

Read Howard Marks latest letter from Oaktree Insights on, amongst other things, valuations.

I'm not sure if I am allowed to post a link, but I doubt Google will have much difficulty finding it. This is Investment Strategies so presumably recessions aren't your concern, but Investment. Other nuances around this can of course be discussed elsewhere.

Thanks, that was an interesting read. I highlight the following point: "People accepted that the recession would end and a recovery take its place in short order." This is what is bugging me. It will become clear (I think) that the recession will not end anytime soon and people will act accordingly, in all spheres of life.

[GoSeigen]

Shares slumped around the world in March when the scale of the Covid pandemic became apparent, along with the economic effects of the various lockdown measures. Dividends have been slashed. Shares have recovered in the US but not elsewhere. If, like me, you thought that the pandemic and its effects are now going from bad to worse (helped by the criminal stupidity and incompetence of some of the worst elected political leaders the world has ever seen: yes Trump, Johnson, Bolsonaro and Modi, I'm talking about you) what do you think the outlook is now? A longer and deeper recession? Even lower dividends? Further share price falls? Or what? Optimists are welcome to comment.

Read Howard Marks latest letter from Oaktree Insights on, amongst other things, valuations.

I'm not sure if I am allowed to post a link, but I doubt Google will have much difficulty finding it. This is Investment Strategies so presumably recessions aren't your concern, but Investment. Other nuances around this can of course be discussed elsewhere.

Thanks, that was an interesting read. I highlight the following point: "People accepted that the recession would end and a recovery take its place in short order." This is what is bugging me. It will become clear (I think) that the recession will not end anytime soon and people will act accordingly, in all spheres of life.

Our business is banging (not in UK, mind), we are over capacity and turning clients away. So it looks like a strong recovery underway as previously lost time is made up.


GS

[SalvorHardin]

Thanks, that was an interesting read. I highlight the following point: "People accepted that the recession would end and a recovery take its place in short order." This is what is bugging me. It will become clear (I think) that the recession will not end anytime soon and people will act accordingly, in all spheres of life.

The recession has already ended. The September and third quarter GDP figures are out soon; they are going to show that the economy grew between July and September (GDP was +6.6% in July and +2.1% in August).

One quarter of economic growth is all that is needed to end a recession. September GDP will probably be a small increase; it certainly won't be the 8.2%-ish fall required to keep us in recession.

Now whether things will get back to "normal" (i.e. 2019 GDP and behaviour), that's another story.

As is so often the case when there is a major disruptive change (economic, social, technological), parts of the economy will be devastated (e.g. most nightclubs), some permanently impaired (e.g. many pubs), but others will recover to where they were whilst some will benefit (e.g. online services, farm shops, home delivery).

Eventually many of the bankrupt businesses will be replaced by others in the same sector, in many cases by people buying up the same assets and restarting the business.

Don't rely on the media for accurate economic reporting. They're addicted to pushing doom and gloom because it gets better ratings. People who are suffering get much more attention than people who aren't, or are doing well.

One of my friends is a self-employed builder. He says he's never been busier and it's not all due to pent up demand caused by the end of the lockdown in July (Londoners moving to Devon is a big driver of business)

[johnhemming]

The way the ONS calculate the GDP means that if the schools start up again that gives a boost to the GDP.

[UncleEbenezer]

Government has done the same as New Labour did before them: printing money to fill a gap in the economy.

So long as no government dares to do otherwise, there can be no overall major fall in the sterling price of assets. I suspect the bottom line is a belief that a serious fall in house prices would be electorally disastrous, and those are after all the most leveraged of (mainstream) assets.

[Adamski]

The outlook for the UK economy is not good short term. Positives, for those kept their jobs, people have liked working from home, more time with family, and less traffic good for cycling and walking.

Increased the case for going global, as US, Tech, China all done well this year.

[Adamski]

Highest daily death toll since June. Not looking good for health and economy of nation. Think the half measures taken are confusing and not enough.

[Arborbridge]

The way the ONS calculate the GDP means that if the schools start up again that gives a boost to the GDP.

I believe that also applies to the death rate, which boosts economy in a final hurrah (temporarily): funeral directors, probate services, estate agents etc. The differential death rate from Covid amonsgst older people may also be beneficial - though I'm not clear about that since many industries are dependent on keeping old people alive as long as possible.

Arb.

[SalvorHardin]

I believe that also applies to the death rate, which boosts economy in a final hurrah (temporarily): funeral directors, probate services, estate agents etc. The differential death rate from Covid amonsgst older people may also be beneficial - though I'm not clear about that since many industries are dependent on keeping old people alive as long as possible.

Indeed this does increase GDP. Measurable economic activity for which money changes hands, so this increases GDP.

GDP calculations are one of those things that the more closely you look at them, the less reliable they become as a measure of the economy.

I pay you to dig a hole. You then pay me the amount that I just paid you to fill in the hole. This cycle adds to GDP, even though there has been zero useful output. But if you dig a hole and then I fill it in (without payment) this adds nothing to GDP because money did not change hands.

Governments love GDP calculations because they produce a measurable result which is always increased by any increases in government spending, regardless of the use to which this spending is put. IMHO GDP was designed to make Keynesian economics look good.

GDP fails to capture a lot of economic activity, whilst undervaluing many parts of the economy. Examples are where money does not change hands, the production of intermediate goods and internet services which are "free" such as Google search. It fails spectacularly when looking at product improvements; these generally increase economic utility but often reduce GDP because they reduce the cost of the products to the end users.

The treatment of imports and exports in GDP accounting is bizarre. Consider a country which exports £100 billion and imports £110 billion. GDP is increased by exports and reduced by imports. So this country's foreign trade reduces its GDP by £10 billion and the country would therefore be better off in GDP terms if it immediately stopped all imports and exports. Of course there would be a big negative effect due to the loss of activitity associated with these exports and imports, but this would not not show up in the GDP statistics for some time.

The Mises Institute has an excellent article about why using GDP to measure the economy is a huge mistake.

https://mises.org/library/how-gdp-metrics-distort-our-view-economy

[Parky]

The Mises Institute has an excellent article about why using GDP to measure the economy is a huge mistake.

https://mises.org/library/how-gdp-metrics-distort-our-view-economy

Very interesting article. Unfortunately it does not suggest how we should measure the economy.

[stevensfo]

I believe that also applies to the death rate, which boosts economy in a final hurrah (temporarily): funeral directors, probate services, estate agents etc. The differential death rate from Covid amonsgst older people may also be beneficial - though I'm not clear about that since many industries are dependent on keeping old people alive as long as possible.

Indeed this does increase GDP. Measurable economic activity for which money changes hands, so this increases GDP.

GDP calculations are one of those things that the more closely you look at them, the less reliable they become as a measure of the economy.

I pay you to dig a hole. You then pay me the amount that I just paid you to fill in the hole. This cycle adds to GDP, even though there has been zero useful output. But if you dig a hole and then I fill it in (without payment) this adds nothing to GDP because money did not change hands.

That reminds me of an explanation of one of the ways the Enron fiasco worked. Not sure if I've got it right, but you have your HB pencil valued at 1 billion by an expert (your neighbour) and I do the same with my HB pencil and expert (my 16 year old nephew). We agree to sell them to each other. No money changes hands but we both have a piece of paper showing 1 billion assets owned and go off to buy our Ferraris.

If only if it were that simple.

Steve

[Wuffle]

Isn't this how the antiques business works?
Dealers exchange old garbage at a made up price and wait for some mug who would never have wanted this old garbage until it's sheer expence piqued their interest.

W.

[Steveam]

I’ve bought very, very little since March and accumulated significant cash in my various accounts - both protected and unprotected. I’m cautiously optimistic but can afford to protect the downside so I’m happy to allow my “cash” buffers to increase - now between 5 and 6 years expenditure (at the much reduced expenditure rate of today). Anyway, I’ve now been so cautious that towards the end of this year/early next year I’ll be buying on the dips (basically after the US election and Brexit are both resolved.

Best wishes,

Steve

[LooseCannon101]

I invested a significant lump sum last month in a highly diversified global equity investment trust (FCIT) as well as re-investing dividends.

The best time to invest with hindsight is usually at the time of greatest fear.

[ADrunkenMarcus]

The best time to invest with hindsight is usually at the time of greatest fear.

Agreed.

I've put more capital to work in big chunks in 2009, 2011 and now in 2020.

On a unit basis, the new capital added to my dividend growth portfolio at the end of March and in April this year increased the portfolio's size 10 percent (measured by the number of income units). A top up of MasterCard has been successful so far (up 32 percent in Dollar terms) and a new position in PayPal is up over 70 percent in Dollar terms. While that is pleasing, from a long term perspective it would have been better for me if the prices had declined further because I could have bought more shares. Nonetheless, the new capital has gone into investments which have risen faster than the portfolio as a whole.

I keep feeding new capital in as I have money becoming available, because in the long run it's time in the market that counts.

Best wishes

Mark.

[Steveam]

Thank you both LooseCannon and ADrunkenMarcus. My approach is, of course, coloured by my circumstances and hopes and fears. My circumstances are such that I can afford to forego upside and am prepared to pay something to protect against a low probability event. My hopes are to see out a comfortable retirement (age 70s) but I don’t need to worry about dependants. My fear is that COVID and the response to it might lead to a significant depression (much worse than a recession). Perhaps I’m talking about a 50% drop in income and markets lasting 5 years. So, I’ve been very cautious since COVID started and now have a large cash or equivalents buffer.

One other fear is inflation - I well remember 20%+ inflation - and my only inflation proofed income is the state pension which I’ve still not taken as I view this deferment as equivalent to the purchase of an indexed linked annuity (if I die before taking it, no problem).

So the question for me became how large the cash buffer needed to be and I decided that 5 or 6 years expenditure works for me. The downside: inflation erodes cash; the upside: no pressure for much more than 5 or 6 years as income will not entirely disappear.

Just in case the U.K. suffers particularly badly I’m very well diversified across regions using passive ETFs and ITs.

Best wishes,

Steve