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:
[1]FTSE All-Share. Note the swan dive on the right. [Click to enlarge]
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 [2] 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 [3] 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 [4] – 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.
Funny money
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 [5]
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 [6] 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.
Lockdown letdown
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 [7] lead with a bit of Leonard Cohen:
Enjoy the reads, and have a good – if lonely – weekend.
From Monevator
Pound-cost averaging: the buy low superpower – Monevator [8]
How to prepare for a recession – Monevator [9]
Monevator is an investment site, whatever the weather – Monevator [10]
From the archive-ator: Coping with the guilt of losing money – Monevator [11]
News
Note: Some links are Google search results – in PC/desktop view you can click to read the piece without being a paid subscriber. Try privacy/incognito mode to avoid cookies. Consider subscribing if you read them a lot!2 [12]
Pubs, clubs, theatres, gyms and restaurants [finally!] told to close by the government, effective now – BBC [6]
UK government to pay 80% of wages of those not working due to coronavirus crisis – Guardian [13]
Double-whammy for savers as Bank of England cuts Bank Rate to 0.1% – ThisIsMoney [14]
U.S. virus plan anticipates 18-month pandemic and widespread shortages – New York Times [15]
Britain’s small businesses have been trapped in a no-man’s land of restrictions – MarketWatch [16]
Filthy lucre: Paper money shunned for fear of virus spread – Australia [17] & New York [18]
[19]
Extreme volatility tends to be a forward indicator of good equity returns – Of Dollars and Data [20]
ETFs in the crash mini-special
[21]
Exchange-traded funds have shown signs of strain but not panic – The Economist [22]
Vanguard’s $55bn fixed income ETF hit by price dislocation [Search result] – FT [23]
How bad have ETFs been hit by the chaos? [Podcast] – Trillions [24]
[For a few days] US junk bonds have been faring better than US Treasuries – Bloomberg [25]
ETFs, born from 1987 market crash, are so far making 2020 less awful – MarketWatch [26]
Bond ETFs face their toughest liquidity test yet in virus turmoil [From last week] – Bloomberg [27]
Products and services
Lenders banned from repossessing homes amid coronavirus crisis – Guardian [28]
String of UK property funds suspend trading, locking up investors’ money – ThisIsMoney [29]
Nationwide pulls tracker mortgages after historic base rate cut [Search result] – FT [30]
What are your rights if you’ve booked a holiday in 2020 now we’ve been told not to travel? – ThisIsMoney [31]
Banks set out details of COVID-19 mortgage holidays – Guardian [32]
Millions of vulnerable households set to get relief on their energy bills – Guardian [33]
Comment and opinion
The myth of the panicky individual investor – Dan Egan [34]
Stopping the motor of the world – Get Rich Slowly [35]
Only high-quality government bonds have provided a refuge this time – Morningstar [36]
Returns from the bottom of bear markets – A Wealth of Common Sense [37]
Like old times – Humble Dollar [38]
Merryn Somerset-Webb: Lessons from history [Search result] – FT [39]
Everything has seemed correlated at points in this sell-off – Of Dollars and Data [40]
Volatile – Indeedably [41]
Learning from Buffett and others during market crises – Valididea [42]
Don’t buy and hold leveraged ETFs – ETF.com [43]
Naughty corner: Active antics
Corporate insider buying has hit 2008 levels – Value Plays [44] [h/t Abnormal Returns [45]]
Investing in the time of corona – Meb Faber [46]
A viral meltdown: Pricing or value? – Musings on Markets [47]
There is no law of gravity in investing – Klement on Investing [48]
Crisis investing: A discussion with Dan Rasmussen [Podcast] – Invest Like The Best [49]
Optimistic analysts and the value premium – The Evidence-based Investor [50]
Stabbing at a market bottom – The Reformed Broker [51]
The panic button has been pressed – Sentiment Trader [52]
COVID-19 and politics
[53]
Britain has a steeper curve than Italy. Are we doing too little too late? – FT via Twitter [54]
Coronavirus and your mental health – BBC [55]
How Italy became ground zero for the COVID-19 crisis – WIRED [56]
The UK’s coronavirus ‘Herd Immunity’ debacle – The Atlantic [57]
This is bananas – The Belle Curve [58]
Common enemies – Morgan Housel [59]
Victory over COVID-19 is [even more] inevitable – The Escape Artist [60]
A fiasco in the making: As the crisis unfolds we’re making decisions without reliable data – Stat [61]
Social distancing may be needed for ‘most of the year’ – BBC [62]
Expect more cases when you test more people – Value and Opportunity [63]
As fearful Britain shuts down, coronavirus has transformed everything – Guardian [64]
Will the global lockdown be worth the recession it will cost? – Bennallack [65]
Coronavirus deaths: What we don’t know – BBC [66]
Gary Neville says NHS staff will stay at his hotels for free [Video] – Guardian [67]
Why the US is not overreacting to the coronavirus, in one chart – Vox [68]
Pornhub usage trends [Good indication as to which countries really are quarantining?] – Pornhub [69]
[70]
The power of social distancing – Gary Warshaw via Twitter [71]
Kindle book bargains
The 80/20 Principle: Achieving More With Less by Richard Koch – £0.99 on Kindle [72]
How to Get Rich by Felix Dennis [Will have to dust this off given the bear market!] – £1.99 on Kindle [73]
One Up On Wall Street by Peter Lynch – £0.99 on Kindle [74]
RESET: How to Restart Your Life and Get F.U. Money by Dave Sawyer – £0.99 on Kindle [75]
Off our beat
When it comes to national emergencies, Britain has a tradition of cold calculation – Guardian [76]
You don’t have to work all the time now – Slate [77]
And finally…
“Men, it has been well said, think in herds; it will be seen that they go mad in herds, while they only recover their senses slowly, one by one.”
– Charles MacKay, Extraordinary Popular Delusions and The Madness of Crowds [78]
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