Yesterday was certainly ‘interesting’ for us here at Thomas and Thomas!
We witnessed a ‘prefect storm’ in terms of the coronavirus scare continuing to wreak havoc – coupled with a massive drop in the price of oil because of a fall-out between the main oil producing nations. Either one of these issues would have hurt markets, but together they drove markets into what we term as ‘bear’ territory (20% down from the last peak).
Allow me to very briefly deal with each issue. I will then share what I think will happen next, what we have done in preparation and what you can expect in the form of lots more (unwanted) communication from your investment platform! J
Oil to the flames:
The issue in regards to the oil price is overproduction. In simple terms, more supply means cheaper prices. Whilst this does affect stock markets because oil shares make up a fair chunk, actually there are some positive consequences of cheap oil. Firstly, we should all feel some relief at the pumps (maybe a good time to fill the oil tank folks!) and secondly, this will feed through to inflation figures later in the year. Cheap oil could well be the very catalyst that brings our global economy back out of the recession that we are now most likely in. This also bodes well for exporting nations and helps the Emerging Markets at a time when the US dollar is falling – my hope that EM does well in the near future looks a possibility.
Info-demic:
The coronavirus is a very nasty bug and something that none of us want to encounter. However, it is highly likely that the majority of us will pick up some version of it in the coming months and even years. The media are absolutely loving the ‘Brexit replacement’ epidemic and panic selling of stocks is inevitable until everyone realises that we are not all going to die! Having said this, a global flu this contagious is a massive short term problem for the global economy. Imagine a recession where everyone all suddenly stopped going out, stopped spending money or doing deals etc. That would be a very grim recession indeed. The impact of shutting down whole parts of the economy is really worrying and – to this end – I am really not surprised that the FTSE 100 is down around 20% from its last peak at the time of writing.
What will happen next Darren?
I don’t know. However, I think it is very unlikely that today’s rebound in markets is unsustainable in the short term. Unless a vaccine can be produced, or a true recovery story can be told (i.e. – China gets back to work and health soon) I think we will probably see more short term bear ugliness as more and more countries effectively go ‘offline’ with their economic output.
I love our clients! I have had two calls today from clients who want to invest because they are certain this is a good time to do so. Whilst I think markets could go on down a little further yet, I do agree with our clients that the long term story from here is very positive. History teaches us that you need to be in the market when everyone else is avoiding it.
How is my portfolio looking and what did you do to prepare?
Back in December, I wasn’t very popular with many of my peers. Whilst they were rubbing their hands together and piling even more into US equities, I felt a bit…well…bearish. Our proactive and pro-ethical clients will recall that I rebalanced a bit away from the US. I also encouraged the reduction of Financials and Smaller Companies in preparation for recession. Furthermore, our Ethical portfolios had zero Oil companies. I had no idea about coronavirus. The defensive and diversified position of our client portfolios has really paid off in the past month.
At the point of writing, our client portfolios are still looking very good. We have noticed that the mainstream portfolios are still roughly where they were a year ago, whilst the ethical portfolios are still comfortably in profit.
What is this paperwork arriving from my platform?
One major annoyance of mine, is the European directive that instructs fund managers to inform clients when the funds drop over 10% from their last peak. This completely goes against the old adage to ‘leave it and ignore it’ when markets are falling. I call this ‘not feeding the bears’. However, in this era of mass information, you can probably expect some communication from either Old Mutual or Aegon in the coming weeks if markets continue to fall. This is because your portfolio will have enjoyed a nice rise at the start of 2020, so a 10% fall from that peak is actually quite easy to experience. I would encourage you to check your online statement if you have access as most of our clients do – or call me if you are at all uncertain. Don’t suffer in silence!
Conclusion:
It’s really tough out there at the moment, but in honesty we relish these challenges. We are with you on this journey 100% and I am totally confident that we will make excellent gains together. My genuine hunch is that things will get worse before they get better, but we are already seeing opportunities opening up. I will stay in touch (as always) and we will get through this together.
My very best wishes
Darren
