Our last Blog from Monday 9th March is here https://eddiehobbs.com/covid-19-top-10-economic-qas/ for reading if you haven’t done so already. It has been a whipsaw week for stock markets. Regular readers will know why. Hobbs Financial Practice Limited is now opening a Window of Opportunity Register for those with excess cash awaiting value. See below, just send us an email to firstname.lastname@example.org.
Many of our blogs and all of our client reports over the past two years ended with the sleeve cover of The Pivot for a reason. A copy of the summary chapter is attached Pivot Summary. The front cover is the US national debt in $100 bills, to scale. That was three years ago when global debt was $215 trillion, it is now over $250 trillion.
Debt has been growing faster than economic growth for too long. Covid-19 is not the cause, but the trigger for a reset, thus in my opinion on the other side of the current medical emergency period lies a new economic cycle, very different to the last decade containing new opportunities.
Since the GFC we’ve issued over 80 client reports sticking to the same theme, which influenced the conservative approach with which the firm has constructed fund portfolios. This is where the overwhelming emphasis has been on braking not acceleration, on lower not higher risk. Looking across the conservative funds that dominate most client portfolios today, they are either flat or, in low single digits, slightly negative or positive year to date. This contrasts to falls of nearly a quarter in the value of stock markets.
By close of play yesterday the world index was -23.5% with many markets experiencing highest falls since Oct 1987. This should not come as a surprise. What is rarely reported in the media is that no one is doing the big trades, global systems are being whipsawed by herding robots, i.e. by algorithms. This is why, occasionally, market trading gets suspended. The daily volatility has been at record swings up and down. Yesterday, Thursday 12th March, was classic, bristling with conflicting signals at the same time, even gold was sold off a little. This is entirely irrational, but shortly rationality will return.
Over four decades I’ve advised through Black Monday 1987, The Gulf War 1990, LTCM fund collapse 1998, the Dot.com burst 2001, the Global Financial Crisis 2008 and the Eurozone Crisis 2011. Along the way Ireland itself went spectacularly burst.
One thing all these events had in common was recovery and huge opportunities for those hunkered down, ready for the other side of the reset. This is no different despite its ugly trigger so try not to be spooked by the flow of economic news, but instead intellectually alerted by it, alerted to opportunity.
Opportunities Will Come When Calm Returns
It is never the time to make moves during a thunder and lightning storm, but there will be opportunity on the other side. We have long awaited an event that would be the Pivot (hence the name of the book), in other words, a reset and Covid-19 looks like it marks the start of it, so we will start flagging these opportunities as the window opens.
The trick will be to figure out when the best time arrives when everything is for sale, by way of example great companies paying strong dividends selling at below asset prices, in other words super value. No, we are some way from that just yet and it is not for everyone. Still even for the most cautious investor there will be windows of opportunity to tip toe a little out of conservative and into growth funds, but with cool-headed calm.
What You Can Expect to Read – Top 10 Most Likely
The attached OUTLOOK, written after the Lombardy Lockdown, will help you join the dots, but as the lockdowns progress throughout the global economy you can expect a number of things to happen:
- Government will ramp up Fiscal Support, programmes for job rich sectors most exposed.
- Businesses will fail because banks will pull credit from the weakest. This time there’s no scope to cheapen debt to support zombies.
- Some large Corporations will go spectacularly burst, Enron-style overnight.
- Government money will be released triage-style, they will not rescue everyone.
- Central Banks will be pretty much side-lined out of ammo, a little left in the US Fed, that’s all.
- The wave on Non-Performing debt will end up at Banks, not all will survive it depending on capital buffers and whether they are deemed systemically important.
- Working Capital Overdraft Facilities are going to come under extreme pressure.
- The shadow banking market will surge, plugging the gap at higher costs.
- The Banking system is not as safe as top investment grade Government bonds.
- Gold will grow in response to fresh money printing and Quantitative Easing.
Remember at the other side lies potential great opportunities to buy great assets at prices not seen for many years. Let’s stay in touch:
If you have a cash pile and you would like to add your name to our Opportunity Register, please email email@example.com and we will respond.
Hobbs Financial Practice Limited,
Unit W9A1, Ladytown Business Park,
Newhall, Naas, Co. Kildare, W91 T211.
Tel: +353 45 409364
Fax: +353 45 409196
Hobbs Financial Practice Limited is regulated by the Central Bank of Ireland. VAT No. IE 8267269I.
The Pivot is available from www.jackandjill.ie for €20, all of which goes to fund paediatric nursing hours. The Pivot is also available by contacting us at 045 409364, just ask for Sarah and she can arrange for you. It is not in the shops.