What caught my eye this week.
I have seen a few stock market corrections and crashes up close. Yet it still amazes me the speed with which everything changes.
One minute (actually it felt like one decade) you’re arguing with people who proclaim that high-quality government bonds have become riskier than shares, or that the sustainable withdrawal rate should be 0.04% higher.
The next minute – WHOOSH! – the world’s major indices have fallen by 20-35% or more:And it almost was ‘the next minute’ this time. The pace of the fall has been stomach-churning and the volatility something you’d expect from a child’s game about the stock market, not from real-life grown-ups trading billions.
Yet passive investors who’ve seen their funds fly up and down by 5% to 10% in a day (not that they should be looking every day) have been relatively swaddled in cotton.
Because beneath those choppy index waters – down in the Sturm und Drang of individual company shares where yours truly plies his masochistic trade – it’s been, well, to use a technical term, batshit crazy.
Individual shares have jumped up and down like a tray of loose screws on the bonnet of a misfiring clown car.
I’ve watched investment trusts worth hundreds of millions of pounds sink 10% one day and then rally by double that the next. Yet that’s as nothing compared to, say, firms in the travel sector, which just six weeks ago were updating investors about better margins or a new shade of red for their logo and who now find their market caps slashed by three-quarters and are, for example, trying to be rebranded as floating hospitals rather than plague ships.
More than once I’ve checked I’m not accidentally looking at monthly or even annual declines. But no – company X really is down 50% in a day.
Then there are the really weird things – strange anomalies I called them back in 2008 – which always make you wonder if the plumbing is leaking. Check out the ETF mini-special below for a taste of what I mean.
They say carnivores should never see how the sausage is made, let alone visit the abattoir. Similarly, I think most private investors should count themselves fortunate they’re not watching this crazed spin-cycle hidden within the moves of the major indices.
You’re more likely to stay disciplined, stick to your plan – and not sell – if you don’t spend any minutes wondering if any of this is rational.
Which matters, because mad as all this seems it’s nothing that we haven’t seen before – many times before.
And while the real-world economic challenge seems extreme right now and has barely begun, the odds are very good that markets will eventually get through it. Hold tight.
Of course the real-world has also become riddled with strange anomalies, too:
- The proliferation of masks.
- The wide leprous berth you’re given (or not given) in the street.
- The elbow bump instead of a handshake. The Zoom and Skype chat parties instead of an elbow bump!
- The emails from companies you’ve long forgotten ever doing business with who nevertheless assure you they’re looking after your interests despite COVID-19, night and day.
- The empty shelves at Tesco.
- The 16 rolls of toilet paper your significant other stashed in your sock drawer.
Four weeks ago people mocked both the early market wobble and the significance of the coronavirus.
A month later nobody bats an eyelid when the government and central banks throw billions if not trillions around with the abandon of jazz musicians who’ve just discovered a new chromatic scale.
It reminds me of something it’s taken years of market-watching and active action for me to understand: very often prices move before the explanation.
Many people (including one Prez D. Trump) didn’t take the market crash or the virus seriously until the market had already crashed and the virus was finally here.
At that point the narrative caught up to explain why actually it was perfectly rational that the market had already crashed.
Everyone nods sagely – we had it coming – forgetting their buccaneering personas of a few weeks prior.
Back in early February they read articles about day traders pumping up the price of Tesla and Virgin Galactic and wondered whether they should get involved.
Now buying shares in even a utility is too racy for their blood.1
A nation of Houdinis
I was going to talk about all my friends who’ve emerged in the past week or two to ask me what on Earth is going on with the markets, and what they should do about it.
Some of their comments sound so textbook you’d wonder if I’ve made them up!
But I think I’ll save that for an upcoming post.
Like anyone else with a website and a strangely-cleared diary, I also wondered about donning my Internet approved virus-expert overalls and telling you exactly what Britain’s senior scientists don’t understand about epidemiology.
But instead I’ll just moan about how poorly the initial lockdown was implemented, at least in London.
For most of this week the lockdown only visibly manifested itself for me in journalists hosting their TV shows from their homes – Through the Keyhole on steroids for CNBC fans – rather than in much sign on the streets of social distancing.
At least where I live, the High Street remained packed with young invincible people and very old very-vincible people, all playing a game of chicken with an opponent they cannot see.
The inconsistent response of businesses – understandable perhaps, giving the vague initial government advice to the public to ‘stay away, er, maybe’ – was especially maddening.
Take cafes, which the government left to pick their own poison. Some near my house decided to close entirely, others shifted to a takeaway model, but a good many chose to trade as normal and so were extra-packed with coffee-seeking refugees from next door, spluttering their relief and who knows what else into each others’ virus-primed faces.
I’m as capitalist as the next financial blogger, but decisions like this in a national emergency shouldn’t be left to individual corporate policy. Friday’s belated change to mandating closure for all pubs, cafes, restaurants and the like couldn’t come soon enough, simply from the vantage of economic justice.
I’ll concede a vested interested here. I’m an investor in several unlisted London-based coffee and restaurant startups. Hitherto they were booming and growing fast. All will now have to fight for survival.
At the least let them fight on a level playing field.
Deliberately freezing our economy by ordering workers to down tools and companies not to charge for their services is an extreme move that will cause a recession.
Given that, surely we should have been doing it properly? So uncommitted was the first week of lockdown that I wondered if the government was actually sneakily sticking to its original laissez faire plan in all but name.
From an investing viewpoint, the takeaway for me is to ignore people who are pointing out that China is now back at full capacity and becoming virus-free.
Its tough lockdown makes ours look like a measles party for Teletubbies. If Spinal Tap were running our virus forecast models, it feels like they could justify turning the mitigation setting up all the way to… maybe 3? That doesn’t seem anything like enough.
Therefore we’re on a different path to China. Less painful, maybe, but even if it works in our watered-down incarnation to hopefully prevent as many deaths, it will probably be more protracted as a consequence.
The US and much of Europe seem similar. It all implies this crisis has a long way to go yet. The markets will continue to gyrate in the face of these vast uncertainties.
Locked and loaded
I have a masive number of links for you this week – lockdown will do that to you.
Well you’ve not got anywhere else to be going, right?
To get started let’s follow @ermine’s lead with a bit of Leonard Cohen:
Enjoy the reads, and have a good – if lonely – weekend.
- Perhaps rightly enough if they’re not going to be allowed to bill their customers… [↩]