Zig zag to the onion bag

Portfolios have recaptured the majority of their pre virus values and the last month has seen sectors previously thrown into the dumper in March, receiving some investor love. Too much short term love in some cases possibly, but certainly not in all.

This seems like an apt time then to take stock and look ahead to what’s coming and how it may play out.

Politics

The political/social fallouts from the virus are increasingly taking centre stage.

Trump has given up pretending to govern for the many and is wantonly pandering to the phobias of his right wing supporters. Boris and his ministers meanwhile, give the impression of making up policy on the spur of each moment.

Populations worldwide (excluding China) are plainly fed up and in the mood to express anger however they can. Not ideal, but understandably there’s enormous frustration.

This is not to diminish the importance of the recent race protests. The volume may have been amplified by more general circumstances but it’s a major element of a much needed reset for how humans interact both with each other and the planet. It’s ironic that a divisive, highly partisan and morally bankrupt US President has, we assume, completely unwittingly energised powerful public movements over his term to reframe gender, ecological and race relationships. He has been this agent for change by default, making it clear to people they couldn’t rely on ‘leaders’ to do it for them. President Obama by comparison was the model of everything you’d want in a leader and socially much less happened.

One of the big upcoming events which will impact markets is of course the presidential election in November. This is not now the binary choice of direction a Bernie Sanders candidacy would have forced, so we can be fairly sanguine about whether Trump wins or not from a stock market perspective. Biden isn’t first rate, but neither is he a disaster. It will be important to see who he chooses as a running mate.

Finally, on this section, it seems inevitable that the US-China relationship is going to be a key factor for markets in the next decade. We can have no idea how this plays out beyond the observation that historically, the dynamic of a determined challenger to a dominant incumbent has tended to become uncomfortably fractious. Ultimately though, the logic for both of mutual benefit is a powerful one.

Beyond the ongoing inevitable harsh rhetoric and grandstanding, if both the US and China are fundamentally pragmatic then the world increasingly splits into two overarching spheres of influence.

It is also important to factor in that both the Republicans and Democrats are equally negative on China. The Republicans more concerned with trade/national security and the Dems social issues and human rights. So the Presidential election won’t change the US attitude ongoing.

The Virus

There is zero doubt that as lockdown ends infection rates go up, that’s a done deal. Markets are going to get rattled by this at times, but the crucial data points will be hospitalisation and I.C.U rates, not infection rates. The levels of testing will be ramping up ongoing and targeted to identify infection. So rising rates are ok, in fact it’s crucial to enable clusters to be identified early and to enact mitigation protocols. This fight is far from over but we are increasingly ‘tooled up’ and track and trace is a key element.

Covid is an influenza so less virulent in summer (probably) but still very active, so a lot of infection will be carried into the autumn and it will likely get bumpy then without new therapeutics.

That’s not however to say that we either lock down again, which we won’t unless it gets horrific, or that everything is going to be awful economically.
There are over 120 vaccines testing currently, plus a multitude of therapeutics.

We know more every day about better treatment protocols and by autumn the infrastructure will be in place to cope in the main.

If you look back to what it was in February and to how it will be in September, we are going to be night and day better prepared.

Plainly though, effective therapeutics are a game changer and a vaccine is the ‘set and match’ moment. The time delay until these happen is crucial for markets and valuations.

The UK

You can only feel one pain at a time, if two things hurt you just feel the more severe one. This in essence is most people’s current engagement with the pain of BREXIT. In normal times, we would be fixated by the utterances of Michel Barnier and busy learning about the minutia of North Atlantic fishing rights and the equivalency of Financial Services protocols. But honestly with all that’s going on, most don’t really have the bandwidth to give much of a toss.

Is it heading for a no deal, hard exit then? Yes, quite possibly. The EU can’t be seen to compromise much, if at all, and the UK is on fire anyway; giving the hard line Brexiteers ample cover to blame economic fallout on COVID.

Is this a good or bad thing? Absolutely no idea, but we set our direction of travel in 2016 and a hard exit is the purest expression of that. We will then be the sole paddlers of our very own canoe. Just not clear yet to where?

After the fall

These last four months have been emotionally draining. The initial period of lockdown in March and April was properly brutal.
As someone who likes to look after things I felt utterly useless during that time.

I woke up every day at a crazy early hour and headed for the computer hoping something positive had been announced.

My tension headache is now so long standing there’s going to be an abandonment issue when it leaves.

But here’s the thing.

It’s also been an amazing time in many ways.

I’ve realised that I loved a lot more of my life than I thought. The stuff I previously moaned about, I’ve missed most of it.

I’ve loved seeing my girls pull together and support each other and the community. They have been awesome.

I’ve loved the applause for the amazing NHS workers; how humbling that is.

To paraphrase Winston:

“Never …has so much been owed by so many, to so few…”

I’ve loved that literally every interaction with our clients has been positive and supportive.

Honestly I feel grateful about a lot more than I did in February.

Zig zag

Over the last 6 weeks, I’ve become increasingly confident reading everything pharmacological, that we are going to get a handle on things medically fairly quickly. We may well suffer setbacks and scares, but we will ‘zig zag to the onion bag’ (how a famous football manager described his tactics for attacking to score a goal), and once we do properly get a grip on the virus and that huge black cloud is diminished. I’m excited it will likely be a very positive time to be an investor.

Note: This is written in a personal capacity and reflects the view of the author. The post has been checked and approved to ensure that it is both accurate and not misleading. However, this is a blog and the reader should accept that by its very nature many of the points are subjective and opinions of the author. Individuals wishing to buy any product or service as a result of this blog must seek advice or carry out their own research before making any decision, the author will not be held liable for decisions made as a result of this blog (particularly where no advice has been sought). Investors should also note that past performance is not a guide to future performance and investments can fall as well as rise.

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