We grew up on history stories about ‘The Great Depression’. The Great Depression was used to describe the crisis of confidence in Equity Markets due to the collapse of the US banking system and temporary disintegration of globalisation.
Anyone growing up in the shadow of the 1929 Wall Street Crash – felt the pinch of economic hardship – due to recession, unemployment and huge capital losses for peoples’ savings.
I actually learned my trade of financial planning on the retired generation who had been children during this era. They were incredibly cautious and always lived with a sense that it was best to save for another rainy day.
It took 22 years for US markets to recover 90% of their 1929 losses.
In 2008, a new crisis that was bad enough to rival the Great Depression came along. This time dubbed the ‘Great Financial Crisis’. Once again, the US banking system was shaken and Equity Markets plummeted. It was impossible to prevent the financial crisis from spreading globally. Many businesses, banks and even countries effectively went bankrupt.
The children of that era have grown up with ‘cut-backs’, protests and populism. However, the emergence of Quantitative Easing and a determination by central banks to prevent a Great Depression ‘whatever the cost’ – prevented such a long shadow.
It took around three years for US markets to recover 90% of their 2008 losses.
The world looked to be finally getting out of the shadow of austerity and financial emergency as we headed into this new decade.
However, in March this year, the global economy ground to a complete halt as we encountered a global pandemic with no current cure. The immediate crash in markets over the month of March made the Great Depression look like a walk in the park. Things looked very worrying indeed.
Then the central banks stepped in once again. This time on a truly remarkable scale. This was co-ordinated with government support packages and the markets bounced partly back in record time.
Let’s call this latest crisis ‘The Great Pause’.
It would appear that I may have just a couple more weekly bulletins to write – before we are out of lockdown.
I mentioned in my bulletin dated the 27th of March that I felt I was growing a ‘Split Personality’. Nearly two months on, that split is even bigger.
My Financial Planning side is finding considerable calm at the way things are unfolding. The vast amounts of liquidity pumped into global markets points to rising asset prices – as more good news feeds through. This is perfect for my clients.
Markets will have their bad weeks, but ultimately it is not hard to see that the long game is paying off here – and that the future for global investment markets is bright.
We have heard this week that the UK are now issuing long term Gilts with negative interest rates for the first time. This is completely bizarre! It demonstrates that there are actually plenty of investors out there willing to lend the UK money at a loss if held to maturity.
This tells us two things. Firstly, that the UK financial system is in good shape and is trusted as a ‘safe haven’. Secondly, that interest rates may head below zero. It could be the case that savers will end up paying the bank interest to hold their cash balances.
Where do people turn then? Ah….that will be the Equity markets.
What a fabulous place to be already! I am really positive about our client portfolios.
The other Darren has too much to say for one bulletin – and I would be overstepping my remit to fully share my personal views.
It is fair to say, however, that pressing the pause button was never the hard part. On the 20th of March (‘Chinese Whispers’) I referred to pressing the ‘self-destruct’ button on the UK economy through locking everything down all at once.
The decision was an understandable one to limit the spread of a potentially deadly virus. However, the cost to jobs, cancer patients, businesses, children, education, the elderly, the vulnerable, mental health and ultimately our children’s tax burden – would be massive.
The huge problem with pressing the pause button is working out how to get the music playing again – and when.
I don’t think any of us now envy the governments’ position. Make no mistake that there is divided opinion between those in government focused on the virus and those focused on the economy.
Also, we have to appreciate the very real threat of a future public enquiry and the debilitating fear that any decision a cabinet minister makes now, will be judged through the comfortable lens of hindsight at a later date.
Confronted with this frustrating puzzle, many of us are probably feeling just a bit frazzled as we try to dissect the news headlines to see what might come next.
I feel the best thing to do – is to now focus beyond what comes next.
I have no time for the saying that ‘things will never be the same again’. Yes, this crisis will speed up the use of technology and home working. However, history teaches us that the world has been through a multitude of global pandemics in the past and the end game is always the same. People go back to their normal lives long before the pandemic has truly been beaten.
I see us returning to our Shops, Churches, Parties, Family ‘get-together’s’ and hairdressers! In a slightly restricted version for the next year or so – and then in layered stages to what we knew before CV19.
In the meantime, countries around the world are finding a temporary solution to return to ‘90% productivity’ which includes splitting their population into regions and using smart phone technology to open and close regions in line with virus numbers.
Recent research from Citigroup Bank in the US, is that they predict a far swifter return for markets than the previous Great Depression or Great Financial Crisis. Indeed, their numbers point to a 90% bounce back of markets inside 15 months of the crash which would be very welcome indeed.
The ‘Great Pause’ has worked in London where we see the rate of infections falling at a rapidly encouraging rate.
If you are feeling down right now – just cast your mind back to March and April when the entire UK was locked down with numbers of infections and deaths multiplying at a terrifying rate. Our Prime Minister was fighting for his life, you couldn’t buy a toilet roll for love nor money, people were fighting in supermarkets over loaves of bread and markets were plummeting.
Just two months on, we are in far better shape. In another two months we will be in better shape again. You might share my frustration at the length of this ‘Great Pause’ but be in no doubt – we will get back to normal and when we do – the market recovery may well be considerably quicker than previous ones.
As always, I am here for you 100%. I am not going anywhere! If you need anything at all – just let me know. Stay safe and God bless.
Darren
Prefer to watch this presented by Darren in person?
